What conflict of interest?

 By Andrew Rowson

What sequence of events led to Cambridgeshire County Council's (CCC) housing development company, This Land Ltd (TLL) being allowed to dispose of land and properties it had only purchased from its shareholder two years earlier?

Since April 2020, TLL has disposed of £88 million worth of its own mortgaged property, selling it to developers without repaying the mortage principal to CCC.  In so doing, most of CCC's land security has now been lost.  That loss of security was the single biggest factor in CCC's decision a year ago, (apparently at auditor KPMG's insistance), to write off £59.85 million of unrecoverable loan debt owed by TLL, and to make a 100% impairment (i.e. write-off) of CCC's now worthless £5.85m  equity investment in This Land.

The County Council not only allowed This Land to throw away the authority's only chance of making a long-term return on its investment, it recommended it.  

In April 2020, Members on the Commercial and Investment Committee agreed, by a majority, to a recommendation in a report by a senior Finance Officer to permit TLL to dispose of a number of mortgaged properties and keep the proceeds, rather than to repay the mortgage principal.  

Both Officers and Members have a duty to be good stewards of taxpayers' money.  Allowing a supposedly arms-length subsidiary to throw away the Council's land security does not look like good stewardship.  This is the story of how that pivotal decision was made.

The background.

By September 2019, TLL had been in existence for three years, but had yet to sell a single house.  On 13th September 2019, CCC's Deputy s151 Officer presented an update report on This Land Financing to Members of the Commercial and Investment Committee.

The report pointed to the over £100m that This Land had already borrowed, and signalled that CCC would now need to lend substantially more to the company as it entered the development and construction phase.  No concrete figure was given, and the Committee was only asked to note and comment on the report rather than approve a specific recommendation.  

Three days later, TLL's accounts for the year to December 2018 were signed off by its auditor, RSM UK Audit LLP.  The company had made a comprehensive loss of £3.9 million, which raised the company's total losses over its first two years by a factor of six.  A week later, on 24th September 2019, TLL held its AGM, and the Commercial and Investment Committee held a brief confidential meeting beforehand. 

The agenda papers and minutes for that meeting have not been made public.  However, the action log for the Committee shows that at that September meeting, Committee Chairman, Cllr Joshua Schumann, was tasked with seeking legal advice on who should be allowed to serve on TLL's Board of Directors. 

In particular, Committee Members were apparently unclear and needed a qualified lawyer to tell them whether it was appropriate for CCC's Chief Finance Officer and s151 Officer, Chris Malyon, to serve on This Land's Board, or whether that might be considered a conflict of interests.  

Mr Malyon was the architect behind the This Land project, and in charge of the Finance and Resources Directorate, where the commercial loan interest from TLL ended up, before it was forwarded (according to Mr Malyon) to frontline services in a manner that has never been made public, and which no elected Member apparently has ever asked to see.  Up to March 2026, £45 million of interest from This Land has been paid into CCC's Finance and Resources Directorate.

The Action Log record shows that it then took a further nine months for the legal advice to arrive.  

When the C&I Committee met on 19th June 2020, Mr Malyon explained what the lawyers had said (see also here, timestamp 33:05):

"...the other key issue is around the non-exec director role, which Steve Cox and I both act as shareholder representatives on the Board, and Members of the Committee will know that the advice that we’ve received on two occasions now from external legal support has been quite candid.  In my statutory role as Section 151 Officer to the Council, there is a risk that I would be conflicted in sitting on the Board.  And, although we’ve taken steps to mitigate that in terms of the activities of this Committee by me stepping down from any issues associated with the loan structures and sale of any properties to This Land, it does put Tom Kelly, who is my Deputy Section 151 Officer obviously in a difficult position because he reports to me, and I sit on the Board of the Company.  So, we’ve always had in mind that… and have agreed that I would step down and a political representative would then be appointed by the Committee."

Companies House filings show that Mr Malyon resigned from his This Land NED role three weeks later, on 9th July 2020.

Why did it take so long?  Why was the first legal advice insufficient?  And when was that provided?  Did anything consequential take place during that nine month period?

Information about the relevant dates and which legal advisors were used is currently the subject of an FOI request.  Seven months into that nine month period marked perhaps the most critical decision about TLL's future.

Firstly, the Deputy s151 Officer's 13th September 2019 report set out that CCC Finance was contemplating lending substantially more money to This Land.  Some of the additional loans were expressly to allow the company to service its existing loan debt.  It was an admission that it could not pay its own loan interest.  What rational lender responds by lending a borrower even more money?  That only creates a spiral of dependency.

Then, on 11th March 2020, six months after Committee Members had requested the legal advice, and with still no response, HM Treasury published a consultation paper setting out the government's plans for the Public Works Loan Board to stop lending to councils for commercial yield - exactly the type of borrowing CCC had been doing to finance This Land.  The document spelled out the risks at the local level if councils borrow irresponsibly for the wrong reasons:  

"At the local level, it exposes ratepayers to the risk that the income does not materialise, leaving the local authority with an inflexible commitment to keep up with the repayments on their loans."

That warning might have been addressed to Mr Malyon.

The following month, on 24th April, CCC's Commercial & Investment Committee discussed a report in private session on an Agenda item called:  

This Land: Multi-year Business Plan, Financing & Other updates.

There is little doubt the Treasury's paper would have been discussed.  All the public could glean at the time from the public minutes of the meeting is that Members approved, by a majority to:

"receive the updated This Land Business Plan 2020 as well as to agree the other related recommendations as set out in the report."

It took a further two years, and a brief reference in another committee report for the public to understand what had been agreed in April 2020.

Paragraph 3.4. of the This Land Monitoring Update Report presented to Members of the Strategy & Resources Committee on 29th March 2022 begins:  

"In April 2020, the Commercial and Investment Committee gave permission, for the Council’s part, for This Land to sell certain listed properties releasing and varying the Council’s mortgages/legal charge and other rights and interests in those properties. At that time the listed properties focused on those identified for disposal in that phase of the business plan."

Would they have been listed for disposal so soon after This Land purchased them had it not been for that clear signal from the Treasury?  So, instead of closing down TLL in April 2020, when total losses were only £16.5 million, when additional borrowing from the PWLB  looked impossible, and when CCC could still have repossessed all the property it had sold to the company, one Committee decided in secret to let This Land begin selling its mortgaged properties to developers, not to repay CCC the mortgage principal on those properties, but instead use some of the proceeds to continue paying £8.5m/year in loan interest into CCC's Finance Directorate.  

As a direct result of that decision, and the land disposals that have followed every year since, This Land's losses are now £75.8m, CCC's land security is down to £20.6m, it has already had to write-off £66m of unrecoverable debt, and the figures today suggest the company will struggle to find the cash among the ruins to repay much, if any of the remaining £59.9m loan principal it still owes its shareholder.

The April 2020 report setting out the rationale for that recommendation today remains a confidential document.  It is the subject of an FOI request.  But on past experience, and despite the clear public interest in its disclosure, it may need to be escalated to the Information Commissioner's Officer before it can be made public.

Who authored the report, and does it matter?

The report's author would either be Mr Malyon himself, or more likely his then Deputy, and successor as s151 Officer, Tom Kelly.  Whoever it was, at the time Mr Malyon was still the s151 Officer, and remained a Non-Executive Director of This Land Ltd thanks to the delay in obtaining the legal advice.  If the report was written by his Deputy, how likely is it that he was not influenced by Mr Malyon, to whom he reported directly?

It is impossible to view that report and subsequent decision in terms of an arms-length commercial relationship beween CCC and TLL.  Releasing and varying the Council’s mortgages/legal charge and other rights and interests in those properties resulted in a massive cash injection for TLL and a corresponding loss for CCC, and by extension for local taxpayers.  £66 million of that loss was crystallised in March 2025.  However senior Officers and the Council Leader try to conceal its true nature, last year's loan write-off will never be recovered.

That far-reaching decision six years ago was not debated or approved by the full Council.  It raises other important questions such as - Was the decision properly informed?  Were Members aware that This Land was already in financial difficulty?  Was the decision consistent with CCC's statutory duties and financial/governance obligations?  Whoever's name was on the report, and regardless of whether the s151 Officer left the room before the matter was debated, he could not have been unaware of what was being proposed, or what was decided.  The conflict of interests seems as plain as day.

Two months after that decision, and nine months after it was sought, the legal advice arrived, and Mr Malyon resigned from his position at This Land Ltd shortly thereafter (see above).

The FOI request for the April 2020 report and associated documents, including the confidential minutes, can be found here.  Readers of this blog will be updated with any developments relating to the request.

The great land security swindle - Cambridgeshire County Council throws away £55 million

By Andrew Rowson

When private citizens or commercial organisations purchase a property with a legal mortgage, if they later sell it to a third party before paying off all the mortgage, they need to settle the balance with the lender before the lender can release the property title deeds.  

Solicitors are involved to make sure all the proper searches and other paperwork is done properly, holding moneys and deeds in client accounts on behalf of their respective clients.

At Cambridgeshire County Council's (CCC) wholly owned housing development company, This Land Ltd, (TLL) different rules seem to apply.  This Land began life borrowing lots of money from its sole shareholder (CCC), with which it bought land, mostly from CCC, and paid for staff salaries and other overheads.  Because it did not sell its first house for four years, and produced no revenue, the loan interest owing to, and sometimes paid to CCC was sourced from more borrowing from its sole shareholder.  That worked reasonably well for four years, until November 2020, when the government banned councils borrowing principally for commercial yield, which is just what CCC was doing.  It borrowed from the Public Works Loan Board (PWLB) at around 2% interest, and lent on to TLL at around 7.4% interest, taking the difference (up to £6.1m/year) as revenue to support the authority's frontline services.  The arrangement was described by one county councillor in 2016 as "making money out of nothing". 

After the ban, This Land's house sales still fell well short of covering its outgoings (in particular loan interest payments).  To find extra cash, the company resorted to selling its mortgaged land to property developers, but unlike normal mortgages, TLL kept the sale proceeds for itself instead of repaying the mortgages on each land sale.  Thus, in the last four financial periods, long term borrowing has remained static at £113.85m, whilst CCC's land security against the borrowing fell from £80.5m in December 2029, to £25.4m at 31 March 2024 - a loss of security for Cambridgeshire taxpayers of £55.1m.  Following a further, unsecured, and allegedly unlawful £6.3m loan to TLL in July/August 2024, CCC's current land security represents only around 21% of all outstanding loans.

This irregular behaviour was not even done in secret.  The note on Inventory in TLL's audited 2023/24 accounts reads:

How did that work in practice?  What were the solicitors doing, and who at CCC waived the rules in the mortgage contracts that required TLL to settle the mortgage before selling the properties?  TLL's accounts show £78.3m worth of land sales since 2020/21.  One example of a mortgage (charge) of £13.2m in 2019 and satisfaction of the same charge two years later provides a clue as to what has been happening.

In 2019, This Land purchased land from CCC's County Farms Estate in the village of Cottenham, north of Cambridge.  The charge, or legal mortgage of £13.2m between the Lender (or chargee) CCC and Borrower, TLL is filed at Companies House under This Land Development Ltd, one of the This Land group of companies.  The solicitor was LGSS Law Ltd, a law firm in which CCC has a one third ownership.  The CCC officer responsible for the charge was the Head of Finance (see mortgage document, p34). 

The Borrower owns the Property from day one

Over the next two years TLL failed to progress the site, and sold it in March 2021 to the Kier Group of Companies.  The Land Registry records the sale of the site for £12 million + VAT on 26th March 2021, apparently for a loss of £1.2 million.  When loan interest of 7.05% for just over two years is added, the overall loss to TLL on the purchase and subsequent sale of that property would have been in the region of £3.1 million.

The charge (1121 0011 0027) was satisfied in full on 25th May 2021.  Two curious details about the statement of satisfaction are that it was delivered by This Land Development Ltd, not CCC, and its interest in the charge is stated as "chargee" (i.e the lender), when the real chargee was CCC, as the 2019 charge document makes clear.

How could the real chargee allow this to happen?   One of the normal conditions of a legal mortgage is that the chargee holds the title deeds, and releases them only when the chargor (borrower) satisfies the charge by paying all the loan principal and interest due to the chargee.  Only then will the borrower have title to the property and be free to pass the title deeds on to another purchaser.

The charge agreement drawn up by LGSS Law in 2019 is unclear.  It claims to be a legal mortgage document.  However, under the "Background" section on p3, the deed states:

"The Borrower owns the Property"

This is underlined later, in clause 6.2 - "Ownership", which states:

"The Borrower is the sole legal and beneficial owner of the Charged Property and has good and marketable title to the Property."

An experienced mortgage professional commented that he had never seen similar statements in a mortgage agreement.  Normally, ownership and the title deeds vest with the lender until the mortgage is repaid in full.

Clause 2 - Covenant to pay states:

"The Borrower shall, on demand, pay to the lender and discharge the Secured Liabilities when they become due."

Beneath clause 4 "Perfection of security",  clause 4.1 "Registration of legal mortgage at the Land Registry" states:

(a)    The Borrower covenants with the Lender not to make any Disposal (other than a Permitted Disposal) of the Property without the Reasonable Consent of the Lender.

(b)    The Borrower consents to an application being made by the Lender to the Land Registrar for the following restriction to be registered against its title to the Property:

"No disposition of the registered estate by the proprietor of the registered estate, or by  the proprietor of any registered charge, not being a charge registered before the entry of this restriction is to be registered without a certificate signed by a conveyancer that the provisions of clause 4.1(a) of a legal mortgage dated 12 April 2019 and made between This Land Development Limited (1) and Cambridgeshire County Council (2) have been complied with or that they do not apply to the disposition."

Nowhere in the deed is it stipulated that the Borrower is required to pay all, or any of the mortgage principal and interest owing to the Lender (CCC) before it (the Borrower) has satisfied the charge.

The bottom line appears to be that under this arrangement, CCC has given the Borrower (This Land Development Ltd) legal ownership and presumably the title deeds at the outset, from the charge registration date, and that without needing to pay CCC the full loan principal or the full interest owing under the agreement, the Borrower is allowed to pass on the property's title deeds and ownership to a third party merely on the strength of a certificate signed by a conveyancer that reflects CCC's "reasonable consent" to do so, even though, the Lender potentially loses some or all of its security in the process - in this case, apparently, £13.2 million of taxpayers' money.

This Land Development Ltd has filed many charges and full or partial satisfactions of charges on Companies House.  In all satisfaction/release documents, This Land Development Ltd is the person delivering the statement.  In most cases it is correctly described as the "Chargor" (Borrower), but in several instances, as in the Cottenham case above, the company is incorrectly described as the "Chargee".  However the company is described, This Land Development Ltd is always the Borrower, not the Lender.  The above arrangement between Borrower and Lender seems to go against the normal conditions protecting the Lender's interests and security.

If This Land Development Ltd has complied with the charge obligations set out in the deed, there should be documents signed by a conveyancer that evidence CCC's "reasonable consent" to waiving the obligation on This Land to pay the mortgage principal and any interest owing in respect of this charge.  According to This Land's audited accounts, the total land security lost by CCC from this and other waivers up to March 2024 is £55.1 million.  That is even higher than This Land's £50.23m overall comprehensive losses since its incorporation in June 2016.

KPMG is investigating

In the summer of 2024, a local elector in Cambridgeshire submitted an objection to CCC's 2023/24 accounts questioning the lawfulness of this very arrangement.  The local auditor (KPMG) agreed to consider the objection, and investigate it thoroughly.  Its findings are still pending.

Three relevant aspects that the auditor may look at are:

a) the lawfulness of the above charge and all others like it, and whether such arrangements meet with the County Council's statutory obligations to secure value for money, and 

b) whether council officers (e.g. the Head of Finance) have acted under delegated authority, without the permission (or knowledge?) of elected members when This Land's obligations to pay the mortgage principal and interest relating to the charges have been waived.  Or, have elected councillors in one or more relevant committees authorised those waivers, perhaps without being aware of the full consequences.

c) the degree to which CCC's and TLL's respective solicitors have acted properly to protect the interests of their clients and to comply with the law in agreeing to the unusual legal mortgage deeds and the manner in which the charges have been satisfied, apparently without This Land paying any of the loan principal back to CCC. 

As KPMG's audit of the 2023/24 financial year approaches completion, the objector and councillors on the Audit & Accounts Committee may soon be provided with the auditor's conclusions.

Sleepwalking to disaster. How This Land Ltd is failing

 By Andrew Rowson – January 2024 

‘In Local Government there is no substitute for doing boring really well. Only when you have a solid foundation can you innovate.’

Max Caller, CBE

 

 ‘If you look at Northamptonshire through to Woking, with others in between, what was happening there was a situation crystallising around a financial risk based largely upon commercial ventures.  That’s reflected a position whereby those organisations were not identifying and not addressing those risks.’

Michael Hudson, Cambridgeshire County Council S151 Officer

 

Certainly, if one looks back, it is absolutely the case that each of the local authorities that have had to issue section 114 notices has had failures of leadership, management and governance, and some have taken risks that were unmerited….So far….there has been a direct linkage between poor leadership and the subsequent issuance of a section 114 notice.

Rt Hon Michael Gove MP, Secretary of State, DLUHC

 

1 - Introduction

This report mostly comprises extracts from official minutes or transcripts from council committee meetings, or from reports by Cambridgeshire County Council (CCC) or its outgoing external auditor – EY.  It demonstrates firstly the recklessness of council officers and elected Members of CCC’s former Commercial and Investment Committee for launching a high-cost, high-risk commercial venture in 2016 with no detailed business plan, no public consultation, and on the basis of a fundamentally flawed prospectus.  The Council and its Members appeared to be oblivious to the reality that under the original flimsy “outline business case” even under the “extremely buoyant economic conditions for housing development” that existed seven years ago, the housing company was not expected to turn a profit “for years, if not decades”.  That being the case, the only two ways This Land Ltd could service its substantial interest-only loans to CCC were:

a)       By CCC borrowing yet more from the Public Works Loan Board (PWLB) and lending it on to This Land at commercial rates, thus creating a spiralling liability that could never be repaid, or, once central government put an end to that option...  

b)      By selling land purchased from CCC (with borrowed money) on to developers, and using that income to service the debt to CCC.  In so doing, This Land has cannibalised itself, whilst at the same time steadily eroding its potential for making future profits from selling its own houses – the very opposite of what the company was set up to do.

The longer This Land remains a loss-making enterprise, the heavier the debt burden becomes, the more land the company has to sell, and the less likely any prospect of ever making a profit or of repaying the debt.  In the accounting period to March 2023, 78% of This Land’s total revenue has come from Land sales rather than residential property sales.  It would appear, given the scale of the outstanding debt (£113.8m), the sale of £53.4m worth of land to date, and the surprisingly low sale prices of the units sold in 2022/23 (£247,000/unit on average), that This Land may already be past the point of no return.

The second revelation in this report is EY’s dishonesty in its statements about the prospects of CCC recovering the long-term debt owed by its wholly owned subsidiary.  In September 2022 EY acknowledged for the first time the “new and significant risk” of CCC not recovering some or all of its long term debt (113.8m) from This Land Ltd.  That risk was not new.  It was brought to EY’s attention in September 2021 by a local elector in an objection to the previous year’s accounts (2020/21), when CCC’s long-term debt from This Land had risen by £26 million to £113.8m.  EY ignored that objection (as it had ignored the two prior to that and the one after it), until presented with a Letter Before Action in October 2022.  Within days of that letter, EY accepted all four objections relating to four successive years’ accounts. 

In the September 2022 Audit & Accounts meeting, EY’s audit partner, Mr Mark Hodgson, told Committee Members that EY was discussing with management the possible need for “impairments” to the debt owed by This Land because of recoverability issues.  Yet six months later, (3^rd March 2023) in his decision notice to all four objections, the same audit partner declined to issue a public interest report about the significant risk of default because he had “not to date identified a level of indebtedness by This Land that would affect our value for money conclusion”.  Nine months after that, on 1^st December 2023, and after several missed self-imposed deadlines for completing its audit work on this matter, the auditor told CCC Members that the audit team has still not completed its audit work to establish how likely CCC is to recover all that substantial debt.  Those Members, like the public, may now have to wait until February to find out how safe local taxpayers’ money is.  That would be twenty-nine months after the matter was first brought to the external auditor’s attention, seventeen months after the auditor first flagged it up as a significant risk in his September 2022 audit plan, and seven months after EY and CCC had access to This Land’s 2023 Business Plan.  Last November's resignation of This Land’s Chief Executive (£235,038 annual remuneration including pension contributions) does not augur well for a positive outcome.

2 - Outline Business Case for CCC to establish a company as a Housing Development Vehicle (HDV) – 27^th May 2016

 

‘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. CCC is therefore developing, and delivering, a series of principally residential development projects from its property portfolio across Cambridgeshire, planned over an initial 10-year timescale.’

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 in to 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.  See Agenda Item

3 - Minutes – Commercial & Investment Committee – 27^th May 2016

 ‘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 of 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 [Housing Development Vehicle] 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.

 A Member asked if the HDV would be open to legal challenges by other developers i.e. as a result of the Council selling land to its own company.  Officers advised that experience around the country to date showed that land had successfully been transferred in this way, and there had been no legal challenges to date. Members noted the potential issues where there could be challenge, around selling at less than best consideration. However, the model proposed would protect the Council from such challenges, as it was proposing to transfer land at market value to the HDV.

 A Member commented that future discussions and reports need to be clear whether they were referring to the County Council or the HDV. He also queried if making a return on money borrowed from the government in the way proposed was completely legal. Officers advised that it was, although it was noted that the government may introduce a cap on prudential borrowing in the future, at which stage the Council would need to look at other potential mechanisms.”  See Committee Meeting Minutes here.

Notwithstanding the above misgivings, Members voted unanimously for officers to incorporate the housing company, with no detailed business case, and without going to public consultation. Cambridge Housing and Investment Company Ltd (CHIC) was incorporated three weeks later.

4 - Minutes – Commercial & Investment Committee – 23rd February 2018

 A Member commented that the Committee was being asked to agree to the transfer of very substantial assets to a company when Members do not fully understand the reporting and governance arrangements: a workshop on these issues has been promised but had not happened. The Committee was unaware of the name change/ rebranding until the invitation to the relaunch event. The Member suggested that the decision be deferred pending the workshop being carried out. Another Member agreed, saying that this proposal was effectively being presented as a fait accompli, and she reiterated her concerns on the Risk Register and mitigation of the risks presented.

The Monitoring Officer and Deputy Chief Executive reassured Members that they took their roles very seriously, especially in ensuring the governance of the organisation was carried out in an appropriate way. Operational issues were the responsibility of the This Land Board: the Committee was not running the company. The Committee had appointed the Managing Director and shareholder representatives. Whilst the workshop on governance and reporting processes had not yet taken place, the Committee had had a workshop on the processes involved in the portfolio transfer, and there was no lack of transparency or openness on how that process was taking place.

In response to a Member question, it was confirmed that the Committee did not normally have the right to the commercially confidential minutes of the Board of Directors, but the Directors and Managing Director would be happy to talk to Members as shareholders.

A Member noted that whilst one of the recommendations was to declare the properties listed in the confidential Appendix 1 to the report as surplus, but there was no information provided on why those properties were surplus. In terms of process and audit trail, this information was required. Officers pointed out that the schedules and reports on these properties had been presented to the Committee over the course of the last 18 months. A Member highlighted that the Committee was in unchartered territory, and whilst This Land clearly had a clear business plan, there was nothing to compel them to realise their objectives, and the company had no mission statement, vision or values.

The Deputy Chief Executive commented that those issues had been set out in their Business Plan, specifically about how the company sought to differentiate itself. He stressed that the Council’s role as shareholder meant that they could not compel the company to deliver a certain percentage of affordable housing – if the Council did that, the dynamic would change, and the relationship would become contractual, which would have implications for the company’s ability to operate in a commercial environment.  See Committee Meeting Minutes here.

5 – Blog - Rt Hon Lucy Frazer KC, MP - 4^th April 2018

 

Lucy Frazer MP and senior representatives from Cambridgeshire County Council; Leader of the Council Cllr Steve Count, Chief Executive Gillian Beasley, and Deputy Chief Executive and CFO Chris Malyon, met with, Housing, Communities and Local Government Minister, Rishi Sunak MP to discuss the financial challenges that Cambridgeshire County Council face given their current funding…

Lucy said, “I am very grateful to Rishi for offering this meeting to Steve, Gillian, Chris and myself. Our meeting was extremely positive.  Rishi listened attentively to the concerns expressed and acknowledged the entrepreneurial spirit of Cambridgeshire County Council, praising their highly efficient operations….

The Minister acknowledged the Council’s highly efficient operations, praising the shared service agreements between Cambridgeshire and Peterborough, and identifying Cambridgeshire County Council as an example of good practice.  See Lucy Frazer's website here.

6 - Commercial & Investment Committee, 16^th October 2020

 Cllr Boden

‘..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 that is an extremely helpful thing for all members to read – if you haven’t yet read it.  Because it shows just how things can go wrong if they are set up in the wrong way, and 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 the mistakes in some other local councils – and 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 already been highlighted by Mr Rowson in his email.  And we’ve 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.

So far as this agenda item is concerned, I think that from our point of view in this committee, it’s important to bear more in mind than just the published figures of This Land Ltd.  We’ve set This Land Ltd up in order to be able to act in a commercial way – to be able to achieve certain objectives at arm’s length from the Council. We obviously have an interest in the financial performance of This Land Ltd.  But the interrelationship between the Council and This Land Ltd is of really vital importance.  And that isn’t really reflected in the figures of This Land Ltd, but relates to the fact that, first of all, we are receiving significant amounts of interest from This Land Ltd which assists us significantly in revenue terms.  And secondly we are effectively, in some respects, converting capital into revenue through what we do in This Land - which is also of benefit to the Council.  So when we’re looking at the effectiveness from this Council’s point of view of This Land Ltd, we don’t just look, as though we are an investor, at the figures that This Land produces.  We also have to think of how else we benefit as a Council.  And I don’t think that point always gets across very well, and it’s fairly clear from Mr Rowson’s question that it doesn’t get across to the public as well as it should do.

So I think that is something we all need to bear in mind.  And in connection with that, and looking at the recommendations that we’ve got in front of us today, I would ask – I’m not asking for the recommendations to be amended – but I would ask that what’s been delegated to the officers and the Chairman in terms of the detailed terms of the loan – that we ensure that the terms which are granted to This Land Ltd are no better that they would be able to get from the commercial market.  Because we’re not here to do benefit to This Land Ltd.  We’re here for the benefit of the Council.  And in order to achieve the best balance between what goes on within This Land Ltd and what we need in this Council, it’s important that we do follow the requirements of central government financing, to avoid state financing, but also to benefit this Council by ensuring that those terms are not at uncommercial and unrealistic rates.’  See YouTube video here. (Timestamp 1.03.56)

7 - Mark Hodgson, EY partner – CCC Audit & Accounts Committee meeting, 29^th September 2022

 For your attention primarily there are two new audit risks around the debtor associated with This Land, which links to working capital loans made to your wholly-owned subsidiary.

There has been some significant press coverage of both This Land and other housing-related subsidiaries in the country and their ability to repay the borrowing they have been afforded.  And in light of that we need to review the business model that This Land has via the component auditor, their going concern assumptions, and therefore their ability to repay the £113 million [£113.8m] that is currently outstanding at 31^st March [2022], and discuss with management the need for any impairment over that balance because of any recoverability issues. See YouTube video here. (Timestamp: 54.26)

 

8 - Mark Hodgson, EY Partner – Decision Notice on a local elector’s 2021 objection to the accounts – 3^rd March 2023

 Auditor’s decision and reasons: Local authorities have a general power to trade in function-related activities through a company (section 95 of the Local Government Act 2003 (LGA 2003)).  They also have a power to invest under section 12 of the LGA 2003.  The statutory guidance issued under 15(1) of the LGA 2003 gives further details around what investments are – financial investments include loans (paragraph 40).  Paragraph 33 states that local authorities can make loans to (inter alia) wholly owned companies.  Section 111 of the Local Government Act 1972 also provides a subsidiary power to local authorities to “do anything (whether or not involving the expenditure, borrowing or lending of money or the acquisition or disposal of any property or rights) which is calculated to facilitate, or is conducive or incidental to, the discharge of any of their functions”.  It is clear CCC has the power to pass money to This Land Ltd.  We are also not aware of any ground on which to base a conclusion of public law unlawfulness in respect of the exercise of such powers.  Therefore, there is no unlawful item of account.  We have not to date identified a level of indebtedness by This Land Ltd that would affect our value for money conclusion.  We have carefully reviewed these conclusions again, and we do not see an unlawful item of account or grounds to make a public interest report under the 2014 Act.  We are of the opinion that – from the governance and oversight arrangements in respect of This Land Ltd set out by CCC in its response (as well as the publicly available documents: particularly the Avison Young report and subsequent action and consideration of that report well into 2022) – there is appropriate governance, transparency and oversight of This Land Ltd.

 

9 - CCC - Audit & Accounts Committee meeting – 28^th September 2023

 Cllr Gay

Yes.  Just on This Land.  Can you give any sense on what sort of areas the projections (EY testing This Land’s cash flow projections in its 2022 Business Plan) cover, because I think the first capital repayment is in 2026, and obviously a default on those payments by This Land would be very serious indeed for the authority, and we need look no further than Thurrock to know that ill-conceived and failed capital projects have contributed to the failures in Slough and in Thurrock and a number of others.  So have we got any preliminary indications, and is there any sense in which we can plan to mitigate any impacts that failure to repay on time would have?

Tom Kelly, Service Director: Finance & Procurement

Yes.  So in terms of the audit of 21/22, I think EY have highlighted that as the recoverability of the long term debtor, or credit loss – so exactly the point Cllr Gay makes.  I think perhaps in simplified terms, the approach that’s been taken is to look at the assurance the Council has effectively received through the submitted This Land Business Plan, which for the relevant year shows a surplus of £16 million over the planning period in their central scenario.  And then looks at the assurances we’ve received and kind of test some of the underlying assumptions related to that.  So EY are for instance looking at checking [that] some of the actual values received back up the Business Plan.  They’re looking in detail at one of the construction sites that’s been completed, and again checking the income and expenditure figures match through there.  It relies on checking through how in particular inflation indices have been applied to the programme, and the future assumptions that have been made around strategic land sites that This Land still needs to acquire. 

So that gives you a sense of the detail and the type of responses that the Council’s needing to provide as part of that testing.  Of course, rolling forward to where we are now, there’s been a subsequent business plan received from This Land Ltd, and there’s been those national developments that Cllr Gay refers to.  And we have a number of assurance mechanisms continuing with the company and also in our kind of consideration of reserves provision and MRP.  There are kind of mitigations in place for some of the downside risk on those scenarios.  So it’s actively under consideration.

Cllr Wilson (Chair)

I’m not sure if you’ve got the bottom line.  Are we comfortable that we’re going to get the money back?  I heard a lot of “things are being studied in detail”.  But the bottom line is – are we confident we’re going to get the money back?

Service Director: Finance & Procurement

Yes.  So I think that the shareholder committee for This Land is the Strategy and Resources and er, was Strategy and Resources – now moves across to Assets and Procurement.  Relatively recently they got the most recent Business Plan report that does show the central scenario continuing to project full repayment of the loans on time.  The Council has officially received that, and we are comfortable with that position.  But it does show that there is risk with this venture, and there are sensitivities where that declines.  So that’s hence why we need to keep that kind of ever watchful vigilance in respect to it.

Chair

Thank you.  Any other comments?  Chris?

Cllr Boden

Not on This Land.

YouTube video here  - Timestamp: 50.26

 

10 - EY – Audit Results Report (ISA 260) - 21^st November 2023

Type of risk	Description	Findings and conclusion
Significant Risk	Recoverability of Long-Term Debtor with This Land Group	We have not yet fully completed our work in this area and will provide a verbal update on 1 December 2023. See Minutes here - Agenda Item 7.

 In the promised verbal update at the 1^st December 2023 meeting of CCC’s Audit & Accounts Committee, EY reported that its audit team was still working on this item, which remains the only outstanding material risk issue before the auditor can issue his 2021/22 audit opinion (Timestamp 1.20.50). The statutory deadline for 2021/22 audit completions was 30^th November 2022.

According to EY, the audit team is now looking at This Land’s future cashflow projections from its 2023 business plan.  EY and CCC have had access to the business plan since July.

That cashflow projection, (based on the assumption of zero inflation – see below) shows cash balances fluctuating between £10m and £20m for the next three years, before shooting up in the second half of 2026 and 2027, just in time to repay the loan principal in three tranches:

·         January 2028 - £64.7m

·         September 2028 – circa £39.2m

·         January 2029 – circa £9.9m.

This Land’s eventual success in repaying the loans therefore depends entirely on an unlikely surge of substantial profits in the last two years before March 2029, in the teeth of economic headwinds of falling house prices, falling land prices, and with an onerous debt burden.  Given This Land’s track record for getting its projections wrong, the above cashflow forecast does not inspire confidence.  CCC, This Land Ltd and their respective external auditors both assess This Land’s going concern status by looking only at the next twelve month horizon.l

11 - This Land’s 2023 Business Plan – Alice in Wonderland

The “outline business case” that CCC Members approved unanimously in May 2016 made no mention of the number of houses the HDV planned to build.  A year later, CCC’s 2017/18 financial statements contained the following:

Five years later, This Land’s 2023 business plan (see below) sets out the more modest ambition of building and selling only 490 houses itself by January or March 2029, with a further 453 to be built by other developers, making up 863 in total.  Given the 53 units This Land has sold in the seven years to March 2023, that presumably means that in order to meet its target of repaying the £113.8m loan principal by 2029, This Land itself anticipates selling a further 437 homes (490-53) in the six years to 2029.  That equates to an average of 73 annual house sales until then.  Most of those will need to be built without This Land being able to borrow further from CCC.  These figures and assumptions are all based on the limited information available to the public.

This Land’s original outline business case and subsequent business plans all proved unrealistic.  Delays in securing planning permission and other setbacks meant that the company did not sell its first house until its fifth year of operation.  Without considering where the cash would come from to pay its growing loan interest obligations, and with central government putting a stop to councils borrowing from the Public Works Loan Board for commercial gain, in the last three accounting periods This Land was obliged to sell some of the land it had purchased from CCC just to keep the company afloat.  As at March 2023, only 22% of This Land’s total revenue had come from selling houses.  The remaining 78% came from land sales.  The £53.2m figure for land sales in the graph below excludes a further £27 million CCC claims This Land will receive from land sales between 2023 and 2026 in a “binding contract” (p 36). Additional plot sales are expected during 2023/24.  That would mean This Land receiving at least £80m of revenue from selling land it had originally bought to build houses on.  It is precisely what council officers assured Members in May 2016 it would not do:

“Simply selling sites for others to develop, and profit from, is no longer an option for CCC.”

The public has no information about any profit share arrangements between This Land and the developers who have purchased the £80m worth of land.

As noted in a previous article, the headlong dash for cash has also meant that the average sale price of homes sold by This Land in the last three accounting periods (as per This Land’s audited accounts) has fallen from £550,000 per unit in 2020/21, to £329,000 in 2021/22, and to £247,000 in 2022/23.

This Land’s 2023 business plan projects future net profits totalling £42.5 million from 2023/24 onwards:

When placed alongside the company’s audited historical losses up to and including 2022/23, the figures look like this:

On 17^th November 2023, 23 days after the company’s latest audited were published on Companies House, This Land Ltd’s Chief Executive resigned.  Those accounts recorded a comprehensive loss of £11.2m for the year to March 2023 - £2m higher than the £9.2m shown in the 2023 business plan published in July (see table above).

If the past history of 53 house sales producing net losses of £38.35m is compared with the future promise of £42.5m net profits and 437 additional houses sold by the beginning of 2029 (see above), the two sets of data produce starkly different net profit/loss per unit statistics:

  

None of the information available to the public can explain the alchemy the company now promises will turn its fortunes around only in three years’ time, or why that secret of success has eluded This Land Ltd for so many years.

The derived net profit figure of £97k per house sale above is after charging around £4m/year of administration expenses, and after the loan interest expense (currently over £8m/year).  When those two are added in, the figures suggest This Land’s gross profit on each house sold in the remaining years to March 2029 will need to be at least £260,000 on average, which is higher than This Land’s average house sale price in 2022/23.  In other words, in the absence of additional critical information not provided to the public, the figures presented in This Land’s latest business plan do not begin to add up, and it should not have taken EY over six months to draw clear conclusions from its audit work – especially when it was first informed of the debt recoverability issue well over two years ago, when the debt first rose to £113.8m. 

For years, CCC has denied the public more granular information about This Land on the grounds of “commercial confidentiality”.  In July 2023, a confidential appendix to This Land’s latest business plan was provided only to Members of the Strategy and Resources Committee behind closed doors.  One concern is that to avoid embarrassment, CCC might be allowing This Land to limp on until it finally crashes, generating further substantial losses along the way that local taxpayers will ultimately have to pay for, rather than putting the public interest first and making a sober assessment of its subsidiary’s future prospects.

As a result of This Land’s substantial losses to date, the succession of failed business plans, the auditor’s recent concerns about the recoverability of loans made to the company, vague talk of using reserves to deal with the “downside risk” of the loans not being repaid, and the suspicious shape of the latest cash flow projection – with cash reserves only beginning to accumulate at least three years hence, the public can have little confidence in the latest plan without seeing more concrete and credible information.  CCC should therefore stop hiding behind the “corporate veil” and the convenient excuse of “commercial confidentiality”, especially since This Land has evidently not been treated on a commercial, arm’s length basis in several respects.  To assure local taxpayers (the ultimate stakeholders) that This Land’s latest business plan is not another illusion or a delay tactic to prolong the company’s end artificially, the County Council should provide additional substantial information to support the latest cash flow forecast.  That information should be in the form of numbers of projected house sales per year up to 2029, with some credible indication of profitability per unit sold.  It should also explain why This Land has used the “base case forecast” for its projections, predicated on a zero percent inflation rate, when inflation rates, especially in construction, are historically extremely high, and predicted to remain high for several years to come.  Credible granular information from the authority is essential since on many occasions in the past EY has shown itself not to be an independent party, as its contradictory statements on This Land also bear witness (see sections 7 and 8 above).  In the absence of any supporting evidence, a simple vote of confidence by EY on the recoverability of the £113.8m debt is unlikely to quell the public’s unease about This Land’s future.