Sheila Oliver
Editor, Romiley Gazette
Other Books by this Author
Vexatious? Moi? — Book 1: Harcourt Street and Vale View Primary School
Vexatious? Moi? — Book 2: Padden Brook
Vexatious? Moi? — Book 3: The Bent Bypass (the A555/SEMMMS Manchester Airport Relief Road)
Vexatious? Moi? — Book 4: Sandringham Road
Vexatious? Moi? — Book 5: Offerton Precinct
Vexatious? Moi? — Book 6: Marple Money (the Marple Active Communities Hub)
Vexatious? Moi? — Book 7: The Wall of Silence — How Stockport Council Blocks the Questions It Doesn’t Want to Answer
Vexatious? Moi? — Book 8: The Foggbrook Files
Learning Law From a Lawless Council (Stockport) — the Michael Parnell case
For John With The Long Legs,
resident of a care home in Stockport,
a man with a stunning intellect and a strong sense of right and wrong.
Contents
Introduction: What “Arms Length” Is Supposed to Mean
Chapter One: SK Solutions — How £4.7 Million Went Missing
Chapter Two: Stockport Homes — Awards on the Wall, Questions at the Door
Chapter Three: The Pattern Repeats
The Executive Councillor in charge – LibDem John Smith.
Introduction: What “Arms Length” Is Supposed to Mean
There is a principle in local government finance, well understood by accountants if not always by councillors, called the “arms length” relationship. A council that sets up a company to run a service it once ran itself is supposed to behave as a shareholder, not a manager. It should turn up to the AGM, ask hard questions, and otherwise leave the company’s own board and staff to get on with the job. In return, the company is supposed to stand or fall on its own trading performance — its debts are its own, its pension scheme is its own, its losses are its own.
This is a book about what happens when that principle is stated in every glossy annual report and observed nowhere in practice.
Stockport Metropolitan Borough Council has, over the years, hived off large parts of what it once did in-house into a small constellation of companies: property and architectural services (through NPS Stockport, part of a much larger Norfolk-owned group — a story told elsewhere in this series), adult social care and home support (through SK Solutions and its sister companies), and housing management (through Stockport Homes). Each was launched with the same confident language about efficiency, customer focus and value for money. Each has, in its own way, ended up costing the council taxpayer far more than anyone was told to expect — in cash, in accountability, or in both.
This volume deals with two of those companies: SK Solutions (and its relations, Individual Solutions SK and Waste Solutions SK) and Stockport Homes. Neither is part of the Norfolk-controlled NPS empire. Both are, in the fullest sense, Stockport’s own creations — set up by Stockport councillors, staffed in large part by former Stockport council employees, and answerable, in theory, only to Stockport Council as their sole shareholder or guarantor. If the arms-length principle cannot be made to work here, where the council itself is the only party in the room, it is hard to see where it could work at all.
Chapter One: SK Solutions — How £4.7 Million Went Missing
Solutions SK Ltd was formed in 2009, wholly owned by Stockport Council, to take over the delivery of adult social care and home support services previously run in-house. Around 900 adults who needed help at home, and the roughly 200 staff who provided that help, were transferred across. The stated ambition went further than simply continuing the existing service: Solutions SK was meant to win contracts from other local authorities too, generating new income for a service that had previously only ever cost money.
It never happened. Healthcare commissioning across the region moved, if anything, in the opposite direction — towards more “integrated locality working,” organisations looking inward rather than out for new business. The contract-winning strategy that had justified spinning the service out in the first place quietly died, while the company was left running essentially the same job it always had, only now dressed in the more expensive clothes of a limited company: its own board, its own committees, its own audit arrangements, its own annual reports.
Then, in 2012, it emerged that SK Solutions had lost £4.7 million.
The mechanism, as best it can be reconstructed from the interim reports that were eventually released — heavily redacted, with entire passages blacked out — appears to have been the accounting treatment of work in progress: services delivered, costed, and invoiced in a way that let the company show a profit on paper that did not exist in the company’s bank account. Why anyone would want to show a profit that wasn’t there is not hard to guess. A newly spun-out arms-length company, still trying to prove the case for its own existence, has every incentive to look as though the experiment is working. What is less easy to establish, because the reports that might answer the question were the ones with the black marker taken to them, is exactly who knew what, and when.
What is not in dispute is who paid the price. Eighty-one home support workers — low-paid, front-line staff, the people who actually went into people’s homes — were put at risk of losing their jobs as the company scrambled to “drive down costs” in the wake of the loss. The unions blamed poor management. It is difficult, reading the record, to disagree with them. Meanwhile — and this detail has stuck with residents who have raised it with me more than almost any other — the company’s Managing Director was reported to be adding a two-storey extension to his house at around the same time his company was writing off £4.7 million of public money.
A cross-party “political pact” was reportedly formed between Stockport’s Liberal Democrat administration, the Conservatives and Labour over the accounting losses — an unusual alliance, and a telling one. When councillors of every stripe feel the need to close ranks over a single company’s finances, it is rarely because there is nothing to see.
Alongside SK Solutions sat Individual Solutions SK (“ISSK”), Waste Solutions SK, and Care Solutions SK (for which no accounts have ever been made available at all). A January 2013 report to the SMBC Executive Committee recommended that ISSK’s “reablement” home support function — helping older people with complex needs remain independent at home — be brought back in-house. The reasons given were candid enough: the contract-winning ambition that justified the company’s creation in 2009 had fallen to 50%, then as low as 30%, of what had originally been planned. Provisional agreement was reached with Unison for the transfer back, contingent on member consultation, more locality-based working, and changes to shift patterns — alongside an acknowledgement that sickness levels within the company had become “unacceptably high.”
The language used by the Executive Councillor responsible, welcoming the “tremendous opportunity” for the service to return to direct council control, deserves to be read twice. This was not a service returning to the council because outside circumstances changed unexpectedly. It was a service returning because the arms-length experiment that had been set up, insufficiently monitored, and allowed to lose £4.7 million of public money, had failed — and was now being rebranded, in the space of a single Executive Committee report, as an opportunity rather than a retreat.
The remaining rump of ISSK — transport, day care and community meals — was left to continue as a smaller company, its future still, by the Council’s own admission, “up for discussion.” A smaller company, as anyone familiar with the fixed costs of compliance, governance and management structures will recognise, tends not to mean a cheaper one. It usually means the opposite: the same administrative overhead spread over a shrunken base of activity.
Chapter Two: Stockport Homes — Awards on the Wall, Questions at the Door
If SK Solutions is a story about a company that collapsed quickly and visibly, Stockport Homes is the opposite: a company that has, by most outward measures, thrived. It has won award after award — national housing awards, media recognition, shortlistings — and its website, at the time of writing, is a testament to institutional self-confidence.
Stockport Homes Ltd was incorporated in August 2002 but did not begin trading until October 2005. It manages and maintains the council’s housing stock — 11,483 properties at the time of its 2010 accounts — along with the allocation of homes and the management of a substantial capital investment programme. In 2010 alone, the council paid Stockport Homes a management fee of £22,257,000, against total turnover of £28,917,000, to run a capital programme budgeted at £34,534,000. These are not small sums for a company that is, on paper, operating at arm’s length from the authority that both owns it and, in practice, underwrites it.
The company has genuine achievements to its name: its first new-build scheme at Lantern Close delivered seventeen homes for rent, with a further eighteen planned at Mendip Court and Marhill Court. It took on the collection of water charges for United Utilities in 2010, for which it was paid an additional £461,000 by the council to cover its costs. It re-tendered its largest repairs contract to Jackson Lloyd Ltd. None of this, in itself, is a scandal.
The trouble lies in the pension figures — and in what those figures suggest about how convincing the “arms length” label really is.
Stockport Homes’ pension fund, according to its own accounts, moved as follows between 2007 and 2011 (figures in £ millions):
2007 2008 2009 2010 2011
Pension obligation: (14.4) (15.7) (16.0) (31.1) (24.9)
Pension assets: 12.6 15.9 13.9 20.4 23.7
Deficit/(surplus): (1.9) 0.2 (2.1) (10.7) (1.2)
After three years of comparative stability at around £15 million, the gross pension liability doubled to roughly £31 million in 2010, before settling back to around £25 million the following year. No corresponding external event — no sudden collapse in interest rates of that scale, no dramatic change in life expectancy assumptions published elsewhere in the same period — obviously explains a swing of that size in a single year. What changed, on the company’s own figures, was the assumptions the actuaries were instructed to use.
The 2010 accounts also include a line describing a “past service gain on pension assets” of £3.199 million — a figure that, on its own, accounted for roughly three-quarters of the company’s entire operating surplus for the year. Whether this represents an actual gain in the value of assets held to meet the pension liability, or simply a reduction in a liability that has been redefined as smaller than previously thought, the accounts as presented do not make entirely clear. The distinction matters enormously: one is a windfall, the other is an accounting adjustment dressed up as one.
What is beyond dispute is that the pension deficit — whatever its true size in any given year — is guaranteed by Stockport Metropolitan Borough Council itself. A company whose most significant financial risk is underwritten, in full, by its sole shareholder is not operating at arm’s length in any sense that would be recognised outside a local authority accounts department. It is operating with the council’s balance sheet as a safety net, while the council’s taxpayers, including the company’s own tenants, have no more visibility into how the actuarial assumptions were chosen — or by whom — than any other member of the public.
Set against this is the human dimension the awards ceremonies do not capture. Residents of Coleridge Close in North Reddish contacted me directly about problems with security and drainage, and the loss of flower beds they had long tended, that Stockport Homes had apparently failed to resolve. A letter to the company’s James Hood asking for an update went, as far as the record shows, unanswered for well over a month. It is a small case, set against pension figures running into tens of millions, but it is the kind of case that tests what an “award-winning” housing company actually means to the people living in the homes it manages, rather than to the judges of a housing industry prize.
Chapter Three: The Pattern Repeats
Read alongside each other, SK Solutions and Stockport Homes tell variations of the same story that runs through this whole series of books: a council persuaded, or persuading itself, that hiving off a service into a limited company will bring efficiency, focus and — sometimes — new income, while retaining none of the direct managerial oversight that might have caught problems early.
At SK Solutions, the result was a company that lost £4.7 million through weak controls that nobody appears to have caught until the damage was done, and whose failure was then reframed, almost immediately, as an opportunity to bring the same service back in-house — begging the question of why it was ever taken out in the first place.
At Stockport Homes, the result is a company whose day-to-day performance looks genuinely strong, but whose largest single financial exposure — its pension liability — swings by tens of millions of pounds on the strength of actuarial assumptions that are neither transparent nor, on the council’s own guarantee arrangements, actually held at arm’s length from the council at all.
In both cases, the same question recurs, the one this whole series keeps asking in one form or another: who was watching? Not the tenants, not the home support workers whose jobs were put at risk, not — it would appear — anyone with either the authority or the inclination to ask the awkward question before the money had already gone. And when a council taxpayer does ask it, the answer, time and again, has been to reach for a single word: vexatious.
