That this Council notes the investigation requested by the Independent Group for the Head of Paid Service, the Section 151 Officer and the Monitoring Officer to look into:
1. The alarming increase in the deficit in the NEL pension fund from £421k to £1.46mn between March 2009 and March 20102. The potential breach of either the procurement regulations and European Directives in the buying £2m of services from NEL/NEP without going out to tender when the shareholding of NCC was below 20% or the breach of the council grant allocation procedures.3. The principle of NCC members of the Board of NEL/NEP in determining liability for the deficit to the pension fund to NCC, without declaration of interest either way during any relevant debates or decisions in NCC meetings or at the NEL/NLP board4. The failure to record any decision by NCC to underwrite the NEL/NEP pension deficit or any other loss5. The omission of the liability for the pension deficit from the NEL accounts without a concurrent inclusion of the same liability in the NCC accounts for 2010,Furthermore this Council resolves to receive the Officers’ report at Full Council for open debate.
We are very grateful to Liam Costello (a fellow Independent candidate and Parish Cllr from Wooton and EH) for his tireless work and his submission of freedom of information requests to help us get to the truth of this whole sorry saga. At a time when the Council can't even afford to keep the lights on in it streets it seems that they are happy to find money for private ltd companies to spend on plugging holes in their pension funds and it also seems as if they care not what the price?
The following explanation owes much to Liam's narrative:
NEL (Northamptonshire Enterprise Limited was formed in 2006 by the merger of 6 companies that all lived off government grants delivering government programmes such as economic development, tourism, training etc. they made their money by slicing off a hefty management fee from funding programmes delivered through EMDA. Five years ago the County Council under Jim Harker's leadership brought them all together under the NEL umbrella.
When NEL was formed, this company quickly became Jim's baby. He seemed keen to hive off as much council business to it as he could. Things such as Single Regeneration Budget funding were passed over by NCC to NEL to administer etc. NCC seemed to be doing everything it could to build up the name and standing of this company.
NEL then became a member company of the Local Government Pension Scheme and its employees became eligible to join.
The articles of association of NEL stated that the borrowings of the company could not exceed the amount it receives in annual grants from the Government, or from other organisations. Essentially this limits the working capital of the company to the value of the funding programmes that it was delivering. It should therefore not be capable of going into debt if the directors abide by the articles. It has no shareholders, no equity, therefore no dividends can be paid. It makes its money by top slicing management fees from grant programmes and paying what some might consider to be fat cat salaries.
When NEL published its accounts for the year ended 31 March 2010, they showed that the company had run up a pension deficit of nearly 1.6million in 5 years. This may have been a bit of an unfortunate consequence of the recession caused by the banking crisis, but given the strict articles, the company should have considered the risk before becoming a member of a final salary pension scheme. Prior to joining the LGPS, the company paid into money purchase pensions where the risk to the company is non-existent.
The 2010 accounts state that the company considered the size of this deficit to be an ‘unwelcome surprise’, but go on to say that NCC gave a simple but unequivocal undertaking to underwrite any future deficits in the pension scheme at the time of the formation of the company. A blank cheque if ever there was one! They do however go on to acknowledge that NEL has primary legal liability for the deficit despite the alleged NCC undertaking.
We have searched the NCC website for any such mention of this undertaking in the Pension Committee minutes but surprise surprise cannot find any. Liam then made a FOI request for a copy of the Admission Agreement between NEL and NCC, and despite a statutory requirement that these agreements are made public they have refused to supply him with a copy. A complaint was made to the Information Commissioner in January this year and he has just received notification from the IC that NCC has been ordered to supply the document to him.
Jumping back to 2010, shortly after their year end, there was a change of government and the announcement that Regional Development Agencies, such as EMDA, were to be scrapped along with the funding streams they delivered through bodies such as NEL. NEL was essentially up the creek without a paddle. It had a pension debt of just under £1.5M and its funding streams had gone.
NEL is not the only company to have found itself in this situation, Visit London has a 2.1 million deficit which they are in dispute with the GLA over, and there was a piece on Look East about an east anglian tourism body that had folded leaving a LGPS deficit of £1million. We are sure that there are others across the country.
So the Council it seems devised a cunning plan to rescue NEL, and their own embarrassment. They decided that despite other Councils in Northamptonshire agreeing to support a new "South East Midlands" Local Enterprise Partnership (SEMLEP) as agreed by the government that they would form their own new body called the Northamptonshire Enterprise Partnership, (NEP) and allocate it a £2m budget for the next 3 years. £1.3 million was to go on back office and administration and £700k on actual economic development, including the infamous Brussels office. (The Northamptonshire European Investment Office)
Cllr Bill Parker at the 24 Feb council meeting said of the NEP partnership
“The sum of £2million would be invested in a Northamptonshire Enterprise Partnership comprised of NCC, business and industry, the skills sector and voluntary sector”.
Yet we now find that the partnership as described by Cllr Parker which should have included the skills and voluntary sectors has not been formed, and instead NEL has now been morphed into NEP. Companies House records and confirms the change of name of NEL to NEP on June 1st 2011
This whole affair we believe was just a cover to give £2million to the former NEL to get it out of financial trouble. One problem they faced however (apart from the name of the organisation) was that because of the value of the services that they were procuring, they should have followed normal public procurement processes. This would have involved a tendering process, advertising the contract in the European Journal etc. This would have attracted great interest from other companies and it would have been difficult to award the contract to NEP. Any company it would seem could have beat NEP in a tendering process to deliver £700k worth of economic development in return for £2million.
There are of course circumstances in which the normal public procurement process can be bypassed, and these were clarified in a Supreme Court judgement recently. these are called the Teckal exemptions. NCC know about these as they referred to them in the report on The future of Direct Services to Adults and Carers in May this year. Essentially to apply the exemption the council must have such control of the company that is proposing to award a contract to, that it could be considered the be a department of the council. One of the factors in establishing whether this control exists is the amount of control that a council has over the contracting company, which should be 20% control. But the articles of NEL limit the voting power of local authority members to less than 20% (article 18). So essentially this service should have been put out to tender, and what they have done may be seen by some as being on the cusp of unlawful.
Instead however it seems that they spent an untold sum on legal advice to tell them that the money should instead be paid as a"Grant" But the Council also have strict procedures for grant allocations and we believe a lot of local charities and other organisations will be very interested to look at how NEL/NEP were treated by the Council when awarding this "special" grant when matched against their own experiences of late. And just who made the grant application NEL? NEP? and when?
So the new partnership it seems was just a mirage to cover up giving £2million to bail out NEL which is now NEP. Not only does this quango duplicate the work of SEMLEP, (although it was SEMLEP not NEP who delivered the recent Northampton Enterprise Zone) but is has also been given £2million of Council Tax payers money for three years by way of grant which helpfully covers the same size hole left in the companies pensions deficit.
So where do we start with this one? Well some answers to the questions we raise in the motion above might help, for instance if NEL state in their accounts that they had an unequivocal undertaking to underwrite any future deficits in the pension scheme at the time of the formation of the company then why can we find no record of any decision taken by NCC to do that?
Furthermore if as we state in the motion if NEL had removed the liability for the pension deficit from the NEL accounts in 2010 why is there no concurrent inclusion of the same liability in the NCC accounts for 2010? or in 2011's budget? And can it be lawful for a local authority to underwrite the pensions deficit of a limited company?
And whilst it may be just a standards board issue, why does it seem that certain people who were or have since become directors of NEL or NEP not declared their interests when proposing or discussing any of these issues over the previous months?
We believe a lot of people have a lot of questions to answer? We hang back at present from calling for anyones head or even singling out individuals for censure, but we do believe that the Council. (The whole Council) has a duty to receive the requested reports and ensure clear answers and accountability's are given.
We look forward to debating these matters further on the 29th of September