This Land Ltd's latest Business Plan is confidential

By Andrew Rowson

This Land Ltd's 2023-24 audited accounts

On 7th January 2025, the latest consolidated accounts of This Land Ltd, Cambridgeshire County Council's (CCC) wholly owned housing development company, were published on Companies House.  The record-breaking comprehensive loss for the year to March 2024 was £11.89 million, taking the company's total losses to £50.23 million in its first eight years' of trading.

This Land's total losses are now more than double the company's entire historical revenue from selling houses (£25.04 million).

Selling houses or selling land?

Developing land and selling houses was what This Land was set up to do in 2016.  This is what the Chief Finance Officer wrote then in the 10-page prospectus for the company that became This Land Ltd:

"In view of CCC’s land holdings, and the currently extremely buoyant economic conditions for housing development, there is an opportunity for CCC to develop its own land rather than sell it. Simply selling sites for others to develop, and profit from, is no longer an option for CCC. The scale of the financial challenges facing CCC requires that it has to review every opportunity available to it in order to create an on-going revenue stream that can mitigate the reduction in the services that it otherwise would have to make. ...The vision is to transform CCC from being a seller of sites to being a developer of sites."

However, because the company was unsuccessful at selling houses or turning a profit, following the government's 2020 ban on councils borrowing for yield, it began selling its own mortgaged land to property developers so that it could afford to pay its shareholder the interest on its existing loans.  The property developers presumably profited, whilst This Land's losses continued to grow.  In the first four accounting periods in which it made any sales, This Land's revenue from selling sites has been more than three times higher than the £25m revenue from selling houses.

 

In progressively selling the land it had purchased with borrowed money, but without repaying the loans to CCC, the company's land security against those borrowings fell from 85% in December 2018, to 22% in March 2024. 

In August 2024, CCC agreed to lend This Land a further £5.9m (plus £400k of equity).  Today This Land's land security represents barely 21% of  its liabilities towards its shareholder, CCC.

This Land is still unable to pay the loan interest

A previous post noted that as at last October (2024-25, period 7), CCC was forecasting a £5.77m shortfall in the loan interest receivable from This Land over the current financial year, on account of its cash flow problems.  A month later (period 8), the forecast shortfall rose to £6.27m), or 101% of the net income from This Land that the authority relies on to balance its revenue budget.  The net budget is the difference between the interest CCC pays to the Public Works Loan Board (PWLB) for borrowing the money it lent on to This Land, and the higher commercial rate loan interest income it should receive from This Land (a prime example of the outlawed practice of borrowing for yield).  Going over 100% means CCC is currently anticipating that this financial year, This Land will not even be able to pay it the £2.374m needed to cover the council's own loan interest payments to the PWLB (see here, p5). 

If the above trend continues until March 2025, and This Land cannot pay any of the loan interest CCC depends on to provide frontline services to the public, then the authority will need to find up to £8.57m worth of savings elsewhere, or be forced to make service cuts (pothole repairs?) in order to balance its budget for the financial year.

For how much longer can This Land survive?

Apart from repaying a few, smaller, short term loans to CCC, This Land's sporadic repayments to date have been for loan interest only.  The loan repayment schedule, set out on page 19 of This Land Finance Ltd's latest audited accounts, show when the loan principal amounts are due to be repaid. 

 The £5.9m loan agreed last July (behind closed doors) is due to be repaid in February 2026.

Taking all the above information into account, if This Land Ltd is not to default on repaying the loan principal total of £120m on time, it will need an immediate turnaround from making annual losses of nearly £12m, to making annual profits of £30m on average between now and January 2029, and to convert all of those profits into cash.  If one assumes This Land will break even in 2024-25 (however unlikely that may be), then the profits the company will need to make going forward to repay those loans just in time look like this:

How will This Land Ltd accomplish this task?

All the signs are that This Land is once again running out of cash.  CCC's loan to the company last year appears to have been unlawful - breaching the government's 2020 ban on councils borrowing primarily for yield, and also breaching the 2021 amendments to the CIPFA Prudential Code, which made it clear that:

 "borrowing for debt-for-yield investment is not permissible under the Prudential Code". 

True to form, CCC has concealed the report recommending that loan, asserting that it is confidential.  And so it appears that the purpose of the loan may have been to help This Land pay CCC the interest on its existing loans, thus initiating another vicious cycle.  Bridgewater hedge fund founder Ray Dalio put it this way in a recent article:

"When you get to the point that you have to borrow money to service the debt and interest rates are rising, so that debt service payments rise, so you need to borrow more money to pay them, you’re in what the markets call a death spiral."

However, the growing adverse forecast variances (see above) in This Land's loan interest payments to CCC suggest that the latest loan may already have been spent on other more urgent outgoings so that there was little or none left to pay CCC the loan interest. 

Where is the 2024 Business Plan?

This Land Ltd published annual business plans for 2022 and 2023.  They were both public documents.  Both contained wholly unreliable future cashflow forecasts, and so gave no reassurance that This Land would be able to service its existing debt and repay the nine-figure loans by their maturity dates.  The 2023 business plan for example promised:

"Our cashflow modelling confirms the repayment of all loans and interest by 2029" 

Just twelve months later, This Land requested, and received, a further loan of £5.9m from its shareholder. 

CCC officers promised councillors that This Land's latest business plan (logically the 2024 plan), would  arrive in November 2024, then in December.  In January's agenda papers for the Strategy, Resources and Performance Committee, This Land's business plan (the year is no longer specified), was promised "in the Spring of 2025".  It is an important document because it should explain how the company intends to turn its fortunes around so dramatically.  Local taxpayers are entitled to know.

The agenda contents document for the inaugural meeting of CCC's Shareholder Sub-Committee, to be held on 29th January 2025, announces that members will discuss the long-anticipated This Land Ltd Business Plan.  According to a report written by the Monitoring Officer in July 2024,  the Sub-Committee's duties are to include approving the business plans of council-owned companies.  But if this is indeed This Land's 2024 Business Plan, there seems little point in approving, or even not approving it in January 2025.

Committed to open government?

Unlike its two predecessors, the latest Business Plan is deemed confidential.  No explanation is given other than that...

"it would not be in the public interest for this information to be disclosed." 

The agenda contents document states that the press and public are to be excluded from the meeting before This Land's business plan is discussed.  Members serving on the Sub-Committee cannot already have conducted a public interest test (as required by law) to determine whether to release the document, because their first meeting has not yet taken place.  As with the loan decision last July, council officers and elected members seem determined to breach the rules and conceal vital information from the public.  That is how CCC frequently conducts its business.  At the foot of the same agenda contents document, the committee clerk apparently thought it appropriate to add: 

"The County Council is committed to open government and members of the public are welcome to attend Committee meetings. It supports the principle of transparency and encourages filming, recording and taking photographs at meetings that are open to the public." 

CCC's evident intent to keep the latest business plan from the public cannot but heighten taxpayers' concerns that This Land Ltd still lacks a credible plan to extricate itself from its debt-induced death spiral.  If/when the company collapses, possibly bringing down the County Council with it, it will be long-suffering local taxpayers who will pay for CCC's incompetence and lack of effective governance since 2016 in the form of much higher council tax and service cuts.

For the record, the councillors on CCC's new Shareholder Sub-Committee who have the authority and the duty in the public interest to publish This Land's latest Business Plan on 29th January and support the principle of transparency by holding the agenda item 5 discussion in the open are:

Cllr David Ambrose Smith,

Cllr John Gowing,

Cllr Ros Hathorn,

Cllr Elisa Meschini,

Cllr Edna Murphy. 

 

Would you lend £6.3 million to this company?

By Andrew Rowson

How Cambridgeshire County Council concealed key investment information from the public and its own councillors

On 9th July 2024, Cambridgeshire County Council's (CCC) Strategy, Resources and Performance Committee (SRP) met.  The last item on the agenda was a discussion about a report entitled: "This Land - Monitoring and Financing".  The report is not available for the public to see, because the committee chair (Cllr Lucy Nethsingha) asserted that the item was confidential and that "it would not be in the public interest for this information to be disclosed."  The committee did not conduct a public interest test (as the law requires), before it resolved to exclude the press and public so it could discuss the report behind closed doors.

Three months later, at the October meeting of the same committee, it emerged that the July report had contained a recommendation that CCC make "prudential borrowing" of a further £6.3m - presumably from the Public Works Loan Board (PWLB) to lend on at a much higher commercial rate to its failing housing development company This Land Ltd, thus adding to the latter's outstanding £113.8m debt to its sole shareholder. 

When the company later renamed This Land Ltd (TLL) came into being in 2016, its raison d’être was primarily to allow CCC to exploit the PWLB's preferential low interest rates offered to councils and make up to £6.2 million potential net revenue annually by lending on to its subsidiary housing company.  The company would purchase land from the council, build houses on it, and eventually sell the houses at a profit and pay dividends to CCC.

In the May 2016 "Outline business case" for setting up the housing company, (aka "Housing Development Vehicle" - HDV): CCC's CFO explained to members of the Commercial & Investment Committee why he wanted the authority to set up a housing development company, when it had no in-house knowledge or commercial experience in that risky business sector:

"Simply selling sites for others to develop, and profit from, is no longer an option for CCC. The scale of the financial challenges facing CCC requires that it has to review every opportunity available to it in order to create an on-going revenue stream that can mitigate the reduction in the services that it otherwise would have to make... The vision is to transform CCC from being a seller of sites to being a developer of sites."

He went on to reveal the cunning plan for "making money out of nothing" from the interest rate differential : 

"The nature of housing developments is that there is a significant time lag from the point at which sites are identified until the point that a revenue stream is created. One way of ensuring that revenue is received by CCC much earlier in this cycle is for CCC to establish a market loan to the HDV . The HDV needs to borrow at market rates in order to avoid state aid regulations, but CCC can borrow at far more competitive rates from the Public Works Loan Board and take the margin on the loan into CCC’s revenue account. CCC will therefore gain approximately 3.0 to 3.5% on everything it lends to the HDV from the point at which the loan is made, not when sales or rents start to be received by the HDV. This will mean that the HDV will be making substantial losses for many years. This is not of concern as this will be within the financial model and long-term business plan of the HDV.”

There are two major problems with the above model that its architect and the members who voted unanimously for it appear to have overlooked:

1) the net revenue helping CCC to provide its frontline services only materialises if the HDV can generate business profits from its operations from which to pay CCC the steep loan interest.  If it keeps making losses, it defaults on the loan repayments unless it can take out additional loans from CCC just to pay the interest - thus creating an ever larger debt that becomes increasingly unrepayable. 

2) Four years ago, to nobody's surprise, the last government banned the practice of councils borrowing for yield, and borrowing to fund commercial investments, because so many were abusing the rules.  A year later, revisions to the CIPFA Prudential Code underlined that councils borrowing primarily for yield was imprudent, and therefore unlawful.

"No borrowing to fund commercial investments"

The unambiguity of that unlawfulness was set out in a learned article published in Local Government Lawyer in December 2021 by Dr Paul Feild, and clearly aimed at council monitoring officers.  It was titled: "Why the revised Prudential Code matters to monitoring officers"

TLL has not made a profit in its first nine years since incorporation.  Losses up to March 2023 totalled £38.3 million.  The 2016 promise of making substantial losses for many years has thus been honoured.  In that time, TLL completed just 78 homes, effectively a £492,000 comprehensive loss for each home.

When the long anticipated borrowing for yield ban was introduced, because TLL was already making large seven figure annual losses, it had to find a new source of funding to pay its loan interest to CCC.  It came up with the idea of selling land it had purchased from CCC with borrowed money, so developers could once again take all the profits.  Since developers knew CCC was desperate to sell, it became a buyer's market, and This Land has made nothing but losses on selling land just as it has done selling houses.  Between January 2020 and March 2023, This Land sold £53.4 million worth of mortgaged land.

Selling the mortaged land, but keeping the cash proceeds

A singular feature of these sales of mortgaged land is that This Land did not repay CCC the outstanding mortgage principal, a luxury not extended to other commercial companies or domestic mortgage holders.  In the last three sets of accounts, This Land's long term liabilities have remained static at £113,824,500. 

For some reason not explained to local taxpayers, CCC allowed its subsidiary to do this, even though it meant the loans became increasing unsecured, and therefore risky, with each passing year.  By March 2023 - the balance sheet date of TLL's latest available published accounts, CCC's land security against its subsidiary being unable to repay its loans had fallen to £43,528,491.  In other words, nearly 62% of the outstanding £113,824,500 loans were unsecured against land assets.  Following the most recent loan that committee members agreed in July, that percentage has risen to nearly 64%.

So, for the last four years, TLL has been steadily cannibalising itself to pay the loan interest that is essential for CCC to fill the holes in its revenue budgets.  How long can TLL afford to do this before it runs out of available land it is having to sell to professional housing developers simply to stay afloat?  The signals are not encouraging.

Integrated finance monitoring reports

The same SRP committee that secretly agreed the £6.3m loan last July receives periodic finance monitoring reports from the Executive Director of Resources and Finance, Mr Michael Hudson.  Within those reports is a table - "Appendix 1a - Finances & Resources Detailed Financial Information".  That appendix shows forecast year-end variances during the year, and actual variances at the year-end itself for each service area within Finances and Resources, and for the individual services within each service area.

This Land is one of six services within the "Investment Activity" service area.  The table below from Appendix 1a shows Investment Activity as at March 2024, the end of the 2023/24 financial year.  The actual variance at year-end was a favourable (credit) figure, meaning the net revenue of £6.292m was £159k higher than the budgeted £6.133m revenue for that year.

The ten finance monitoring reports that preceded the July 2024 committee meeting, and the two reports since the July 2024 meeting all show the same granular, service-level budget and forecast information for each service area in the Appendix 1a report.

Now you see it, now you don't

But the Appendix 1a table presented to members at the July 9th 2024 meeting of the SRP committee was different. 

In that table, all the other service areas show the budget and forecast information for each individual service.  But Investment Activity alone shows no detail lines, just the single total for all six services, including This Land.

Furthermore, as early as period 2 (May 2024), the Executive Director of Resources and Finance was already forecasting a sizeable adverse (debit) variance of £1.169 million for its six investments over the new financial year.

Which of the six services shown in the first table above is responsible for the bulk of that adverse forecast variance?  The public and the committee members have not been told, unless members were given the missing detail in the closed session discussion on This Land Monitoring and Financing.   Since we now know that at that same meeting, the committee voted in secret to lend This Land a further £6.3 million, it would have been useful for them and for the public to know at the time whether any of the £1.169m worth of bad news was connected with This Land's ability to pay its loan interest on the existing £113.8m in the current financial year.  

The truth emerged only after the October and December meetings, in which the Appendix 1a table reverts to disclosing all the service-level information, including for Investment Activity.

Investment Activity up to period 5 (August 2024) looks like this:  

This Land's adverse £3.2 million forecast variance is larger than the total for Investment Activity, because of the offsetting favourable variance from Collective Investment Funds.

The same is true in the period 7 report below (October 2024), which includes variances as at period 6 in the left hand column.  This Land's adverse variance forecast for the year has grown to £5.77 million, again appreciably higher than the total, thanks to the two favourable variances in the last two lines. 

It therefore seems reasonable to assume that back in period 2, This Land's adverse forecast may also have been at least as high as the £1.169m total for Investment Activity.  If so, as a percentage of This Land's net revenue budget of £6.191m, it would equate to a 19% adverse variance.

Putting this information together produces this graph.  

The above graph begs the question: why did CCC Finance not predict the full scale of This Land's annual forecast variance back in period 2, when it must have been clear there was a large problem.  What communication does it have with This Land's finance team?  It looks as though each month CCC finance officers were surprised that the forecast annual shortfall had grown substantially.  This must say something about CCC's governance and scrutiny of its wholly owned subsidiary.

A second, and perhaps more serious question, is why did Mr Hudson produce finance monitoring reports for period 2, and present them to the SRP Committee for its 9th July meeting, with all the detailed This Land information removed?  It cannot be accidental.  That was the same meeting in which the report on This Land Monitoring and Financing - presumably written by Mr Hudson - recommended the additional £6.3m loan.  It looks very much as if by July last year,  the Finance team including Mr Hudson already knew that This Land was experiencing severe cash flow difficulties and would struggle to pay the existing loan interest.  So they hid the evidence.  What rational lender in those circumstances puts his head in the sand and lends a failing company millions more?

In the December meeting of the SRP Committee, when the published annual forecast variance was 93% and £5.774m, that figure represented 77% of CCC's entire forecast variance for the year.  Yet the Head of Finance's presentation of the period 7 Finance Monitoring Reports, and the members comments in the ensuing discussion never once mentioned This Land.  There is no mention of This Land either in the official minutes of that meeting.

 Where is the 2024 annual business plan?  Where are the published accounts?

For the past few years, This Land has been asked to produce an annual business plan.  The 2023 plan was presented to members in July 2023.  The finance monitoring reports for period 5 at the 31st October meeting of SRP Committee promised that:

"The council is due to receive the annual business plan from This Land in November"

That evidently did not happen.  On a different page, in a different table, the same report states:

"This Land Business Plan continues to be reviewed and will be brought back to SR&P committee in December."

That did not happen either.  The December report (Annex A) on period 7 promises the business plan, but only mentions "by year-end".  Is it referring to the financial year-end, which would be 31st March 2025?:

"Pressures in the Finance & Resources directorate relate primarily to lower than expected income from the council’s investments, particular in its wholly owned housing company This Land. It is prudent to forecast a pressure in this area, as by year-end the current position of the company will be clearer following the submission of its full business plan and its subsequent review by the council. This may necessitate support to the company or a further earmarked reserve provision by the council, otherwise this forecast overspend will be unwound."

The SRP Committee's next meeting is scheduled for 28th January 2025.  The newly formed Shareholder Sub-Committee, which has the responsibility of approving the business plans of CCC's subsidiary companies, meets for the first time on 29th January 2025.  If This Land's 2024 Business Plan does arrive by the end of this month, it is unclear what value any approval, or even non-approval by either committee would have, given that the 2024/25 financial year end will only be two months away by then.

In every This Land business plan to date, the cashflow forecasts have been completely wrong.  The 2023 business plan for example boasted that the company would not need any more cash injection until 2029.  Twelve months later, This Land was lent another £6.3 million - presumably an unsecured loan.  It would appear that the allegedly unlawful purpose, yet again, is to enable This Land to pay the £8.5m loan interest for 2024/25 to CCC before the end of the financial year.  If so, it would be exactly the scenario the last government and the CIPFA Code tried to avoid with the borrowing for yield ban.  Audit firm Grant Thornton produced a recent Report in the Public Interest for its client - Woking Borough Council, which fell into the same trap as CCC.  Grant Thornton explained it this way:

"Large sums which the Council made to the companies were advanced in the knowledge that they would be used to enable the companies to pay the Council the interest they owed on their existing loans, to maintain day-to-day operations. In some instances, these were revolving loans, and their application resulted in increased borrowing by the Council. These were essentially revenue payments, yet it is clear from statutory guidance, including The Chartered Institute of Public Finance and Accountancy (CIPFA’s) Prudential Code for capital finance in local authorities, that over the medium term debt will only be used for a capital purpose. Although interest costs may be capitalised during the construction phase of projects, loans were made to companies which were not engaged in construction."

Grant Thornton's report shows that while in some respects, Woking's reckless excess was on a different scale to CCC, there are still many similarities, not least the conduct of the senior management team at the time, which in Woking's case have all been replaced:

"The senior management team of the Council was made up of the former Chief Executive, the former Deputy Chief Executive, the former Monitoring Officer and the former s151 Officer. The complementary knowledge, experience, powers and duties of each of the former senior officers should, between them, have been sufficient to have in place arrangements to safeguard the interests of the Council and ensure that its finances were managed prudently, and that all its actions were lawful. Each member of this team should have been able to challenge the others if actions were proposed which would contravene the laws and regulations under which each operates or damage the interests of the Council."

At CCC, why did the Monitoring Officer approve the £6.3m loan last July?  Why did the Executive Director of Resources and Finance conceal important information about This Land's financial and cashflow positions last year from elected members?  Why is the response to This Land's worsening financial position always to throw more taxpayer money at it, rather than consider winding it up before the losses become even greater?  Is it not currently trading whilst effectively insolvent?  And why has CCC's Chief Executive Officer, Dr Stephen Moir (who attended the 9th July 2024 meeting) not challenged the behaviour of the two other statutory officers whom he appointed?  Does he too think that in spite of all the evidence to date, This Land will soon begin making super massive profits and will repay all the interest and £120m of loan principal between now and January 2029?

At the time of writing there is no sign of This Land's 2024 business plan, and its accounts for 2023/24 are now overdue on Companies House.  With elected members also asleep at the wheel, what is it going to take to make someone in authority do the right thing?