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HDV | The Council leader speaks out about the proposed Haringey Development Vehicle

ON 22 December 2016, Haringey’s Council Leader Tweeted this comment about the proposed Haringey Development Vehicle:

“ Haringey’s 50% share of profits from development
will go back into public services in Haringey ”

THERE can be little doubt that this is indeed the hope of Cllr. Kober and the Cabinet for the HDV. However, the road to hell is paved with good intent.

Putting aside other specific risks and the general uncertainties associated with this colossal disposal-proposal, let us take a look at this particular claim, about the distribution of profit – assuming of course, that there is profit.

__________

The proposed company would be owned jointly by the Council, on our behalves (50%) and by a developer, who would own the other 50%. The successful bidder has yet to be announced. Currently, there's a short-list of three, two of whom are clients of Terrapin Communications Ltd. and a third that is not a client of Terrapin.

However, this 50:50 equal split of ownership could be misleading.

First, one of the key rationales for the scheme is that the private operator would bring in management expertise and control the whole property estate. Soon, if not immediately, the local council would likely retreat to become a silent sleeping ‘partner’ in the arrangement. Naturally, the accounts would be drawn up the (new) management. Decisions about the key accounting area of depreciation would be decided by the managers, perhaps in consultation with the auditors. The level of depreciation charged – significant in a property company – could have a big effect on profit.

It doesn't take a genius to work out that 50:50 ownership could—further down the line—result in an impasse between the parties. However, in 50:50 arrangements like this, normally there is a clause in the rules (the Articles and Memoranda of Association) that both parties agree at the outset, to the effect that neither party shall do anything to frustrate the development of the business. If a similar clause exists for the HDV, then could this not be used to break any deadlock with the Council: in favour of the developer-and-active partner?

With so much private capital at stake, we may be certain that the developer will be confident of having the whip hand with the local council, regardless of the appearance of equal share. (This is the same Labour Council that attempted to sell our Charity's main asset, Alexandra Palace, to Firoka, controlled by Firoz Kassam. The six month occupation was ended in the High Court.)

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Dividend policy  Another key rationale for the scheme is the desire to demolish, rebuild and redevelop. This costs enormous amounts of money. Where distributable profits exist, the pressure would likely be to retain such profits in the business and not to pay out a dividend to the two shareholders. For tax reasons amongst others, the developer may anyway prefer to own capital gains rather than to receive income.

Thus, the main or only benefit that the Council may see, would be an increase in the value of their stake in the company, rather than money in the form of dividends. Cllr. Kober may be disappointed.

If the reinvestment of profits continued for some time – and the Council (that's us) saw little or no income available for public services – then the temptation could be to derive benefit from any increase in capital value by borrowing money against it – with a lender holding part or all our 50% stake as co-lateral: security for the loan.

An alternative may be to crystallise the capital gain—disposing of some or all of the residual 50% stake—raising a large, one-off amount of spendable cash:  i.e. by the Council selling down the remaining 50% interest.

Such a selling-down of our 50% stake, might also be propelled later on by a Rights Issue (of more shares). As one of the two 50% shareholders, Haringey Council would be unlikely – easily or at all – to be able to take up any Rights Issue (Suppose management insists on a Rights Issue? See above, the "no frustration" clause).

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All the foregoing assumes that the HDV is profitable and that it does not become insolvent, nor goes into Administration as was the case with Croydon Council's Joint Venture, the CCURV. (q.v.).  I shudder to think what would happen in the event of a Winding Up: it does not bear thinking about. There are so many unknowns, so much opacity and so much uncertainty in the arrangements. The residents of Haringey have reason to be concerned.

—CDC

Tags: HDV, Haringey Development Vehicle, blithe, capital gain, capital growth, credulous, distributable profits, folly, impropriety, income, More…ingenue, is that wise Captain?, mesmerised, profit, profits, rights issue, risk, unwise, very brave, Minister

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I have a couple of questions:

1) is there not a rule about local authority spending which prevents capital receipts being spent on services? If so then Haringey would need income not capital gain, from this arrangement. Would the rental income from homes let, the council tax and business rates be enough to satisfy this?

2) I'm sure I saw somewhere a link to a similar scheme on Coventry which went awry. One of the problems there was that the council put up some initial capital to get the project started. When do we find out how many millions Haringey will contribute to the start up costs?

Adrian, there's a list of questions as long as your arm.

I believe the answer to your first question is yes. As it happens, currently the capital account is awash with cash, which is why the council can earmark £33,000,000 for a new headquarters. However, the current account is looking much the opposite way.

You might well write to Cllr. Kober to ask how her Cabinet would gain income from the HDV arrangement.

Over time, increases in capital value tend to allow for increases in income (an increased ability to pay a dividend). However, whether or not the company would choose to avail itself of an ability or increased ability to pay a dividend, is another matter.

You might consider asking the Council Leader whether or not there is any policy on dividends: a crucial factor, if her claim that, Haringey’s 50% share of profits from development will go back into public services in Haringey, has meaning.

Another crucial area that I haven't touched on above is, what value is ascribed to our land and our buildings, that are for our benefit and for which we have pad, when they are passed to the private company?

Here's another small piece in the jigsaw, while we await the report from the Scrutiny Panel. A report I've yet to see, but which seems to have raised many serious concerns about the enormous risks involved in the so-called Development Vehicle. 

Or at least some of us thought we were awaiting publication of the Report. Then hoping to see a proper public discussion with further careful, rigorous and open-minded assessment of all the vital issues and concerns.

So it's surprising - to say the least - when I hear that copies of an email are flying around the borough which appears to assume that the whole process is already done and dusted. And, not only that, it suggests our Council is currently restructuring the Planning Regeneration and Development Directorate "to align the team" for the "appointment of the partner in the Haringey Development Vehicle". This seems to include 'letting-go' some experienced and knowledgeable staff.

Here's the email. I'm not in any way criticising the member of staff involved, so I've removed wording which might identify them.

"From: [Redacted]
Sent: 05 January 2017 16:30
To: [26 of 57 Haringey councillors]
Subject: [Name redacted]  Leaving

 

Dear [Redacted],

As some of you will no doubt be aware a restructure is being undertaken in the Planning Regen and Development directorate in order to align the team to face the challenges that will arise as a result of the expected appointment of the partner in the Haringey Development Vehicle.

As a consequence of this restructure I have decided to take the opportunity of voluntary redundancy and will be leaving the authority at the end of [month redacted].

As I prepare to leave after [number redacted] years later I am immensely proud of the way in which Haringey has evolved and is now perceived as an exemplar authority in so many ways, a testament to all the work that has been done by members.

Haringey has been my first foray into the Public Sector and I wanted to thank you all for the support (and challenge!) that I have received over this period and to wish you every continuing success in these challenging times.

I will be having some leaving drinks on [date redacted] in the Green Rooms for those that would like to come and say their farewells.

Regards"

ALAN, thanks for posting this. Whoever the officer is, I would wish them well.

I see that you've posted the redacted email here too.

The key paragraph is the first one. I'm sure it's accurate and it is carefully worded.

The departing officer says that the 'team' is undergoing alignment.

Unlike probably most Majority-Group Councillors, I have worked on a motor-car assembly line.

——

Alignment is normally used in connection with getting the front wheels to point parallel, in order to follow the same, parallel path as they roll forward.

Mis-alignment can cause tyre-scrubbing and excess wear and is potentially dangerous.

However, this team ”alignment” coupled with the certainty of the challenges (that will arise) couples with the (still) expected appointment of a [joint venture] partner, seems to be premature given, the unanimous vote of the recent cross-party Scrutiny Committee, that expressed the most grave reservations about the HDV.

Sadly, the instinct of the Cabinet will be to grip the wheel tighter, change down a gear and press down on the accelerator.

There are bumps ahead.

I now learn that the proposed vehicle is not to be a company whose liabilities are limited by shares but instead, a limited liability partnership (LLP).

Croydon Council's joint venture, with similar objects (the CCURV), was also set up as an LLP.

This means that any profits wouldn't be distributed via a dividend.

However, the same principles remain: the development partner is likely to be in the driving seat, regardless of the 50:50 ownership and the same issues as outlined above would surround the disbursement of any distributable income.

Last night - 17 January - the Council's Scrutiny Committee endorsed the report of a cross-Party Scrutiny Panel which examined several examples from other Councils of so-called "Development Vehicles".

One which appears to have succeeded in its aim was Bournemouth. They developed several carparks. Others raised a range of problems and in some cases the parties agreed to "divorce". Which cost the Councils concerned substantial sums to disentangle themselves from the private partners and in borrowing further sums. There appears to be no examples of a local Council which entered into a scheme this huge and this risky - £2billion on the first phase. Nor has any other Council risked putting a massive numbers of Council Estates and commercial properties into the deal. Indeed Haringey's risky and dangerous "Vehicle" would directly affect several thousand families.

This information is in the Council's Scrutiny Report and sometimes in the documents publicly available on the websites of the councils concerned.

Needless to say, the Dear Leader and her chums are not much interested in facts. They have a plan. And the plan is a "vehicle" which is going to transform Haringey. The risk that the vehicle is headed for the cliff edge is ignored.

The £2 billion gamble is now being tweeted by Claire Kober's allies almost as if it was a done deal. They have ignored and dismissed the work of the Scrutiny Panel & Committee before it even goes to the Council Cabinet. Cllr Joe Goldberg went on Radio London today. A Press Release went out from the Council's Propaganda Unit.
And Claire Kober herself has now - in my personal view - abused the private email database of Party members to write an "Information" briefing which is actually nothing of the kind.

I attach Cllr Kober's email below as an MSWord Docx file. You may prefer to read her email first before my personal reply emailed to her, sent this afternoon.

Dear Cllr Kober,

I’ve just received the email below from you. I assume you have sent the same email to all members of both Tottenham and Hornsey Wood Green Constituency Parties.

As I’m sure you are aware, access to the private Party membership lists is – quite rightly and for excellent reasons –  restricted to an extremely  limited number of people.

In my view, the use you have made of the private email addresses of members is a gross abuse of the Party machinery. The email you have sent out is not simply “information for members”. It is in fact a one-sided, misleading argument in support of one approach to a complex, difficult and fundamentally contentious question.

I accept that you yourself feel strongly that the proposed “Haringey Development Vehicle” is a positive and beneficial plan. However such a Development Vehicle is neither Party Policy nor a Manifesto Commitment.

You are also well aware that many members of our Party hold differing views about it. Including a wide spectrum of negative opinions ranging from outright rejection to deeply held concerns about the risks. Risks which are financial, legal, organisational; and above all individual – the last, in its impact on the lives and future of the families and businesses directly affected.

You must also be aware that the Scrutiny Panel’s Report outlined these risks and the Scrutiny Committee endorsed those concerns - calling for delay, further Scrutiny and fuller investigation of those risks.

I am very sad to see that you have almost completely ignored these legitimate and evidenced concerns. Instead you  continue using the same unbalanced framework as before. You dismiss any Weaknesses and Threats as insubstantial or at least able to be “actively managed”.  While the Strengths and Opportunities – as you see them - are repeated over and again. Not so much a SWOT analysis, as a SO-SO propaganda exercise.

I cannot ever remember a previous Leader of Haringey Council abusing the Membership lists to seek to build support for her/ his policy on a particular contentious issue by appealing directly to Party members in this way.

As  an ordinary member of the Labour Party I do not have access to the Party Membership list. When I served as a councillor, Branch Chair, Branch Secretary, and Constituency Secretary I had limited access. But I always endeavoured to send our Party members information which was balanced, factual, and strictly accurate. I never abused my access to the Members’ database to send Members a partial, self-serving argument or justification for my own views or political position.

You have, I believe, betrayed the trust other members place in those who are elected to Party Office.

Sincerely,

Alan Stanton

Attachments:

The Kober letter has now appeared as a Haringey press release.

http://www.haringey.gov.uk/news/article-council-leader-cllr-claire-...

The closing phrase is a curious summation to conclude with -

That is not the future I see for Haringey

Mark,

Thanks for the link.

I note that, at the end of Cllr. Kober's article, one is invited to respond to the following:

I have responded and I will Tweet the screen-shots of my feedback. But don't let that stop you or anyone else from responding.

MY original paste – missing above – has disappeared due to some glitch, but here (below) is what I typed in to the field on the Council's web page. I'm not entirely convinced that my questions will be dealt with, but you never know.

The Council asks, How can we improve this page?

If anyone else wishes to rate the usefulness of the information – or offer suggestions as to how to improve the web page, they can avail themselves of Mark's link, above.

In my opinion the information was not as useful as it might have been, as it was very one-sided.

I hope that, just as in the Council Chamber on occasion, there might be a right of reply, in the Borough that is home to possibly the most right-wing Labour Administration in the country.

Click or double-
click to expand

Claire Kober has replied very briefly to the email I sent her on 18 January.  Having been our till late this evening I replied to her once more. Both emails are below

 

__________________________________________________

From: Cllr Kober Claire [mailto:Claire.Kober@haringey.gov.uk]
Sent: 19 January 2017 14:41
To: Alan Stanton
Subject: Haringey Development Vehicle - information for members

 
Dear Mr Stanton,

You email assumes that I have access to ‘private party membership lists’. I do not.

The email was sent by the borough organiser on my behalf. It is exactly the same arrangement and mailing list that is used to distribute my regular update to members and the periodic issue-specific emails that I and cabinet colleagues send (recent examples include the London Academy of Excellence and Spurs).

Kind regards,

Claire Kober
Leader of the Council
Labour Member for Seven Sisters


________________________________________________

 From: Alan Stanton
Sent: 20 January 2017 01:00
To: 'Cllr Kober Claire'
Cc: labourinharingey@gmail.com; alan.stanton@virgin.net
Subject: Haringey Development Vehicle - information for members

 

Dear Cllr Kober,

I am well aware how your email was sent to perhaps some 8000 Labour Party members. As required by law it carries the name and contact address of Cllr Joanna Christophides, the part-time paid Haringey Borough Labour Party Organiser; and states that it is sent out on behalf of Tottenham & Hornsey & Wood Green Labour Parties at 28 Middle Lane N8.

However, your suggestion that this is: “exactly the same arrangement and mailing list that is used to distribute my regular update to members and the periodic issue-specific emails”, is in my view, spurious.

Of course you do not have “access” in the sense that you personally can turn on a computer and send out emails to all members.  Plainly your privileged access to the database is solely though Cllr Christophides.  And to be completely clear I don’t expect Cllr Christophides to act as the editor or arbiter of anything you write and request her to send out. The duty to make proper and responsible use of the two Constituency parties’ membership email records is yours alone.

As I hoped I’d made clear in my previous email, it is my view that you, as Leader of Haringey Council, should have no difficulty understanding the key difference between information giving and one-sided, biased advocacy of your own viewpoint on one of the most crucial issues currently affecting this borough.

Can I assume from your long email on 18 January that you have actually read the report of the Scrutiny Panel? If not, then why not?  It went to, and was endorsed by the Overview and Scrutiny Committee on the evening of 17 January - after publication the previous week.  Can I also assume – as appears likely - that the timing of your email to Labour Party members was not a coincidence?  Your 18 January email alludes obliquely to the Scrutiny Panel Report. Although unfortunately it did not deign to mention it specifically.

As Leader of the Council you have a great deal of power and control. To which I would add, a duty to use that responsibly and fairly.

For example, you have a “payroll vote” of councillors who you nominate to the “Cabinet” and who receive Special Responsibility Allowances - a part of your extensive formal and informal patronage and influence. You have appointed senior staff who in practice work to you. As Council Leader you also - in effect – largely control the Council’s publicity apparatus. It sends out press releases and tweets and statements on the Council website which are - in effect - a mouthpiece for your views and policies. (All at a time when the local press is in a dire condition and has both reduced the number of journalists employed and largely abandoned any attempt to build its readership in large parts of Haringey). So those external checks and balances on your power are far weaker.

I would hope that if another Party were to take political control of Haringey and behave in this way you might be one of the most vociferous critics.

The fact of the matter is that you are currently proposing a large scale, very high risk, and far-reaching “Development Vehicle”. It is intended to be a long lasting scheme.  As you say, ominously for residents and leaseholders, “15-20 years (for starters at least)”.

I have no idea if this will be as tasty as the starters served up for you in restaurants patronised by the lobbyist Mr Peter Bingle, nor the property developers who wined and dined you and some of your colleagues in Cannes and London. But I’m certain that the main dishes on the “carvery” of Haringey property will be very much to the liking of the property developers.

Were you someone who I regarded as a responsible, clear-sighted and fair-minded Council Leader you would be confident and willing to begin a thorough, comprehensive and open debate and engagement with all councillors.  And crucially with the local residents directly affected.  An engagement which would enable people to fully understand the weaknesses and threats posed. As well as being told the vague mostly vacuous and upbeat supposed strengths and opportunities. And for challengers and critics of your Development Vehicle to put forward their clear and cogent objections. (Though of course it would be difficult to grant them anything like the time and resources available to you and your staff engaged in propagandising the scheme.)

Vitally, such a comprehensive engagement should be undertaken before the decision is taken to go ahead with any further steps which commit the Council. Currently, it appears to me that for some reason you are in an irresponsible reckless, needless and heedless rush to press ahead with an enormous high-risk untested contract. With proper consultation mostly as an afterthought - if then.

Or to be more exact, the model appears to have been tested and failed in a number of other Councils. I refer to the evidence contained in the Scrutiny Panel Report. The hard work and thoughtful recommendations of your colleagues and the conclusions of their report appear to have been largely dismissed or perhaps ignored by you.

Sincerely,

 

Alan Stanton

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