An open letter to the candidates for the post of Cambridgeshire and Peterborough Police and Crime Commissioner

 

Dear candidates,

Double standards in policing?

The Electoral Commission website says this about the role of Police and Crime Commissioners:

“PCCs aim to cut crime and deliver an effective and efficient police service within their police force area. They are elected by the public to hold Chief Constables and the police force to account on their behalf.”

I am writing to you and your fellow PPC candidates about a single issue that has dragged on for six years, and where I believe the Chief Constable and the police force in Cambridgeshire have not been held to account.  It is a matter of profound public interest, and questions the links between local government and the police force.  How you respond to this blog will determine which, if any of you I shall vote for on May 2^nd.  I am placing a copy of this letter on my news blog because the facts need to be publicly known.

The issue concerns the former Deputy Chief Executive and Chief Finance Officer at Cambridgeshire County Council, Mr Chris Malyon, at least £40,000 of “undisclosed remunerative benefits”, and his secret, unlawful £38,000 pay rise in 2017 that Cambridgeshire County Council, and its two so-called independent external auditors (BDO and EY) have covered up and lied about for the last six years.  After a 28-month police investigation beginning in 2021, Cambridgeshire Constabulary acknowledged the unlawful conduct, but decided to take no action.

We have all seen that in public life, offenders without influence at the lower end of the pay scale are often punished with the full force of the law, whilst the privileged and well-connected at the top frequently get away with alleged offenses scot-free.  Sometimes they move on to other public sector posts, protected and supported by senior politicians (even in central government), and with a six-figure settlement negotiated behind closed doors – a reward for failure.  This is especially prevalent in local government.

In 2018, BDO was Cambridgeshire County Council’s external auditor.  In an audit update report to the council’s Audit & Accounts Committee (A&A) in July that year, (ISA 260 report, p18), the auditor wrote about senior officer remuneration:

“The prior year audit identified errors in the disclosure of senior officer remuneration, including inconsistencies with the applicable guidance, omission of remunerative benefits required for inclusion and inaccuracy of other remuneration values disclosed.

 

Disclosures relating to senior officer remuneration are considered to be material by nature.”

That statement is wholly inconsistent with the same auditor’s statement a year earlier, which only mentioned overstatements in some officers’ pension contributions – nothing about omitted remunerative benefits.  For if BDO had identified any such omissions during the previous year’s audit, why were they not corrected at the time, and why did the auditor not mention them in the previous year’s report to the A&A Committee or in any other document, especially given that the auditor acknowledged senior officer pay disclosures are material by their nature?

Some time later, I asked the BDO audit partner, Lisa Blake, what the omission of remunerative benefits referred to, and who did they relate to.  She replied that they related to CFO Chris Malyon’s non-executive directorship fees.  At a later meeting with another Cambridgeshire taxpayer, Ms Blake denied she had said that, but declined to give an alternative explanation.  At the time Mr Malyon was a non-executive director of two council subsidiary companies – Cambridge and Counties Bank Ltd (CCB), and This Land Ltd, the council’s loss-making, wholly-owned housing company that Mr Malyon himself set up in 2016. 

CCB’s audited financial statements, which have a December year end, are published on Companies House.  CCB’s accounts for 2016 and 2017 both show £40,000 non-executive directorship payments, described as “Amounts paid to third parties in respect of Director’s Services” (pages 56 and 65 respectively for the 2016 and 2017 accounts.)  The 2017 accounts add:

 “The amounts paid to third parties in respect of directors’ services relate to the non-executive director fees for Chris Malyon (paid to Cambridgeshire County Council for both 2016 and 2017)”

In the corporate governance section of CCB’s accounts, under “remuneration policy for non-executive directors”, the bank states that non-executive director [NED] fees are paid by way of a “cash fee”, because that is how all self-respecting financial institutions make payments in the twenty first century.

In both those years, Mr Malyon served on the bank’s Nominations and Remuneration Committee.  In CCB’s earlier years’ accounts, the members serving on each committee were not named.  Mr Malyon joined CCB as a non-executive director in November 2013, when he became CCC’s Chief Finance Officer.

CCC’s 2017/18 accounts showed a dramatic £38,040 rise (36%) in the column for Mr Malyon’s “Salary, Fees, Expenses and Allowances”, up from £105,885 to £143,925 (see below).  Mr Malyon’s rise in pay represented 94% of the total pay rise that year for the seven featured senior officer roles.

Below the table, unlike the year before, there was a footnote relating to the CFO:

 “The Deputy Chief Executive and Chief Finance Officer postholder undertakes non-executive

Directorships at the Cambridge and Counties Bank and This Land Ltd, for which CCC received fixed contributions of £45k and £20k respectively (2016/17 £40k and £0).  The full remuneration cost for 2017/18 is shown above, along with the cost to CCC for its share. The Chief Finance Officer became Deputy Chief Executive, for which an additional salary amount was payable during 2016/17.”

This footnote and the table above it contain several misleading false statements.  The remuneration table and the corresponding footnotes were prepared by Mr Malyon, the CFO.  He had a statutory duty to certify that the accounts he prepared contained “true and fair” figures.

• If Mr Malyon did not benefit from the NED fees, why were they even mentioned in the notes to the accounts relating to senior officer remuneration?  And why were they not mentioned in the corresponding notes in previous year’s financial statements, also prepared by Mr Malyon.
• The table above contains an additional column not included in the corresponding note in the previous year’s accounts (2016/17): “Cost of posts to Cambridgeshire County Council”.  The intention was to show where posts shared with Peterborough City Council and other authorities produced a saving to CCC’s revenue budget.  But Mr Malyon’s role was not shared with any other authority.  The disclosed “savings” against his role were £65,000 and £40,000 for 2017/18 and 2016/17 respectively – exactly the same as the NED fees from the two subsidiaries that were disclosed for each year in the footnote.
• Mr Malyon was appointed Deputy Chief Executive at CCC in 2016/17.  However, that was a cost saving initiative following the appointment of a shared Chief Executive with Peterborough City Council (Mrs Gillian Beasley).  There is not a single official document or authorisation by the full council (as required by law), that mentions any increase in salary, responsibility allowance or any other remuneration associated with the Deputy CEO role.  In any event, whether the rise in Mr Malyon’s declared remuneration in 2017/18 had been from a secret pay rise, or simply from including his hitherto concealed NED fee benefits, the full council did not authorise any amendment to the Annual Pay Policy to reflect that increase.  The elected members were wholly unaware of that additional £38,040 plus pension contributions paid to Mr Malyon in 2017.  That is a clear breach of sections 38 and 39 of the Localism Act 2011.  CCC broke the law, and for the last six years officers have consistently lied and fabricated to cover up the breach, whilst the members on the council’s Audit and Accounts Committee studiously looked the other way.
• Had Mr Malyon’s deputy CEO appointment in 2016 come with a pay rise, in addition to being noted in committee meeting documents and/or official minutes (which it was not), the rise would also have shown up in the 2017/18 Pay Policy Statement authorised by the full council at its meeting on 28^th March 2017.  Instead, that Pay Policy Statement showed the same £95-£100k pay band for Mr Malyon in 2017/18 as in 2016/17.

        There is no doubt that the auditor, BDO, was complicit in the cover-up.  That much stems from BDO’s statement in July 2018 above about the omission of remunerative benefits being discovered in the prior year audit (2016/17).  BDO’s successor, EY was also complicit in the cover-up in later years, after the matter was brought to the audit partner’s attention by local electors.  There can be only one of two possible explanations for that July 2018 statement from BDO:

1. Either the auditor lied, and she only discovered Mr Malyon’s additional undisclosed remunerative benefits (the £45,000 NED fees) during the 2017/18 audit, together with the £40k from 2016/17,
2. or, she did discover the first omission during the 2016/17 audit, and management (i.e. Mr Malyon) refused to disclose the additional £40,000 in that year’s accounts, and BDO failed to report on the matter at the time or subsequently

The auditor should have disclosed and reported on the omitted £40,000 benefits from 2016/17 and the £45,000 from 2017/18 as soon as she discovered it.  It is an implausible coincidence that Mr Malyon’s total pay rise in 2017/18 (including pension contributions) over the previous year is £45,794, which is just more than the declared £45,000 NED fees from CCB that year.  The auditor should then have looked further back to see whether Mr Malyon had benefitted from similar NED fees in earlier years, which he had also failed to disclose.  Since the NED fees were remunerative benefits, they were also taxable.  The evidence suggests Mr Malyon may also have been a benefits cheat, since he presumably failed to disclose those benefits on his annual P11D expense declaration form to HM Revenue and Customs. 

Mr Malyon was appointed a non-executive director at CCB inNovember 2013, and NED fees were paid out each year.  There is every reason to suspect therefore that he also benefitted from undisclosed remunerative benefits in the two or three years before the undisclosed £40,000 in 2016/17, when no mention was made of CCB in CCC’s accounts (see table below).

In the Related Parties section of CCC’s 2016/17 accounts, the notes do mention CCB on page 73 of those final financial statements:

 

“Cambridge and Counties Bank (CCB) specialises in providing lending and deposit products to UK- based SME’s. Its key products include business deposits, loans secured on property, secured pension lending and asset finance. The Council’s Section 151 Officer is Non-executive Director on the Board of CCB for which CCB pays £40k p.a. to the Council. There was no outstanding balance at year end.”

But the senior officer remuneration note to the accounts makes no mention of it in CCC’s 2016/17 published accounts.  In accounts prior to 2015/16, CCB and its non-executive fees paid is not even mentioned in CCC’s financial statements, though they are in CCB’s financial statements: £35k in 2014, £39k in 2015, £40k in 2016 and 2017, £47k in 2018 (see table below).  They all name Mr Malyon as the NED from CCC.

 

Companies House filings for CCB record Mr Malyon resigning his NED position on 26^th October 2018, after holding the position for four years and eleven months.  CCB’s accounts for 2018 explain the remuneration policy for NEDs on p27.

Given the required three months written notice, Mr Malyon (or CCB) would have had to submit that notice to end his directorship on or around 26^th July 2018.  That is the same date printed on the front page of BDO’s draft ISA 260 audit completion report in which the auditor remarked on page 18 on the omitted disclosure of Mr Malyon’s remunerative benefits the year before (though without mentioning the CFO by name).  

That report, relating to Agenda Item 11 at the A&A Committee meeting held on July 30^th 2018 does not sit under Agenda Item 11 on the webpage, but at the foot of the page, among the “Additional Meeting Documents”.  That means it was not uploaded to the committee’s webpage in the five clear working days before the meeting as required, but perhaps only on the day of the meeting.  Consequently, members (and the public) would not have had the chance to read it before the meeting took place.  Mr Malyon though would surely have seen the report several days before the A&A Committee met.  It was perhaps that advanced notice that gave him the opportunity to submit his notice to resign his directorship just before the A&A Committee met.  The coincidence of the dates no longer appears coincidental.

In the absence of any documentary evidence to support the council’s contorted false narrative about Mr Malyon's mid-year, £38k pay rise, the most plausible explanation is that CCC simply contrived the cock and bull story after the auditor discovered Mr Malyon’s undisclosed NED fees, with BDO (and later EY) agreeing to play along with the fabrication.  Not all so-called independent auditors are independent. 

Mr Malyon’s £38,000 pay rise in 2018 was made public a few months before the authority declared it would force 1,837 members of staff to take three days of unpaid leave over the Christmas period.  The aim was to make a £900,000 contribution towards the then £14.6m savings gap in the council’s budget – the budget managed by the CFO, Mr Malyon.  It meant an effective average pay cut of £490 per person.  If one includes CCC’s pension contributions those 1,837 staff were unwittingly contributing £25 each towards Mr Malyon’s unlawful, (and I maintain fraudulent) pay rise in that year alone.  Cambridgeshire police’s opinion that it is not in the public interest to pursue this matter may not be shared by some CCC staff.

In 2021, the “Research for Action” team published a report called: “Democracy denied: audit and accountability failure in local government”.  The report noted that local auditors frequently dismissed objections from local electors, but then worked behind the scenes with councils, CIPFA, the NAO, and even central government to address the issues the objectors had raised.  At CCC, the auditor did not even attempt to address the issue honestly.  This council and BDO appear to have agreed instead to cover it up with the demonstrably false and retrospective narrative of the deputy CEO’s mid-year pay rise.  That may explain why it took BDO five and a half years to produce its whitewash decision notice on the 2018 objection to the accounts from a local elector, who questioned Mr Malyon's unlawful pay rise.  The BDO audit partner, Lisa Blake, retired from BDO two days after the decision notice was finally produced. Ms Blake was Head of BDO's Public Sector Assurance Team.

BDO, and CCC’s next external auditor, EY both knew the facts.  They both received formal objections to the accounts from local electors – in 2018 and again in 2020.  Both auditors accepted the objections for consideration, but then failed to take any action; conduct which in the opinion of Mr Philip Coppel KC, a leading public law barrister, was contrary to law.

An analogous set of circumstances occurred at Northumberland County Council in 2022 after it emerged that for several years the Chief Executive had received unauthorised, annual £40,000 “international allowances”.  At that authority, the CFO (s151 officer) acted responsibly and took legal advice from Mr Nigel Giffin KC, before publishing a Section 114 Notice about that unlawful expenditure.  Only an authority’s s151 officer can issue such a statutory report, which has to be published and a copy sent to the Secretary of State.  At the very least I believe that should have happened at CCC.  But since the s151 officer there was the sole beneficiary of the unauthorised expenditure, as well as the architect of the cover-up, that was never likely to happen.

 How much has this dishonesty cost local taxpayers?

The table below shows Mr Malyon’s disclosed remuneration in the eight years leading up to his retirement in 2021, showing the spike in 2017/18 - the year of his bogus, unauthorised, undocumented and allegedly unlawful “pay rise”.  Subsequent years built on that substantial rise.  Since his pension package was based on his final few years’ salary, the overall additional cost to local taxpayers over the coming decades of his alleged fraudulent conduct is likely to be several hundred thousand pounds.

 

By way of comparison, here is the indexed remuneration (excluding pension contributions) from 2013/14 onwards of the six senior officers who kept the same job title over the same eight years.

Nobody else comes close to Mr Malyon’s overall pay increase.  No senior officer in local government ever receives a 36% pay rise in a single year through honest endeavour.

 

Cambridgeshire Constabulary’s investigation

In March 2021, and again six weeks later (after receiving no response), I wrote to Cambridgeshire Chief Constable, Nick Dean, providing some of the above evidence, and asking for the matter to be investigated for alleged fraud by abuse of position (Section 4 – Fraud Act 2006).

I was contacted by a Detective Inspector, who I took through all the evidence in fine detail, providing him with several hard copy and electronic dossiers of evidence.  The investigation took twenty-eight months.  The DI volunteered no progress updates during that period.  At the end, in August 2023, and only after some chasing, the DI acknowledged the unlawfulness of Mr Malyon’s conduct, but still appeared unaware that the narrative accounts CCC officers had given him were demonstrable lies that I had already exposed in my original evidence.  He said the police would not be taking the matter any further.  When I asked why not, he spoke about connections between the police and local government.  That is not what I wanted to hear.  I was promised a written account and summary of the investigation in a week or two.  That did not happen.  Six months later I wrote again to the Chief Constable.  Shortly afterwards I did receive a cursory one and a half page letter from the DI, in which he claimed “no criminal acts were identifiable” and, in his opinion there were “no allegations which met the criminal standard of proof with regard to dishonesty.  There was insufficient evidence to pursue the matter”.  I maintain that is objectively untrue on all counts, and that that letter, which was practically content-free and failed to address any of the substantive and compelling documentary evidence of fraud and dishonesty, risks bringing the Constabulary into disrepute.  Fraud by abuse of position is a criminal offense.  Indisputable documentary evidence of a s151 Officer failing to disclose many thousands of pounds of remunerable benefits, possibly over several years, in the statements of accounts he was responsible for preparing is not “insufficient evidence to pursue”, in anybody’s book.

More than ten years ago, Transparency International UK published a report called “Corruption in UK Local Government: the mounting risks.”  At the time, with the Audit Commission being abolished and several other safeguards removed, the report used real-life examples to point out the slim chances of the police succeeding in dealing with corruption in local authorities:

 

“With the abolition of the Audit Commission and Standards for England, the potential abolition of Audit Committees within local authorities, and the downgrading of officials who deal with corruption, it is unclear who owns the problem both nationally and locally.

Under the new arrangements in England, the police are the main body with the responsibility to investigate corruption allegations. Yet this is fraught with difficulties, such that it is unlikely to work.”

A decade later, it is clearly not working, just as local audit and local government financial reporting are clearly not working.  That partly explains the current existential crisis in both sectors.

I believe Cambridgeshire Constabulary dropped the investigation against Mr Malyon for political reasons, rather than for any lack of evidence.  The absence of any detail or counter evidence in the DI’s flimsy letter is especially disappointing.

 

Past history

Before coming to my question for each of you, it is instructive to show Mr Malyon’s well-documented conduct at a previous local authority in 2011, two years before CCC saw fit to employ him as its new Chief Finance Officer in 2013.  The episode below bears several hallmarks that defined his eight years at CCC.

The facts in this 2011 article from Mr Reasonable’s Barnet blog post are not in dispute.  Mr Malyon’s now abandoned Linkedin profile shows  him assuming the Assistant Director of Commercial Services post at Barnet Council in November 2010, three months before the 15^th February 2011 decision date authorising his appointment to that role in the delegated powers report that had clearly been written by Mr Malyon himself.  The timing discrepancy is easily explained by reference to Barnet Council’s own published payment data.  These payments to CCMPS LTD (excl. VAT) taken from Barnet Council’s payment data include three five-figure payments in February 2011 to Mr Malyon’s sole trader consultancy totalling £37,700. 

They were made just nine days after his authorised appointment.  At the £650/day contract rate, they represent 58 days of billing – around three months’ worth, with perhaps a few days off for Christmas and New year.  It is clear that Mr Malyon had agreed in advance with the council’s Commercial Director (and possibly with the Chief Finance Officer too) to invoice three months’ worth of historical work at the contractor rate immediately his new role was authorised.  For the twelve months to February 2011 he had been a salaried officer at the authority, and presumably was paid monthly through the council’s payroll.  It is not known whether he was paid twice over for those three months.

Shortly after Mr Reasonable’s blog appeared, payments to CCMPS disappeared from Barnet Council’s published payment data.  That is because on 23^rd May 2011, Mr Malyon signed another contract, this time with Hays Specialist Recruitment Ltd, to continue performing exactly the same role, at the same £650 daily rate.  This is a poor quality photocopy of the signature page from that May 2011 contract.  Mr Malyon’s signature is easily identifiable and is identical to the CFO’s signature that graced CCC’s audited financial statements between 2013/14 and 2019/20.

Why the second contract with Hays, especially since CCMPS Ltd was already passing itself off as a recruitment agency?  That way, Mr Malyon’s individual payments would no longer be visible in the payment data.  They would instead be concealed within payments to other temps and contractors supplied by Hays.  The fact that going through another agency increased the cost by the amount of Hays’ agency fee percentage would no doubt be considered by Barnet's new Assistant Director of Commercial Assurance to be excellent value for money for local taxpayers.  Mr Malyon was never investigated over his conduct at Barnet.  At CCC he was never investigated in connection with several other financial scandals, all of which have been covered up by the former CEO, and the Audit & Accounts Committee, and/or by the external auditors.

 

If elected, how will you hold Cambridgeshire Constabulary to account?

Three years ago the Metropolitan Police was labelled institutionally corrupt in the independent inquiry into the murder of private detective Daniel Morgan.  Its Commissioner, Cressida Dick was personally censured for obstruction.

Last year, Baroness Casey's Review into the standards of behaviour and internal culture of the same police force found it to institutionally racist, misogynistic and homophobic.  Twenty-four years earlier, the Philip Lawrence Inquiry by Sir William Macpherson mentioned "institutional racism" 52 times.  Nothing changed in all that time.

Police authorities, like councils or external auditors, are not immune from getting things wrong, or from having a rotten corporate culture.  Any institution will get more things wrong when there is insufficient effective scrutiny.  It is understandable and right that PCCs do not directly get involved in police operations, but that is not to say that police evidence, or lack of it, cannot be challenged, as has happened at the Met.  I maintain that the response I received from the Cambridgeshire Constabulary had no supporting evidence, disregarded the mountains of clear and compelling documentary evidence I provided back in 2021 and since. 

It is the PCC’s role to hold the Chief Constable and the police authority to account, though sometimes, as at the Metropolitan Police, that does not work as it should.

Cambridgeshire Constabulary is not the Metropolitan Police.  Nonetheless, public confidence in the police generally is at an all-time low, and this long drawn-out affair, if left unaddressed, will do nothing to help the people of Cambridgeshire have the confidence they need in their local police force, in my opinion.

My question to each of you is, will you agree to meet with me before May 2^nd to discuss this episode and propose a way to hold the Chief Constable and Cambridgeshire’s police force to account?

I look forward to hearing from you.

Yours sincerely,

Andrew Rowson

Tomorrow, and tomorrow, and tomorrow

 By Andrew Rowson

In September 2022, Cambridgeshire County Council's (CCC) external auditor, EY, published its audit plan for the authority's 2021/22 draft accounts.  Signalled in red on page six was a new and significant risk - the recoverability of all £113.8m of debt from its failing housing company, This Land Ltd.  In its first seven years of trading, the company has lost £38.35m.

This is what EY audit partner Mark Hodgson told members of the Audit & Accounts Committee at that committee meeting, eighteen months ago:

“For your attention primarily there are two new audit risks this year.  A significant risk 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 to which they have been afforded [sic].  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 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.” 

Click here to see the recorded meeting on Youtube: timestamp 54.24

It is rather different to the message the same auditor gave a local elector six months later, in a decision notice to four formal objections to the accounts that concluded after a delay of three and a half years:

“We have not to date identified a level of indebtedness by This Land that would affect our value for money conclusion.  We have carefully reviewed these conclusions again, and we do not see un 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.”

So, is the auditor comfortable or uncomfortable with This Land’s indebtedness and the likelihood of its ever repaying the £113.8 million?  Apparently, it is still too soon to tell.  Twelve months have passed since EY wrote the comments above.  It is fourteen weeks since EY’s last upbeat assessment to elected members about This Land’s fantastical future cashflow projections, despite the company’s many previous business plans all turning out to be completely wrong.

The end of March 2024 will mark sixteen months beyond the government’s statutory deadline for CCC to publish its final, audited accounts for 2021/22.   It is also four years and seven months since a local elector first drew EY’s attention to This Land’s ballooning debt and cash flow problems.  Since last summer, several of EY's self-imposed deadlines for completing the 2021/22 audit have come and gone.  For some months the recoverability or otherwise of the loans to This Land has been the sole remaining issue holding up the audit completion.  Why is EY taking so long to finish the job?  It couldn’t have anything to do with the May local elections could it?

CCC's Audit & Accounts Committee next meets on 28th March. The agenda and meeting documents should be published on 21st March, and will be found here.

Robbing Peter to pay Paul?

 By Andrew Rowson

Question:

 When does Cambridgeshire County Council (CCC) transact with its wholly owned housing company on an arms-length basis, respecting the strict state aid regulations?

Answer: 

Only when it served the former Chief Finance Officer’s purposes by borrowing nine figure sums at preferential rates from the Public Works Loan Board, and lending on to its housing company at much higher “commercial rates” for it to purchase surplus land from the council.  For the last seven years the council has been pocketing the difference to fill large holes in its revenue budgets with illusory revenue instead of doing the hard work of finding proper, tangible cost savings.

In December 2017, after slower than expected land sales to This Land Ltd, CCC was already £750,000 behind schedule in receiving loan interest from its subsidiary, (originally named Cambridgeshire Housing and Investment Company Ltd – CHIC).  This Land had not yet needed the loans from CCC.  This was a problem not for CHIC/This Land, but for the council’s CFO, who had already banked on that loan interest income to balance his budgets.  The problem was fixed, reportedly at the behest of This Land Managing Director David Gellings, by both parties agreeing to a mega portfolio sale of council land to the subsidiary, requiring a loan or loans totalling £113.8 million within the year, that would bring in net interest revenue of over £6 million annually for the council, thus easing the CFO’s budget concerns.  The fact that the CFO was also This Land’s first director and possibly conflicted in his dual role was not officially recognised until four years after This Land’s incorporation.

Reports to members of the council’s Commercial and Investment Committee in December 2017 and February 2018 set out the provisions and safeguards to ensure that This Land was not getting an unfair advantage over other developers, and that public money was protected, to comply with s123 of the Local Government Act 1972:

“Except with the consent of the Secretary of State, a council shall not dispose of land under this section, otherwise than by way of a short tenancy, for a consideration less than the best that can reasonably be obtained.”

The provisions included:

•  Lending to This Land at “commercial interest rates” for secured loans
• Valuations of land to be provided by a single valuer - Savills.  Land without planning consent would be valued at up to a 70% discount with respect to Savills' opinion of its value with planning consent.  Members rejected the proposal to seek second valuations on the grounds that, even at the cost of just £1,500 per site, "it was questionable whether this was a good use of taxpayers' money".
• "In order to protect the Council's interests, as much of the enhanced value as possible will be recovered using overage clauses applied when planning consent has been obtained, subject to CHIC's reasonable costs being deducted."  The extent of the council's claw back on the onward sale of land with planning consent was later confirmed in an independent report by Avison Young in 2021 to be 100%.,
• "recovery of investment in event of sale of asset."  In other words, the outstanding balance on the loan would need to be returned to CCC if/when This Land sold any land to third parties - exactly the same way that home mortgages work.

These provisions meant that if This Land purchased council land at a discounted value, and later sold it at much higher price after obtained planning consent, it would obtain no financial benefit because practically the entire proceeds would have to be returned to the council.  This makes perfect sense because CHIC/This Land was not set up to trade in land, but to build and sell houses for a profit, as the CFO clarified at the very start in 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.”

According to the CFO, the legal advice on the above provisions came from solicitors Bevan Brittan LLP, and also from LGSS Law Ltd, the council’s part owned subsidiary legal firm whose managing director was also CCC’s Monitoring Officer (statutory legal officer) and the second This Land non-executive director, alongside the council’s Chief Finance Officer.  No elected Member is on record as having challenged that apparent conflict of interest.

Under this arrangement, council taxpayers’ money appeared safe because of the land security over the loans and the overage clauses.  This Land meanwhile was immediately lumbered with a nine-figure debt on which it immediately had to pay commercial interest, but with no house sales in sight to provide the funds to service that debt.

Two years later, This Land completed its fourth financial period (to 31 December 2019) still with no house sales, resulting in an in-year comprehensive loss of £11.8 million.  Around half of that loss was accounted for by the loan interest burden, £5.14m of which was still unpaid at the year-end date.  This Land’s second business plan was not working.

Cheating taxpayers three times over?

By 2020, CCC was aware the rules on councils borrowing from the Public Works Loan Board for yield were about to change.  That was because so many councils, like CCC, had exploited the interest rate differential and made similar, reckless commercial investments.  In November 2020, the Treasury published its response to a consultation on changes to PWLB lending terms:

“In recent years a minority of local authorities have borrowed substantial sums from the PWLB to buy investment property with the primary aim of generating yield.  The National Audit Office estimates that local authorities bought £6.6bn of investment property between 2016-17and 2018-19.  The government is clear that this is not an appropriate use of PWLB loans.”

Seven months earlier, on 24^th April 2020, anticipating the felling of the magic money tree, CCC’s Commercial and Investment Committee approved a third This Land business plan in private session, with press and public excluded.  The first the public knew of it was fifteen months later, when some (not entirely accurate) details appeared in CCC’s draft 2020/21 accounts.  More details emerged only in January 2022, with the publication of Avison Young’s Shareholder Review of This Land.

In short, the revised business plan removed all the taxpayers’ safeguards from 2018, and turned This Land from a housebuilder into to a land promoter, apparently cheating local taxpayers in three respects:

1. Gone was the need to repay the mortgage balance when former council-owned land was sold on to a third party.  With those sales, CCC lost its loan security.
2. Gone too were all overage payments, pre-exemption rights and restrictions in the funding agreements, apart from a promise by This Land to pay a single overage payment of £2.125m before 2023.  It is not yet known whether that payment was made.
3. With the nine-figure, long term loans still unpaid, the loss of security from the onward sales turned secured loans into increasingly unsecured loans.  Unsecured loans in the real world cost more to service than loans secured on property.  However, This Land’s last three audited accounts show the weighted average interest rate on the loans remaining at 7.35%, so no interest rate hike to reflect the higher credit risk for the council.

CCC's 2020/21 accounts presented these changes as if throwing away millions of pounds of taxpayers’ money was normal and acceptable conduct:

“Amongst the revisions was a commercial decision by This Land to dispose of a number of assets: refocusing on those of an optimum size and position for the company. By 31st March 2021, five disposals had been made and further disposals were completed during 2021-22. The sales have progressed in a relatively buoyant housing market, thus allowing the company to maximise returns and select the best timing and circumstances for individual sales. The proceeds from these disposals have put the cash flow of the company into a position where less borrowing has been needed from the Council than previously anticipated during 2020-21.”

The effect of CCC agreeing to This Land’s wishes and jettisoning all the previous safeguards is not limited to the squandering of taxpayers’ money connected to the mortgaged land sold on by This Land.  The addition of “land promotion” to the list of This Land’s activities, plus raising the lending limit from £120m to £150m means that This Land has ample opportunity to exploit the absence of safeguards to generate super massive profits at the expense of public funds being lost.  To take an extreme example, by selling on land bought at a 70% discount, if This Land were to repeat that process twice more, it could in theory make a thirty-six-fold “profit” at taxpayers’ expense in a relatively short space of time, as in the following hypothetical scenario:

1. This Land borrows £1 million and purchases land from CCC worth £3.33 million with planning permission (i.e. at 70% discount).  It obtains planning permission and sells the land for £3.33 million to a third party.
2. It reinvests all the proceeds by purchasing more land from CCC worth £11.11 million with planning permission (70% discount).  It obtains planning permission and sells the land for £11.11 million.
3. It reinvests all the proceeds by purchasing more land from CCC worth £37.04 million with planning permission (70% discount). It obtains planning permission and sells the land for £37.04 million.

At the end of the process, This Land has cash assets of £37m which, after repaying the £1 million seed loan plus interest, and incurring the cost of securing planning consent, is pure profit.  Meanwhile £51.5m worth of council land has been sold for just £15.44 million, producing a loss of £36 million for the council.  Thus, by applying a rinse-and-repeat laundering process any number of times, The current arrangement between CCC and This Land means that the council can be stripped of a substantial share of its valuable land assets, whilst This Land pretends it is reversing historical losses and becoming a profitable business through its own legitimate commercial activity.  There is huge scope for fraud by means of This Land effectively selling council land at a discount to disreputable third parties whilst still making super massive profits for itself.  Following the 2020 business plan arrangements, This Land is being offered land at a substantial discount by its shareholder who is evidently keen to reverse the £38.35m losses made to date.  To avoid the embarrassment that would come from This Land going bankrupt, CCC seems prepared to go to any lengths to subsidise its failing housing company, whilst still asserting that it contracts with This Land on an arm’s length basis.  The waiving of all the previous safeguards is proof that the current relationship is anything but at arm’s length.

Local taxpayers have no assurance that Savills’ valuations are fair, or that the discounts of up to 70% or more (see below) reasonably reflect the risk of not obtaining planning consent.  There is no transparency.  Savills has been a regular supplier of services to the authority for at least the last fourteen years.  CCC’s published payment data show that it has paid Savills over £1.4 million since July 2010.  Elected members’ decision in 2018 not to seek any second valuations despite the modest costs involved (£1,500 per site) is highly questionable. 

 

Questions for This Land Ltd and Cambridgeshire County Council

Given the facts, This Land’s current precarious position, which at long last CCC is beginning to wake up to, and the welcome commitment to greater disclosure in the published Shareholder Agreement, CCC needs to address the public’s valid concerns about This Land’s relationship with its shareholder and state aid.  In recent years, such questions have been put to county councillors serving on the relevant committees, buy they have never been answered.

The table below is compiled from information in This Land’s audited accounts on Companies House.

After its incorporation in 2016, the fifteen-month accounting period from January 2020 to March 2021 was the first in which This land reported any revenue (other than token rental income).  In its fifth set of accounts, it reported £1.1m of house sales (two homes), and £18.2m of land sales.

In each set of accounts, even the latest 2022/23 accounts, the notes refer to the long-term borrowings as “secured borrowings”.  However, as This Land has sold more and more mortgaged land without repaying the mortgages to the council, (the £113.8m loan liability remains unchanged), the accounts also show the council’s security levels falling from £80.5m to £43.5m in three years, now representing just 38.2% of its lending exposure. The reality is that until the company’s charges were revised in May 2023 to cover all This Land’s assets, and not just land, nearly 62% of This Land’s borrowing was unsecured.  Yet, as noted above, the weighted average interest rate charged on the loan has remained at 7.35% for the last three years.  That suggests that interest rates have not risen to reflect the increased risk to the authority of being exposed to £70 million of unsecured lending becoming irrecoverable, something the auditor stated in September 2022 was a significant risk.

In the interests of transparency and the public interest, here are some questions CCC and/or This Land need to answer:

1. How can CCC maintain it is complying with s123 of the Local Government Act 1972 when, by removing all overage clauses and the obligation on This Land to repay CCC its investment in the event of subsequent land sales to third parties, CCC is demonstrably not disposing of land for the best consideration that can reasonably be obtained?
2. Does CCC still obtain land valuations from a single source?  If so, does the authority believe that is in the public interest, and does it believe it is transparently so?
3. When CCC conceded to This Land’s wishes and agreed to waive all the financial safeguards in the April 2020 revised business plan, did it seek further legal advice, or was it purely a political and commercial decision with no legal input?
4. Does CCC dispose of its land to any other third parties in this fashion?  If so, have the safeguards also been waived, opening CCC up to further risk of squandering public money and assets?
5. Do CCC and This Land recognise the risks and concerns set out in the repeated buying and selling of discounted land scenario shown above?  What is their response to those concerns?
6. Will CCC and/or This Land now produce a schedule showing the following information for each piece of land CCC has sold to This Land Ltd since 2016:    

a.       Name/identity of land,

b.       Name of valuer – e.g. Savills or other,

c.       Whether or not the land had planning consent at the time of the original sale to This Land, or whether planning consent was agreed subject to a S106 agreement,

d.       The valuer’s estimate of the land with planning consent,

e.       Price paid by This Land for the land, and date of sale, with the discount percentage stated,

f.        Whether This Land has obtained planning consent since it purchased the land,

g.       Whether This Land has subsequently sold the land to a third party, and if so, what was the date of the sale and the sale price agreed.

The above list does not include the names of the purchasers, though that could be identified from a Land Registry search.  It is hard to see how any of the above information could be commercially confidential given the circumstance of the land being offered to This Land Ltd before any other interested parties.

The above information is essential to reassure the public that the business of disposing of council land is being conducted properly, and not in breach of s123 of the Local Government Act 1972.  Given the magnitude of the sums involved, the overwhelming public interest in disclosure should override any commercial confidentiality argument for keeping the information secret.

One statistic that highlights the public’s concerns is the final row of figures in the table above.  It would appear that This Land Ltd’s land sales in 2022/23, totalling £11.99m were for land previously purchased from CCC for just £990,000, since that is the corresponding drop in the disclosed land security from the previous year.  If that twelve-fold higher revenue reflects the land’s fair value with planning consent, that suggests This Land secured that land from CCC at a discount of around 92%, not 70%, with a corresponding loss to the council (and therefore local taxpayers) of more than £11 million, to add to the apparent loss of £6.6m in the previous financial year (£23.2m -£16.6m).  In other words, the figures suggest that This Land is effectively stealing from the council to report a paper profit on land sales, in order to reduce the company’s overall losses in the last two years.  If that £11m apparent profit on land sales in 2022/23 is taken out of the equation, the company’s overall loss would be £22.2m rather than the already substantial £11.2m loss shown in the 2022/23 accounts.  It is hard to understand how the company could produce such massive losses in a single year.  CCC needs to explain those figures.

If, by transitioning from a failed house building company into a “land promotion” company, all This Land Ltd is doing is being given preferential treatment and offered surplus council land at significant discounts, securing planning permission, selling it on and retaining all the proceeds for itself, then there is no need for a company structure at all.  That is what CCC can do on its own, and no doubt has been doing for decades, if not centuries.  Why introduce an opaque organisation with upwards of £4m/year overheads (£8.9m of which have been concealed from the public), and a needless £8.5m/year interest burden that the company cannot afford without further borrowing from the council or stripping the council of its land assets?

The answer appears to be a costly face-saving exercise in which the council continues to assert that This Land is a going concern because its past financial mismanagement has made it dependent on the contrived net “revenue” of around £6m/year in loan interest from This Land to support its frontline services.

No elected member serving on the Audit and Accounts Committee or the Strategy, Resources and Planning Committee seems to understand, (or is prepared to admit in public), that This Land has not been adding any economic value through its own commercial endeavours or skills, but is simply a parasite feeding off the council and steadily stripping it of its valuable land portfolio.

The public needs clear and unambiguous answers to the questions listed above, a full explanation from CCC and/or This Land for what appear to be material and highly suspicious under-valuations of former council-owned land, and an explanation for how This Land’s current business model can be anything other than unlawful state aid that this council and its taxpayers cannot afford.

County Councillor Mark Goldsack Quotes

 

Assets and Procurement Committee – 28 November 2023

Agenda Item 6 – This Land – Publication of Shareholders Agreement

Click here for Source – Timestamp 47.25

Cllr Mark Goldsack

“Thank you Chair.  I really welcome the Shareholder’s Agreement, openness and being able to see this in a public meeting.  And I think it’s a real step in the right direction.  As part of the debate of this section I would encourage everyone involved with This Land to go further, and further disclosure.  There’s a lot of disinformation and misinformation in the public domain about the operation of This Land.  And that affects people’s judgement and people’s perception of the reality of the situation.  I have spoken to the Chair of This Land direct, and asked for better communication out to councils – parish councils, town councils and the like.  But I see this very much as a step in the right direction, and I would encourage all those involved – Tom and Michael etc. to really push for more information out there – factual information that does counter some of the disinformation that circulates out there.  Unfortunately, we live in an era (and I’ve used this phrase many times), but we live in an era of social media.  And on social media, noise wins over fact.  So we have to make sure that fact stands absolutely true out there.  So, thank you for bringing this.  I look forward to more.”

Perhaps Cllr Goldsack could start the ball rolling by providing just two examples of where in the public domain, or social media, anyone at all has circulated disinformation and misinformation about This Land, and in what way that information was incorrect.  Cllr Goldsack has a tenuous relationship with factual information, as evidenced by this item from Private Eye’s Rotten Boroughs column published on 3^rd March 2021, about an earlier meeting of Soham Town Council, which the Councillor attended.

Rotten Boroughs, 3 March 2021

Private Eye’s facts were correct in every particular.  This Land’s inability to make its loan interest payments to CCC on time, and the fact it was forced to sell land purchased with those loans just to stay afloat was acknowledged on page 22 of CCC’s own financial statements for the 2020/21 financial year:

“During 2019-20, This Land undertook a significant review and reset of its business plan necessitated by revised assumptions showing a deteriorating financial position. The company had experienced delays achieving planning permission and was concerned its original plan was unduly optimistic and by the future overage obligations it had to the Council. A revised plan was submitted to the Council’s Commercial and Investment Committee in April 2020, with the Committee agreeing, for the Council’s part, to a number of updates and variations arising from the updated approach. Amongst the revisions was a commercial decision by This Land to dispose of a number of assets: refocusing on those of an optimum size and position for the company. By 31st March 2021, five disposals had been made and further disposals were completed during 2021-22. The sales have progressed in a relatively buoyant housing market, thus allowing the company to maximise returns and select the best timing and circumstances for individual sales. The proceeds from these disposals have put the cash flow of the company into a position where less borrowing has been needed from the Council than previously anticipated during 2020-21.

Other significant revisions within the 2020 business plan included a reduction in the Council’s future entitlement to planning overage uplifts from This Land, an increase in the permitted levels of lending to the company in principle (although detailed approval of draw down requests are required to access this and actual lending is currently below the level authorised in 2017) and adding land promotion as a further area of business activity for the company. Adoption of the revised business plan enabled the Council to advance loan amounts that had previously been on hold and in turn This Land could ensure it was up-to-date with previously delayed interest payments back to the Council.”

How transparent is This Land?

If Councillor Goldsack is keen to show transparency, perhaps he could comment on the following.

This Land’s Shareholder Agreement, which is now published, contains a section on Freedom of Information

In fact, requests for information about This Land do not have to go via the County Council.  Since it is a publicly owned company under Section 6 of the Freedom of Information Act 2000, anyone can address FOI requests directly to This Land Ltd, rendering section 11 of the Shareholder Agreement redundant.

In all seven of This Land’s audited accounts published to date on Companies House, a material proportion of its administrative expenses was omitted from the corresponding note to the accounts.  In total, that lack of transparency comes to £8.98m, 46% of its total administrative expenses over seven years - and the equivalent of 23.4% of This Land’s comprehensive losses so far.  

By any measure, those omissions are material.  The unsystematic way in which a large proportion of This Land’s administrative expenses (but no other item of account) has been omitted from the notes to its own audited and published accounts breaches the disclosure requirements set out in Financial Reporting Standard 102 on financial statements (FRS 102), in particular, sections 2.4-2.7, section 8 and sections 2.10 and 2.11.

The missing categories and their amounts have been repeatedly requested by a local elector under s26 of the Local Audit & Accountability Act during the statutory inspection period of Cambridgeshire County Council’s own draft financial statements.  Each year the request has been denied.  

Since 2017/18, This Land’s accounts have been consolidated with the County Council’s own accounts, to form group accounts.  The group accounts form part of the local auditor’s audit.  Since 2018/19 the authority’s local auditor has been EY.  It follows that the audit extends to This Land Ltd’s own accounting records, and therefore that all This Land’s “books, deeds, contracts, bills, vouchers, receipts and other documents relating to those records”, as well as the accounting records themselves also come within the scope of statutory inspections of the County Council’s draft accounts. 

Perhaps Cllr Goldsack could lead by example in the interests of transparency and the public interest, and insist that Cambridgeshire CC stop denying the public their statutory inspection rights, and instead provide the missing details requested last August, including copies of the supplier invoices or other documents that make up the £1.46m worth of omitted administrative expenses in the notes to This Land’s 2022/23 accounts.  

Unless and until that information is provided, the public has no idea whether the undisclosed expenses were consultancy fees, backhanders, or any other inappropriate payments.  This Land and its auditors’ (RSM UK Audit LLP) refusal to comply with FRC 102, EY’s failure to demonstrate professional scepticism and to investigate or even comment, and the authority’s stubborn refusal to comply with its statutory obligations to the public together create what lawyers call “a plausible suspicion of wrongdoing" in respect of those undisclosed administrative expenses.