By Andrew Rowson
Cambridgeshire County Council’s (CCC) wholly owned housing
development company, This land Ltd (TLL) made comprehensive losses totalling £63.9m
up to March 2025. As a result of those losses,
and as a result of This Land throwing away CCC’s loan security by disposing of £83.5m worth of its
own mortgaged land without repaying the mortgage principal to CCC, the authority’s external
auditor, KPMG, recognised that at least half of the loan debt owed by TLL was no
longer recoverable, and that needed to be reflected in the council’s accounts.
To satisfy the auditors, CCC was obliged to write off £59.85
million of This Land’s debt, and write down (“impair”) 100% of CCC's £5.9m equity
investment in TLL. Both impairments were
crystallised in CCC’s last annual accounts, the additional charges to the income and expenditure account contributing to its overall £146m
rise (18.5%) in its 2024-25 cost of services.
Since then, CCC has tried to put a positive spin on writing off £66 million of taxpayers’ money it invested in This Land Ltd.
At the February 2026 Audit & Accounts Committee meeting,
after putting the blame for TLL’s dismal performance on external factors such as the Covid-19 pandemic, the
war in Ukraine and the economic downturn, CCC’s
Executive Director of Finance and Resources, Mr Michael Hudson, tried to argue
that no taxpayers’ money had been
lost as a result of the write-offs:
“But what we do recognise now
is that the totality between cash from interest and cash from loans, the
Council will see its full investment repaid.”
The dishonesty of that statement is staggering. Mr Hudson was asserting that after lending £126m to a start-up company at a commercial interest rate of around
7.35%, twelve years later, CCC might get back just £126m in the form of half
the loan principal, and the rest made up of interest already received (£42.6m) and
interest that might yet be received between now and 2030. Which mortgage lender in the real world would
dare say to its shareholders that no money was lost on such an arrangement? Just over
a year ago, CCC still maintained that it was on target to recover all the loan
principal plus around £65 million in total interest by 2030.
To begin with, all of that £65 million has now gone. The interest income was baked into the council’s
revenue budget. Without it, CCC will
have to make cuts to frontline services going forward, or find other savings elsewhere
to replace the lost cash. That is
taxpayers’ money that has now been irretrievably lost.
Secondly, in that February meeting, Mr Hudson and the Head
of Finance, Mr Stephen Howarth, conveniently forgot that the £126m loaned to
TLL was not cash that had just been lying around, burning a hole in the council’s
pocket. CCC is one of the most indebted
councils in the country. In 2018 it first
had to borrow that money from the Public Works Loan Board (PWLB) before lending
it on to This Land. Although the
interest CCC pays the PWLB is much lower, at around £2% p.a., 2% of £126
million over twelve years is still £30.2 million. That cost was not mentioned in February’s meeting. In addition, loans from the PWLB are typically
taken out for longer than twelve years, perhaps 25 years. So, CCC may be committed to paying around
£2.52m/year interest to the PWLB for several years beyond 2030. That cost has not been factored into the
equation.
Thirdly, to measure the repayment of long-term loans on a
purely cashflow basis makes no sense. If
you lend a good friend £126 million, saying goodbye to the £65 million or so of
contractually agreed loan interest income is bad enough. But to receive just £126m back twelve years
later takes no account of the time value of money - the “cost of capital” that measures
what £126 million might have earned if it had been invested more sensibly elsewhere.
Say the cost of capital is 3%/year. For This Land to repay just the loan with the
bare minimum 3% on top would mean that CCC would need to receive around £152m
evenly over those twelve years (loan principal + loan interest) in order for
the arrangement to be truly “neutral” – using 2018 as the base year. The current arrangement with TLL falls £26m
short of even that target. The total net
present value of close to zero in the final column shows neutrality in real
terms, after adjusting for the time value of money.
But CCC’s own obligation to pay loan interest to the PWLB cannot be excluded from the equation. It is a relevant cost. When it too is factored in, the break-even point for CCC’s taxpayers is higher still.
As the table below shows, using a 3% cost of capital and the
fixed 2% PWLB interest charges on the £126m loan, for the loan and repayments
to cover CCC’s interest payments to PWLB and be truly neutral for CCC in
real terms, This Land would need to pay its shareholder a steady £15.18 million
every year from 2019 to 2030 – or £182 million in total - to avoid a real world
loss to the taxpayer. This Land’s past
and future projected repayments fall £56 million short of that break-even
point. If the PWLB interest payments extend
beyond 2030, losses to CCC will be that much higher. If This Land fails to repay CCC any of the remaining
£60m debt or interest by 2030, that too will increase the cost borne by local
taxpayers.
TLL’s substantial losses were all too predictable, and
predicted, when the authority launched the company that
became This Land Ltd ten years ago on the back of a flimsy, ten-page “outline
business case”. Contrary to law and contrary
to the government’s guidance on councils setting up commercial companies, there
was no detailed business case for This Land, and no public
consultation prior to incorporation.
The paragraph below comes from page three of that 2016 prospectus,
“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 [Housing Development Vehicle].
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.”
All of TLL’s financial models and long-term business plans were found to be hopelessly unrealistic. Some Members of that Assets & Investment
Committee asked prescient questions at the time about the proposed new
company. The two passages below come
from the official
May 2016 minutes:
“A Member spoke in favour of
the direction proposed, given his experience as a member of another property
board for a LA with considerable assets.
However, he felt that the risk already highlighted of government
changing legislation, and ultimately the returns to the LA reducing, was a very
real one, which needed to be evaluated. He also
pointed out that the simple business model presented gave the impression of
“making money out of nothing”, which may appear to be the case for the
Council’s revenue account, but it did have significant cashflow implications.
He asked if enough was known about the Council’s
future cashflow predictions, and sought reassurance that the Council would not
go illiquid. Officers commented that this was a valid point, and the level
indebtedness would significantly increase, albeit to an acceptable level, as
construction costs would require upfront funding, and this would be reflected
on the Balance Sheet.”
“A Member asked, on the basis
of forecasts already undertaken on borrowing, repayments and income streams,
how long it would be until there was net income. Officers
advised that they did not expect the HDV to make a profit for some time, maybe
even for decades, although the income for the Council would be realised
straight away. Much depended on the shape and length of the
development pipeline.”
Those answers from officers should have sounded
alarm bells with Members. But the Committee unanimously
approved the officers’ recommendations. Three weeks later, on 17th
June 2016, and with no further formalities, Cambridgeshire Housing and Investment Company Ltd (later renamed
This Land Ltd) was incorporated and recorded at Companies House.
There is currently one remaining Councillor at CCC who attended
that meeting of the former Assets & Investment Committee. He is Cllr Chris Boden, a staunch defender of
This Land, and currently Chair of CCC’s Audit & Accounts Committee.
“The first thing is, I think
many, if not all the Committee will have had the benefit of an email from Mr
Rowson that was sent yesterday concerning various other councils and their
attempts to raise money through commercial and investment processes. And I think that is actually an extremely helpful
thing for all Members to read if you haven’t already read it, because it shows just how things can go wrong if they are set up
in the wrong way and are not properly monitored and any problems addressed, or
if attempts are made to overreach. And I think it’s really important because this
is something which Officers and Members in this Council have learned from. We’ve learned
from mistakes in some other local councils.
There have been some… I’m not going to name any specific names, but
there are some dreadful ones in addition to those that have been highlighted by
Mr Rowson in his email. And we have
learned from those lessons and we will make sure that we in Cambridgeshire
don’t make some of the same mistakes that have been made elsewhere.”