Plymouth City Council has encountered a three-year-long impasse as auditors refrain from approving its accounts, primarily stemming from its decision to alleviate a £100 million pension fund deficit by utilizing a £70 million loan to acquire shares in a private company. The prolonged lack of approval has raised concerns about the council’s financial management.
Account Approval Delay:
The accounts for Plymouth City Council have remained unapproved for three consecutive years due to reservations stemming from a unique financial move. In an attempt to tackle a substantial pension deficit, the council employed a strategy involving a £70 million loan to acquire shares in a private firm. These shares were acquired from London-based Miel Ltd. Despite this decision, the council’s accounts for the fiscal year 2019/20 are yet to receive the auditors’ endorsement, leading to the suspension of approval for subsequent years.
Strategic Move Raises Concerns:
Plymouth City Council’s strategy to eradicate the £100 million pension fund deficit involved a £70 million lump-sum payment, which was sourced through a loan from the Government’s Public Works Loan Board (PWLB). The borrowed funds were then used to purchase shares in Miel Ltd. While the council maintains that this maneuver was financially sound, auditor Grant Thornton UK LLP and treasury advisor Arlingclose had advised against it. This approach diverged from the conventional use of PWLB loans for capital projects.
Auditors have expressed reservations about the transaction due to its unorthodox nature. The fact that the loaned money was directly channeled into the pension fund, bypassing the typical capital project route, has been labeled as an “unusual” and “significant risk” move by auditors. Questions have arisen regarding the legality of this approach within established rules. The complexity of the situation has prompted both the council and Grant Thornton to seek legal guidance, while the Department for Levelling Up, Housing and Communities (DLUHC) is also informed about the issue.
Stalemate Over Transaction Reporting:
An “impasse” has arisen regarding the financial reporting of the shares transaction. The council proposes to spread the transaction’s impact over a 20-year period, whereas auditors advocate for accounting the £70 million in a single year. This disagreement has led to substantial delays and potential repercussions for the council’s reputation and borrowing capacity. The lingering situation could result in the 2019/20 accounts being qualified, further complicating matters.
Call for Resolution:
Local councillors have called for swift resolution of the situation. Steve Ricketts, leader of the Free Independents, expressed his concerns, stressing the importance of addressing the issue promptly. He criticized the lack of scrutiny over the transaction and underscored the need for transparency in the council’s financial decisions.
Auditors’ and Council’s Perspectives:
Auditors from Grant Thornton expressed their divergence from the council’s approach to the transaction. The council had sought advice before proceeding with the shares purchase, but Grant Thornton disagreed with the course of action. While there is optimism that a resolution can be reached, the possibility of placing a qualification on the council’s accounts remains. The DLUHC also holds the authority to issue a capitalization directive, which could lead to additional complications.
David Northey, the council’s section 151 officer, defended the strategy by emphasizing its long-term cost-saving benefits for taxpayers. He characterized the situation as a technical issue regarding accounting treatment. Giles Perritt, the council’s assistant chief executive, highlighted the consistent financial savings resulting from the transaction.
Future Governance Changes:
Following the Miel transaction, the council has implemented a revised governance process. Councillor Lee Finn, Tory vice-chair of the audit and governance committee, advocated for cabinet members’ exclusion from this committee. This recommendation was influenced by the bankruptcy of Thurrock Council, which experienced financial turmoil due to ill-fated transactions fueled by substantial borrowing.
The ongoing impasse over Plymouth City Council’s accounts approval stems from its unique approach to addressing a pension fund deficit. While the council defends the transaction’s financial benefits, auditors remain skeptical about its alignment with established rules. The council’s reputation and borrowing capacity are at stake, underscoring the urgency for resolution.