Agenda item

To receive the annual Stone Circle governance update.

Perry Holmes, Director Legal and Governance and Monitoring Officer presented the Stone Circle Annual Governance Update.

The officer explained that Stone Circle was set up in 2019. In 2021 he and Andy Brown, Corporate Director Resources & Deputy Chief Executive (S151 Officer) had undertaken a governance review to see if best practice was being adhered to. The report set out the recommendations approved by Cabinet in September 2021 and the activity that had occurred. Five of the seven recommendations were complete. Stone Circle had been set up with the principal idea to rent out houses above council house rates but below market value rates. The council invested in the company by loaning money to it. The model was similar to a housing association return model, with returns made in approximately 50 years.

The governance structure was highlighted, including the Shareholder Group, Overview and Scrutiny and Audit and Governance.

The Local Partnerships guide mentioned in the report published an update in 2023, and Wiltshire Council was broadly in compliance with this. Lizzie Watkin, Director of Finance and Deputy S151 Officer, was a director of the company so we had clear line of sight.

In terms of whether the council’s money was safe it was highlighted that there was a capital value to offset the loan arrangement. In relation to the development company, there was slightly more risk as a lot of money was loaned upfront and the money not returned until the houses were sold. However, this was the lesser activity of the company. The officer felt that when we looked at best practice we were in a very good place and that risks were minimised.

During debate it was stated by Members that they were not seeing the assurances they wanted within the report. It was questioned when we would break even. Financial concerns were raised regarding the housing and rental markets and concerns were raised regarding the risk to the council of this project. A loss was being made at present and it was felt this should be quantified and assessed. Millions of pounds were invested and many Members were unaware. Whether there was an exit strategy in place if things did not go to plan was questioned, and what the cost to the council would be if that happened. It was requested that quarterly finance reports for Stone Circle come to the Audit and Governance Committee.

The officer explained that one needed to remember who was responsible for what under the governance arrangements. It was acknowledged that there was a lack of financial detail in the report, as the Audit and Governance Committee were responsible for looking at the governance framework. Detailed financial information such as how much we had lent, how much risk was involved, when would you get the return and whether there was a loss or profit were all matters for the Overview and Scrutiny Management Committee (OSMC). However, the officer would take away that the Committee would like more detail. It was acknowledged that there had to be an exit strategy in place and that may need more work.  

Andy Brown echoed the points made regarding roles and responsibilities. It was highlighted that in the report were improvements that were still to be made. The shareholders needed to get information from the companies and then determine which meeting was appropriate for it to go to. In relation to some of the financial points raised it was explained that due to the economic conditions, they had gone beyond the original 50 year terms, so the long term viability of the company would be looked at. At the September 2023 meeting of Cabinet the Financial Year 2023/24 - Quarter One Capital Budget Monitoring report contained details on Stone Circle and it was noted that Minimum Revenue Payments (MRP) would be set aside from 2023/24 for the capital plan. So, the council would be setting aside money to cover the debt if needed, which was the right thing to do. The officer would be looking in the future for a Stone Circle Business Plan that does pay the money back.

Members raised concerns that the OSMC had not formed a task group to look at Stone Circle so there was a lack of oversight.

Members of the Committee that were also Members of the Financial Planning Task Group (FPTG) made it clear that they did not have the capacity to look at Stone Circle finances, due to an already very heavy workload. The Members suggested that some of the points raised in discussion and the lack of oversight, which was a concern to them, be raised with the OSMC.

Officers concurred that scrutiny did need to take place and that they would take that forward.

Members raised environmental and climate considerations in relation to Stone Circle and queried whether the standards within the draft Local Plan could be adopted.

Officers explained that the Stone Circle Board had set out climate / environmental aspirations in their Business Plan. The Shareholder group should hold the company to account in terms of whether they are meeting the requirements. The council owned Stone Circle so it could state that the operation should be zero carbon, however, it was a startup company and was growing slowly, and there had been problems in the economy. We did want them to be above current building regulations.

Mr Howse of Deloitte stated that at some point the Stone Circle group accounts would form part of the audit. Officers had suggested this, but Deloitte had requested that this be delayed until the backlog of accounts had been cleared.

Members queried the progress against recommendations and in particular why the Stone Circle Business Plan had not been in the new format. Officers explained that the new format was to include performance indicators such as loan exposure and number of properties, as well as covering longer term financial stability. The new format Business Plan had been deferred to 2024/25 as the company had been proposing a 5% increase in rent each year. Wiltshire Council asked them to lower this to 2% as they wanted to help provide affordable housing and were nominating tenants in need of accommodation. The company had raised concerns around that. The new format Business Plan would likely be considered early in 2024.

Members queried why the site purchased in Ashton Street, Trowbridge had been identified as unviable by the company. Members also questioned the governance relationship between the company in determining that the site was unavailable and Wiltshire Council deciding to take on the site as 100% affordable housing.

Officers explained that the development company paid a higher rate on the loan, so on their modelling, they would make a loss. This issue came to the Shareholder group, following which an asset gateway officer group was gathered to look options for the site. The options included a potential Social, Emotional, Mental Health (SEMH) school site, affordable housing and selling the site. It was determined that the best option was to use the site for affordable housing. 

Members applauded the fact that we were working to increase housing. They felt that it should be emphasised to the public that we are determined to house people, but that there was risk involved. Likewise, all councillors should be kept informed.

Officer stated that they would review the situation, to see if there were additional ways that transparency could be increased, and communications improved so that these matters were brought to attention of Members and the public.

The Chairman, seconded by Cllr Gavin Grant proposed the recommended proposals in the report, which were:

·       To note the updates to governance arrangements for the Stone Circle companies since the previous report to the committee in September 2022

·       The Committee is also asked to comment and make suggestions on future governance for the Stone Circle companies as they see fit.

The Chairman asked Members to detail the comments/suggestions they would like to recommend. Following debate on those matters and approval from the proposer and seconder regarding the amendments, it was,

Resolved:

·       To note the updates to governance arrangements for the Stone Circle companies since the previous report to the committee in September 2022.

·       To request OSMC set up a relevant body to scrutinise Stone Circle.

·       That officers would review the lines of responsibility to ensure that Members were appropriately informed.

·       That the two outstanding recommendations would be addressed by the end of the year, and appropriate KPI’s would be developed as part of regular reporting.