[Previous] council poor workmanship costs current council £150,000 to put right!

It is just a bit rich that the damage was done on the watch of the past chair of Asset Management – who is also the present chair and he now somewhat pompously says it must be put right!!! Er, if, as a council officer says “the survey wasn’t as extensive as in hindsight the council would have wished it was ..” perhaps this is one for the Scrutiny Committee!

“An extra £150,000 will have to be spent on resurfacing an Exmouth car park – because it was never laid properly by the council in the first place.

Improvement works, including resurfacing and construction of a new entrance, had been taking place at the Maer Road car park.

But John Golding, East Devon’s strategic lead for housing, health and the environment, told a cabinet meeting on Wednesday that when work began, it became apparent the car park construction was substantially poorer beneath the surface that had previously been assumed.

He added: “We have found that the construction of the existing surface in the vicinity of the new entrance appears to be made up of compacted stone with a thin veneer of tar and chip over the surface.

“Given the limited depth of construction, and surface condition, it is likely that the car park would deteriorate very rapidly once larger vehicles are allowed onto it.

“More extensive works comprising both new sub-base and a tarmac finish are required to complete the project satisfactorily. We already have the contractors on site and we can do the work before the summer holidays commence.”

He added that this would result in an increase in the total overall budget of £151,760 and asked cabinet for approval to complete the work.

Cllr Geoff Pook, portfolio holder for asset management, added: “We need to do this. We have to look at our assets on a long life basis. We need to do a proper job from day one and don’t want to have to patch in a few years’ time or have a car park that cannot be used by heavy vehicles. It is out car park so we in any case would have had to do something and bring our own car park up to standard.”

Cllr Jack Rowland asked why this defect wasn’t discovered at an earlier stage during the survey works.

In response, Mr Golding said that the survey wasn’t as extensive as in hindsight the council would have wished it was.

Cllr Ben Ingham, leader of the council, added: “We made a false assumption that we had done the job properly in the first place and that they didn’t need to check the sub-layers, but that was a wrong assumption.”

The cabinet unanimously agreed to the extra spending to resurface the car park to provide a good surface and base layer for 20 years.”


K’ching! 3 bids in for Sidmouth seafron Drill Hall

“East Devon District Council has received three ‘interesting and diverse’ bids for the site following the consultation period, which ended on Friday, February 4.

A core group made up of Sidmouth and East Devon town and district councillors are now considering the bids, working with property agent JLL which has managed the marketing.

A council spokesman said at the moment the details of the bids must remain confidential and recommendations will be made for East Devon District Council’s cabinet for approval at a later date. …”


Knowle Flog It – yes, it IS public property, officers and councillors

Sidmouth Herald has finally put up the story about the Knowle Flog it scandal on its website:


Yes, it is PUBLIC property – NOT councillors’ and officers’ property!

And Owl wonders what is going to happen (or has happened) to public property such as the rather lovely globe lights in the Council Chamber, the beautiful fireplaces and the MANY square metres of still very serviceable Axminster carpets, for example …

Knowle Flog It: statement raises more questions than answers

An “explanation” of the Knowle Flog It fiasco appears in today’s Sidmouth Herald. It appears to be printed verbatim from a council statement.

Owl wonders why this statement was printed without challenging some of its very, very vague claims – one hesitates to use the word ‘facts’. “Journalism”? Not as Owl knows it!

Guess some answers MIGHT come from the Freedom of Information request by an Exmouth resident on 8 January 2019:

In the meantime:

Amongst Owl’s questions:

It seems Councillor Skinner paid £400 for the table he wanted so urgently – earlier reports mentioned it being valued at a very low price, much lower than £400. Which is correct? And including just how many chairs?

Who decided on the “three disposal methods? It does not appear to be the Asset Management Group.

Which councillors have bought items? Have they declared these on their Registers of Interest?

Which groups were offered ‘free’ items, how were they chosen and by whom? Have any of these groups taken items – and if so, which groups and how much did they pay for them?

What exactly is the Chairman’s Civic Fund and how and when has it been used recently and in the past? What are its rules? Who oversees the disbursements?

Which local groups and charities will be able to bid for what is left after officers and councillors have taken their pick? How have they been chosen and by whom?

Are internal and external auditors happy with the procedures?

Will the Scrutiny Committee be scrutinising these actions?

Owl is sure readers have many more questions!

The Knowle “Flog It” scandal rumbles on

Recent Freedom of Information request:

“Dear East Devon District Council,

The following is a request in accordance with the Freedom of Information Act 2000.

Recently an email from a Conservative counsellor was released into the public domain regarding the purchase of a “very large table in the members room” as a result of “an auction of council furniture, chattels, etc” to the benefit of members and EDDC staff.

The email went on to state “I have been told that I have been successful in my bid so the table along with the 8’ extension is heading back to Exmouth to sit in (address of councillor), Exmouth in its rightful Town (some may say)” and then stated arrangements for its removal date in order that it could be used for the Councillor’s Christmas dinner for 22 family members.

Subsequently on 21st December 2018, the Leader of the Council made a statement about the disposal of a range of items, including this table. He said the large table “attracted little professional interest with one valuer estimate of just £50”.

I would like to know:

If one valuer’s estimate was £50, what were the other estimates?

What are the names of the valuers who gave estimates for the table?

Does EDDC audit not require a range and record of estimates for the disposal of council assets, as well as a record of disposals?

EDDC, like other councils, should have a written policy and procedure for the disposal of assets such as used equipment, furniture and other plant, What is that policy and procedure?

Who was the Councillor that successfully bid for “the very large table in the members room”?

How much did the Councillor pay?

Was the ornate clock on the mantel piece (as shown on the cover of the Residents Magazine, December 2018) part of this disposal process?

If so, what was the valuation given?

What price was paid?

Who bought this clock?

The Leader of the Council referred to proceeds of this sale and other sales going to the Chairman’s Civic Fund.

How much money was raised from this sale of “items of sentimental interest or practical use”?

What are the “other sales” Councillor Thomas refers to?

How much money was raised from each of these “other sales”?

What is the total now of the Chairman’s Civic Fund?

Information about the Chairman’s Civic Fund is not easily accessible on the EDDC website; a word search on the site produces “no result”. Where can details of this fund and its administration be found?

Yours faithfully,”


Reuse, repurpose, refurbish: “The rise of the ‘meanwhile space’: how empty properties are finding second lives”

“Hospitals are rarely places of cheer and creativity, but the former Saint-Vincent-de-Paul hospital in Paris’s 14th district is one of the most exciting places on the left bank. Former ambulance bays and car parks now house allotments, a boules court, a makeshift football pitch and an urban campsite, and up to 1,000 visitors a day come to browse its market, eat at its cafes or catch a free live performance.

Renamed Les Grands Voisins, or The Great Neighbours, the site is a magnet for Parisians and tourists alike, its former treatment rooms, A&E building and wards now a hub of social and commercial enterprise. Alongside a hostel providing 600 beds for the homeless are artisan studios, pop-up shops and startups.

It’s like a village, an inclusive space with social areas and job opportunities where different people can interact,” says William Dufourcq, director of Aurore, the charity that runs the homeless shelter. “We were overwhelmed with its success.”

Closed since 2011, the hospital is slated for redevelopment into a new neighbourhood with eco credentials, private and social housing, shops, commercial and public facilities and green space.

Planning, clearance and construction on such a large scale takes time and, rather than leave the 3.4-hectare site empty for years, the developer, Paris Batignolles Aménagement, opened it to local organisations rent-free. The lease was scheduled to end this year, but has been extended until mid-2020 while construction begins on other parts of the site.

Les Grands Voisins is an example of a “meanwhile space”: a disused site temporarily leased or loaned by developers or the public sector to local community groups, arts organisations, start-ups and charities. Calls for making use of such spaces in other crowded urban centres are getting louder. A report published in October by the thinktank Centre for London highlights both the need for and positive possibilities of utilising empty urban sites and how this could transform the landscape of cities around the globe.

“The aim was to show the value ‘meanwhile use’ can add in cities where there is pressure on space,” says Nicolas Bosetti, one of the report researchers. He says public and private operators in Paris are more ambitious than those in London in exploring the use of disused buildings from metro stations to former nightclubs for short-term use as charity and cultural venues.

Other meanwhile spaces in Paris include Exelmans, a former police residence repurposed as a shelter for the homeless and refugees, run by Aurore on a two-year lease, and the Parmentier electricity substation, where the art collective La Générale has operated since 2008.

The substation, which is soon to be redeveloped, was included in Paris Reinvented, an initiative from the mayor’s office currently in its second year. Disused public sites are put up for auction to developers and architects who compete with plans for their redevelopment. “Les Grands Voisins showed how something like this can change an area and help plan future urban projects,” says Marion Waller, adviser to Paris’s deputy mayor for urban planning. “We didn’t want to sell buildings to the highest bidder but to the most innovative solution.”

The idea of loaning empty urban spaces to worthwhile causes is gaining ground elsewhere, with thriving projects in the Danish city of Aarhus and Philadelphia in the US, where it’s called “temporary urbanism”. However, in space-squeezed London, urban sites can remain empty for years, mainly because they have no obvious commercial potential or are waiting for permission to be developed.

The Centre for London found that an estimated 24,400 commercial properties in London are currently empty, with around half having been unused for more than two years. The total available vacant space, 6.5m sq metres, is equivalent to 27 times the footprint of Westfield London, Europe’s largest shopping centre. The majority of such places are owned by local authorities and developers. “Only one of 33 London borough councils publishes a database of vacant property and only one council keeps a list of groups interested in vacant spaces,” says Bosetti.

Bosetti thinks property owners could do more to match available sites with needy groups but says local authorities are afraid of squatters or allowing in destructive elements. “One of the main barriers to meanwhile use is the perception that hoarding a site is safer,” he says. “Often the opposite is true. Opening a site to a community and encouraging interaction with residents usually sees a reduction in antisocial activity.”

Squatting and vandalism are more likely if a building remains empty for too long, so one benefit of temporary tenants is the reduction in security costs. Another, according to Simon Hesketh, director of regeneration with the British developer U+I, is the connection a meanwhile space can forge with the community prior to redevelopment.

“We’ll try to organise events in temporary spaces for the widest cross-section of residents, to get their views and ask what they’d like and what works,” he says. “Not just to smooth the planning process, but because we can learn what we might include in our proposals.” …


EDDC flogging off the Ocean Centre Exmouth – well, it might cover a bit of the new HQ bill!

“According to agent Vickery Holman Property Consultants, Ocean Blue, in The Esplanade, is on the market for £2,700,000.

The facility, which opened its doors for the first time in 2012, has 12-lane 10-pin bowling, a gaming area and the Ocean Bar and Grill, with a seating capacity of 100 on the first floor and a large children’s soft play area and café for 22 children.

On the second floor, there is a function suite, bar and two outside terraces which has become a popular wedding venue with a capacity for 350 people.

The complete site is subject to a 125-year lease with East Devon District Council and was sublet to LED Leisure Ltd for 25 years in 2015.

The Journal understands this agreement will not be affected by the sale of the site.”


Community has 6 months to bid for Sidmouth’s Drill Hall

“Community groups have been given six months to make their submissions by January 11, 2019.

Exeter-based JLL, have been appointed by East Devon District Council as property marketing advisor, and will be offering advice and taking bids from non-commercial organisations immediately.

In the autumn, the company will open the bidding up to commercial property sector who will have only three months to put forward a bid.

Councillor Jeff Turner, of Sidmouth Town Council, said: “I’m pleased to see that the six month period has now started for the local community in Sidmouth to come forward with any ideas they may have.

“This commences the next stage of the process in finding a way forward for this area of the seafront which is of significant interest to a great many people in Sidmouth.”

It follows 18 months of consultation, which included a scoping study around the town’s Port Royal area to find out what the community would like to see there.

EDDC also carried out a marketing exercise to see about the possibility of adding attractions such as a high quality restaurant/bar development or something similar.

An EDDC spokeswoman said: “As a result of hearing what local people wanted and also acknowledging the constraints of the site including increased risk of flooding, a lack of financial viability in relation to large scale mixed use development and existing covenants, it was agreed that the original proposals should be ruled out.”

Cllr Philip Skinner, Deputy Leader of East Devon District Council and its economy portfolio holder, said: “I’m delighted that we are now able to offer this opportunity for the local community in Sidmouth to come forward during the next six months with their ideas for the site.

“Our property advisor will be available to offer guidance to interested parties and I look forward to seeing a range of proposals when the marketing period concludes in January next year.”


How much land does EDDC own? Answer: 2,302 acres

Answer to a Freedom of Information request:

1. The total amount of land (in acres) currently owned by your Council – 2302 acres

2. The total amount of land (in acres) currently owned by your Council that has been identified as surplus to requirements – 0 acres

3. The total amount of land (in acres) currently owned by your Council that is scheduled to be sold – 0.3 acres

4. The total amount of land (in acres) currently owned by your Council scheduled for joint venture housing development or where such development is already taking place – 0 acres

Date responded: 20 June 2018


The Great Public Asset Sale!

No mention of community hospital sales – many hospitals having been financed by the local population.

And it begs the question: if the community has no assets and is getting only statutory services which are funded out of general taxation – what are we paying (increased) council taxes for?

“Libraries, swimming pools, youth and community centres, town halls, parks and other open spaces were among more than 4,000 public assets sold by local councils to developers and other private buyers last year.

Sales appear to have risen since George Osborne, who was then the chancellor, changed the rules in 2016 to allow local authorities to use money from sales of publicly owned buildings and land to cover running costs. Campaigners say that authorities facing financial pressures are denying future generations access to many community assets.

Locality, a network of community organisations, submitted freedom of information requests to all 353 local authorities in England asking about asset sales, of which 240 responded. The results showed that councils sold 4,131 buildings or plots of land last year.

Tony Armstrong, the chief executive of Locality, said: “One of the concerns we have is that many local authorities are just selling these assets off, and until now we have not had a clear picture of the scale of this.” He called for more buildings and sites that councils could no longer operate to be transferred to community groups that could run them on a not-for-profit basis.

Richard Watts, of the Local Government Association, said: “With local government facing an overall funding gap in excess of £5 billion a year by 2020, councils face difficult decisions about how best to use their resources to support local services, day-to-day activities and to protect public assets. Before a decision is made to sell an asset, the cost of selling it versus the benefit it could bring is considered carefully.”

Source:Times (pay wall)

Council borrowing so high, government intervention may be needed

EDDC is borrowing to fund the building of its new HQ and to fund its “Growth Point” and is also considering going into the housing construction market.

“Local authorities could face further intervention by central government if new changes to investment and treasury codes fail to dampen council borrowing levels, according to a senior Whitehall official. …

[A conference speaker said] … “said: “When last year local authorities borrowed an additional £3.8bn, that was a £3.8bn increase in net debt. “That was £3.8bn less that the chancellor had available to distribute as funding across the board at the last budget. “So, local authority borrowing does have a real world impact in the overall quantum of funding that is available to government.”

In addition, he said that concerns have been raised that councils investing in particular asset classes can drive prices up, creating a bubble.

New principles on proportionality included in the code were triggered by some smaller authorities taking on huge sums of debt relative to their size, Caller [the speaker] added.

“We had concerns that those authorities who were doing that were effectively assuming that government stood behind their risk. “That is not the statutory position, and it is not a position we want to encourage. “What the legislation says is that effectively it is council tax payers that have to make good any deficit in those assumptions, not central government. We want people to remember that.” …


“Councils embracing commercialisation, says survey”

Do you agree that your council tax should fund EDDC as a “commercial enterprise”?

Bear in mind as you think about this and read below, its HQ move has gone up from “cost neutral” to the most recent estimate of around £10 million.

And ask yourself: how many of our councillors (town, district and county) would you trust to run your local sweet shop? And is this all academic anyway when increasingly the purse strings are being controlled by our Local Enterprise Partnership?

“Commercialisation has become the most talked about topic in councils this year, with some seeing turnover equivalent to a FTSE 250 company, according to research gathered by Zurich Municipal.

The insurer conducted in-depth interviews with 22 council chiefs across England and Scotland gathering findings into the Why are we here? The 2017 Senior Managers’ Risk Report (link below).

This revealed that many councils are embracing the opportunity to become commercial entities with one council chief interviewed by Zurich admitted to turnover of £1.5bn.

“Commercial income generating projects are the new norm for local government, with some competing against one another to buy and build hotels, harbours, piers, cinemas, university campuses, and science and research parks,” the report – released at the Solace Summit in Manchester yesterday – stated.

Many see the potential for commercially generated revenue to be re-invested in local communities, however, some spoke of the need not to stray to much into private sector disciplines, while others said it should not be pursued at any cost.

However, austerity is still seen as an ongoing challenge, with some councils saying that services cannot be cut any further.

Funding issues are also harming relations with central government, the research revealed.

One council chief executive said: “We need a frank discussion with government. We can’t carry on doing everything we do.”

Rod Penman, head of public services at Zurich Municipal said: “Councils are facing challenges from all sides, and many are employing commercial ventures to mitigate some of the lasting effects of austerity.

“This approach is not without its challenges, however. There is the growing potential for moral and commercial dilemmas at almost every turn, and it is clear that council chiefs are concerned about the long-term relationship between national and local government.”

Another theme to emerge from the study is the perception of councils following the Grenfell fire.

Council chiefs said they felt the tragedy marked a watershed in how local government’s purpose and remit is viewed.

One commented: “The Grenfell Tower disaster means we will take more consideration of community discussions.”

Penman added that councils needed to “improve the narrative” about the choices they take, especially in a more commercial environment.

“Framing decisions in a purely commercial light simply isn’t an option when the social value of public bodies and services has to be factored in,” he said.”

The full report is here:

Council’s £1 million overspend investigated; our council’s multimillion overspend on new HQ not investigated!

OUR council has already spent nearly that much on its satellite HQ in Exmouth. The Honiton HQ was supposed to be cost neutral with the proceeds of the £7 Knowle sale to PegasusLife but latest estimates (some while ago and not adjusted for post-Brexit soaring costs) was around £10 million.

How come SWAP could do this in Herefordshire but not in East Devon. Or why KPMG – its new auditors – are not doing it now?

A special investigation into how the costs of establishing a joint customer services hub in a refurbished building soared from £950,000 to more than £1.9m has found evidence that officers “knowingly disregarded council process and procedures”.

The investigation into the Blueschool House refurbishment was carried out by the South West Audit Partnership for Herefordshire Council. The local authority has been working with the Department of Work and Pensions on the project. Have we ever seen the (updated) business case for the new HQ?

The business case for the hub was approved by the council’s Director of Resources on 13 May 2016 and the key decision taken on 2 June 2016 was approved by the Cabinet Member Contracts and Assets.

The SWAP report said: “Overall the council’s normal governance processes have not been followed by key officers involved in the Blueschool House refurbishment.

The key decision did follow the correct governance process however the business case to support the key decision lacked clarity over what works would be included in the £950K agreed financial envelope.

“It would appear that key staff including senior officers at Director level were aware of the council processes and procedures but these have not been applied during this project and there is evidence that officers have knowingly disregarded council process and procedure.”

The investigation found that although there were early indications from the framework provider that the project could not be delivered within the financial envelope even with value engineering, key officers failed to report this to Cabinet.

The report also said:

The rationale for the selection of the contractor could not be demonstrated as there were no records to support this. The property services team had responded to client requests without providing robust challenge, and had not followed the council procedure rules in relation to procurement.

The relationship between the property services team and contractors appeared to be informal for a capital project of this value and throughout the project there was little evidence that value for money could be demonstrated.

In line with the capital guidance, major projects should be overseen by a project board. The Accommodation Programme Board had oversight of the overall accommodation strategy until November 2016 however, there was no project board for the Blueschool House refurbishment project.

The timescale of the project was identified as a major risk in the business case as the project was subject to a time constraint pressure due to the DWP serving notice on their current property. This was a key factor in ensuring the project was progressed and had contributed to the overall poor governance.

The SWAP report said it was “for management to consider and determine whether any further action such as disciplinary action, should be taken against individual officers as it is clear there has been disregard for processes and procedures which has resulted in a significant overspend on the project”.

The report was due to be considered by the council’s audit and governance committee at a meeting this week (20 September).”


Vanity projects, speculation and unwise development could lead councils to bankruptcy

“Desperate councils risk being plunged into an Icelandic-style financial crisis after investing £1.5bn in the commercial property market, according to Sir Vince Cable, former business secretary.

Heavy cuts in central government funding have left the authorities having to consider increasingly exotic solutions to ease their financial constraints.

Between 2010 and 2015, there was a 37% cut in real terms in central government funding to local authorities. One option – popular in the last couple of years – has been to borrow from the Treasury-run Public Works Loan Board (PWLB) at very low rates of interest and then use the money to invest in commercial property ventures that offer returns of as much as 8%.

But there are fears that the strategy is creating a bubble that could bankrupt some local authorities. “This is not a wise and sensible thing to do,” said Cable, who was business secretary in the Tory-Lib Dem coalition and is standing as Lib Dem candidate in his former seat in Twickenham, south-west London.

“Local authorities have a long and inglorious history of gambling in financial and property markets,” he said. In the 1980s, Hammersmith and Fulham council was one of several local authorities that got into financial difficulties after becoming involved in complex bets on interest rates.

Cable said he could understand why councils were considering such strategies. “When they are massively constrained in what they can do around council tax – and indeed commercial rates – they are trying to prevent even deeper and more damaging cuts by taking these unorthodox measures. In some cases they may succeed, but there is a very high risk of bankrupting their local authorities. It does suggest a certain degree of desperation.”

Local government sources have defended the councils, saying that much of the money is invested in helping regenerate their local areas. But not in all cases. “What is so bizarre, so shocking, is that they are investing in property in other parts of the country,” Cable said. “It makes no sense whatsoever.”

Matthew Oakeshott, an investment manager at Olim Property, said councils were “playing a gigantic game of Monopoly with taxpayers’ cash”.

But authorities badly need returns at a time when interest rates remain low and demands on councils are rising. It is estimated that, by 2020, England’s councils will face a near £6bn funding gap between what they need to spend and what they receive. Most of this shortfall is due to rising costs linked to social care.

Two years ago, the Local Government Association warned that a dozen councils were on the brink of financial failure. Since then, the councils have had to be inventive in seeking to balance their books. Several – such as Eastleigh, Kettering and Maidstone – have successfully exploited loans from the PWLB to invest in commercial property. This, in turn, has attracted interest from other councils.

But such copycat behaviour is a concern, according to Cable, who drew comparisons with 2008, when many councils were left exposed after depositing millions of pounds in high-interest rate accounts offered by Icelandic banks, which then went bust.

“It did very serious damage to some councils,” Cable said. “It should have been a warning to all corporate treasurers in local government to not go anywhere near this.”

The extent to which councils are exposed to a downturn in the commercial property sector is unclear.

Last month, Lord Myners tabled a parliamentary question asking the government to confirm how much money the PWLB had lent to local authorities to invest in commercial real estate between 2011 and 2016, and what it was doing to monitor the risk from such investments.

Responding for the government, Baroness Neville-Rolfe said it was up to the councils to assess risk. She said: “The Public Works Loan Board is not required to collect information on the specific reasons that local authorities borrow from it, and so it does not hold information about the amount of lending that has been used for acquisition of commercial real estate.”

However, estate agent Savills told the Financial Times that councils had invested £1.2bn in commercial property last year and a further £221m so far this year.

An economic downturn could see commercial property yields drop, leaving councils exposed, say analysts. This fear has led some councils to resist investing, but others have developed considerable appetites. The Financial Times reported that Spelthorne borough council – which has assets of just £88m – bought a business park in Sunbury-on-Thames for £360m, having taken out 50 separate loans from the PWLB.

Local government sources played down fears of a bubble, pointing out that every council investment was made on a case-by-case basis and had to meet strict borrowing criteria.

Under the Prudential Code, councils must show that their investment plans are affordable, prudent and sustainable.

A Treasury spokesman said: “Responsibility for local authority spending and borrowing decisions lies with locally elected councillors, who are democratically accountable to their electorates.”


“The great town hall property buying spree” full text

“After a career as an investment manager at HBOS, the bank that had to be bailed out by Lloyds during the financial crisis, Donna Jones became leader of Portsmouth city council in 2014. It was a time of belt-tightening, with the prospect of government funding for local authorities drying up altogether by 2020.

“It was clear to me we had to start running councils like businesses,” said the 39-year-old Conservative councillor. “To survive during the austerity programme, the only way to protect high-quality public services was to go out and generate income. We’re not moving to fortnightly bin collections or closing any libraries, swimming pools or museums.”

She has been true to her word. The council is now selling back-office facilities, such as human resources and IT support, to charities and smaller councils. It has leased the naming rights to the Spinnaker Tower, the city’s 560ft-high landmark, to Emirates airline.

Portsmouth’s local authority has also amassed a commercial property portfolio — most of it many miles away from Fratton Park football stadium, HMS Victory and Southsea Castle.

Using £110m of debt, Portsmouth has so far bought properties including a DHL distribution centre near Birmingham, a Waitrose store in Somerset and a Matalan warehouse in Swindon. In December, it sold a long lease on the Wightlink ferry terminal to the insurer Canada Life for £73m. The proceeds will be used to raise the portfolio’s size to more than £180m.

Jones said the deals were already producing £4.9m of annual income after interest. Combined with other measures, that means only £900,000 of the £9m budget cuts that Portsmouth must implement in the coming year will have to be passed on to residents through service reductions, she said.

Across England, other councils are doing the same. Empowered by the 2011 Localism Act and funded by cheap loans from an obscure subsidiary of the Treasury, 49 local authorities went on a £1.3bn property buying spree last year — spending far more than the £142m recorded in 2015.

However, there are growing concerns in the private sector and parts of Westminster that government grant cuts, coupled with generous lending by the Public Works Loan Board (PWLB), are encouraging councils to take risks they do not properly understand — in an asset class that is more volatile than many realise. Most of the property deals have been 100% funded with debt, leaving both councils and the Treasury exposed to immediate losses if values fall.

William Hill, the former head of property at the fund manager Schroders, warned in January that councils were “behaving like hedge funds exploiting a financial arbitrage”. He questioned why the government was lending to local authorities “to buy real estate on terms that make bank lending to the property sector before the [great financial crisis] look positively conservative”.

Sam Resouly, a partner at the investment firm Trinova Real Estate, said the trend had caused “distortion” in the market, with the PWLB giving councils an advantage over other bidders. He added: “If they buy 10 years’ income, they have to accept that as 10 years goes to zero, they’re going to get a rapid deterioration in the value of that asset. At some point they’re going to have to spend money to get it up to standard, and what happens to councils’ accounts then?”

One management consultant, who did not want to be named, said: “It’s hard to see why councils aren’t just the dumb money in the property market.”

The borough council of Spelthorne, a patch of the Surrey commuter belt that is home to 95,000 people, had the dubious honour of doing Britain’s biggest local authority property deal last year. It boasted of outbidding “national and international” investors to buy BP’s Sunbury office campus for £360m. The complex has been leased back to the oil major for 20 years, yet Spelthorne financed its purchase with a 50-year fixed-rate loan from the PWLB.

Although the council is paying down the loan year-by-year — unlike most other PWLB borrowers, which pay interest only — the mismatch raises the possibility that Spelthorne will be on the hook for repayments on an empty building in 20 years, when BP’s lease runs out.

Terry Collier, deputy chief executive of the authority, said it had taken out a 50-year loan because “it was just the way the financing worked best for us”.

He said BP had been on the site for 100 years, and was an important local employer, but added: “We wanted to secure a key site within the borough which was 3½ miles from [Heathrow] Terminal 5. Regardless of what BP do long term, that’s a valuable site, and we obviously did our options analysis around various scenarios.”

Spelthorne took confidence from the fact it was advised by Cushman & Wakefield, a well-known property agent. Cushman, however, is likely to have received a seven-figure fee, based on typical industry contracts, meaning it was hardly incentivised to advise against the deal.

Of the 76 council property transactions last year, 58 involved authorities buying within their own geographic area, according to a report by the consultancy CBRE. Spelthorne’s purchase added £3m a year to its annual £13m income after interest costs, but also gave the council control of what it called a “strategic” local site. Similarly, Canterbury council in Kent spent £79m on 50% of the city’s Whitefriars shopping centre, with the dual aim of generating income and improving the mall, and Surrey Heath bought up a chunk of Camberley town centre for regeneration.

There were 18 instances of councils venturing beyond their boundaries for deals, apparently driven entirely by the hunt for investment yield. Tony Martin, a director at CBRE, played down the significance of this, saying there was “only a very small number who will do it”, but the trend among the likes of Portsmouth seems to be accelerating. Some are even considering going overseas.

East Hampshire is one. It was the only authority in England to announce a council tax cut this month. The council leader, Ferris Cowper, a former director of the confectionery giant Mars, believes the authority could scrap the tax altogether within five years despite the loss of central government grants.

As well as making money selling services such as planning and regeneration advice, Cowper has built a £24m property portfolio that produces more than £2m a year after costs.

He is in the process of negotiating £200m of new loans, at least half of them from the PWLB, to ramp up East Hampshire’s activities. Those borrowings would amount to eight times East Hampshire’s annual budget of £25m. “That will be for opportunities nationally and, depending on the yield and risk profile, internationally too,” said Cowper, who plans to remain a cabinet member to oversee the strategy.

At the heart of this property boom is the PWLB, a body set up in 1793 to lend councils money for sanitation works. It now gives them access to cash from the National Loans Fund for “capital projects” — in theory, building and infrastructure — and has a balance sheet of more than £65bn.

The PWLB allows authorities to raise finance at sovereign prices: according to its website last week, £100m from the PWLB over 20 years would cost a council just 2.2% annually. The equivalent private sector rate would be 4% to 5%.

The process is surprisingly simple. Since Sir Eric Pickles, the former communities secretary, abolished the Audit Commission, councils have set their own borrowing levels based on the Chartered Institute of Public Finance’s prudential code for capital finance without close supervision by the government.

Provided a council can assure the PWLB it is operating within its limit, which is agreed every year by the cabinet and signed off by its finance director, it can borrow as much as it likes without telling the PWLB the purpose of the loan. The PWLB lends to the council without taking security over the asset.

Councils’ interest payments must be paid ahead of their other commitments, such as spending on services, although the current spread between the PWLB’s rates and property yields means they can service the debt and keep a profit.
A parliamentary report last year noted that changes to the PWLB’s early repayment charges meant that fewer councils were paying off loans early.
Henry Stannard, an associate partner at the strategy consultancy OC&C, said councils were exploiting a loophole. He suggested they were using a legal but circuitous route to “launder” money ring-fenced for capital projects into the separate part of their budgets set aside for spending on services such as adult care.

“This is not what the PWLB was set up for, and it’s not what it’s been funding for the past 200 years,” he said. “There has to be a better way of funding local government than these sorts of cheats.”

The Treasury is absorbing the PWLB and taking over its functions, although it said local authorities would “continue to be able to access loans as before”, and that interest rates would “continue to be the responsibility of the Treasury”.

For now, the multibillion- pound property gamble is set to roll on. In the words of Tony Travers, local government expert at the London School of Economics, councils’ attempts to make profits are an “intended consequence” of Downing Street’s plan to cut local authority grants by 2020 while protecting spending on defence, the NHS and pensions.

The next property market crash will test the wisdom of that policy.

Are you being served?

Councils spent £1.3bn on commercial property last year as they sought ways of generating income to make up for central government grant cuts. They are doing this with cheap loans from an arcane branch of the Treasury that is supposed to help pay for infrastructure investment.

MPs raised the alarm over the trend in November. The public accounts committee, chaired by Labour’s Meg Hillier, said the Department for Communities and Local Government appeared complacent about the risks from councils “increasingly acting as property developers and commercial landlords with the primary aim of generating income”.

The report noted that:

• councils’ spending power on services, based on government grants and council tax, fell by more than a quarter from 2010-11 to 2015-16, and is set to drop another 7.8% by 2019-20;
• councils’ spending on capital projects ­— building and infrastructure, but also property investment — rose by 13.6% from 2010-11 to 2015-16; and
• a “significant” number were already having to use more than 10% of the money meant for services to meet interest payments on debts.

The MPs said the department did “not have good enough information” on the pattern of property investment. They pointed out that three-quarters of councils’ capital spending was grouped under one category — hiding the shift from building libraries and museums to investing in office blocks and supermarkets for yield.

The Tory MP Richard Bacon questioned councils’ ability to build portfolios. “We all know plenty of examples of local authorities that could not run a bath or organise their way out of a paper bag,” he said, referring to the early 1990s interest-rate swaps fiasco in Hammersmith & Fulham, west London. The council amassed £6.2bn of risky derivatives bets and was saved only when the House of Lords ruled them void.

Last week, Moira Gibson, leader of Surrey Heath council, accused critics of “underestimating councils”. She said her authority used outside advisers, including Montagu Evans, to help run its £130m portfolio.”

Times Newspapers (paywall)

“The Great Town Hall Property Buying Spree”

Full page article in today’s Sunday Times main section, page 5.

The article relates to borrowing from the Public Works Loan Board (PWLB – a Treasury outpost) from which East Devon District Council expects to borrow to pay for its new Honiton HQ, and which the article warns:

… there are growing concerns in the private sector and parts of Westminster that government grant cuts, coupled with generous lending by the
PWLB are encouraging councils to take risks they do not properly understand- in an asset class that is more volatile than many realise. Most of the property deals have been 100% funded with debt, leaving both the councils and the Treasury exposed to immediate losses if values fall. …

… Sam Resouly, a partner in an investment firm … said the trend had caused a distortion in the market … If they buy 10 years’ income, they have to accept that as 10 years goes to zero, they’re going to get a rapid deterioration in the value of that asset. At some point they’re going to have to spend money to get it up to standard, and what happens to council’s accounts then? …

… Councils’ interest payments must be paid ahead of their other commitments, such as spending on services …

… an associate partner of a strategy consultancy said” … councils were exploiting a loophole. He suggested they were using a legal but circuitous route to “launder” money ringfenced for capital projects into the separate part of their budget set aside for spending on services such as adult care. …

Is Mr Cohen up to his job?

Richard Cohen has not had a good year (well, actually he has, as he remains Deputy CEO and Relocation Manager for EDDC).

He came under fire last week for saying (twice) that the DMC had “stymied” relocation plans – though actually if anyone stymied anything it was PegasusLife putting in a planning application that was unfit for purpose.

Just so show this wasn’t a one-off, let us remind ourselves of this is transcript of part of a speech by a well-known Sidmouth businessman with experience of property development, made at a Sid Vale Association Meeting at the Unitarian Church, Sidmouth, 9th December 2014.

The speech begins with a discussion of Cohen’s estimate of total relocation costs at about £10 million.

“The numbers are completely, hopelessly and scandalously wrong. They are useless, they are terrible and have to be challenged vigorously and strenuously. These numbers are rubbish. They don’t include the green travel plan, they don’t include compensation for the staff, they don’t include the cost of the move itself, they don’t include the costs of hubs the other towns and, most importantly, they don’t include the cost of officer time and members time that is involved in all of this.

The expert, Mr Steve Pratten from Davis Langdon, he is going to cost £1million or more on his own. It doesn’t include the legal costs in all this. I say to the District Council that I have estimated the real costs to be £20million. That figure was not disputed – Richard Cohen did not say it was exaggerated – he said he didn’t recognize the number. What that means is that I was bang on the money.

Ladies and gentlemen, we are trusting Richard Cohen to mastermind this whole process and we are assuming that he’s accurate in the mathematical calculations. This is the same man who measured the Knowle 40% smaller than it turned out to be! He got it wrong by 40%. Robin Fuller had to write a paper, he was rubbished in the press and it turned out that he was correct. The Knowle is 40% bigger than Richard Cohen thought it was.

This is the same man who was responsible for four attempts to compose the economic impact assessments rejected by his own planning committee. He can’t get simple mathematics right. This same man tells us that energy prices are going to go ahead for the next 20 years at 10% over inflation. He is alone in the entire world in thinking this. Nobody else believes that including your energy companies who will fix your energy costs for the next four years. That instantly takes £1.5million out of all the savings that are supposed to be made by moving, so he hasn’t even bothered to explore that possibility.

He is also the man who shifted the southern boundary of the Knowle to include the second tier of parkland without telling anybody and in contradiction to the specific instructions of the Development Management Committee. I was told this would not be investigated because the Inspector would look at it, which he would not do because it was not in his remit. So that has never been investigated by anybody at the Knowle.

He did it without managing to record that process; without managing to record any conversation with any individual, without writing a single email, or keeping a single note or sending any kind of correspondence to any third party. Because I made a freedom of information request, and there was nothing there.

He did it unilaterally, on his own, secretly, and he didn’t tell a single soul, and I only found out by accident.

This is not the kind of person I would trust to do these calculations. Now when he says it is going to cost £15.9million to refurbish the Knowle, I would tell him that that’s a load of bunkum. This relates to the entire building, which nobody advocates retaining. Why is anybody working in a bathroom when the Knowle is two and a half times the size of the building EDDC says it needs? How can that be possible? Mr Cohen in his calculations also asserts that there is nil chance, not 1% chance of local government reform in the next 20 years.”

Call for £1 billion fund to protect community assets

“Community action charity Locality has called for a £1bn fund to safeguard public buildings and spaces under threat of sale.

It said in a report Places and Spaces – The future of community asset ownership

Click to access Locality-Places-and-spaces-report-final.pdf

that budget cuts were increasingly forcing local authorities to sell buildings and spaces instead of transferring them for continued use by local residents.

Locality chief executive Tony Armstrong said such sales were “short sighted” and “put communities at risk of permanently losing important public buildings and spaces for the sake of a quick buck.

“Transferring public assets to communities can safeguard them for generations to come,” he said.

Locality said the £1bn fund should comprise £500m from the Dormant Assets Commission, £200m from social investors, £125m each from central government and the Big Lottery Fund and £50m from other funders.

It would use 80% of its money for capital grants and finance, which Locality said was the equivalent of delivering one project per year in every English local authority, while 10% would be devoted to development planning and feasibility studies and the remainder to management and a national advice centre.

Armstrong said the problem of lost public facilities was particularly acute in less affluent areas, where people often lacked skills to negotiate taking facilities over and then running them.”


Auditors say EDDC “will continue to find it difficult to afford its spending plans against further government spending cuts” say auditors

“Going forward, the Council will continue to find it difficult to afford its spending plans against further government spending cuts, the added pressure of inflationary increases in costs and pay awards, continued low investment income, an increasing call on services, members’ ambitions to enhance and improve services and the wish to keep to moderate increases in Council Tax and other fees and charges.”

Click to access 220916-agenda-item-8-combined-reports.pdf

And no word yet if they have signed off last year’s accounts “after a formal objection was received from a local elector. We are in the process of considering this objection, which relates to the Council’s approach to recording and obtaining receipt of monies due to it from developers through agreements under s106 of the Town & Country Planning Act 1990.

Messy situation for the next meeting of the Audit and Governance Committee.

EDDC cannot be sure what assets it owns and whether it is maintaining assets they no longer own

Some input from the Scrutiny Committee here, thinks Owl!

The following paragraphs detail all findings that warrant the attention of management.
The findings are all grouped under the objective and risk that they relate.
The Authority is not aware of all assets/land owned.” …

…The Principal Estates Surveyor believes EDDC could be maintaining assets that is no longer owned by EDDC because of a lack of interface between different systems. We understand that the Strategic Lead – Housing is currently looking at reducing the amount of cost/time spent maintaining land that is Devon County Council’s jurisdiction. …

… there is no senior officer with overall responsibility for managing the asset management system including the required changes needed to improve usage of the system. There is a risk that limited actions are undertaken to imp
rove the usage of the Uniform system as a result of lack of responsibility and ownership at a senior level. …

… 2.
Land or assets owned by the Authority cause injury or harm to a member of staff or member of the public due to insufficient inspection, record management and actioning of work.

Click to access 010916amfcombinedagenda.pdf