“Putting the Magic Back into Milton Keynes”
July 2011
The Report of the Homes and Communities Agency Asset Transfer Scrutiny Panel
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Contents
Page 1) Introduction 4 2) Terms of Reference and Method 5 3) Executive Summary 6 4) Background 8 5) HCA assets under consideration 11 6) Evaluation of economic options 14 7) Timeline 16 8) HCA and Government negotiations 17 9) Transfer issues 22 10) Other considerations 24 11) Managing assets once transferred 37 12) MK staff transfer 42 13) Financial implications for MKC 43 14) Restructuring MK Council 48 15) Future external relationships 50 16) Role of wider public sector 52 17) Future scrutiny 53 18) Conclusions 54 19) Recommendations and future actions 56 20) Appendices 64
- 3 - “In these days, somebody who says a thing cannot be done is quite apt to be interrupted by some idiot doing it.” - Elbert Hubbard 1 Introduction
This report looks at what has been done to effect the Council resolution of June 2010 and where we are in the process. The panel has set out a recommendation for Cabinet on the principles it should use to negotiate any transfer and a set of recommendations on next actions. It does not detail issues negotiation sensitive or commercial in confidence issues although these will be addressed in separate discussions with the Leaders of the three political parties and the Chief Executive. With that caveat, the report covers all the issues and how we should try to achieve what the Council is aspiring to.
This report would not have been possible without the willing participation of the political parties, officers of the Council, HCA, members of the wider business community and key stakeholders. We thank them all for giving of their time to freely discuss the issues. We hope that this report lives up to their expectations.
Councillor Brian White Chair of the Scrutiny Panel July 2011
- 4 - “The first step to getting the things you want out of life is this: Decide what you want.” - Ben Stein 2 Terms of Reference and Method
Members of the Scrutiny Panel were representatives of each of the political Groups at the Council: Councillors Bald, Gerrella, Tallack and White (Chair).
The Panel was set up to scrutinise the processes involved with achieving the Council’s aspiration to own and manage the remaining HCA assets, to look at the staff transfers of HCA employees to MK Council, to make a recommendation on which Government option and to indicate a way forward through the negotiations with HCA and the issues which need to be tackled to effect a successful transfer
Evidence was mainly obtained by interviewing witnesses at meetings but also included Council and other documents provided by officers and public views sent in response to a press release (attached at 20.1).
A timetable showing the meetings and other work of the Scrutiny Panel is attached at 20.2 and a list of the evidence received by the Scrutiny Panel is attached at 20.3.
- 5 - “To accomplish great things, we must dream as well as act.” - Anatole France 3 Executive Summary
The establishment and growth of Milton Keynes over the past 44 years has been the responsibility in large part of a succession of government agencies which have had varying degrees of involvement with and accountability to Milton Keynes people and their elected representatives. Milton Keynes thus had a direct connection with the UK government. On the other hand, there have been frustrations that the democratically accountable Milton Keynes Council (MKC) has had less control over the city’s destiny than in traditional towns.
For the first time, the current government does not intend to have an arm of its own with specific responsibility for Milton Keynes. Things will change and MKC must meet the challenge. Many land and other assets were administered by the recently defunct Milton Keynes Partnership Committee (MKPC), a sub Committee of the Homes and Communities Agency (HCA). This paper addresses the future of those assets and where the responsibility for future development of Milton Keynes should lie.
There are four key functions of MKPC that must also transfer elsewhere. Discussions are advanced on transfer of the investment arm and the development control powers and the future of the tariff. This report touches on these issues but is primarily concerned with the land and other assets held by the HCA.
The government is evaluating five options from sale to the private sector as a job lot at one extreme to HCA retaining ownership and management at the other. These are described and evaluated in detail at paragraph 6.1 and 6.2.
The Scrutiny Panel has had wide-ranging discussions with a number of people that play key roles in the city, some with
- 6 - experience of previous transfers as well as officers of MKC and HCA and the political group leaders.
The view of the Scrutiny Panel is that Option 3, which is that the Council should acquire the assets provided that a reasonable settlement can be negotiated with central government, should be adopted. There is also a big non- financial prize. For the first time the assets held until now by central government could become accountable to the elected representatives of the people of Milton Keynes. Many of the other options will represent a diminution of the influence that Milton Keynes people have over the decisions taken by quangos and none will provide greater accountability than the status quo. This preference for Option 3 on the right terms is the view that has been taken by all political parties at MKC and will hopefully be endorsed by the HCA at their Board meeting at the end of this month.
This report examines the need for MKC to go into the negotiations with government well prepared and highlights issues that need to be resolved in those negotiations. MKC owes it to the council tax payers to acquire the assets on the most favourable terms.
The report then deals with the consequences of that decision and the work required to effect a successful transfer. It also looks at the actions that need to be taken once a successful transfer has taken place in order to ensure Milton Keynes can achieve its aspirations and become what the Local Government Commissioners said at the time of the unitary authority’s creation as “one of the great cities of England”.
The four key conclusions are that: o we should go for transfer of the assets to MKC, o we should not do so at any price, o thorough preparation and transparency are required to effect transfer and o the opportunity to transform the authority must not be missed.
- 7 - “God made the country, and man made the town.” - William Cowper, Olney, 1785
4 Background
4.1 Brief history of MK city development
Milton Keynes was established as the last of the post war new towns and the only one to be created as a city. The Milton Keynes Development Corporation (MKDC), created in 1967 to develop the new city against a master plan, was very successful. At the time of designation the area now covered by Milton Keynes Council was administered by four urban and rural district councils.
In 1974, the Borough of Milton Keynes was created as a Borough Council. The new council and Buckinghamshire County Council had representation on MKDC.
In 1992 MKDC was wound up and its assets were transferred to various bodies. Unlike other new towns, many community assets in MK were covered by section 7(1) planning consents and were not transferred to the local authority as envisaged. Instead many were retained by the Commission for New Towns (CNT). CNT continued to market these developments.
MK Marketing, a local agency, was set up with a £2m budget to promote the marketing of MK. In the public service cuts of the early 1990s this was cut to £1m and then the agency was abolished a year later.
A local Community Foundation was set up to act as freeholder for some community assets and land was transferred to them with an endowment package to cover maintenance. Remaining community assets went to MKC & Bucks CC.
Linear parks, which combined the main flood defence system and park land for Milton Keynes, transferred to the MK Parks
- 8 - Trust with a £20m endowment portfolio to finance their upkeep. MKC is the freeholder of their 999 year lease thereby ensuring that the parkland cannot be developed commercially.
Bucks CC & MKC received various assets plus a package which would supposedly pay for their upkeep. Included for MKC were the Food Centre and the Bowl as income generators, neither of which delivered the income expected.
In 1997 Milton Keynes Council became a unitary authority with responsibility for all local government services for Milton Keynes. Assets and services were transferred from the County to the Borough. MKC was the only unitary not to simply adopt the County organisational structure, and a number of innovative solutions involved the transfer of services to the voluntary sector and partnerships working.
The Treasury were fully reimbursed for their investments in MK via development income receipts in 1997. CNT was wound up in 1998 and its assets passed to English Partnerships (EP).
In 2008 EP was subsumed into the Homes & Community Agency (HCA).
Milton Keynes Partnership Committee (MKPC) was established with representation from HCA, MKC, business, voluntary and wider public sector. MKPC was given statutory development control powers for the expansion areas and a marketing budget to drive growth of the city. A new body, initially chaired by Lord Rooker, covering MK and the South Midlands Growth Area was set up. MKSM, as it became known, brought together the private sector and local authorities in an area crossing three Regional Development Agency areas. A key sub-committee was that containing the land developers.
In 2010, Government decided to change the role of HCA and abolish MKPC. Since then the Council has been in discussions with HCA to ensure the development of Milton Keynes is progressed in the best interests of the city and that any assets that are transferred are done so in a financially sustainable way.
- 9 - MKSM was also abolished, but local authorities and businesses agreed together to form the South East Midlands Local Enterprise Partnership (SEMLEP.)
4.2 History of land transfer proposal
The project started when the new Coalition Government announced its review of quangos and introduced its Localism Bill. It would allow the authority to finally assume control for its own destiny rather than rely on ‘big brother’s’ assistance.
At the same time a Council resolution supported by all parties sought to ensure that MK Council took over responsibility for the remaining assets and planning powers for the whole Borough. Cabinet in September 2010 agreed the way forward and proposals have been developed by HCA & MKC since then.
The Council set up a steering group which had senior Councillors from all parties, and despite a change of administration, the officers have worked to a clear set of goals to achieve transfer of the assets and other staff in an orderly manner. There have been a number of issues along the way which have delayed the process and as a result a new cross-party Scrutiny Group was set up in June to review the process and make recommendations for the future.
- 10 - “It’s not the size that matters but the value for what we want to achieve” – JK Galbraith 5 HCA assets under consideration
5.1 People Assets
In addition to the land asset team (eight people) there are three other functions to transfer. They are Inward Investment which is the largest team and consists of seven/eight people, Development Control which is four people and MK Infrastructure Tariff Management which is three people. They are operational teams; those who carry out the more strategic work in HCA are not within the scope of this transfer.
It is proposed that the people will transfer with the roles, along with ‘transitional’ funding. Discussions are taking place with the Staff Unions about these transfers; TUPE applies.
5.2 Land assets
Government policy is to relieve HCA of its responsibilities for land ownership and management. Around 20% of HCA’s land assets outside London are in Milton Keynes and therefore HCA see MK as a priority in the transfer proposals.
The land consists of development assets, some community assets and non developable assets (known as the Green Estate). The portfolio does not include land for which Development Agreements exist with HCA as these will be concluded by HCA. Care needs to be taken in the period from now until transfer that this list is acceptable to MKC and that land which is valuable is not excluded, intentionally or otherwise.
The Green Estate land to be transferred is principally land within development areas which, in line with current arrangements, would pass to the MK Parks Trust with an appropriate
- 11 - endowment to cover future operating costs of this land. MKC would be the freeholder of this land which would go to the Parks Trust on a 999 year lease.
The development assets and community land assets are diverse with around twenty main sites close to the City centre and several hundred small sites, some merely parcels of land created through e.g. road straightening schemes, which are of very low or even negative value. HCA have yet to complete the list of sites. Although there is a register of sites available, the Cabinet are asked to note that considerable work is required to validate this register and still more to place a value on it.
There are also a small number of built assets such as the Bus Station, Coachway, the Open Market and the Bowl included in the land to be transferred and which may carry significant liabilities.
In total the land under consideration has the potential to deliver 5000 housing units, 400 000sq m employment floor space and 250ha of open space over the period up to 2025/6. They are of major strategic importance to MK.
5.3 Why the assets are important to MK
Evidence submitted to the Scrutiny Panel indicated universal agreement that transferring land from HCA to MK offers significant opportunity to the City in terms of economic development and growth. There was strong feeling that this land belongs to MK and must be developed strategically for the long term benefit of its citizens. If we don’t seize this opportunity, given the Government’s policy to divest HCA of land management responsibilities, we could be faced with either working at arms length with another slow moving government body or losing control of the land completely to a private developer. Neither of these scenarios is desirable.
The Development Control and Invest MK staff from HCA will transfer to MKC regardless of whether the land is transferred. If
- 12 - the land assets and responsibility for the tariff are transferred, other teams will also join MKC, but there will be a gap to be filled in terms of strategic leadership to market to deliver a return into the City which is a crucial requirement and is covered later in this report. This requirement should not prevent the land acquisition taking place.
Cabinet should recognise that the price paid for the land has to be affordable, represent good value and carry an acceptable risk:return profile to tax payers. In other words this is not a deal to be done ‘at any price’.
We asked each of our witnesses why Milton Keynes should get this land, and there were a number of different responses but all involved made the point that this land is key to the future development of the city and ownership rather than planning consent alone was vital to securing the best future deals for MK.
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“Sometimes the questions are complicated and the answers are simple.” - Dr Seuss 6 Evaluation of economic options
6.1 Options considered
HCA, in conjunction with the DCLG and Treasury, determined five economic options to be evaluated and presented for negotiation with the Government:
o Option 1 is to dispose of the portfolio to the private sector for an up front payment;
o Option 2 is a formal Joint Venture between public and private sectors using private sector money to develop the land for HCA;
o Option 3 is to transfer the HCA portfolio to full MKC control Option 3a: paid for in full up front Option 3b: on an initial deposit plus deferred receipts basis;
o Option 4 is a contractual asset partnership between MKC and HCA and
o Option 5 is HCA retain the assets (but with a MOU between MKC and HCA) as the reference case against which the other options are judged.
Each option was evaluated against three qualitative criteria representing policy objectives of both parties: o supporting HCA’s aim to transition to an enabling investment agency; o supporting the localism agenda; o supporting sustainable growth for MK.
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In addition, a full economic analysis using discounted cash flow was carried out for each option. The results were shared with the Scrutiny Team.
6.2 Evaluation of options
The qualitative and economic evaluations carried out by HCA consultants indicate that Option 3 is the best option for HCA and Milton Keynes. The Scrutiny Panel recommend to the Cabinet that this is the only option which is taken forward into the discussions with HCA.
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“Even if you’re on the right track, you’ll get run over if you just sit there.” Will Rogers 7 Timeline
The work carried out so far had originally involved the transfer of HCA staff in various tranches starting last December. This has been delayed by TUPE discussions but the Development Control and Investment MK Teams will transfer on 1 August. The HCA Board will consider the future of the land assets and tariff at the end of July, and the MKC Cabinet is looking at this issue on 26 July.
If both agree that option 3 is the way forward then there is still a considerable amount of work to be done to develop the business case and costings for submission to DCLG and ultimately the Treasury. Agreement in principle by HCA Board is not a guarantee that Treasury will agree the proposed deal.
Statutory changes are also required for parts of the deal in the form of a Statutory Instrument and this will not be debated in Parliament until the autumn.
It is therefore envisaged that the timescale for the transfer of the assets and the full complement of staff will not be until the end of this financial year, although some staff such as IMK could come across earlier. Meanwhile Development Control functions in the expansion areas will be carried out by MKC under a service level agreement with HCA.
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‘We need financial leverage and time to gain a sense of purpose to create something great.” - Rita Spada 8 HCA & Government negotiations
8.1 Land transfer issues
We believe that option 3 (transfer to the Council) is the only viable solution for the sustainable development of MK. However there is a considerable amount of work to be done to ensure that the final negotiated package is beneficial for the city and that there are not key details which will cause problems in the future.
There is a key issue with the green estate. Whilst 80-odd sites have been identified in the map provided there are an estimated 1400 more which are small and have not be listed or valued which will transfer to the Milton Keynes Parks Trust (MKPT). The exact nature and amount of the endowment package for the MKPT has yet to be agreed.
There will be community assets which may transfer to the Council or the Community Foundation which need to be identified and a package agreed. The Scrutiny Panel recommends that the MKC Chief Valuer and Section 151 Officer work with the Parks Trust to agree a list of green sites and the endowment package.
8.2 Principles for MKC to follow to achieve successful transfer
8.2.1 In recommending that the assets should transfer to MK Council, the Panel is very aware that it should not be transferred ‘at any
- 17 - price’ and therefore believe the Cabinet should set out to the officers a number of deal breakers.
8.2.2 This decision will have an impact on Milton Keynes for a number of years to come and therefore any deal needs to have an ongoing, not just an immediate, benefit.
8.2.3 It needs to be financially viable for the citizens of Milton Keynes and therefore the true costs of each of the land assets to be transferred should be understood prior to negotiations concluding.
8.2.4 The debate to date has been conducted at a high level using a ballpark asset value and has not yet taken into account the detail for each asset. There is not yet a full list of the assets to be transferred although the major sites are known. Previous transfers have come unstuck because the detailed preparatory work was not fully done, there were loose ends and unexpected liabilities and costs came out after transfer. We express our concern that this could be repeated here.
8.2.5 Some of the assets transferring, such as the Bowl, will require substantial sums to maintain them. There will be liabilities and given the experience of previous transfers some which we believe to be an asset will actually have a negative impact. Work needs to be carried to present this information to Cabinet although we welcome the start that has been made by Bidwells in advising the Council on the valuation. MKPT have set out what kind of package they require to be able to take on the land that will transfer freehold to the Council and leasehold to the Parks Trust. MK Council needs to identify and quantify its requirements in a similar vein prior to the start of any negotiations.
8.2.6 HCA and MK Council have different operating methods as well as some differences on policy regarding infrastructure. This is not surprising and will not be an issue providing the Council recognises them and has a transparent process for deciding how to change/adopt them at transfer. The problems will arise if
- 18 - assumptions are made about what to do and therefore officers and members have a responsibility to ensure decisions are taken and recorded in a timely manner. A key example of this is that MK Council has traditionally required developers to put the infrastructure in once development starts whereas HCA have put in infrastructure ahead of the start of development. Both policies are valid but it needs to be clear which is being followed and the advantages/disadvantages of the policy option clearly decided by Cabinet. Where there are differences, even apparently minor ones, it should not be assumed that MKC current practice is the automatic choice and each choice should be clearly made and reasons recorded.
8.2.7 It should be self evident that thorough and professional preparation for the negotiations with HCA and subsequently the Government is an absolute requirement. This means that the tasks required need attention full time and not as an add-on to existing commitments.
8.2.8 The process to date has enjoyed cross-party endorsement and needs to ensure that this remains the case particularly as details emerge which change things. Getting the internal communications right is vital.
8.2.9 One of the reasons for transfer of the assets is to ensure proper democratic accountability. Concern has been expressed to us about governance arrangements post transfer, which we deal with later, but there is an equal imperative to ensure the governance arrangements for transfer are in place immediately.
8.2.10 The transfer is supposed to support the localism agenda and to be about the sustainable growth of the City and there is a real danger that these could be overlooked as the negotiations progress. Care needs to be taken at each stage to ensure the project remains focused on achieving the key goals of the transfer and doesn’t simply focus on the mechanics of transfer important though that is.
- 19 - 8.2.11 An issue for the Cabinet is whether other issues should be included in the negotiations. For example, it has been suggested that trying to remove the claw-back from existing assets should be part of the negotiations with the Government. We believe this aspiration is correct and we should seek to sustain that argument as part of the work. It will be a matter for the negotiators to determine whether they should be separated at any point. It is vital that Cabinet should keep a watching brief on this issue. The discussions on the tariff repayments to the Treasury will be a key negotiating point. We discuss these particular issues later but the Cabinet and CLT need to be clear on and agree the boundaries for the negotiations with HCA and the Government.
8.2.12 Much of this debate has taken place in isolation. However we are aware of parallel policy changes which have an impact on HCA asset transfer or are impacted by the transfer. It is not our job to tell Cabinet what decisions to take but we believe it would be helpful for the whole Council to have a paper which sets out the interaction of the various current proposed changes such as the reform of HRA, the capital borrowing rule changes, the definition of affordable rent as a trigger for grant for many developments etc. Failure to do so will result in decisions being taken which have unintended consequences for the future development of MK.
8.2.13 Finally, the key consideration for the Cabinet and CLT is how to ensure that any money borrowed to acquire the assets is capable of being paid for. This could be done in a number of ways and these have yet to be explored in detail. To provide confidence that there is at least one means of funding any borrowing, the Section 151 Officer has recommended reserving a proportion of New Homes Bonus money. Whilst this may be the ultimate and correct decision it should be taken transparently and with a full understanding of alternatives and of the consequences for this and other Council activity. Later in the paper we discuss alternative management structures which include various kinds of joint venture and which open up opportunities for other financial arrangements. We believe the Council can take the decision to proceed with starting to
- 20 - put together the business case for transfer but before that process is complete the Section151 Officer should present to Members a costed evaluation of options and their implications so that Cabinet (and Council) can take a final decision on how to finance it. We therefore believe that until that work is carried out any decision about how to spend the New Homes Bonus money, including on financing the asset purchase, is premature and that the money needs to be set aside until then.
- 21 - “History is a race between education and catastrophy” – HG Wells 9 Transfer issues
9.1 Land register and value There has been a lot of consideration of the land to be transferred and whilst the major sites are known, the full portfolio has yet to be agreed. HCA & MKC have valuers working on this to get an agreed list and value. Therefore a number of assumptions have been made when looking at the options but as the assumptions are consistent for all options the initial decision will be made on the relative values rather than the absolute value of each option.
9.2 Strategic direction of MK
There was universal agreement from the evidence submitted that MK will need to continue to grow and that use of these assets was vital to achieving the Economic Development Strategy recently agreed. The Council will inherit operational staff from HCA who will be able to continue to do the deals to develop the individual assets but there will be a loss of access to the key people at HCA who took the strategic leadership. Crucially, the Council will need to develop the management capacity that can take forward the strategic direction of the city. Having the growth of the city at the heart of the Council operation is a key component in any organisational change.
9.3 History of previous asset transfers
One of the key lines of this scrutiny process has been to ensure that the lessons of the previous transfers are recorded and that this time the assets are transferred so that the objectives of transfer are delivered. The Panel found that there was a wealth of knowledge around but that there was no easy way of collating and using this. It recommends to Cabinet that it looks at the
- 22 - gaps in the institutional memory of the authority and ensures that when projects are being evaluated they set out previous lessons. It should also take steps to ensure that this potential problem is tackled by the administration.
9.4 Taking Milton Keynes forward
Milton Keynes needs to be able to effectively compete both within the UK and internationally if it is continue to attract inward investment and maintain existing companies within the area. One of the key goals of transfer is to enable us to be in control of our own destiny. There are a number of plans to achieve this within the public and private sectors but as the Economic Development Strategy recognises they need to be at the heart of what the Council does post transfer not on the periphery of the organisation. The Chamber of Commerce have been particularly strong on this point.
This objective must not be lost in the detail of the transfer and the integration of the staff on Day 1 with clear goals and route map for achieving these goals is vital to the future of MK.
Milton Keynes needs to understand with whom it is competing, both within the UK and abroad. We were given evidence of the steps that other authorities, such as Peterborough, are taking and the Council should use this opportunity as a catalyst for putting MK ahead of the game.
The time available for this scrutiny has been limited and we have only just been able to look at a high level; we believe there is a need for both political ownership of the process on a cross-party basis and for further scrutiny as the issues this report highlights move forward.
- 23 - “Ensuring MK is not only open for, but can do, business to secure the future” – Clive Faine
10 Other considerations
10.1 Parallel developments
Assuming the Cabinet agrees with our recommendation to transfer the assets and start work on the preparation of the business case for negotiation with Government, we have identified a number of issues below where a debate (and preferably cross-party agreement) on the Council position is needed.
Whilst it is important that the asset transfer is not considered in isolation and that the implications of other changes are taken into account these should be conducted in parallel with but not be a barrier to the work on preparing the business case and negotiating brief.
The Localism Bill offers many opportunities and challenges for the local authority. Whilst this report does seek to develop the arguments on this aspect it believes that MKC Cabinet needs to ensure it has a strategic plan for dealing with them and that they should be integrated into the development of the opportunities that HCA asset transfer offers.
10.2 Reform of Housing Revenue Account (HRA)
One of the key changes that MKC will face over the coming year is the changes to the way that HRA is allocated and managed. Although details are still emerging it is quite clear that MK will be allocated a debt to manage and how we do that will be crucial to what shape the authority will take over the coming years.
- 24 - Cabinet should take the opportunity facilitate a cross-party debate involving stakeholders to ensure HRA changes are used to maximise the benefits to the city, its tenants and the mix of available housing tenures in the city and as part of this look at its complementarity with the asset transfer.
10.3 Reform of HCA Affordable Homes grant
Linked to this are the changes that HCA is making in providing grants for affordable housing. At present affordable rents are considered to be £62per week whereas under the new definition that HCA will be using it will rise to £160 per week. MK has not had that debate so this report will not prejudge the outcome but it is recommended that Cabinet urgently facilitate a cross-party debate involving stakeholders to ensure the access to affordable grants are used to maximise the benefits to the city.
10.4 Regeneration
Regeneration is starting to take off in a number of key estates across the city. It is quite clear that a number of developments will take place over the coming years. Whilst each individual scheme is going to have its own aspirations and challenges there are a number of common features with the HCA assets. They are spread across the city and will be developed at different timescales. The skill set needed to develop the different land assets is similar and therefore we suggest to Cabinet that they look at the option of combining the portfolios.
There are a number of models that other local authorities have used to achieve their objectives. However we believe that the management of the combined assets could not only give a greater land asset to be marketed were the Council to engage in joint ventures but also allow the strategic direction of the city to be set more coherently. Cabinet is recommended to give positive consideration to their joint exploitation.
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10.5 Cost of maintenance
One of the lessons of the earlier transfers is that the assets are not cost neutral and administering them prior to development can be resource intensive. This will be particularly true of the Bowl, if history is any guide. The HCA has indicated to the valuer what the ballpark figure of current costs is for those major assets which might be expected to transfer.
The Parks Trust has done work which indicates what its associated costs are expected to be and indicated to the Council and the HCA what that value is and would expect an endowment package to finance that work.
No such work has been done by MK Council either for the assets which will require maintenance or any community related asset. The Council should have this work done so that when it enters into negotiation with Government it can either secure a financial package or pay less for the assets.
10.6 How other LAs have dealt with their land assets
As mentioned above, other local authorities have developed different models to take their cities and communities forward. We include these to show the different options which are available to the Council and have worked elsewhere.
Wandsworth
Wandsworth Borough Council has rigorously controlled its asset base for many years, with the objective of minimising the amount of capital it employs. It has sold over £1 billion of surplus assets since 1980. Capital receipts from sales of surplus assets are an important source of finance and have allowed the capital programme to be funded entirely without borrowing. The absence of debt, and consequently no interest payments, maximises
- 26 - revenue available for front-line services and minimises Council Tax.
The Council has improved the quality of its remaining property portfolio and reduced the impact on the environment. www.audit- commission.gov.uk/localgov/goodpractice/useofresources/P ages/wandsworth1.aspx
Telford & Wrekin
A report went to Council Cabinet on 22 February that recommended that Telford & Wrekin Council and the Homes & Communities Agency (HCA) set up a formal Asset Partnership, which will give the council significant power to influence and promote the use and development of HCA assets in Telford.
The Asset Partnership which is subject to government approval would see Telford & Wrekin Council and the HCA working together to ensure best use is made of public land for residential and commercial development.
Telford & Wrekin Council will also explore opportunities for communities to directly influence the use of land in their local area following Government announcements regarding 'Right to Acquire'. It is claimed that this will give members of the public the right to reclaim and develop hundreds of acres of unused public sector land and buildings.
A further Cabinet report is due in September / October that reflects the outcome of a Green Book Appraisal that will be conducted over the summer.
- 27 - Birmingham
Birmingham has more dereliction and decay than MK and this has led the City Council to have a strong focus on regeneration, concentrating development and investment in the city centre.
Birmingham’s approach has been very effective at using Compulsory Purchase Orders (CPOs) to acquire land and property as land in city centres is often in multiple ownerships and needs to be assembled to enable regeneration projects to proceed.
The Birmingham New Street Station redevelopment was a Joint Venture partnership between Network Rail, the owner of the station; and the City Council. The Council purchased the shopping centre above the station using prudential borrowing to redevelop. The partners have shared the risk.
The City Council is also in a Joint Venture with Advantage West Midlands (AWM). The Council has used its CPO powers to acquire sites on the East Side of Birmingham. AWM provided the funding to purchase the sites through CPO and for clearance and infrastructure provision. AWM is due to be repaid through land sales but the partners expect that public sector investment will never be fully repaid. The AWM assets are due to be transferred to the HCA.
The City Council seeks to manage its assets in a strategic way and recognises the revenue generating capability of the assets. The intention is to develop the asset base to generate income and provide strategic opportunity.
Birmingham also has several land trusts establish by the Council at arms length to look after open spaces gifted to the city.
Several major leisure assets are due to be placed into an leisure trust in the ownership of the Council but operated at arms length. www.bigcityplan.birmingham.gov.uk/
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Manchester
The City Council has entered into a number of Joint Ventures to regenerate urban areas. Recently a new joint venture partnership to regenerate the Eastlands area of Manchester was unveiled in March 2011 by Manchester City Football Club, the city council, and urban regeneration company New East Manchester.
The Eastlands Development Partnership will hold around 200- acres of land surrounding City of Manchester Stadium and will build on a memorandum of understanding to redevelop the area that was signed in 2010.
The legally binding agreement will involve community football pitches being built on the 80 acres in Openshaw West, which were bought by City’s Abu Dhabi owners last year, alongside a training complex for the club’s professional players. www.propertyweek.com/news/news-by-region/north- west/manchester-city-enters-200-acre-regeneration-joint- venture/5014369.article
Sheffield
Earlier this year Sheffield City Council entered into a new Joint Venture “The Sheffield Housing Company”. This is a 50:50 joint venture between the council and the consortium comprising developer Keepmoat and housing association Great Places Housing Group.
Sheffield City Council is to invest its land in the company, while the Keepmoat Great Places consortium will invest cash to match the value of the land the local authority puts in.
The joint venture will build a mix of homes for private sale, shared ownership and affordable rent, according to the council.
- 29 - A portfolio of sites will be developed over the next 15 years, with the vehicle building in the region of 2,300 homes, under the plans. The council says that much of the land it intends to place into the vehicle has been vacant and derelict for a number of years and has previously been unattractive to private developers in single packages.
Any profits made by the vehicle are to be shared between the council and the private sector consortium.
www.sheffield.gov.uk/planning-and-city- development/regeneration/housing-regeneration/sheffield- housing-company
The Cabinet may choose to look at other examples, and two further authorities we would suggest are Bristol (because it is the size we will grow to) & Northampton (because it has the same local economic drivers).
10.7 Staff transfer
The other major transfer will be that of operational staff from HCA to MKC. There are obviously a number of HR & TUPE related issues and there have been particular difficulties in reconciling the different local government and civil services pension schemes, which have now been resolved. We do not intend to comment on this aspect except to say that this is not the first transfer either locally, regionally or nationally and that the issues which led to delays could and should have been predicted and managed effectively. It is essential that the project manages the different working practices and HR processes in an efficient and transparent way as we move forward.
10.8 Invest in MK
The staff that are transferring from IMK and MKELP should be the most straightforward especially as the Council has experience of running these services in house in the past. The
- 30 - fact that until recently there was no structure for them to be integrated into and nobody was able to explain what they would be doing on Day 1 has now been addressed and we welcome this.
It is our view that the staff transferring do so without the strategic leadership which has been provided within HCA and its predecessors. That capacity will need to be replaced within the Council.
Similarly there is worrying lack of awareness about the issues which arose and the lessons from the previous time the Council ran these services.
The continuation of these services is key to the City’s development. Although funding has been secured for 2011/12 and there is a package which would cover any redundancy costs there needs to be a longer term view of the importance of these functions to the ability of MK to continue to be prosperous and they should not be on the periphery of the Council. At the moment there is a very clear route for companies who wish to move to MK and the Council needs to ensure that this remains so. The relationship between these transferred functions and other parts of the Council is crucial and we expect sufficient management time and resource to be devoted to ensuring this will be achieved without delay.
The arrival of these staff is a major opportunity to transform a number of functions within the council to be more entrepreneurial and outward looking. They can be the catalyst by which Council aspiration for organisational transformation can be progressed. We do not expect the Cabinet to miss this opportunity.
In the longer term the Council may again decide to put these services back into the private sector or at arm’s length from the council core staff. We will not prejudge what the Council will decide although we received warnings about linking this with Mouchel and also to recognise that there are private sector companies who can do all or part of these services. The Council
- 31 - needs to engage with these businesses to ensure the whole of Milton Keynes benefits from the transfer.
Our attention was also drawn to the fact that to date the focus has been on attracting new business to MK and insufficient attention has been given to company retention. An example was said to be the work that Peterborough are doing to lure companies away from MK. It was suggested to us that if the Council knew the dates when leases are scheduled for renewal on particular estates they could nip a number of the potential problems in the bud instead of reacting if those companies suggested they would thinking of leaving MK.
Care also has to be taken about the operation of the service not just because the culture of HCA and MKC are different but because the rules about what a local authority can do may be an inhibitor. For example a council has to be impartial and can therefore only supply an in-coming company with a list of local companies who do a particular type of work rather than directing to a specific competent company who may be able to provide the particular service they want. We are confident that these issues can and will be resolved as the service beds down but given that there is only funding identified for another eight months, this is something for which time is not on the Council’s side.
However there is a great deal of work needed to be done both by the Cabinet member responsible and the Economic Development team to maximise the benefits of the transfer. We would recommend an audit of this work to be carried out towards November/December so that Cabinet can have informed debate when it comes to next year’s budget construction.
10.9 Development Control Team
The staff which will transfer when the development control powers are passed to the Council are crucial to the development of the city and have operated in a different culture to that which prevails inside Development Control at the moment. If the transfer is to be a success then these different ways of operating
- 32 - need to be reconciled. Given the nature of the type of development with which they have been concerned compared to the Council’s normal planning approach a business as usual approach and expecting the MKC way of operating to continue is likely to lead to major frustration with the developer community and development control staff. This scrutiny exercise has not had the time to look in detail at these issues but would highlight two key points for the Council to be aware of and deal with as transfer progresses.
Firstly, a lot more can be achieved through land ownership than through planning powers alone. The Council is not used to being in this position and the conflicts of interest that can arise. Also the different sections of the Council, whether it be development control, highways etc., need to understand the impact their actions will have on the market. As it was put to us, we do not have to claim that we are different we have to demonstrate it through our interactions. We have to be a “can do and able to do city”
The Cabinet member for Growth & Development should conduct an urgent review of the readiness of Council departments to take the lead in developing this city and ensure that the issues which arise from different ways of working are tackled systematically.
It is expected that planning fees will finance these posts. Although that may be true generally given the current state of the market there may be shortfall of income in the coming years. A plan to deal with this needs to be developed which enable the developments to proceed smoothly.
10.10 Tariff administration
A separate section discusses the Tariff issues itself but the key issue in this section is the transfer of the staff who administer the tariff. In all the submissions we received there was universal support for the transfer of these staff.
- 33 - The main bone of contention was funding. We support the conclusions of the consultants and other parties that the Tariff, whatever form it ends up in, should have as its first call the payment of these staff.
10.11 Assets disposal
The staff who currently negotiate asset disposal and write development briefs are of a high quality. They are going through the HCA’s HR processes at the moment following the reorganisation of that body. When they transfer they will be a valuable addition to MK Council.
There are three issues which the panel would like to draw to the attention of the Council and CLT.
Firstly, the ways of working are different as are the rules of governance. This could have an impact if not addressed, on the way that assets are developed and marketed. There is a great deal of concern within the developer community that they could negotiate a package with these staff and that instead of the straightforward approval system which operates within HCA the deal could get picked apart by different parts of the Council, including Members. Therefore a great deal of effort should be put into ensuring that any concerns which may be there are dealt with in the negotiations rather than waiting for particular plans to appear on a Development control report. This is a major issue of governance for the Council and getting it right is crucial for our future prosperity. This is a major piece of work for senior management and leading politicians of all parties which should start now. The issues need to be understood and clear and transparent processes developed. We suggest that the Cabinet Member for Growth and Development takes the lead in scoping and developing the changes which will be needed as a result of this transfer.
Secondly, the strategic leadership of this team is not transferring so the Council needs to develop that capacity and place it at the heart of the authority. This will be particularly challenging and needs thorough preparation for transfer and an understanding
- 34 - before Day 1 of where the team fit into the Council and how the Council will deploy its limited management resources.
Thirdly, the number of staff who are going to transfer is less than has historically done the job and has reduced on a number of occasions over the last few months. HCA argue that were they to continue to do this work the number they are planning to transfer would be the number they would employ themselves. Accepting that at face value, it still leaves the challenge for the Council that it will have to manage the disposal and maintenance of assets with fewer staff than historically have been employed on this task. We accept the view that development will be possible with this number of staff if given the right support and freedom to act. Micro management and/or non management of this function would be a mistake and clear transparent methods of operation need to be developed prior to transfer. An assessment of what work is expected and resources available should be a key part of the work programme for transfer. Also the experience of previous transfers is that one or two key individuals can make the difference between a smooth and bumpy transfer. Ensuring that the right staff transfer is a vital part of the negotiations with HCA as is having a ‘Plan B’ to deal with any resource issues or if gaps or skill shortages are discovered.
10.12 Danger of reinventing wheels
There is a lot of experience out there which we should utilise. It is also vital that the lessons of previous asset transfers are taken on board. The lack of institutional memory at the Council is concerning so steps need to be taken to ensure that we do not repeat mistakes made under earlier transfers.
Also there are people doing various jobs in both the public and private sectors who can assist the Council in taking this forward. These skills should not be duplicated and should be utilised where appropriate.
- 35 - 10.13 MKC Capacity
It is quite clear that the Council does not currently have the strategic capacity to develop the city on the scale that is required particularly in the current market conditions. Therefore a priority for the Cabinet and CLT should be to acquire that additional strategic capacity. This should apply which ever option in section 6.1 is chosen.
10.14 Management structure
The Council will be going through organisational change over the coming years to ensure it has the ability to deliver the kind of authority Members of all parties aspire to. The acquisition of these assets and staff is a wonderful opportunity to achieve a major strategic step forward. Therefore CLT should not just fit the staff into existing structures but use their arrival as a catalyst for major change. If we are to develop a city council that is forward looking then it will need strong leadership. Our examination of other successful authorities who have used land development as a transformational tool have all had strong leadership, clear goals, cross-party and external stakeholder endorsement of the direction and have got the governance arrangements right.
Getting the right partners whether the Council manages the assets in house or develops a joint venture arrangement is going to be key for the future of the city and the preparatory work for that cannot start too soon.
Given the nature of the asset transfer and the way that negotiations are going to be carried out in future development, it is clear that the Cabinet needs to address the current external perception that our current arrangements for decision making within the Council are too slow, cause concerns in the market and need to be upgraded to ensure they are fit for purpose and are transparent. This is particularly true of planning and development control where the current arrangement for MKC and HCA differ substantially in the preparatory work for planning decisions.
- 36 -
“Most people...find a disorientating mismatch between the long-term nature of their liabilities and the increasingly short- term nature of their assets.” – James Baldwin
11 Managing assets once transferred
11.1 In House
The option recommended for Milton Keynes and HCA to go to Government with is option 3b, which is a down payment followed by a number of subsequent payments until the total assets are paid for. Although that position is acceptable for the negotiating position with Government and the development of the business case, the key question is: how do we ensure MKC gets the best value from the assets for the citizens of MK.
In the past, assets transferred to the Council have become part of the everyday administration of the Council or have been transferred to a specialist body with an endowment package to administer them. In this case the Council needs to decide what happens next and how it will pay for administering the assets.
It could take the view that it will not accept the transfer unless there are sufficient funds to administer them. That could either be an endowment package or a reduced value. Faced with a choice where there is insufficient package or reduction in the price paid, the Council will need to make a choice as to whether it should proceed with transfer. The rest of this report assumes that an agreement, acceptable to both Government (HCA, DCLG and Treasury) and MK Council has been reached on this point.
At the point of transfer, the Council will assume the assets but there are several choices available for it to then take. This requires preparation prior to day 1 of transfer rather than getting the assets and then deciding what to do. Whilst we list the main options and discuss their merits at a high level, this is only the starting point, and the Cabinet is recommended to
- 37 - receive a detailed report which formalises the main financial implications, benefits and liabilities of each option and subjects each to a SWOT test.
The Council could choose to administer all these services in house. However as we have already noted there is the operational capacity but financial resources within the Council budget are tight to ensure long term viability. But there is a shortfall in strategic capacity. Also the lessons of previous administrations is not encouraging.
If the Council decides that the risks of the other options are too great then this option may need to be evaluated further. Also it is not an either or choice, so there will be elements probably around Economic Development where it is appropriate for the Council to be the provider whilst other areas may be more apt for a partnership.
11.2 MKC to arrange disposal of assets to private sector locally.
Having recommended rejection of option 1 (privatisation), we considered whether the Council should consider the advantages of local disposal of the assets to MK developers to take on. This would in essence remove the financial pressures on the authority and may be able to ensure we can get the assets at no cost to local taxpayers. However there are considerable dangers in this approach and the Council and the city would lose control of how the city develops thereby negating one of the objects of the transfer. Equally important it could distort the market either by flooding it with development or allowing the creation of land banks which would have implications for the speed of growth of the city. The Panel do not recommend pursuing the option of disposal to the private sector locally.
- 38 - 11.3 Third party involvement
However we do believe there are considerable advantages in involving the private sector and financial asset management companies in particular. There are various types of partnerships all of which the Council could and should explore.
11.4 Joint venture with developers
The Council must develop its relationship with the local developers. Parts of the Council already have some relationships with developers and the Council was involved in the old MKSM. This relationship should be built on a shared vision for the future development of Milton Keynes and a transparent set of rules regarding how the assets will be marketed and when. Much of this will emerge from the work on the Core strategy but the Council itself must adapt to this relationship and the individual sections within the Council must understand the need to have as their key objective the development of the city. The Scrutiny Panel recommend that the Council should develop its relationship with local developers.
11.5 Joint venture with a Capital Assets Management Company
The Scrutiny Panel have not been able to address the details needed for this option in the time available but recommend the Cabinet to explore the role Asset Management Companies can provide. The advantage is that skills around marketing of the assets, management and finance can be brought to the table. The downside is that the company(ies) will want a return and that will reduce the income to the Council. As with all things it is a balance and we believe there is merit in giving this option serious consideration. We recognise that the size of the asset may be too small for some companies and that great care would required to get the right partner.
- 39 - 11.6 Joint venture with Housing Association/Trust
The Scrutiny Panel have not been able to address the details needed for this option in the time available but recommend the Cabinet to explore the role that Housing Associations can bring to managing the portfolio. The panel is of the view that this option is more likely at the time an individual site is developed but given the changing nature of housing and the Government’s aspirations for house building it has potential to bring in expertise including strategic management which would more closely match the Council aspirations. The issues are likely to revolve around finance and whether sufficient could be brought in.
11.7 Land Trust including MKPT/Community Foundation/social enterprises
The Scrutiny Team have not been able to address the details needed for this option in the time available but recommend the Cabinet to explore this. The Council in its original letter to HCA suggested some form of Community Interest Company and we believe this is what many people suggest we should do. Many authorities are looking at this kind of option to take their Green Deal work forward and it is the kind of vehicle which if properly financed could resolve the key issues of governance and certainty which developers are looking for. We would suggest using an existing body is inappropriate as it would dilute their focus but do not rule out and would encourage engagement with them in taking this option forward. As with the other options not doing it at a city wide level does not preclude individual developments from using this model.
11.8 Land Trust along Birmingham trust lines or Manchester commercial model
The Scrutiny Panel have not been able to address the details needed for this option in the time available but recommend the Cabinet to explore this. We have looked at the way other authorities have progressed and the model in Birmingham, which
- 40 - has led to a Conservative led authority building Council housing, and a Labour led Manchester which has secured substantial private sector financing are both attractive options. Councils led by all parties (and none) have looked at partnerships. Whilst most are about disposal of small pieces of land those authorities that have taken a strategic approach to maximising the potential of their land holdings have been able to lever in considerable extra resources.
11.9 Local, national or international partners
The Scrutiny Panel have not been able to address the details needed for this option in the time available but recommend the Cabinet to explore this. When Milton Keynes was being developed by MKDC there was a very strong international aspect about attracting inward investment from which the city is still benefiting. That has diminished in recent years but we believe there is a real opportunity to again be seen as operating at an international level. The expertise still exists within the city although not necessarily the Council. Bringing in international finance and expertise may be a way to ensure that sufficient resources are available to grow the city.
- 41 - “It is going to be very important to keep good staff as well as get good staff. People that are good at the kind of thing that is needed here don’t want to work for an organisation they find a frustrating bureaucracy... people want to work because they think it is a good place to be and they can do a really good job, and business/developers think we can and are able to make decisions.” - John Walker
12 MK staff transfer
Whilst the Panel believe that sufficient staff resources are transferring to handle operational matters arising from the HCA land portfolio, it is clear that there is a gap on strategic management capability which HCA fully acknowledges. This gap will need to be filled if MKC is to deliver its ambitions with regard to the land transfer.
The witnesses who gave evidence to the Panel were united in their view that this capability is crucial to success. We recommend that the Cabinet addresses their concerns carefully. The solution will depend on the options chosen for managing the land assets per the options described above.
- 42 - “The future, according to some scientists, will be exactly like the past, only far more expensive.” – John Sladek
13 Financial Implications for MKC
13.1 Getting the land value right
Option 3a (up front payment with no further payments due to HCA) and Option 3b (a combination of up front payment plus deferred payments over an agreed period) are the two options to be taken forward for a full financial evaluation. Clearly the value of the land at the point of transfer is crucial and the following factors must be taken into account when arriving at the land value:
o the current depressed land market
o lack of finance available for development which means take up is likely to be slow.
o operating costs associated with each piece of land
o future liabilities and financial risks associated with each piece of land.
o the degree to which infrastructure is completed
o designated use of the land
The Scrutiny Panel would like to bring to the attention of the Cabinet that mistakes were made in the past in overestimating incomes and underestimating costs and liabilities on specific land acquisitions such as The Bowl and The Food Centre and it is important not to repeat these mistakes. A thorough and detailed register of prudent land values must be compiled urgently to inform discussions
- 43 - with HCA. It is expected that some land types will be a net liability to MK.
13.2 Maintenance costs
The Scrutiny Panel recommends that the Cabinet actions a full assessment of likely maintenance costs for the land to be transferred and ensures that this is taken fully into account in arriving at the deal price for the land.
13.3 Understanding the infrastructure costs
We are led to believe that infrastructure is largely completed for HCA sites. However we have not been able to validate this properly. In the current climate getting developers to fund major infrastructure such as main roads may not be realistic so this will considerably slow down development incomes to MK, unless the Council is able to fund this work. We recommend the Cabinet investigate the infrastructure availability and compliance with the Strategic Plan for MK as this will affect the net value of the land.
13.4 Infrastructure Tariff Liability
The Milton Keynes Tariff was implemented in 2005 and is currently administered by HCA. It was the first Tariff of its type in the UK, and remains unique. Discussions are taking place about whether the tariff liability and associated staff should be part of the land deal with HCA.
The Tariff secures a commitment from landowners and developers within the Milton Keynes Expansion Areas to Tariff- based Section 106 contributions. It was anticipated when the Tariff was signed that development would be complete by 2016 and yield in excess of £310m and that the Tariff would be cash neutral by 2021. Given the current rates of development this is now very unlikely.
- 44 - The Tariff contributes towards the provision of physical and social infrastructure associated with the growth of Milton Keynes. This includes local infrastructure within the Urban Development Area (UDA) as well as a contribution towards strategic items. HCA also currently hold Development Control powers for the UDA.
Approval from HM Treasury in 2005 allows the HCA to invest funds, within an £80m peak funding ceiling. This is the forward funding mechanism used to secure early infrastructure in tandem with the development of new homes, on the basis of repayment later in the life of the development. The developer’s index linked Tariff contributions of £18,500 per residential dwelling and £260,000 per hectare of employment space are collected by the HCA, pooled and used to reimburse the HCA investment.
At the end of 2010/11 some £45.87m had been provided by the HCA to support the provision of infrastructure through the Tariff. Nearly £22m of income had been received to this point. This means that a deficit of £24m currently exists. This sum is due to be reimbursed to the HCA.
Given the slow down in the housing market, both the income from the Tariff and the expenditure on infrastructure is behind the original profile. A re-profile of income and expenditure is proposed by the HCA to limit the growth of the deficit.
The UDA includes the Strategic Reserve Sites to the South East of the City. These sites are currently not consented. There is a risk that these sites will not come into the Tariff as originally intended and that the associated income through the Tariff will not be realised, including contributions to strategic items. Developer contributions to strategic infrastructure however should be covered under Community Infrastructure Levy (CIL) if this is the case. This however cannot be guaranteed; indeed the level of contribution under CIL may not be the same as the Tariff.
Some infrastructure is delivered as “Works in Kind” by developers. This delivery will reduce expenditure from the Tariff
- 45 - but also reduces income as the developers achieve credits. This has an impact on cash flow management which may lead to an increase in peak deficit.
The transfer of the Tariff may bring with it liabilities to the Council: to repay the HCA investment of £24m to date, to repay any future forward funded investment from the HCA and to finance any forward funded investment from the Council. The Council and the HCA are negotiating the terms of transfer and discussing agreements to define and govern the liabilities. We endorse the Director of Resources’ view that the transfer of the Tariff should only be considered if a suitable funding agreement can be signed between the Council and the HCA.
The importance of getting the tariff aspects right in the negotiations cannot be overstated. In our view, this could be the deal breaker if the package and funding arrangements are not acceptable to the Council. Cabinet needs to understand this complex area fully and agree with the negotiating team what the ‘red lines’ are.
13.5 Overage
As land values increase and the return from any particular development is greater than that expected an agreement will be reached to ensure HCA also benefit from the increased value. This is a key part of the negotiations with HCA and the Cabinet and Treasurer should ensure Members are fully aware of the issues, potential pitfalls and value to MKC of such an arrangement.
13.6 Funding the land transfer
The Scrutiny Panel recognise that the Section151 Officer does not want to undertake work that will be wasted if the Government choose one of the other options or negotiations break down. However we believe this analysis would be helpful to the Council in a number of contexts and recommend that
- 46 - detailed work on funding sources in the current economic climate is commissioned as a matter of urgency. The work should take into account the totality of likely external funding requirements across the Council including for example changes to HRA and the successor to Project Reduce and any infrastructure tariff funding falling to the Council. The Tariff is a sensitive and nebulous area which deserves very careful consideration as it would limit Council ability to raise capital going forward if the debt was on Council's books.
An assessment of the estimated impact on Council tax and any restrictions that the land purchase and any tariff debt would place on the ability of the Council to raise capital for other projects over the short to medium term is an essential input to the deal discussions.
- 47 - “Good management nurtures small and ongoing changes, while innovation and opportunity is like the magma that appears in abrupt eruptions from time to time” – Masaaki Imai 14 Restructuring MKC
14.1 Integration with existing services
Previous transfers have been problematic because of the lack of sufficient preparation and underestimating the work required to merge different cultures. This was because the focus was on reconciling different policies and methods of working, which was largely successful. Although the numbers transferring are small, the work they will be doing is at the heart of any transformation of the Council and how they are used will determine whether the Council achieves its ambition to become a more strategic and leaner Council.
It is not a question of ‘business as usual’ but understanding that this moment is the opportunity to transform the way that existing services are delivered.
14.2 Governance arrangements
There were real concerns expressed to the Panel about the need to have transparent governance arrangements. There is a fear that the Council, at some point in the future, will be tempted to use these assets to tackle a short term budgetary problem rather than to develop the city as they are meant for. Whilst these fears may be unfounded they are real and Council should ensure there are sufficient hurdles to make it hard for any administration to be tempted down this route.
- 48 - The other fear is that there will be political interference once a deal has been agreed which will unpick the agreements that have been made. This means that the Council will need to ensure that Members act in a much more strategic way in future. It means that the way development briefs are constructed will need to address community concerns before any agreement is signed. It means that there needs to be better engagement with Members, community groups and parish/town Councils at the early stages of development. Incoming HCA staff will need to be supported into understanding Members’ roles and responsibilities.
14.3 Catalyst for change of MK Council
This report has identified elsewhere the rare opportunity that exists to use this moment to effect the real organisation transformation that the Council needs. This will require the Cabinet, other political parties and the Corporate Leadership to work together to create a shared vision for the future operation of the authority. It would be very easy to miss this opportunity and that would be a great disservice to the people of Milton Keynes.
- 49 - “It takes courage to grow up & become who you really are.” – e. e. cummings
15 Future external relationships
Whatever the final arrangements the Council decides to adopt for management and however it decides to develop these assets it will need to take account of the economic context in which it operates. We live in a sub region which is dynamic and growing and will be the driver for growth in any future recovery. The Council will need to be cognizant of the real economy, the key economic drivers, and long term changes which will affect how MK develops.
It will therefore need to play a key part in SEMLEP and ensure that as the largest city within this area it will take on board the opportunities and the responsibilities that go with that. How it does that is not for this Panel to say but we think the step change that the Council will undergo as a result of the transfer should be used in its external relationships as well as internally. A ‘little town’ mentality or way of working has no place in the Milton Keynes Council of tomorrow.
It is in our interests to see our neighbours do well and for the economies of the whole SEMLEP to be successful. SEMLEP should not just be successful in terms of the UK but also internationally as well. The Council aspirations for international sporting city, the Chamber’s world trade centre and other initiatives need to be continued. HCA has traditionally been a key driver in this regard and it is important that the Council pick up this baton particularly in small scale sponsorship and seed funding which levers in considerable private finance.
Therefore Cabinet is recommended to develop a strategy for engaging with SEMLEP and interacting with our neighbours for mutual benefit.
The transfer of the assets will not end the relationship with HCA which will continue to have a presence in the city. There will be
- 50 - considerable interaction in field of housing. However the relationship will change and it will mean that both parties will have to adjust to the arrangements. MKC has always aspired to control its own destiny without a ‘big brother’ in town. It now has that opportunity but with that also come new responsibilities and it will have to change the way it interacts with HCA.
In every previous transfer of assets there have been issues long after the transfer date. We envisage that this transfer will be no different. There will be parcels of land that get missed, there will be commitments that HCA have entered into that suddenly come to light, there will be issues of contention which arise a few years down the road. MKC needs to ensure it has the appropriate mechanisms for dealing with HCA/DCLG post transfer. Also during the negotiations and in the run up to transfer the Council will need to resolve how the different ways of operating will change and not just make assumptions.
A formal record of operating practice and changes needs to be agreed through the appropriate Cabinet decision-making process. It should remember that a non-change as far as the Council is concerned can be a major change as far as HCA staff are concerned.
One of the most intractable problems of past asset transfers has been covenants and their subsequent lack of enforcement. This should be subject to a separate exercise to identify each covenant and what is required to ensure the objective of covenant is continued.
Given the nature and importance of the tariff and asset purchase as well as the continued growth of Milton Keynes, the negotiations ought to ensure there is the mechanism to continue the dialogue with the different parts of Government should any disputes or issues arise post transfer.
- 51 - “You can’t stay in your corner of the forest waiting for others to come to you. You have to go to them sometimes.“ - AA Milne
16 Role of wider public sector
It is important in the development of the city to recognise that there are other assets which can be utilised. We have discussed the benefits of integrating with other Council assets from Day 1. We also believe that the assets held by other public bodies such as the health service can be useful in developing the city. As part of any transfer, the Council should engage with these other bodies to maximize the benefits to Milton Keynes.
We recommend to Cabinet that part of the process of asset transfer is to collate the land assets which exist within Milton Keynes and determine who owns what and what are the synergies which can be brought to bear to achieve the aspirations of the Core Strategy. This should include land in the hands of developers and in private ownership because the potential for future growth of the city is not just about the Council acquiring HCA land but about having the ability to lead the growth of the city. If we create an authority which has strong leadership, is financially well managed and is aspirational then there is a bright future. That gives us tremendous opportunities to bring in and use resources in innovative and imaginative ways but it starts with getting the facts in place and establishing the right relationships.
One sector which we have not covered but which needs to be involved particularly around CMK is parish and town Councils. We recognise their importance to the future of Milton Keynes and so should the team which manages the process going forward.
- 52 - “Focus on remedies, not faults." - Jack Nicklaus
17 Future Scrutiny
The Panel recognises that the Council has the appropriate Executive tools to progress this and that the Scrutiny Panel has examined the process to date, but there are no current proposals for future scrutiny of this project. The Overview and Scrutiny Management Committee should be asked to look at the appropriate scrutiny mechanisms for monitoring the Steering Group and the recommended actions contained in this report.
- 53 -
“The best way to predict the future is to invent it.” -Allan Kay, Apple Computers
18 Conclusions
The Scrutiny Panel believe that ownership of the HCA land presents a great opportunity for the City. Some of our expert witnesses commented that this transfer presents the opportunity to complete the original master plan for the City and we support that comment, provided the land can be acquired at the right price and structures are set up very quickly after transfer to effectively manage the opportunities available. A strategic approach will be required and great care needs to be taken not to squander the assets for short term gain against pressures on the cost reduction front, or for political expediency.
The responsibility falling on MKC to do this well should not be underestimated. MKC needs a strong experienced team to take the development of the city forward, including management of the marketing, development and disposal where appropriate of the land assets. The approach must be commercially realistic but community focused and capable of liaising with a range of developers and asset managers in order to optimise the realisable value for MK. Various options ranging from Joint Ventures to a ‘go it alone’ model are covered in the report to facilitate asset management after transfer.
Funding options are crucial, and it is a key concern of the Scrutiny Panel that this work needs to be undertaken in order to inform the business case and the negotiations.
The establishment of a cross-party Steering Group was a good decision and should be the vehicle by which the Council takes the business case and negotiations forward. To date this has been on an ad hoc basis. We believe that the Steering Group need to treat the transfer of staff and asset transfer as a major
- 54 - project under the MK Approach and take these recommendations forward with the Corporate Leadership Team.
The medium & longer term issues need to be addressed by Cabinet and given its importance to Milton Keynes we believe it should seek to engage with the key stakeholders at all stages. There are few opportunities to effect major transformation of your own city and when they arise as in this case then they need to be grasped.
- 55 - “They always say time changes things, but you actually have to change them yourself.” – Andy Warhol
19 Recommendations and future actions
1. The unanimous view of the Scrutiny Panel is that Option 3, which is that the Council should acquire the assets provided that a reasonable settlement can be negotiated with central government. (Para 3)
2. MKC owes it to the council tax payers to acquire the assets on the most favourable terms. (Para 3)
3. The transferring portfolio does not include land for which Development Agreements exist with HCA as it is intended that these will be concluded by HCA. Care needs to be taken in the period from now until transfer that this list is acceptable to MKC and that land which is valuable is not excluded, intentionally or otherwise. (Para 5.2)
4. Although there is a register of sites available the Cabinet are asked to note that considerable work is required to validate this register, and still more to place a value on it. (Para 5.2)
5. Cabinet should recognise that the price paid for the land has to be affordable and represent good value and carry an acceptable risk: return profile to tax payers, in other words this is not a deal to be done at any price. (Para 5.3)
6. The Scrutiny Panel recommend to the Cabinet that this is the only option which is taken forward into discussions with HCA (Para 6.2)
7. The Cabinet & CLT needs to be clear on and agree the boundaries for negotiations with HCA & the Government. Cabinet and the officers should set out the deal breakers prior
- 56 - to commencement of negotiations (Para 8.2.1). Negotiations should be kept focused and quite simple.
8. Any deal needs to have an ongoing, not just an immediate benefit. (Para 8.2.2)
9. The deal needs to be financially viable for the citizens of Milton Keynes and therefore the true costs of each of the land assets to be transferred should be understood prior to negotiations concluding. (Para 8.2.3)
10. Previous transfers have come unstuck because the detail preparatory work was not fully done and there were loose ends and unexpected liabilities and costs came out after transfer. We express our concern that this could be repeated here. (Para 8.2.4)
11. MK Council needs to identify and quantify its requirements for any endowments or funding streams prior to the start of any negotiations.(Para 8.2.5)
12. HCA and MK Council have different operating methods, policies and culture. Where there are differences, even apparently minor ones, it should not be assumed that MKC current practice is the automatic choice and each choice should be clearly made and reasons recorded. (Para 8.2.6)
13. The professional preparation for the negotiations with HCA and subsequently the Government is an absolute requirement. This means that the tasks required need attention full time and not as an add-on to existing commitments. (Para 8.2.7)
14. Getting the internal communications about the process right is vital. (Para 8.2.8)
15. The Council needs to ensure it has appropriate governance arrangements post transfer and an equal imperative to ensure the governance arrangements for the transfer process are in place immediately. (Para 8.2.9)
- 57 - 16. Care needs to be taken at each stage to ensure the project remains focussed on achieving the key goals of the transfer and doesn’t simply focus on the mechanics of transfer important though that is (Para 8.2.10)
17. Much of this debate has taken place in isolation. We believe it would be helpful for the whole Council to have a paper which sets out the interaction of the various current proposed changes for the future development of MK. (Para 8.2.12)
18. We believe the Council can take the decision to proceed with starting to put together the business case for transfer but before that process is complete the Section151 Officer should present to Members a costed evaluation of options and their implications so that Cabinet (and Council) can take a final decision on how to finance it. We therefore believe that until that work is carried out any decision about how to spend the New Homes Bonus money, including on financing the asset purchase, is premature and that the money needs to be set aside until then. (Para 8.2.13)
19. Crucially, the Council will need to develop the management capacity that can take forward the strategic direction of the city. Having the growth of the city at the heart of the Council management structure is a key component in any organisational change. (Para 9.2)
20. The Scrutiny Panel recommends to Cabinet that it looks at the gaps in the institutional memory of the authority and ensures that when projects are being evaluated they set out previous lessons. It should also take steps to ensure that this potential problem is tackled by the administration. (Para 9.3)
21. The time available for this scrutiny has been limited, and we have only just been able to look at a high level. We believe there is a need for both political ownership of the process on a cross-party basis and for further scrutiny as the issues this report highlights move forward. (Para 9.4)
- 58 - 22. Cabinet needs to ensure it has a strategic plan for dealing with parallel developments and that they should be integrated into the development of the opportunities that HCA asset transfer offers. (Para10.1)
23. Cabinet should take the opportunity facilitate a cross-party debate involving stakeholders to ensure HRA changes are used to maximise the benefits to the city, its tenants and the mix of available housing tenures in the city and as part of this look at how this compliments the asset transfer. (Para 10.2)
24. Cabinet urgently facilitate a cross-party debate involving stakeholders to ensure the access to affordable grants are used to maximise the benefits to the city. (Para10.3)
25. The skill set needed to develop the different land assets is similar to that required to regenerate land and therefore we suggest to Cabinet that they look at the option of combining the portfolios. Cabinet is recommended to give positive consideration to their joint exploitation. (Para 10.4)
26. The Council should have the work done on the negative aspects of the assets so that when it enters into negotiation with Government it can either secure a financial package or pay less for the assets. (Para10.5)
27. The Cabinet should look at other local authority land asset management examples to help inform its choices. (Para 10.6)
28. Trying to remove the claw-back from existing assets should be part of the negotiations with the Government. It will be a matter for the negotiators to determine if they should be separated at any point. It is vital that Cabinet should keep a watching brief on this issue (Para 8.2.11)
29. the Cabinet need to address the current external perception that our current arrangements for governance and decision making within the Council are too slow, cause concerns in the market and need to be upgraded to ensure they are fit for purpose and are transparent. (Para 10.10)
- 59 -
30. There is gap in strategic management capability which HCA fully acknowledges This capability is crucial to success. We recommend that the Cabinet addresses their concerns carefully. The solution will depend on the options chosen for managing the land assets. (Paras 10.13 and 12)
31. The Scrutiny Panel would like to bring to the attention of the Cabinet that mistakes were made in the past in overestimating incomes and underestimating costs and liabilities on specific land acquisitions and it is important not to repeat these mistakes. A thorough and detailed register of prudent land values must be compiled urgently to inform discussions with HCA. (Para 13.1)
32. The Scrutiny Panel recommends that the Cabinet actions a full assessment of likely maintenance costs for the land to be transferred and ensures that this is taken fully into account in arriving at the deal price for the land. (Para13.2)
33. We recommend the Cabinet investigate the infrastructure availability and compliance with the Strategic Plan for MK as this will affect the net value of the land. (Para 13.3)
34. The importance of getting the tariff aspects right in the negotiations cannot be overstated. In our view, this could be the deal breaker if the package and funding arrangements are not acceptable to the Council. Cabinet needs to understand this complex area fully and agree with the negotiating team what the ‘red lines’ are. (Para13.4)
35. Overage is a key part of the negotiations with HCA, and the Cabinet and Treasurer should ensure that Members are fully aware of the issues, potential pitfalls and value to MKC of such an arrangement. (Para 13.5)
36. The relationship between these transferred functions and other parts of the Council is crucial, and we expect sufficient management time and resource to be devoted to ensuring this will be achieved without delay. (Para10.8)
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37. The arrival of these staff can be the catalyst by which Council aspiration for organisational transformation can be progressed. We do not expect the Cabinet to miss this opportunity. (Para10.8)
38. The Council needs to engage with these businesses to ensure the whole of Milton Keynes benefits from the transfer. (Para 10.8)
39. There is a great deal of work needed to be done both by the Cabinet member responsible and the Economic Development team to maximise the benefits of the transfer. We would recommend an audit of this work to be carried out towards November/December so that Cabinet can have informed debate when it comes to next year’s budget construction. ((Para 10.8)
40. The Cabinet member for Growth & Development should conduct an urgent review of the readiness of Council departments to take the lead in developing this city and ensure that the issues which arise from different ways of working are tackled systematically. (Para10.9)
41. A plan to deal with Development Control fee income shortfall needs to be developed shortfall of income in the coming years.(Para 10.9)
42. We suggest that the Cabinet Member for Growth and Development takes the lead in scoping and developing the governance changes that will be needed as a result of the transfer of asset disposal staff. .(Para 10.11)
43. Ensuring the right staff transfer is a vital part of the negotiations with HCA as is having a Plan B to deal with any resource issues or if gaps or skill shortages are discovered. (Para 10.11)
44. Cabinet is recommended to receive a detailed report which formalises the main financial implications, benefits and liabilities
- 61 - of each option for the future management and subjects each to a SWOT test. Council will need to resolve how the different ways of operating will change and not just make assumptions. (Para 11)
45. The Panel do not recommend pursuing the option to arrange immediate disposal of assets to the private sector locally. (Para 11.2)
46. A formal record of operating practice and changes needs to be agreed through the appropriate Cabinet decision-making process. (Para 15)
47. There should be a separate exercise to identify each covenant and what is required to ensure the objective of covenant is continued. (Para 15)
48. We recommend to Cabinet that part of the process of asset transfer is to collate the land assets which exist within Milton Keynes and determine who owns what and what are the synergies which can be brought to bear to achieve the aspirations of the Core Strategy. (Para 16)
49. We believe that the Steering Group needs to treat the transfer of staff and asset transfer as a major project under the MK Approach (Para 17)
50. Transfer of assets is not just about the immediate transfer. The medium & longer term issues need to be fully addressed by Cabinet (Para 18)
51. It is essential that the project manages the different working practices and HR processes in an efficient and transparent way as we move forward. (Para 10.7)
52. The lack of institutional memory at the Council is concerning, so steps need to be taken to ensure that we do not repeat mistakes made under earlier transfers.
- 62 - 53. Also there are people doing various jobs in both the public and private sectors who can assist the Council in taking this forward. These skills should not be duplicated and should be utilised where appropriate. (Para 10.12)
54. However we believe this analysis would be helpful to the Council in a number of contexts and recommend that detailed work on funding sources in the current economic climate is commissioned as a matter of urgency. (Para 13.6)
55. Cabinet is recommended to develop a strategy for engaging with SEMLEP and interacting with our neighbours for mutual benefit. (Para 15)
56. MKC needs to ensure it has the appropriate mechanisms for dealing with HCA/DCLG post transfer. Also during the negotiations and in the run up to transfer the Council will need to resolve how the different ways of operating will change and not just make assumptions. (Para 15)
57. The Overview and Scrutiny Management Committee should be asked to look at the appropriate scrutiny mechanisms for monitoring the Steering Group and the recommended actions contained in this report. (Para 17)
- 63 -
20 Appendices
20.1 Press Release 10 June 2011
The Council’s Overview and Scrutiny Management Committee has set up a scrutiny panel to look at and make recommendations on the transfer of Homes and Community Agency staff and assets to the Council. The group will report back to the Council in time for key decisions to be taken by Cabinet on 26 July. This has key implications for the future development of Milton Keynes and has a number of opportunities as well as risks so it is important all things are considered thoroughly.
The panel would like to hear from anyone wishing to comment on these issues and how it should be done. In order to meet the timetable we would look to receive written submissions by the end of June. Submissions should be sent to Fran Bower at: Milton Keynes Council Overview and Scrutiny Democratic Services Civic Offices 1 Saxon Gate East Milton Keynes MK9 3EJ Email: [email protected]
Background
HCA as a result of a request by HM treasury have been looking at the cost implications of the transfer of HCA Assets to MK Council and consultants have been employed to do that work. They have produced their assessment and a steering group from the administration is looking at that with a view to completing the negotiations with the Government by end of the summer. They hope to take a report to Cabinet in July.
- 64 - The scrutiny panel will look at the process of the transfer of the Invest in MK staff, the planning staff, the staff who administer the tariff and the staff responsible for the remaining HCA assets as well as the assets themselves.
20.2 Meetings and other work of the Scrutiny Panel
Date Meeting / Action People taking part in addition to the Scrutiny Panel Members 10 Press release sent to June media 14 Scoping meeting June 23 Briefing on the draft options Tim Roxburgh June appraisal (in private) 29 Previous Asset Transfer John Walker June Arrangements (in public) Clive Faine (Abbeygate Developments) David Foster (MK Parks Trust) Michael Murray (former CEx MKC) Allan Banks (FSB) 30 MKC Officers (in private) David Hill (Chief Executive) June Tim Hannam (Corporate Director- Resources) Peter Smettem (Valuer to the Council) Jonathan Entwistle (Head of Infrastructure Co-ordination and Delivery) 4 July Business community (in Rita Spada (Chamber) public) Allan Banks (FSB) Jonathan Bailey (IOD) Phil Smith (Business Leaders) From Unions: Frank Reedy (UNISON) Paul Van Geete (PCS) 5 July Group Leaders (in private) Cllrs A Geary and N Miles
- 65 - 5 July HCA Tim Roxburgh Paul Spooner 7 July Report construction (in private) 7 July Group Leader (in private) Cllr Crooks 13 July Report construction (in private) 13 July Finance Issues Isabell Procter (former Finance Director MKC) Jonathan Marriott (Barclays Corporate Real Estate) 14 July Telephone conversation Chair and Tim Roxburgh 18 July Valuation (in private) Tim Hannam (Corporate Director- Resources) Peter Smettem (Valuer to the Council) 18 July Valuation (in private) Hugh Davis, former Valuer to the Council 19 July Report construction (in private) 20 July Report construction (in private) 22 July Report construction (in Chair and Chief Executive private) 25 July Report management (in Steering Group and AD private) Democratic Services 26 July Report considered by Cabinet
- 66 - 20.3 Evidence received by the Scrutiny Panel
Localisation briefing J Entwistle 13 June
HCA Transfer – background J Entwistle 13 June material
Previous HCA Review Group F Bower 13 June scoping template
Previous HCA Review Group F Bower 13 June notes
Draft Terms of F Bower 13 June Reference/scoping sheet
Press Release 10 June F Bower 13 June Thameswey submission John Thorp, 16 June Managing Director, Thameswey
Submission David Lock 26 June
Submission David Livermore, 28 June Community Action MK
MK Community Foundation Julia Upton, Chief 28 June Submission Executive of MK Community Foundation
Questions for Developers 29 Chair 29 June June
Development in Birmingham D Gray 29 June and Manchester
Submission S Turner 4 July
- 67 - Letter re Bedford & Milton Graham Mabbutt, 4 July Keynes Waterway Trust Chairman
Update on Bedford & Milton G Mabbutt, 4 July Keynes Waterway Trust Chairman
Information on Strategy and G Mabbutt, 4 July Master-planning award for Chairman Bedford & Milton Keynes Waterway Trust
Information on Outstanding G Mabbutt, 4 July Achievement award for Chairman Bedford & Milton Keynes Waterway Trust
2 X route maps for Bedford & G Mabbutt, 4 July Milton Keynes Waterway Trust Chairman
HCA property information P Smettem 15 July
Consultant brief for the Tariff J Entwistle 18 July economic options appraisal
- 68 -