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Monday, May 27, 2024

Teesworks review: The good, the bad and the ugly

The most serious allegations of corruption have been shut down by the panel.

While the result of an investigation into the Teesworks project has cleared leaders of any corruption or illegality, it is far from a clean bill of health.

Issues around openness and a “very permissive scheme of delegation” feature heavily throughout the report, with a damning conclusion that current systems of governance and finance do not provide “sufficient” transparency and oversight to evidence value for money.

Ministers agreed to carry out an independent review of the Teesworks project in May 2023, following mounting pressure from Teesside MPs and the Conservative Tees Valley Mayor Ben Houchen himself. Allegations of corruption and illegality were linked to the flagship regeneration project while Mr Houchen always insisted the review would clear the project of any wrongdoing.

The most serious allegations of corruption have been shut down by the panel. However their concerns over secrecy and “inappropriate decisions” are likely to further fuel critics and calls have already been sounded for further investigation by the National Audit Office.

Here, the Local Democracy Reporting Service looks at some of the main points raised within the report, from the good to the bad to the ugly.

The good

Based on information shared with the panel, the independent inquiry found no evidence to support allegations of corruption or illegality.

Concerns about the Teesworks project were previously raised by Middlesbrough’s Labour MP Andy McDonald in the Commons, who alleged “truly shocking, industrial-scale corruption” related to finances surrounding the regeneration of the site. The Tees Valley Mayor Ben Houchen was consistently vocal in his denials of any corruption, illegality and wrongdoing and had dared Mr Mcdonald to repeat his claims outside of Parliament where he would not be protected against defamation claims.

Speaking after the publication of the report, he said Mr McDonald had “attempted to sabotage” opportunities for the Teesworks site and had “caused “significant damage”. Originally, the South Tees Development Corporation held 50 per cent of the shares in Teesworks Limited and private developers, JC Musgrave Capital and Northern Land Management Ltd held the other half.

However, an agreement was reached in 2021 which transferred 90 per cent ownership to the private developers. Mr Houchen said the agreement allowed them to secure private investment in the site while removing “major liabilities” from the taxpayer.

When Redcar Steelworks went into liquidation back in 2015, the STDC tried to buy the site. It had to negotiate with Sahaviriya Steel Industries (SSI) and three Thai banks – the banks were owed around £800m because they held the former steelworks site.

The STDC eventually applied for a compulsory purchase order after it became clear that negotiations were not going to result in a deal. Private developers Chris Musgrave and Martin Corney were said to have saved the deal when it was clear the STDC was going to lose it.

This came after the private developer company DCS Industrial Limited signed a three-year lease for a 70-acre site on the Redcar Bulk Terminal. The SSI agreed to stop trying to block the compulsory purchase order in return for the site, with Mr Corney and Mr Musgrave getting brought in as development partners on the Teesworks scheme for brokering the deal.

Regarding this aspect of the report, the panel said the 50/50 joint venture was ‘critical’ to being able to reach an agreement with the Thai Banks to remove their objections. Mr Houchen said without the developers, the scheme would have never happened and the site would have sat idle, costing the taxpayer £20m a year to stand still, “with no investment and not a single job in sight”.

The report said the joint venture partners were “clearly astute, commercial businessmen” with a “clear business model, supporting “distressed businesses” and “do not accept liabilities until they are satisfied they can hedge investment against secure income streams.” It added: “They have put themselves in a position where they were able to negotiate favourable terms and progress that through the ongoing developments.”

Other favourable aspects of the report highlighted “good support” for the redevelopment of the site with “much achieved in a relatively short space of time”. It noted many people contributing to the review had expressed “a positive view of the project”.

A significant amount of regeneration of the area has occurred, said the report, and new businesses are moving in bringing jobs and other benefits for the local area. “Securing permanent local jobs, economic growth and opportunity, as well as increased tax income for the local area that can be reinvested in local services and continued growth is a priority and shared endeavour,” it added.

The bad

The panel criticised the absence of a detailed joint venture agreement and “of any referral decisions or evidence of any consents being sought”.

Private developers put no money into the scheme but made money on the back of public sector investment of more than £560m and the deal should have been scrutinised more by the Tees Valley Combined Authority, it said. As reported, the published accounts revealed turnover at Europe’s largest brownfield site more than doubled from £53.9m a year earlier to £142.9m with net profits of £54m.

And while many decisions made by the South Tees Development Corporation (STDC) did follow due process, “most decisions are vested in a small number of individuals”. They also said there was a “paucity of detail” in some reports to the Tees Valley Combined Authority and South Tees Development Corporation board, as well as an “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 panel said it was understood members of the TVCA Overview and Scrutiny Committee do not have access to confidential cabinet reports. Members of the committee had expressed frustration at a lack of information provided, “undermining” their ability to scrutinise the activity of STDC and TWL.

“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.” Examples of declined Freedom of Information requests provided further evidence of “a tendency towards unwarranted levels of confidentiality”, it said.

The Ugly

The central criticism of the report relates to systems of governance at the TVCA and STDC which it said did “not include the expected sufficiency of transparency and oversight across the system to evidence value for money”.

A perceived “persisting theme or culture of excessive confidentiality/lack of transparency”, together with limited reporting meant the system was not robust, it said. “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.”

Examples were given of the appointments of officers “without an open and transparent process” and the “agreement of transactions that may breach subsidy control requirements.” The reviewers concluded that “the level and nature of the transparency and accountability associated with this project hasn’t always met the standard which they would consider appropriate for a publicly funded project of this scale and nature”.

Following the publication of the report, Mr Houchen said he welcomed the recommendations and said they were already working to improve processes and procedures. And he noted the report sets out “in black and white” that there was no corruption or illegality.

The report noted that 9,000 jobs were being created with the Teesworks development with a potential of £2.7bn in business rates. The project brings huge value to Teesside, according to Mr Houchen, and he said he failed to see how anyone could suggest it was not value for money.

Calls were again sounded in Parliament for a “full National Audit Office report” following the publication of the independent inquiry’s findings. Shadow Minister Justin Madders said the report was “damning” and that the Government could not show that the scheme offered value for money to the taxpayer.

Speaking after the publication of the report, Middlesbrough MP Andy McDonald mirrored the calls for an NAO report. He said: “This report is by a country mile the most damning thing I have ever read of a public body and how it conducts its affairs.

“It is nearly 100 pages of criticism after criticism after criticism for the way Lord Houchen of High Leven, the Tees Valley Combined Authority and the Teesworks joint venture have conducted business with our money and the authors even say ‘in the time available to the panel we have not been able to pursue all lines of evidence or examine all transactions’. That is why we now need the National Audit Office to do just that.”

The Tees Valley Business Board, which represents the voice of local business and advises the TVCA on projects, said the impact the ongoing nature of the review had resulted in a “frustrating” impact on inward investor confidence and further job creation. A statement from the board said: “To this end we would ask that our local politicians now engage responsibly with the findings of this review and support the implementation of its recommendations, rather than continue the political narrative that is unfairly damaging to Tees Valley, our business community and our people.”

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