Teesworks Joint Venture

Statement

The following Statement was made in the House of Commons on Monday 29 January.

“With permission, I would like to update the House on the independent review into the South Tees Development Corporation and the Teesworks joint venture, which the Government are publishing today, having received the final report last week.

Before turning to the specifics of the report, it is important that I remind the House of the significance and sheer scale of this project. Teesworks, in north-east England, is the United Kingdom’s largest industrial zone. Remediating and regenerating the former Redcar steelworks is a highly complex brownfield regeneration opportunity, the alternative to which is a massive liability to taxpayers in clean-up costs and an annual multimillion pound bill just to maintain a highly contaminated site. Most importantly, as Michael Heseltine said in his 2016 landmark report on the Tees Valley, the site is also part of ‘a much bigger picture’, and one that provides an opportunity for regeneration that is unrivalled not only in size and scale, but in potential opportunity, as we are seeing with the development of the freeport. That is why it is too important to the communities of the north-east for Teesworks to be used as a political football.

Over the course of the last year, using parliamentary privilege, the honourable Member for Middlesbrough, Andy McDonald, who is not in his place, has made a series of allegations about Teesworks. This culminated in April and May 2023, when the honourable Member spoke, and I quote for the record, of the existence of ‘industrial-level corruption’ and ‘dubious dealings’.

These accusations are about the most serious that can be made. If true, they would almost certainly be criminal, and their mere existence threatens confidence in this immensely important, complicated and challenging project. At the request of the Tees Valley Mayor, an extraordinary independent review was launched by my right honourable friend the Secretary of State for Levelling Up, Housing and Communities, to consider the allegations as well as the combined authority’s oversight role. Today we have the answers to the primary question about the extremely serious charges of corruption and illegality—they are not correct; they are untrue. For the avoidance of doubt, let me repeat that: no corruption, no illegality. There is no evidence to back up the worst of the allegations repeatedly thrown at the local parties managing the project, no referrals onwards to other bodies for further review, and no substance to the most serious of allegations.

In addition, and at the Secretary of State’s request, the panel has also made a series of constructive recommendations, including strengthening governance and increasing transparency. We welcome that oversight, as does the Mayor of the Tees Valley, who has confirmed that he intends, in principle, to accept all the recommendations relevant to him and his authority. For the two recommendations relevant to central Government, the department will carefully consider how to support the continued success of mayoral development corporations across the country.

I know that colleagues in the Department for Environment, Food and Rural Affairs and His Majesty’s Treasury will also consider the recommendation regarding landfill tax. My right honourable friend the Secretary of State has today written to the Tees Valley Mayor, asking that he responds to the panel’s recommendations, with an initial response within six weeks. My right honourable friend will of course wait to review those proposals before deciding on further action, but the central point bears repeating: nothing was found by the reviewers to support the very serious allegations made.

This report has been a detailed and thorough piece of work, and I place on the record my great thanks to the three-strong panel for their thorough and well informed work over recent months. I thank Angie Ridgwell, chief executive of Lancashire County Council; Richard Paver, previously first treasurer of the Greater Manchester Combined Authority; and Quentin Baker, director of law and governance at Hertfordshire County Council. Copies of the review, and my right honourable friend the Secretary of State’s subsequent correspondence with the mayor and the panel, will be placed in the Library of the House.

Finally, I wish to remind right honourable and honourable Members about the rich heritage of Tees Valley. It has a proud industrial history and this Government are committed to giving it the proudest possible future, putting it front and centre of our mission to level up the country, and supporting all our regions to prosper and flourish by making sure that local people have projects they can champion. The independent review has cleared the Tees Valley mayor and the combined authority of lurid allegations of corruption and illegality, and it has recommended improvements that I am confident will be driven by local stakeholders. We are delighted to support a project that is bringing huge benefits to the people of Teesside and the rest of the UK, and for all those reasons I commend this statement to the House”.

My Lords, at the heart of this issue are the people of Teesside and the public asset formerly owned by them, which should be regenerated for their benefit, to generate jobs, employment and industry. They should also be receiving sufficient return for their investment of land and the other value of the site. The governance of the project should ensure an appropriate sharing of the risk taken by the private sector partners in order to justify the returns they have already accrued, as documented in the review. For the Government to suggest in this Statement that the report exonerates all those involved from any questions about what has happened and to insinuate that local MPs’ challenge of the many issues explored in the review was them using the communities of the north-east as a political football is simply not appropriate.

We understand that the project is complex. I have experience of instigating and overseeing a billion-pound regeneration project, so I understand the complexities that can arise. We also recognise that, in an area like Teesside, the urgency of moving at pace on a project which is going to generate jobs and employment is vital. However, that should not give any of those involved carte blanche to ignore the absolute necessity for the project to follow the strongest principles of probity, governance, transparency of decision-making, procurement practice, scrutiny and best value.

This very thorough and detailed report delivers a scathing assessment of the way those principles have been treated. Its 28 recommendations highlight: the need for reviews of financial regulations; better oversight and scrutiny; the make-up of the board; reporting to the board; that the public interest test should be foremost in terms of transparency; and that not enough attention is paid to conflicts of interest, including those of the mayor. Very seriously, the report highlights procurement issues, including the decision in August 2021 to change the balance of ownership in favour of the private owners to a 90:10 split, and the issue of the balance of risk between the public and private sector, when, to date, the public sector seems to have taken the bulk of the risk and been responsible for the costs invested, while the private sector has had the benefit of the profits. I am sure this way of operating would have gone down as a wow factor on “Dragons’ Den”, but has it really all been in the best interest of the people of Teesside? Have they got value for money for their public investment?

My Lords, I thank the Minister for the Statement. What a sad state of affairs it is that a vital and very large regeneration project in the north-east of England has to be the subject of an independent government review because of justified public criticism and concern.

The Financial Times and the Yorkshire Post have both, independently, been investigating the decisions made by the mayor and the development corporation. Senior investigative journalists with considerable experience have been seeking answers to basic questions of openness and probity in relation to the mayor, the development corporation, the joint venture and the local councils. They were absolutely right to do so. What is more, this report confirms their claims.

Unfortunately, this Statement seeks to draw a veil over the very serious conclusions drawn by the independent panel. The starting point is that the Tees Valley project is funded by hundreds of millions of pounds of public money, either from government grant or local prudential borrowing. The investment of public money rightly brings with it higher levels of transparency, challenge and probity.

There are 28 recommendations in the report, and they reveal a damning indictment of the process and procedures adopted by the mayor and the STDC with the joint venture company. The report states that the panel is not confident that

“we have been given access to all relevant materials”,

and that

“we have not been able to pursue all lines of evidence or examine all transactions”.

Anyone reading that will know that the panel is greatly concerned that there is much more to be investigated. My first question to the Minister is whether the panel will be given more time to examine those areas that have yet to be covered, or, as the noble Baroness, Lady Taylor, suggested, whether the NAO will be asked to investigate.

In its own words, the panel focused on just six areas, the main one being the establishment of the joint venture. Initially, this was a 50:50 deal between the public and private sectors, and that is a common arrangement for such schemes. However, the arrangement morphed into a 90:10 split, with the private sector taking the 90%. The report states that

My Lords, I thank both noble Baronesses for their questions. Before I turn to the specific points, it is worth reminding the House of the context of both the review and the work being done in Tees Valley by the development corporation.

Remediating and regenerating the former Redcar steelworks is a highly complex brownfield regeneration opportunity. The alternative is a massive liability to taxpayers in clean-up costs and an annual multimillion pound bill just to maintain a highly contaminated site. Most importantly, as my noble friend Lord Heseltine said in his 2016 report on the Tees Valley, the site is also part of a much bigger picture, which provides an opportunity for regeneration that is unrivalled in size and scale and also in potential opportunity, as we are seeing with development of the freeport in the area.

In June last year, at the request of the Tees Valley mayor, my noble friend Lord Houchen, an extraordinary independent review was launched by my right honourable friend the Secretary of State for Levelling Up, Housing and Communities. That review was commissioned in response to and to consider the serious allegations of corruption and illegality made by a Labour Member of Parliament in the House of Commons. The findings of the review are clear on this point: those allegations are not true. The panel found no evidence of corruption or illegality. In addition, the panel also made a series of recommendations aiming to strengthen governance and increase transparency. We welcome this oversight, as does the mayor, who has confirmed that he intends in principle to accept all the recommendations relevant to him and his authority. There were two recommendations relevant to central government. We will carefully consider how to support the continued success of mayoral development corporations and the recommendation regarding the landfill tax.

The noble Baroness, Lady Pinnock, asked a series of specific questions about the report’s recommendations. It is right that the panel has considered a number of specific issues in the development of its conclusions and recommendations. The next steps are that the Secretary of State has written to the Tees Valley mayor, asking him to respond to the panel’s recommendations within six weeks, and it would not be right at this time for me to comment any further on specific examples quoted. It is important that the combined authority shows progress, and we will wait to see its proposals before deciding on further action. However, I am confident that the mayor will take these recommendations seriously and I look forward to receiving that update. It is only right that we give the mayor, working with partners, time to reflect on the panel’s report. We will review his reflections and response to the Secretary of State before setting out any further action that may be needed.

The Minister said it was not the National Audit Office’s role to investigate individual authorities—or something like that—but the report has revealed at least massive financial mismanagement of this project. It seems that, since the report was published, further calls to the National Audit Office to investigate this have been made. Why will the Government not accept them?

My answer is the same as before: the Secretary of State, at the time of the review, considered the suggestion that the NAO undertake the review. But it is not its role to audit or examine individual local authorities, and its powers would not normally be used for that purpose. The process that has been followed for this review has been followed for other reviews of local authorities when looking at such issues. We followed the normal process in this instance.

My Lords, I very much welcome the Minister’s Statement and the robust and comprehensive report of the panel. Does she agree that, particularly in the other place, elected representatives have a special responsibility to judiciously use parliamentary privilege? I think I can say that as a former Member of the other place, and now a Member of your Lordships’ House. In future we need to learn lessons from this situation. Aspersions were cast and accusations were made of illegality against a Member of your Lordships’ House. More importantly, it did real damage to inward investment and future business in the Tees Valley. That is obviously to be regretted.

I agree with my noble friend that it is a matter of regret that those allegations were made, in the terms that they were made. It is incredibly serious to allege corruption and illegality. The findings of the review are absolutely clear on this; the review found no evidence of corruption or illegality.

My Lords, I am afraid that allegations of illegality and corruption were not the only allegations that led to this review. There were also allegations of a lack of transparency and—as a taxpayer in Tees Valley myself; my family have lived there for generations—there is a great deal of concern about a lack of value for money for taxpayers. Those complaints have been upheld by this report. On various occasions in the run-up to this review, the Mayor of Tees Valley asserted that there could not have been any wrongdoing because an official from the Government was involved in the decisions that were found so lacking by this review. Would the Minister like to comment on that?

As I said in my original response, the Government welcome the recommendations on strengthening governance and transparency. We welcome the oversight that this review has provided in those terms. I think the noble Baroness might be referring to the fact that the government official is a member of the board of the development authority. When a government official is a member on a board, in examples such as this, their role is as an observer. In this case, however, the panel noted examples of questions being raised by that government member as part of that review.

My Lords, I would like to directly quote from the report because the devil is always in the detail:

“The JV partners are clearly astute, commercial businessmen. They have a clear business model whereby they support distressed businesses and do not accept liabilities until they are satisfied they can hedge investment against secure income streams … At this juncture, the JV partners have put no direct cash into the project and have received nearly £45m in dividends and payments, and hold £63m of cash … in TWL accounts”.

This is on the back of £500 million-worth of public sector investment, which made those strips of land ready for the private sector operators to make these profits. Does this kind of approach show the principles of good and ethical public sector procurement that gives value to the taxpayer? If not, what will the Government do to ensure that this kind of deal does not happen again—not just in Teesside, but in any mayoral authority?

My Lords, as I have set out, there have already been clear public benefits to the redevelopment in Teesside. On the question of involving private partners in this work, the report sets out very clearly that the business case was clear: public sector funding would not be sufficient to complete remediation of the site and a private sector partner would be required. There are lessons to be learned from this report; the Government have been clear on that. That is why we have given the Mayor of Tees Valley time to consider the recommendations in the report, as the vast majority are for the mayor and combined authority. We will then look at those responses and consider the recommendations for the Government alongside that and take forward a process for improving accountability and transparency in this instance.

My Lords, I congratulate the Government on the investment they have made and for the review panel they held. I will ask a slightly different question. Those of us in North Yorkshire feel a little like the poor relations, because a lot of investment has gone into Tees Valley. We are about to have elections for a North Yorkshire and York mayor. If my reading of the orders setting up the mayor are correct, we will not be in receipt of any government funds; we will have to raise our own money to pay for infrastructure, transport and other services. Is my understanding correct, and does it not seem a little unfair that we could not have even a small proportion of the money that has gone into Tees Valley?

My Lords, the decision to set up the North Yorkshire and York Mayoral Combined Authority was taken in combination with the elected representatives and local councils in that area, which all agreed to it. Part of those discussions was around funding, and it is right that we take forward what was agreed as part of that package. Of course, a vast range of different funds are available to combined authorities and local authorities to benefit from, including our levelling-up funding, and those opportunities will continue in future.

Does the Minister accept that the Oral Statement is all but a total whitewash? None of the issues raised in questions to the Minister was covered in it. Can she specifically explain what the issues were that resulted in the Secretary of State requesting the panel to make recommendations on strengthening governance and increasing transparency? From that, we must assume that very real concerns were held by the Secretary of State that were not covered in the Oral Statement.

My Lords, my understanding of the genesis of the report is that it was requested by the Tees Valley Mayor himself to allow a response to the very serious allegations made by a Member of Parliament in the House of Commons about corruption and illegality. Those allegations have been found to be untrue.

My Lords, I know that the Minister takes seriously the importance of this project for Teesside, but I do not recognise anything that she said about those parts of the report that are excoriating in their description of how public and private money has been handled. It states that

“most decisions are vested in a small number of individuals. This together with the limited reporting means that there is not a robustness within the system. Inappropriate decisions and a lack of transparency which fail to guard against allegations of wrongdoing are occurring, and the principles of spending public money are not being consistently observed”.

That is pretty serious, and I am sure that she must recognise that.

My Lords, I absolutely recognise the issues raised by the independent panel. It has clearly considered a number of specific issues, and the Secretary of State has written to the Tees Valley Mayor asking him to respond to the panel’s recommendations within six weeks. It is not right for me at this time to comment further on specific examples, but it is important that the combined authority shows progress. We will wait to see its own proposals before deciding on any further action. It is worth making sure that the report is taken in its full context and that we look at the full picture. Another quote from the report that may be useful is:

“There are many voices which articulate a positive view of the project, highlighting the work that has been done and the clear evidence of the achievements which have been made in regenerating an historic part of the UK’s industrial heritage, the final demise of which, in 2015/16 had devastating results for a community that had been badly affected by the changing global patterns of industrial production. A significant amount of regeneration of the area has occurred and new businesses are moving in bringing jobs and other collateral benefits for the local area”.

My Lords, does the Minister agree that the report also clearly shows that the site was costing the Government £20 million? I went to the site in my former role as chairman of the Homes and Communities Agency many years ago. The report shows that there are now 9,000 jobs on the site and nearly £1.5 billion-worth of business rates being created, yet there is an awful lot being said here in criticism of something that is actually showing real levelling up taking place.

My noble friend is absolutely right that the cost of not going ahead would not have been not nothing but an annual cost to the taxpayer with no benefit whatever—it was just keeping the site safe. I have just quoted the report’s recognition of the regeneration that has started at that site. Benefits to the area have begun to accrue in terms of jobs, potential business rates and wealth generation that we would not have seen if action had not been taken to reinvigorate the largest site, in Europe at least, in terms of the need for regeneration.

Does the Minister agree that the hollowing out of local government audits since the abolition of the Audit Commission has led to serious deficiencies in financial control in the audit of complex joint ventures such as this? It is simply not acceptable that we leave a situation where we have no capacity to understand the obligations and accountabilities of joint venture partners. What are the Government proposing to do about that as a result of this review?

The Government do not agree with that position. The Audit Commission was bureaucratic; it tied up local government with tick-box exercises rather than having real value. That is why it was abolished. It is right that we have the proper processes in place to ensure proper accountability, transparency and value for money. We believe that can be done through local processes. We will obviously look at the recommendations in the report, including those for central government, and take those into account as we continue to take our work forward.

My Lords, would it be reasonable for this House to expect the mayor, who, as the Minister said, is a Member of this House, to perhaps attend this debate and answer some of the questions?

My Lords, this Statement repeat is by the Government to respond on their position on this report. As I have set out, the Secretary of State has written to the mayor and asked for his response to its recommendations within six weeks. We will then consider any further steps that need to be taken and make sure that the House is updated appropriately.

My Lords, as the noble Baroness, Lady Pinnock, said, there are many areas of concern that are yet to be covered by any investigation. Indeed, the report notes that many issues raised by third parties were outside the scope of its review, such as those raised regarding wildlife die-off and health and safety. There were, of course, many grave concerns and a tragedy of two men dying on the site. There were subsequent accidents where an excavator fell into the river with the driver inside, and dangerous exposure to benzine. There must be concern about whether the remediation of the site has been carried out properly. What further plans do the Government have to look into all those other issues raised locally, which remain concerns and which the report has not covered?

I do not believe that there are any further plans to cover any further reviews.

My Lords, the report says clearly that the measures in place

“do not meet the standards expected when managing public funds”.

I have read the recommendations and I look forward to the mayor’s response to them. Does the Minister think that, outside of the mayor’s response, the Government have a duty to ensure that this kind of practice does not continue and that there is training or perhaps some intervention from the Government? The Government have to take some of the responsibility here, because they have allowed a situation to evolve where the standards that we would expect for managing public funds have not been met. For all we know, because of the lack of transparency, this situation could be replicated in other areas.

I say to the noble Baroness that we have considered the panel’s findings against the draft best value guidance, which was published in July 2023, and concluded that they do not meet the test for urgent intervention. The panel makes a number of recommendations for the combined authority, the development corporation and other partners, and some for government. We are now giving the mayor and partners time to reflect on the panel’s report. We have asked him to write to us and set out his action plan for responding to the recommendations within six weeks. One of the recommendations for government was around the clarity of legislation in this area and oversight arrangements. We will take that away and look at it carefully, because that is an area, for example, that could have read- across to other development corporations or combined authorities.

The Minister has mentioned a number of benefits—and no one disputes that regeneration benefits are required—but does she accept that those benefits have come totally on the back of public sector investment and that, as the report says, no private sector investment has gone towards them, yet still the liabilities for the land, if not used, lie with the public sector? That is the correct position, is it not?

The reality is that a project of this size will require significant public sector investment, which has taken place, but the review is also clear that remediation of this size and scale would not be able to take place without private partners also participating. We are making sure that we look at the lessons that we can learn from this review, but it is also important to consider both the option of doing nothing, which would have come at a multibillion-pound cost to the public purse, and the benefits that people in the local area are already reaping from the investment that has come in to date.

My Lords, the noble Baroness, Lady Ford, asked about the lack of the audit function in local authorities. The Minister said that the Government had put “processes in place” to replace the Audit Commission. Can she explain what those processes are, and whether they will now be involved in investigating financial management in this Tees Valley development corporation?

My Lords, the Audit Commission regulated, micro-managed and inspected local councils, forcing them to spend time ticking boxes and filling in forms rather than getting on with the business of local government. It hindered transparency and scrutiny. Local government can put in its own systems of local authority financial reporting and audit to ensure that it is accountable for spending public money effectively.

With regard to transparency functions, there is Oflog—the new data-driven organisation that will provide transparent and authoritative sources of information for the performance of local government. This will, however, be vastly different to how the Audit Commission operated, which imposed compliance requirements on local authorities and conducted routine inspections.

I have not heard anyone advocating for the Audit Commission; what we have been saying is that, since the Audit Commission went, the private sector auditors who have been appointed have struggled to deal with the complexities of joint venture auditing. That is the issue. With that in mind, will the Minister reflect on the quite exceptional circumstances of this case and whether it might justify a more detailed audit review by the National Audit Office? Has she had a response to the request from the noble Baroness, Lady Pinnock, that we hear back once the mayor has had a chance to consider his response to the 28 recommendations in the review?

I am afraid that I will have to disappoint the noble Baroness on her first question. We will not be referring this matter to the NAO. However, as I said in my initial response, the NAO has said that it will reflect on the findings of the review for its own programme of work. Of course, when the Government receive their response from the mayor and partners, we will reflect on what that means for next steps and will make sure that the House is kept up to date on what they are.