Agenda item

Cabinet Member: Leader of the Council, Councillor Hamida Ali

Officer: Interim Chief Executive, Katherine Kerswell & Interim Director of Finance, Investment & Risk, Chris Buss

Key Decision: yes

The Leader of the Council delegated authority to the Cabinet to make the following decisions:

RESOLVED: To

1.           Agree that the Council recognises the costs of the Fairfield Halls refurbishment, being a total of £69.261 million (as identified in Appendix 1 of the report), as capital expenditure rather than as a Capital Loan and to:

                  i.    Agree, in principle, that the existing Fairfield Halls refurbishment contracts with Brick by Brick be novated to the Council (subject to review of the individual contracts, to be finalised and authorised by the Interim Executive Director of Place under their delegated authority); and

                ii.    Agree, in principle, that specialist consultants or contractors, required to identify any additional remedial works to the building, be appointed (in accordance with the Council’s Tenders and Contracts Regulations).

2.           Approve that the Council’s Housing Revenue Account (HRA) can acquire 104 residential units from Brick by Brick as set out in Appendix 2 of the report and as further detailed in the Part B restricted report.

3.           Agree that the consolidated loan agreement shall, if required, be varied to include a further loan draw down amount of up to £10 million to cover additional working capital, in the event that this is required by Brick by Brick due to possible delays with forecast sales receipts (this is in addition to the £9.99m agreed by Cabinet in February 2021) and agree that authority be given to the Interim Chief Executive in consultation with the interim Director of Finance, Insurance and Risk and Section 151 officer and in consultation with the Leader and the Cabinet Member for Croydon Renewal and Cabinet Member for Resources and Financial Governance; to agree such draw down sums (not exceeding the overall additional £10m) as appropriate to address immediate operational needs. 

4.           To note that any recommendation to acquire further units or other assets from Brick by Brick, and that any such acquisition of units to be within existing capital budget provision and meet the affordability criteria, should return to Cabinet for decision.

5.           Otherwise note the progress made with regard to the previous February 2021 Cabinet recommendations on Brick by Brick.

The Leader of the Council (Councillor Hamida Ali) informed Members that the report provided an update following the decisions made by Cabinet in February 2021, but did not include a final decision on the future of the company as that would be considered at a future meeting of Cabinet. It was noted that the report principally sought agreement in terms of how the council accounted for the costs of the Fairfield Halls refurbishment, agreement to acquire 104 homes for the Housing Revenue Account (HRA) and approve an additional £10 million as working capital for Brick by Brick; should it be necessary.

It was further noted that the report sought to address the concerns raised by the external auditor in their Report in the Public Interest (RIPI) in terms of the purchase of homes from Brick by Brick which had initially been discussed by Cabinet in June 2020. Appendix 2 of the report, it was stated, sought to address the concerns; in particular in relation to the circular nature of the funding, and set out why the council felt the purchase of the homes was an appropriate decision.

The Interim Director of Finance, Investment & Risk (Chris Buss) drew Members attention to the appendices; appendix 2 Members were advised focussed on the purchase of 104 units and provided an extensive explanation on the officers view that the acquisition, via the use of the Greater London Authority (GLA) funding and the HRA, was the best option. Members were requested to read and seriously consider the detail provided within the appendix when making a decision on whether to purchase the homes.

Members were advised that the figures in relation to the overall spend on Fairfield Halls were incorrect within the report and the Interim Director advised that the breakdown of expenditure was; Fairfield Halls - £61.7 million, car park - £4.2 million, public realm - £3.2 million , and Fairfield homes - £4.2 million. The overall expenditure, it was stated, remained the same at £73.3 million. Members were further advised that the overall loan and interest owed to the council following accounting adjustments was £161,566,688 and that this figure included the £73.3 million spent on Fairfield Halls which was recommended to be reclassified as capital expenditure.

The Cabinet Member for Croydon Renewal (Councillor Stuart King) stated that in principle he supported the recommendations but sought clarification in terms of the loan agreement, which he felt was desirable for both the council and Brick by Brick and would account for all monies loaned to the company. It was noted that the original agreements had assumed a debt/equity ratio of 75/25 which it was known had not been met. The Cabinet Member queried how the total loan for Fairfield Halls and wider Brick by Brick loans had been determined and what due diligence had been undertaken to ensure those values were correct. Further queries related to whether the Brick by Brick Directors accepted the allocations and what monitoring would be put in place to ensure the new consolidated loan was repaid. In terms of Members monitoring this work, the Cabinet Member queried how repayments would be reported to councillors. The Cabinet Member concluded by asking whether the external auditor had raised any concerns in relation to how the funds from Brick by Brick would be applied.

In response, the Interim Director confirmed that the consolidated loan term was for four years with the rationale being that should Cabinet agree to a full build out the building work and accounting work may not be concluded until 2025. It was confirmed that the Brick by Brick directors did agree to the consolidated figures and an agreement was due to be signed by the Chief Executive, following consultation with Cabinet Members, and the directors of Brick by Brick. Should a further drawdown be required, it was intended that this would be reported to the Shareholder Board which included Members and updates would be provided to councillors. In terms of the external auditors, the Interim Director advised that they had not expressed any concerns to him regarding repayments being used to repay accrued interest and then to repay the loan agreement.

The Cabinet Member for Croydon Renewal queried the difference in terms of Fairfield Halls figures, with Brick by Brick accounts showing the figure at £76.4 million and the council publishing the amount as c. £69 million. The Interim Director advised the difference between the two figures was due to the way Brick by Brick treated accrued interest. Further queries were raised in terms of the minimum revenue provision (MRP) implications on the council in terms of moving Fairfield Halls works form general budget to the capital programme. In response, the Interim Director advised that when the Medium Term Financial Strategy (MTFS) was set earlier in the year a provision had been made for some of the Brick by Brick loans to be no longer paid off; including the loans for Fairfield Halls. As such, this had already been allowed for with the MRP and so there would not be an additional revenue budget cost.

The Cabinet Member for Resources & Financial Governance (Councillor Callton Young) was pleased to note that there had been no disputes with contractors but raised concerns in relation to the need for some accounts to be settled and that additional works were required at some sites. In response the Interim Executive Director Place (Sarah Hayward) advised that work was required in terms of the novation of contracts. Brick by Brick were working to settle all accounts with contractors ahead of novation, but Members were advised that the council would also ensure financial due diligence was undertaken which specialist surveyors would support to ensure the contracts had been discharged and that the work had been completed to a good quality. The Interim Executive Director advised that assurances could not be provided until surveys had concluded and the contracts novated, with the timescales for this work being clarified later that week.

The Cabinet Member for Resources & Financial Governance noted that the RIPI had included concerns as to the circular nature of funding and queried whether the council had properly explored the benefits and dis-benefits of purchasing the additional housing units. The Interim Director advised that he felt appendix 2 of the report clearly set out the benefits and dis-benefits of the options available to the council and further advised that it was for each Member to read the information provided and to reach their own conclusion as to whether the recommendation in the report was the correct course of action.

It was noted by the Cabinet Member that the information was technical and that Members needed to ensure it had received professional advice and assurance that the right option was being taken; as such he queried whether the details in appendix 2 of the report had been discussed with the external auditor. The Interim Director advised Members that the appendix had previously been a discussion paper between himself and the external auditor and that the only request had been to include the potential savings, of £400,000, to the general fund from not using temporary accommodation.

The Cabinet Member noted that the Interim Director had reference a potential tax liability and queried how the council would seek to minimise that risk. In response the Interim Director advised that the council had appointed tax advisors to support the work of the council, should it choose to sell Brick by Brick, to structure the sale in a legitimate tax efficient manner.

The Interim Chief Executive (Katherine Kerswell) advised Members that she had spoken with the external auditor, Sarah Ironmonger, in relation to the report and that Sarah had pressed upon the importance to clearly lay out the technical details; as had been done within appendix 2 of the report. The appendix sought to set out all of the pros and cons between two budget styles but it was stressed that external auditors would not state whether one course of action was correct or not. Additionally, it was noted that the council worked closely with the Improvement & Assurance Panel and Members were advised that they had been supporting the council on this piece of work. They had asked that Members to be mindful of the February 2021 report and that decisions were taken as being part of the whole approach to Brick by Brick.

The recommendation of an additional draw down of £10 million was noted by the Cabinet Member and confirmation was sought that this would be required for justifiable cash flow reasons and would be of benefit to the council. It was stressed by the Interim Director that he was hopeful that this provision would not be required and was included in the report should additional monies be required only.

It was noted by the Cabinet Member for Homes (Councillor Patricia Hay-Justice) that whilst the proposed purchase of homes was not sufficient it was a very welcome addition to the HRA as they would provide much needed homes for families.

The Cabinet Member for Children, Young People & Learning (Councillor Alisa Flemming) noted that paragraph 3.8 of the report included future intentions for some of the smaller sites and stressed that the council was ensuring that it was supporting its young people; in particular care leavers. To that end, the Cabinet Member queried whether supporting care leavers to have a home within the borough could be included as an option for future homes. In response, the Interim Chief Executive advised that this could be included in future discussions for the remaining sites.

The Cabinet Member for Croydon Renewal raised concerns in relation to recommendation 1.4 of the report; especially in relation to delegating authority for the possible expenditure of millions of pounds and proposed that future decisions be brought back to Cabinet for consideration and decision. As such, he proposed an amendment to recommendation 1.4 to read:

“To note that any recommendation to acquire further units or other assets from Brick by Brick, and that any such acquisition of units to be within existing capital budget provision and meet the affordability criteria, should return to Cabinet for decision.”

This proposed amendment was seconded by the Cabinet Member for Resources & Financial Governance and agreed by Cabinet.

The Leader of the Opposition (Councillor Jason Perry) raised concerns that the Opposition was being able to ask only one question and so were not able to hold the Administration to account. The Leader of the Opposition suggested that the meeting be adjourned and returned to on an alternative night to allow for further questions. In response, the Leader reminded the Leader of the Opposition that there was an Executive system in place and that it was local decision to involve the Shadow Cabinet in meetings, but that it was not a place for scrutiny. Opposition Members were advised that Scrutiny & Overview Committee or Council Question Time were the appropriate environments.

It was stated by the Leader of the Opposition that the Fairfield Halls refurbishment should have been at zero cost to the council was being accepted as costing taxpayers £73.3 million. Furthermore, it was stated that in February 2021 the Cabinet had agreed to a final £10 million loan to Brick by Brick, but it was noted that the report included a recommendation for a further £10 million. Concerns were raised that the HRA was being used to buy homes from the developer to bail it out and it was suggested that it would have been better for the council to have built the homes itself rather than through Brick by Brick. Whilst it was noted that consolidation of the loans was desirable, the overall cost to the council was £235 million and it was suggested by the Leader of the Opposition that the council had no control over the company and continued to fail. He queried how the Cabinet would justify those poor choices to the Croydon taxpayers.

In response the Leader of the Council stressed that her Administration were demonstrating that it was putting the situation right and that this demonstrated by the items being considered by Cabinet. It was further noted that a Value for Money investigation had been commissioned, the council was responding to the RIPI and the Croydon Renewal Programme was underway; all of which, the Leader stated, was putting Croydon on the right footing and would be of benefit to residents.

Fairfield Halls was noted by the Leader to be an extremely valuable community and cultural asset and the council was seeking to acquire more homes which were desperately needed by Croydon residents. It was stated that Scrutiny & Overview Committee would have an opportunity to review the decision, which it was felt appropriate.

The Leader of the Council delegated authority to the Cabinet to make the following decisions:

RESOLVED: To

1.         Agree that the Council recognises the costs of the Fairfield Halls refurbishment, being a total of £69.261 million (as identified in Appendix 1 of the report), as capital expenditure rather than as a Capital Loan and to:

              i.   Agree, in principle, that the existing Fairfield Halls refurbishment contracts with Brick by Brick be novated to the Council (subject to review of the individual contracts, to be finalised and authorised by the Interim Executive Director of Place under their delegated authority); and

             ii.   Agree, in principle, that specialist consultants or contractors, required to identify any additional remedial works to the building, be appointed (in accordance with the Council’s Tenders and Contracts Regulations).

2.         Approve that the Council’s Housing Revenue Account (HRA) can acquire 104 residential units from Brick by Brick as set out in Appendix 2 of the report and as further detailed in the Part B restricted report.

3.         Agree that the consolidated loan agreement shall, if required, be varied to include a further loan draw down amount of up to £10 million to cover additional working capital, in the event that this is required by Brick by Brick due to possible delays with forecast sales receipts (this is in addition to the £9.99m agreed by Cabinet in February 2021) and agree that authority be given to the Interim Chief Executive in consultation with the interim Director of Finance, Insurance and Risk and Section 151 officer and in consultation with the Leader and the Cabinet Member for Croydon Renewal and Cabinet Member for Resources and Financial Governance; to agree such draw down sums (not exceeding the overall additional £10m) as appropriate to address immediate operational needs. 

4.         To note that any recommendation to acquire further units or other assets from Brick by Brick, and that any such acquisition of units to be within existing capital budget provision and meet the affordability criteria, should return to Cabinet for decision.

5.         Otherwise note the progress made with regard to the previous February 2021 Cabinet recommendations on Brick by Brick.