By Andrew Rowson
For the five years financial years to 2022/23, Cambridgeshire County Council's previous external auditor, Ernst & Young (EY) failed to highlight the unfolding disaster of its client's 100% owned housing subsidiary This Land Ltd - its ever rising losses, or the potential damage the subsidiary could have on the council's own finances. That is not surprising. According to a 2024 report by Sheffield-based consultancy The Audit Reform Lab, in the private sector, EY warned of going concern risks for just 20% of its clients that collapsed within the following twelve months.
A perfect circle of self-delusion
At CCC, EY consistently relied on This Land's own auditor (RSM Audit UK LLP) for its assessment of This Land's going concern. RSM relied on This Land directors' assurances, which were in turn based entirely on CCC's finance officers who promised, and still promise, unstinting financial support to its subsidiary, however poorly it performs. CCC finance officers though cannot be described as entirely objective in their assessment, because ever since the authority began lending far more money than it should have done to This Land, its own revenue budget has depended absolutely on receiving up to around £8.5m of loan repayment interest from This Land each year to balance its books. Should that revenue dry up, the council would need to make adjustments elsewhere, either by finding proper savings in other directorates, or by making cuts to frontline services. CCC's elected members serving on the four committees most closely charged with governance of This Land have nonetheless been happy to receive EY's positive assurances about This Land's going concern status without a second thought.
Those committees are:
- Strategy, Resources and Performance Committee, chaired by leader Cllr Lucy Nethsingha,
- Audit & Accounts Committee, chaired by Cllr Graham Wilson,
- Assets & Procurement Committee, chaired by Cllr Ros Hathorn, and
- Shareholder's Sub-Committee, also chaired by Cllr Ros Hathorn
Some councils are accused (usually after they have failed), of showing a lack of curiosity or challenge in what they are told by officers. CCC's culture takes that deference to new heights, as illustrated here by Cllr Nethsingha at last December's full council meeting when a member of the public asked whether the management at This Land Ltd still enjoyed her full confidence.
"I have absolute confidence in the officers and the people involved in council in the management of This Land and our relationship with them."
Last month, shortly after This Land's final accounts were published on Companies House, its Chair and CEO were dismissed, with further replacements on the board promised in the coming weeks.
Now that This Land has completely run out of cash and cannot pay CCC the loan interest (£7.414m shortfall forecast for 2024/25), the process of looking elsewhere for savings/cuts has begun in earnest. A finance monitoring report prepared for the 11th March meeting of the Strategy, Resources and Performance Committee puts it this way:
"Through business planning, the council has already taken steps to reduce its future income expected from the company [This Land Ltd] resulting from reduced interest."
This Land's latest business plan is therefore of great public interest. CCC revealed in this month's finance monitoring reports that This Land's revised annual business plan (the first since 2023) included
"a deferral of interest payments to the council"
and that further support from the authority would still be necessary. That does not look like the normal relationship a council should have with a true arm's length company.
In its year-end report for 2023/24 prepared for last month's Audit & Accounts Committee meeting, auditor KPMG was more realistic than EY in the past about This Land's financial position:
"Following review of This Land’s financial position and performance against business plan we have reassessed the risk of material misstatement to be significant.
.....
Management have not provided us with a paper or workings for an assessment of Expected Credit Loss (ECL) provision for the This Land Debtor, nor has any provision currently been recognised. The ECL provision should be equal to the contractual cashflows less the amount of cash (or similar consideration) expected to be received by the Council. We note that this balance, and the resulting accounting treatment, is highly dependent on This Land’s ability to deliver its future business plan."
Historically, This Land's business plans have all proved to be wildly inaccurate, both in projecting profits and in their cashflow forecasts. The latest business plan, which the Shareholder Sub-Committee discussed in closed session in its January and February meetings, has much riding on it. Every year since CCC began lending money to This Land, both parties have assured the public that all the loans will be repaid in full by the final repayment date, which according to the schedule of payments on page 19 of This Land Finance Ltd's latest audited accounts is January 2029. With practically no interest payments from This Land to CCC anticipated in 2024/25, it looks highly likely that This Land will record losses again in its ninth successive set of financial statements. If so, it will need to make £120 million worth of profits in just three years (£40m/year) if it is to pay back the loans on time, or else restructure the debt over a much longer period, which in one sense increases the level of risk for Cambridgeshire taxpayers. Whatever is in This Land's latest business plan, it is wrong that elected members should be allowed to conceal it from the public, especially since the last two business plans, for 2022 and 2023 were published on CCC's website with minimal redactions.
In its End of Year report accompanying CCC's final 2023/24 statements of accounts, KPMG expressed no confidence in the skillsets or experience of CCC's officers or members to manage the risks of a housing company in This Land's precarious position (see End of Year report, p49). That means the public can have no faith in their abilities either. It is a case of the blind leading the blind. If elected councillors miscalculate again now, local taxpayers will ultimately have to pay the price. But if the public cannot see the document councillors are working on, how can our representatives be held accountable for the decisions they make on our behalf?
The Public Interest Test
It was disappointing therefore to see Cllr Ros Hathorn assert in February's Shareholder Sub-Committee meeting that This Land's revised business plan was exempt from disclosure, and that...
"it would not be in the public interest for this information to be disclosed".
Cllr Hathorn knows that even if information presented at a council meeting is deemed to be exempt from disclosure under Schedule 12a of the Local Government Act 1972, the law still requires committee members to undertake a separate, thorough public interest test in which they have to consider and vote on whether, in all the circumstances of the case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information. The default setting should be to disclose the information. Cllr Hathorn has seen the helpful guidance published by Herefordshire County Council about Schedule 12a of the Local Government Act 1972 and the public interest test, but clearly she thinks it does not apply to the committees she chairs, very much like the council leader herself. At Cambridgeshire County Council, councillors believe they can routinely breach the law and deny the public access to the information they absolutely need to see if they are to hold the council to account over how it has mismanaged This Land Ltd over the last nine years.
KPMG's verdict on the elected members at CCC supposedly in charge of governance of This Land, and making decisions behind closed doors, is that they are not qualified to fulfil that role. In its first eight years of trading, This Land Ltd sold just 76 houses, making an average comprehensive loss of £661,000 on every house. It has outstanding borrowings of £120 million from CCC. In the last four years This Land has sold £78 million of mortgaged land to keep its head above water, but failed to repay the corresponding £55.1 million mortgage principal to its lender, CCC, apparently with the latter's approval. This Land kept that money for itself. Last summer CCC agreed a further loan of £6.3 million to This Land. Yet during 2024/25 This Land has yet to pay a penny of the £8.5 million loan interest to CCC that the council relies on to support frontline services. As at January 2025 (period 10), it was £7.4 million in arrears with loan repayments for the financial year. Where has all the cash gone? With that record, everybody within CCC still insists that the answer is yet more taxpayer-funded financial support for This Land rather than closing it down immediately.
In the run up to the local elections in May, the public has no information other than the backward looking audited accounts to assess whether throwing more good money after bad is in taxpayers' best interests. Logic, and the hard evidence contained in those accounts suggest it is not. But concealing This Land's latest business plan from the public without providing a single cogent argument for doing so in a proper public interest test - especially when the last two business plans were published, is contrary to law, and smacks of desperation and cover-up. This is not how local government should operate. The impression is that concealing the business plan is simply politically-motivated censorship, to conceal the true picture of This Land's finances and prospects, at least until after May's local elections.
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