Independent review of Teesworks finds no corruption or illegality but criticises governance and transparency
The independent review panel set up to examine allegations made over Tees Valley Combined Authority's (TVCA) oversight of the South Tees Development Corporation (STDC) and Teesworks Joint Venture has found no evidence of corruption or illegality.
However, the panel's report said there were "issues of governance and transparency that need to be addressed and a number of decisions taken by the bodies involved do not meet the standards expected when managing public funds".
The 96-page report also criticised a former TVCA monitoring officer over advice they had given that said the combined authority's Overview and Scrutiny Committee did not have oversight of the development corporation.
More than £560m in public money has been spent on Teesworks, which is described as one of the largest brownfield remediation projects in Europe and is centred around the redevelopment of the Redcar steelworks, which shut down in 2015.
The Mayor of TVCA, Ben Houchen, kickstarted efforts to redevelop the site in 2017 when he proposed the creation of a development corporation, which would aim to buy the steelworks and revitalize the site.
The South Tees Development Corporation (STDC) was then established in August 2017 and later joined with two local property developers, Chris Musgrave and Martin Corney (the 'JV partners'), to buy the land via a compulsory purchase order.
The decision led to the creation of a 'Joint Venture Company' named Teesworks Limited (TWL), which was half owned by the development corporation and half owned by Musgrave and Corney.
In 2021, ownership of TWL went from 50% public to 90% private, with the two businessmen owning a majority (90/10) share.
According to the report, the JV partners have put no direct cash into the project and have received nearly £45m in dividends and payments.
In its review published on Monday (29 January), the panel said the legislation is "clear" in its intent for TVCA to have an oversight or supervising function of the development corporation.
Despite this, the panel reported seeing "no evidence that any of the monitoring officers have advised TVCA that they can review their delegations and directions to STDC at any time".
It added that monitoring officers had not reminded the combined authority of its duty of oversight of the development corporation.
"Furthermore, a former monitoring officer advised TVCA Overview and Scrutiny Committee on 15th September 2021 that they had no jurisdiction to review STDC decisions," the report said.
It continued: "It is the view of the Panel that STDC should have referred more decisions to TVCA Cabinet and that TVCA Overview and Scrutiny Committee had a legitimate right to scrutinise STDC decisions."
The report also stated that the TVCA monitoring officer should also fulfil the role of monitoring officer for STDC as if it were a committee of the combined authority. In this context, it was "a matter of some concern" that one of the former Monitoring Officers described their involvement as 'peripheral', the report said.
Looking at the Teesworks project itself, the panel said the absence of a detailed joint venture agreement, setting out the obligations of the parties to the joint venture, was "significant" and had also contributed to ambiguity around the roles and responsibilities of TVCA, STDC and the JV partners.
For instance, discussions between the panel members and TVCA and STDC officials revealed differing viewpoints on the interpretation of the provisions regarding the threshold at which the referral of decisions for TVCA approval was required, the panel said.
The panel also highlighted a "lack of clarity" as to whether and to what extent the combined authority and constituent local authorities were liable for activities relating to the Teesworks project.
Considering the quality of reports that were submitted to the combined authority, the panel found a "paucity" of detail in some reports, the absence of the source of legal and other professional advice and the absence of full and clear explanations of the consequences arising from decisions.
The report later concluded that the combined authority "effectively has no oversight of the STDC board or TWL".
Turning to the STDC board, the panel raised concerns about how informed board members were.
They found that much of the information the panel shared with some board members during their investigation concerning the sequence of JV decisions and some land transactions "was obviously new to them".
The report said: "The Panel are united in their view that we have not seen sufficient evidence that decision makers were properly informed.
"We fully appreciate that this is a fast moving situation underpinned by many complex arrangements, but in terms of managing public assets all information around key decisions should be fully documented, including advice from internal professionals and external experts as appropriate."
The report also revealed that representatives of the JV partners occasionally participated in STDC governance meetings, including confidential STDC board discussions.
The panel said it believed it "wholly inappropriate" for the JV partners or their representatives to be included in any confidential board discussions.
On transparency, the panel said it "consistently" received concerns about openness and transparency during its review.
The report also later highlighted a tension between transparency and confidentiality at TWL in relation to Freedom of Information (FOI) requests.
It noted that key officers and the Mayor held the view that much of the information relating to the Teesworks project was commercially sensitive and warranted a relatively high level of confidentiality.
As a result, FOI requests had been regularly refused by TVCA on the basis of commercial confidentiality and in some cases "weak public interest justification", the report said.
Members of TVCA's Overview & Scrutiny Committee expressed frustration at the lack of information provided, which they felt undermined their ability to scrutinise the activity of STDC and TWL, the report added.
"The Panel feel that this information vacuum serves to encourage the speculation and may create a distraction from the positive outcomes arising from the project", the report said.
It added: "In the context of public private joint ventures, finding the right balance between the prevailing cultural norms relating to matters such as transparency, public accountability and governance is often a challenge and the Teesworks project isn't immune from that."
Overall, the panel concluded that a lack of transparency in the decision-making and a "very permissive" scheme of delegation "undermines the confidence Government can place on the evidence base and systems to secure value for money" in relation to the Teesworks joint venture.
The report also concluded: "While there is much that does follow due process, the ceding of control by TVCA, under the oversight of successive former monitoring officers and the permissive scheme of delegations within STDC and TVCA mean that most decisions are vested in a small number of individuals.
"This together with the limited reporting means that there is not a robustness within the system. Inappropriate decisions and a lack of transparency which fail to guard against allegations of wrongdoing are occurring, and the principles of spending public money are not being consistently observed."
The report made 28 recommendations, including a recommendation that the monitoring officer review the approach to confidentiality and the handling of FOI "to ensure that the public interest test is properly understood and applied".
Responding to the report, Ben Houchen said: “Let’s be absolutely clear about what the Teesworks Independent Report found:
“It found NO corruption or criminality at Teesworks (section 1.7).
"It found that we have created 9000 jobs on deals already done, which will also return £1.3billion to the tax payer in business rates (section 1.2)
"It found that we did NOT sell land for £100, it was actually a deal worth £39m to the taxpayer (section 19.47).
“Of course we will accept the recommendations of the report to ensure we operate in the best way possible - no organisation is perfect and we always want to be better.”
Labour MP Andy Macdonald, who was among those that alleged corruption at Teesworks, said: “This report is absolutely damning and what is clear is there are massive concerns about governance and finance, oversight, scrutiny, value for money – all of the things I have said over these years.”
The panel was made up of Angie Ridgwell (chair), Lancashire County Council's chief executive, Richard Paver, a former Treasurer of the Greater Manchester Combined Authority, and Quentin Baker, who is Hertfordshire County Council's Director of Law and Governance and a former President of LLG.
Adam Carey
List of recommendations
Recommendation 1: TVCA and STDC should develop a full understanding of the liabilities of both STDC and TVCA in relation to the activities of STDC and TWL and ensure appropriate management arrangements are in place to manage and mitigate the consequential financial risks to both organisations and the constituent authorities.
Recommendation 2: TVCA and STDC should jointly agree the use of retained business rates over the 25 year period in support of both TVCA and STDC risks and liabilities and consider the funding strategy for liabilities that will exist thereafter. Such agreement to be agreed by TVCA Cabinet and STDC Board.
Recommendation 3: STDC update and maintain its financial model to reflect its current business model including identified retained liabilities and business rates forecasts in line with recommendations 1 and 2 above.
Recommendation 4: Government should clarify its proposals for landfill tax in terms of public sector land remediation, including timescales for legislation, as currently eligibility for the scheme and STDC’s liability for tax are an ongoing, and increasing risk.
Recommendation 5: DLUHC to clarify the regulations in respect of TVCA and STDC (and if necessary other combined authorities and development corporations) including oversight, reserve matters and consents as well as stranded liabilities.
Recommendation 6: TVCA Cabinet review its current delegations and directions to STDC to ensure it meets its statutory obligations, including appropriate oversight by Overview and Scrutiny Committees, to enable value for money to be delivered and evidenced through effective scrutiny of significant decisions.
Recommendation 7: TVCA and STDC invite the Centre for Governance & Scrutiny to undertake a review of the O&S function and produce recommendations as to improving it in line with the statutory guidance and new English Devolution and Accountability Framework 2023.
Recommendation 8: TVCA and STDC should modify their constitutions to reflect any changes in delegations and directions that may arise from recommendations.
Recommendation 9: TVCA should amend its constitution to give effect to TVCA’s duty to keep STDC’s existence under review, to provide guidance to STDC, and to assess its own financial risks relating to STDC. We would recommend this be at least annually.
Recommendation 10: TVCA and STDC agree a protocol and code of conduct for shared statutory officers to ensure the boundaries between the two organisations are maintained, that advice is given in the best interests of the specific organisation, and that any and all communication is clear in terms of the organisation being represented.
Recommendation 11: TVCA review the group statutory officer roles and consider, where allowable in law, whether having different officers, perhaps drawn from the Constituent Authorities, would provide a greater degree of checks and balance.
Recommendation 12: TVCA and STDC review their Financial Regulations and schemes of delegation to satisfy themselves that control is enacted at the appropriate level to facilitate the value for money test and ensure the STDC Board and TVCA’s duty of oversight, is met as well as provide appropriate protections for officers. This should include the recording and reporting to STDC Board/TVCA Cabinet of key decisions taken under delegation.
Recommendation 13: TVCA should, in consultation with monitoring officers of Constituent Authorities, review and revise the local governance framework to ensure that greater degree of oversight over STDC and TWL is afforded to TVCA cabinet members and the Constituent Authority statutory officers.
Recommendation 14: Constituent members should ensure they seek advice and guidance from their own statutory officers ahead of TVCA Cabinet meetings to ensure they get an independent view to inform their strategic decision making.
Recommendation 15: Statutory officers of constituent members should ensure they inform themselves of the statutory context of STDC/TVCA and maintain an active and inquisitive engagement with both organisations to ensure they can effectively provide independent advice to their own organisations and fulfil their statutory obligations to them.
Recommendation 16: Review the makeup of the Board, including the Chair and role of associate members, to ensure relevant expertise and knowledge is in place to support the Mayor in setting and delivering his strategic ambitions, under the current phase of delivery.
Recommendation 17: Ensure the Board are provided with comprehensive and accurate reports, supported by appropriate advice in a timely fashion so they can properly consider and debate the decisions to be made.
Recommendation 18: Any oral advice and supporting presentations should be made publicly available (where possible) to support the decision record.
Recommendation 19: The monitoring officer should ensure training for all STDC /TVCA members and officers takes place on conflicts of interest and ensure proper declarations are made and individuals recuse themselves appropriately in meetings.
Recommendation 20: A robust and comprehensive briefing arrangement be put in place between statutory officers of TVCA/STDC and the constituent members to ensure there is a collective and considered understanding of the opportunities and implications of proposed decisions.
Recommendation 21: STDC should articulate and document the agreed arrangements with the JV partners in a single document.
Recommendation 22: STDC should explore opportunities to influence when and how land is drawn down and developed and if possible, renegotiate a better settlement for taxpayers under the JV agreement.
Recommendation 23: Once a final position is agreed with the JV Partners this should be formally shared with the STDC Board and TVCA Cabinet for approval.
Recommendation 24: All STDC recruitment be subject to fair, open, and transparent processes.
Recommendation 25: The STDC executive regularly review operations on site to ensure JV Partner activity is not incurring risks and liabilities for STDC.
Recommendation 26: Monitoring officer to review the approach to confidentiality and the handling of FoI to ensure that the public interest test is properly understood and applied. Devise a local protocol to clarify what information will be deemed confidential and on what basis and provide training for staff. This should include guidance on the disclosure of confidential information to TVCA Cabinet, Overview & Scrutiny and TVCA/STDC Audit members who should have enhanced rights of access.
Recommendation 27: Director of Finance and Resources review internal audit arrangements and provide advice to both TVCA and STDC Audit Committees as to how these can be strengthened. Consideration should be given to securing CIPFA or other external support to provide independent assessment of proposed changes.
Recommendations 28: Director of Finance and Resources work with the external auditor to support the completion of their value for money arrangements work for 2021/22, including any additional risk-based work that may arise in light of the Panel’s findings. The progress of this work should be reported to TVCA and STDC Audit Committees.
