All hon. Members will recognise the critical role local councils play in providing essential statutory services to their residents and being accountable to the communities they serve. That is why the situation at Nottingham City Council is of such concern.
Despite significant support, Nottingham City Council has struggled to resolve serious governance and financial issues. In November 2020, following a number of issues raised in a public interest report published in August 2020 by the council’s external auditors Grant Thornton, a rapid non-statutory review was conducted into the council to review the serious governance and risk management issues associated with its energy company Robin Hood Energy. The report presented by Max Caller CBE highlighted serious governance failings, poor risk management and the pursuit of commercial ventures which had resulted in a significant budget gap and low levels of reserves.
The former Secretary of State appointed an independent improvement and assurance board in January 2021, chaired by Sir Tony Redmond and made up of independent experts, to offer the council advice, expertise and challenge as it sought to address these failings. The board have provided regular assurance reports to the Secretary of State on the council’s progress throughout this time.
In December 2021, the council discovered unlawful accounting practices associated with its ring-fenced housing revenue account (HRA), covering the period 2014-15 to 2020-21 and totalling £15.86 million. In response, the council issued section 114 and section 5 notices and commissioned independent reports from an LGA associate (Richard Penn) and the Chartered Institute of Public Finance and Accountancy (CIPFA) to understand the scale of the unlawful expenditure and decision-making processes that ultimately led to this situation. These comprehensive reports (“the Reports”) can be found at:
The reports paint a deeply concerning picture of serious historic financial and governance failings. This includes the failure of the council and its wholly-owned company Nottingham City Homes (NCH) to maintain the integrity of its HRA ringfence, and NCH operating without strategic oversight given poor client management and governance by the council. The Penn report does not conclude that unlawful accounting practice was a deliberate mechanism to divert funds from the HRA to support the general fund, but provides evidence of cultural failings and a reluctance to escalate issues appropriately, which led to the situation remaining unchallenged over several years. The scale of the unlawful expenditure may also be more substantial than originally thought, with CIPFA now estimating that it could be up to £40 million.