‘I can’t give you a guarantee there is no fraud’ – the words of an independent accountancy official at a meeting this week caused further dismay to Sutton’s ruling LibDems amid the growing controversy of their loss-making heat network. CARL SHILTON, our investigations editor, reports
This week’s Prime Minister’s Questions were enlivened for Inside Sutton’s loyal reader when the MP for Carshalton and Wallington, Elliot Colburn, was given permission to get on to his hind legs and raise with Boris Johnson the matter of the failing district heat system, Sutton Decentralised Energy Network Ltd, or SDEN.
“Last week an independent enquiry into LibDem-run Sutton Council’s own heat network found that it was set up on false assumptions, including funding that was never attained and homes that do not exist,” Colburn told the packed Commons. “Now, my constituents are going to be left footing the bill.
“Does the Prime Minister agree with me that this latest failure shows that they are just not fit to govern and that those responsible should go?”
Of course, as is expected through the artifice of PMQs, where constituency MPs put their patch into the national spotlight, the tool that is Johnson duly agreed with his party colleague. “I will certainly look into the matter that he raises,” the Prime Minister said.
Which will no doubt be a huge thrill for Ruth Dombey, Sutton’s council leader, as it put more heat under her embattled Liberal Democrat administration.
In Parliament, Colburn was referring to the independent report by the Chartered Institute of Public Finance and Accountancy, CIPFA, which looked at the probity, or lack of it, of the financial model used to justify Sutton Council’s multi-million pound investment in SDEN, as well as its future viability.
As Inside Sutton reported last week, the coldly dispassionate accountants from CIPFA found that the SDEN financial model included non-existent homes as claiming it would receive money from “green” heat incentives that their scheme was ineligible for. If the financial model had been accurate, CIPFA suggested, SDEN would have failed.
It also criticised the poor governance and strategic failures of the management.
The CIPFA report was discussed at last Monday’s council strategy and resources committee. It was expected to be an early fireworks night, but the outcome was more forensic than bombastic.
Phil Gibby, the CIPFA report’s author, was on hand to take questions on the report, while Richard Simpson, the former director of finance at Croydon who now holds a similar job at Sutton, had his tin hat ready to fend off the inevitable barrage.
“The company needs to be in a position to pay for new equipment as and when it needs replacing,” Gibby began.
“At the moment it cannot do that. As it stands at the moment, the company is not financially sustainable.”
The CIPFA review only took place after the Conservative opposition placed a motion to a council meeting in July which, following LibDem amendments, was eventually passed. So Monday’s meeting was Sutton’s Tories chance to twist the knife.
Neil “Father Jack” Garratt, now a London Assembly Member but still a Tory councillor in Sutton, told the meeting, “The report has confirmed some of the things I’ve suspected but not been able to demonstrate.
“Mr Gibby has got to the bottom of some of the things I’ve had a nagging sense of being led up the garden path about,” Garratt said.
“He has highlighted the path with neon strip lights, particularly in relation to imaginary houses that never existed and never even had a planning application, and in relation to a heat incentive grant that we were never eligible for. My understanding is that the RHI [Renewable Heat Initiative] is still in the business plan.
“Although the council’s covering report implies it is only with hindsight that the council were able to identify problems, Mr Gibby finds there were good reasons to be wary of those assumptions right from the very beginning.”
Garratt and the Tories wanted to amend the CIPFA report’s recommendations, which include reducing the interest rate charged by the council on its loan to SDEN in an effort to reduce the loss-making energy network’s costs.
“We’ve jumped straight in to giving SDEN a six-figure three-year bail out on their interest rate without having from SDEN a business plan,” Garratt said. “SDEN need to come back with that plan.”
The aim of the amendments, Garratt said, was for the council to acknowledge that “thousands of people are living in New Mill Quarter who depend on this set up for their heating and hot water.
“We need to recognise the importance of reliability and good value for money service for those residents in whatever decision that we make”.
Dombey, chairing the meeting, reluctantly admitted that “we need to tighten up our processes”, and then immediately deferred to council employee Simpson to take the political flak.
Simpson, it is worth remembering, is the council official who when at Croydon oversaw the setting up of Brick by Brick, signed off on the refurbishment deals for the Fairfield Halls and helped authorise the over-priced purchase of the Croydon Park Hotel. It is a track record of civic disaster which, it seems, is about to have SDEN’s financial collapse added to it.
On Monday night, according to Simpson, reducing the interest charged on a multi-million-pound loan of public cash from 6 per cent to 2 per cent, costing Sutton Council Tax-payers around £2million, is not a subsidy. He even appeared to keep a straight face as he said it.
“There’s no subsidy here,” Simpson said.
“Given the current financial state of SDEN, they can’t afford that margin of loan. The original margin hadn’t been written into the council’s financial plan. There is no subsidy that is being provided by the council to the company.”
This ran counter to the council’s own report for the meeting, which expressly stated that the council should reduce “the interest rate on its loan to SDEN in line with the subsidy option available”.
And if, according to Simpson, the interest paid by SDEN was never in the council’s budgets, it raises the serious question of how it was to be accounted for.
The leader of the opposition, Tom Drummond, then mentioned the “F” word.
“The terms of reference asked you to cover any conflicts of interest,” Drummond asked Gibby, “but you weren’t asked to look for fraud.
“Would I be right in saying that albeit you found no fraud, you didn’t find that there wasn’t any fraud, you just found there was no evidence of fraud?”
“That’s a fair summary”, said Gibby.
“This is not a forensic audit. It’s a review. I can’t give you a guarantee there is no fraud.”
Dombey had helped to draft CIPFA’s terms of reference for the review. They explicitly excluded looking for evidence of fraud. When the report was released by the council last month, Dombey got the council’s press office to issue a disingenuous and self-serving statement that claimed CIPFA had found no fraud.
“No,” said Drummond. “I’m agreeing there was no evidence of fraud.”
Tory deputy leader James McDermott-Hill chimed in. “Do we want this to succeed? Yes, but we can’t ignore reality. We will get nowhere if we are pursuing an almost religious-type belief in something that is clearly failing.”
Mother Superior Dombey continued to recite her catechism. “This project is absolutely not a failure,” she said.
“It’s something we need to ensure succeeds for the good of the planet and the borough.”
Dombey’s holier-than-thou act failed to deter Garratt. “There’s nothing in the shareholding’s board papers that says this company has serious problems and unless we get an immediate bail-out we’re going to go belly up and leave hundreds of people without heating,” he said.
“That implication has seeped into this meeting. Why the bloody hell wasn’t it in the report to the shareholdings board?”
Simpson said that the interest rate issue had been raised at the Sutton shareholding board, in March 2021. Which it was, but it wasn’t considered important enough to be included in the minutes.
“The payment becomes due next year, so that problem’s not going to crystallise tonight or tomorrow morning. If the decision’s not made tonight, the company won’t be bankrupt tomorrow,” said Simpson.
And Dombey was forced to concede, “It would be a dereliction of duty to leave the residents of New Mill Quarter not having certainty about the financial situation of the company going forward.”
Then came a voice of calm consideration from independent councillor for Beddington North, Tim Foster, in whose ward the incinerator and long-term heat source for SDEN lies.
“The culpability for the current situation lies firmly at the door of the current administration, its inception, its management, and its overview by Sutton shareholding board,” Foster said.
“The real shareholders here are the residents of this borough, and the most interested are those residents of New Mill Quarter who have invested something like £200million for the privilege of being guinea pigs.
“We need proper business plans, with depreciation built in, with the costs of these new directors, and the cost of delivering a proper service to the customers as well as a realistic perspective of the further phases. We need all of that before we can make a proper judgment. Optimism bias lives on in Mr Simpson’s proposals.
“I would like to pay tribute to my colleague Nick Mattey, without whose persistence and dogged determination we would not be discussing this issue today.
“Someone in this administration owes Councillor Mattey an apology.”
Dombey had earlier told the meeting that she didn’t like being looked at when speaking. Now, every eye in the room was focused on her.
Drummond now took Liberal Democrat councillor Barry Lewis to task.
“We were told in the debate at full council in July by Councillor Lewis that we were running a smear campaign. This report has justified it wasn’t a smear campaign. We had legitimate concerns.”
When it came to a vote on Garratt’s amendments and the council’s recommendations, Dombey’s team won the day with their built-in majority on the committee, with the notable abstention of LibDem Amy Haldane.
Why the Conservatives were not more vocal about the role of “Calamity Jayne” McCoy in the debacle, or consultant Simon Woodward, is probably due to the upcoming meeting of Sutton shareholdings board on November 17, where SDEN is the only item on the agenda.
The CIPFA report will have another full airing with a bigger audience at a full council meeting on November 22, when no doubt Councillor Mattey will be in attendance this time, and expecting that apology.
- If you have a news story about life in or around Croydon, or want to publicise your residents’ association or business, or if you have a local event to promote, please email us with full details at firstname.lastname@example.org
- Inside Croydon is a member of the Independent Community News Network
- Inside Croydon works together with the Bureau of Investigative Journalism, as well as BBC London News and ITV London
- ROTTEN BOROUGH AWARDS: Croydon was named the country’s rottenest borough in 2020 in the annual round-up of civic cock-ups in Private Eye magazine – the fourth successive year that Inside Croydon has been the source for such award-winning nominations
- Inside Croydon: 3million page views in 2020. Seen by 1.4million unique visitors