KPMG's damning report on Cambridgeshire County Council's wholly-owned housing development company - This Land Ltd

 By Andrew Rowson

At the end of February 2025, Cambridgeshire County Council's independent auditor, KPMG, published its Year-End report for 2023/24.  More formally it is known as the statutory ISA260 report to those in charge of governance.  At CCC it is presented to elected members serving on the Audit & Accounts Committee.  The extract below is taken verbatim from p31 of the report.  It concerns the strain of This Land Ltd's commercial and financial performance on the Council's financial sustainability.

Specific Financial Pressures

As noted on below, the Council have several significant financial pressures which together have the risk of putting long term strain on the financial sustainability of the Council. KPMG have performed a review of each of these areas to understand their cumulative financial impact on the Council.

This Land Limited.

This Land Ltd is a development company wholly owned by Cambridgeshire County Council established in 2016. The Council has loaned £113.85m to the Company and also invested £5.85m as equity. We are aware that post year end additional funding has been provided to This Land in 2024-25 of circa £6m. We have reviewed the actual performance over time below and note that whilst revenues have seen a steady increase there has been a steady decline in net liabilities over this period making the ability for the company to repay the loans to the Council more challenging. In addition, the company continues to generate gross losses of 25% to 56 %

This Land is not currently performing in line with its initial business plan, with significant increases in the net liabilities position noted between January 2022 to January 2024, and there remains financial challenge into the future. We are aware that the Council is currently reviewing a new business plan for This Land in February 2025 and will be considering if there are any indicators of an effective credit loss provision to be recognised. We note no such provision was calculated in 2023-24, and due to the backstop, we have been unable to provide any assurance over the recoverability of the This Land debtor within the Councils accounts as at 31 March 2024.

Whilst any expected credit loss charge in 2023-24 or 2024-25 would not pass to the general fund due to the reversal through the Capital Adjustment Account (CAA), we note that the borrowing to This Land has not been included as part of the Minimum Revenue Provision (MRP) under the current Council Policy. We are aware that changes to the requirements of the MRP provision effective from 1 April 2025 will mean that such a charge will be required to be included going forward, and any in-year credit loss would also be required to go through the MRP in the year incurred. This would directly impact the Council’s revenue budget, potentially limiting funds available for other services. We note that management has included a provision in the MRP for This Land, however, there remains the risk that the future credit loss could be greater.

Therefore, whilst the immediate impact of any credit loss provision does not have direct consequences in the 2023-24 period, there is future risk to Financial Sustainability as a result of the risk that the Council may not recover all funds lent, or generate the expected return, and due to the associated MRP implications. The Council is still in the process of being able to clearly understand and quantify the risk to non-recoverability of the debtor/ investment.