An email is circulating about how an elected Labour councillor chose not to be whipped.
Cllr.John Bullock wrote
On Wednesday 27 February, Full Council at West Lancashire Borough Council I – for the first time in my four years as a Councillor – elected not to vote with the whip of the Labour Group as did others.
That’s because of the decision by the Group as recommended by the Portfolio for Housing Cllr.Jenny Forshaw Skelmersdale North was simply a transfer of assets from the Council to a private limited entity with no Councillor control. It perhaps was put more succinctly by the portfolio holder herself, “I don’t have to be the cleverest in the class”, which was then supplanted by Cllr.Neil Fury again Skelmersdale North who went on say, “we don’t need to be clever we have Officers for that”. If they cannot run a private limited company with an anticipated turnover of £45M (Council funds over 5years) how can they run a complex organisation as a Council with a turnover in the tens of millions annually?
I wrote several reports regarding DEVCO and ensured it went through Scrutiny whom like me recommended Councillor representation which was subsequently denied.
Here is my last report to cabinet dated October 2018;
Author: Cllr.John Bullock
Date: October 2018
Thank you for discussing with me the issues of DevCo after group. I have written to you my three main HOLY TRINITY points for you to reflect upon and consider.
Just to recap I endorse the reasons why we are setting the development company up but not the how and here are my reasons why the how is not palatable;
We must never lose sight of not knowing the unknowables and hence a degree of caution as to the execution of a plan is always advisable. In other words an exit strategy in the event it does NOT work out or act as it was meant to do in practice and hence the objectives are not achieved. The old theory of practice & theory being two separate things applies. Theory assumes an outcome, while practice allows you to test the theory and see if it is accurate. That’s why I am using my experience (practise) to advise upon caution. Some people think practice makes perfect – it does not; it makes permanent. (The Monkey Test). Groups acting without questioning why? The group has to be careful we are not putting all our eggs in one basket and have no room for manoeuvring.
Test1) Land is the only real asset
(a) The entity acquiring the land is essentially passing the wealth of the Borough to a separate legal personality in which we may or may not have tools of control (to be tested – hopefully not in a court of law) [Think Beacon Golf Club]. At best we simply create a taxable event at worse you create another St Modwen (Skelmersdale), and lose complete control. Why take the chance?
(b) Land is the only real asset in a development company not development per se which is trading stock. To create wealth in a development company you need land. How is passing the land to the entity fulfilling your objectives? Why does the entity need control of the land? [Think St Modwen].
(c) Why generate a taxable event – each time the entity acquires the land SDLT will apply. Thus increasing cost to the entity to be passed to the buyer. This will impact affordability in housing as its cost plus pricing which the entity will have to absorb or risk losing money. Why go there?
Test2) Equity of £2M
There are two elements to capitalisation of shares called Up Share Capital & Uncalled Share Capital. They essentially work in the same way but one has been paid and the other is to be paid at some time in the future should the entity require it. Equity is risk capital and should the entity fail or be sued the equity capital is at risk. For that reason most Directors only capitalise £1 in risk capital thus not gambling on potentially losing funds. It’s a myth to state we need the equity to be capitalised to procure lending. Equity can be held in a reserve account and achieve the same. Understand this once capitalised it’s at risk and cannot be withdrawn – why take the risk with tax payers money?
Test3) Members on the Board
I am reminded of a quote – it’s not enough for law to happen it has to be seen to work. PERCEPTION! With no members on the Board you are essentially creating a Quango what would the electorate think. It is the biggest of insults to the members that the Officers think cabinet or members should not be on the Board sighting precarious statues often misinterpreted from a corporate perspective. The reasons being muted for members not being on the Board are applicable to the Officers equally. I know other entities that have no Officers and only members. Having no members on the Board is simply a chasm between control and no control. Don’t allow the Officers to remove control. [Think St Modwen].
Lastly, though this is not part of my Holy Trinity – Exit strategy. What is the life cycle of the entity and extraction of profits/surpluses? Have you seen a cash flow? It would take a minimum of two and a half to three years to make money in development. The effects to cash flow are simple; whilst profits/surpluses are posted most will be taken up in capital employed. (Building of houses). Therefore the extraction of the profits at 35% of the 9% profit is highly dubious and questionable. It is only at the end of life cycle one may want to extract that potentially problems may occur, in other words, at dissolution. However that money could be used to build affordable housing.
You should NOT dismiss a CIC or CLS without understanding cash flow – have you seen it?
I am available for discussion, evaluation & conclusion.