Ever since two local developers were handed control of the UK’s biggest brownfield project, Teesworks, questions have swirled about the value and wisdom of the deal, the secrecy that has shrouded it and how much they stood to gain.
On Monday an independent inquiry finally issued its conclusions. It noted there was a persistent “culture of excessive confidentiality” and “lack of transparency” at the project and recorded a catalogue of governance failures at two public bodies chaired by the Tees Valley’s Conservative mayor, Lord Ben Houchen.
The inquiry’s report found there were insufficient checks in place to safeguard value for the taxpayer and concluded that through complex confidential agreements with a local public body, Chris Musgrave and Martin Corney had been allowed to “cherry pick” the most profitable elements of the vast former steelworks site in Redcar.
In the process they had made tens of millions of pounds, while the taxpayer ploughed in more than £560mn and was saddled with liabilities.
The findings will raise questions not only for the devolved landscape in England, across which more and more mayoralties are being created, but for Whitehall’s regulation of public spending.
Teesworks is one of the most high-profile elements in the government’s “levelling up” agenda to address the UK’s persistent regional inequality. Ministers have earmarked the vast former SSI site for a huge modern industrial cluster, ploughing in £246mn in grants to prepare the land.
In 2021 it was incorporated into the Teesside freeport, the UK’s largest, receiving further tax break status in the aim of attracting investors.
But the involvement of Musgrave and Corney since early 2020 has long been the cause of speculation.
The report found that while the developers had been allowed to attend confidential public sector board meetings, which the inquiry panel deemed “wholly inappropriate”, councillors and senior officials in the local organisation part funding the project were barred from scrutinising its finances or the development corporation directly overseeing it for the public sector.
In addition, they were not told of major decisions and were “unaware” of the degree of financial risk to which their authorities were becoming exposed.
The board of the Houchen-chaired South Tees Development Corporation (STDC), the local regeneration body that channels public money into the project and struck most of the deals with the developers, was sometimes “rushed” into agreements with too little information, the report found.
This resulted in “inappropriate” decisions, including transactions that “may breach” state aid rules, it added.
The independent review was prompted by concerns about Teesworks last spring, in part due to an investigation by the Financial Times. Levelling up secretary Michael Gove appointed officials to look at its governance and examine decisions that led to a series of deals that have proved lucrative for the developers.
In one key respect, the report was positive for Houchen and the developers; it found no evidence of illegality or the “industrial scale corruption” alleged last March by Middlesbrough’s then-Labour MP Andy McDonald.
Houchen said McDonald had “lied” while the developers accused him of having “trashed our reputations and displayed a complete disregard to the implications of his actions”.
The review followed a labyrinth of more than 20 deals struck between Houchen’s corporation and the developers, arrangements described by one lawyer working on the project as “the most complex” of their type they had seen. Some were agreed by officials, meaning the public board was not consulted at all.
On other occasions board members reported they had been “rushed” to agree highly significant deals without understanding the information put before them. Some of those that were presented to them were inaccurate, the report found.
It described how “none of the standard checks relating to proof and source of funds, credit rating and money laundering were carried out” when the corporation first agreed a development joint venture with the developers at Teesworks in March 2020.
The most controversial deal — which the panel concluded was of sufficient “magnitude” to warrant scrutiny from councillors, but which was not disclosed to them — resulted in the developers being handed 90 per cent control of the development vehicle in 2021.
This not only gave the developers “effectively absolute control of the company” but allowed them to “cherry pick” whichever parts of the site looked potentially profitable and buy them at £1 an acre.
In return they were theoretically committed to undertake work to decontaminate land and take on future liabilities. But the panel found “the legal documentation doesn’t impose any such obligation on Teesworks Ltd to undertake remediation and there is no evidence that [it] has so far done so”.
As the FT reported last month, the most recent accounts for Teesworks Ltd show profits tripled to £54mn in the financial year following the deal. The review found the developers had received £45mn in dividends and payments over the lifetime of the project, while £63mn in cash is sitting in the company.
A deal giving the developers half the value of recyclable materials on site — such as scrap metal — is estimated to be worth £75mn to them. The review found “no evidence of any formal decision-making process” in relation to the agreement, including at board level.
Meanwhile, the corporation itself was taking on significant liabilities. The STDC has borrowed £257mn and may borrow £238mn more.
Those liabilities could ultimately end up resting with the area’s five cash-strapped local councils, whose leaders, along with the mayor, comprise the Tees Valley Combined Authority, the body meant to oversee the STDC.
However, the report pointed out that the TVCA, which like the STDC is chaired by Houchen, “effectively has no oversight” of the activity at Teesworks.
Its constituent local authorities were “unaware” of the financial exposure their organisations faced, according to the report, including £206mn in long-term loans from the TVCA to the STDC.
Backbench councillors had also been explicitly told by the authority’s chief legal officer in 2021 that they were not allowed to scrutinise the corporation or the joint venture, a view contested by the review.
Houchen has been asked by the Department for Levelling Up, Housing and Communities to provide a report by March 8 outlining how he intends to address its 28 governance recommendations.
A spokesperson for the STDC said the board “recognise” the report’s findings on governance and transparency and will “work at pace” to review and amend governance as necessary.
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