Lambeth council’s regeneration consultation with Cressingham Gardens residents was based on out-of-date financial information that concealed £48 million of extra borrowing capacity, the high court heard.
Cllr Matthew Bennett, cabinet member for housing and regeneration, knew that the situation had dramatically changed even before the consultation started, but kept it to himself, it was claimed.
Residents involved in the second round of consultation were provided with old 2014 data indicating that there was just over £5 million of ‘debt headroom’ in the Housing Revenue Account (HRA), when the unpublished figure for 2016/17 was £67.7 million, and £52 million at its lowest in 2017/2018.
David Wolfe, QC, representing claimant Andy Plant, described it as a ‘very significant failure’ of the consultation.
As a result of the misinformation, the prospect of a resident-supported £10.9 million refurb-based regeneration (“the People’s Plan”) funded via the HRA was presented to cabinet members and residents as impossible, when in fact there was a pot of up to £52 million to draw from.
The alleged failure came just two months after a judge quashed the council’s unlawful 2015 decision to remove refurbishment options from the consultation, after finding that the council had not demonstrated that refurbishment was unaffordable, as claimed.
Residents chased officers for the latest ’30-year HRA business plan’ for many months prior to and throughout this year’s resumed consultation, and a ‘dashboard summary’ was eventually published – but in April this year, and, critically, after the March 21 cabinet decision had been made to flatten all 306 homes.
This was followed only as recently as October this year, with disclosure of the full spreadsheet (albeit with all formulas removed) to claimant Andy Plant’s legal team, during the run-up to the hearing.
‘Plainly that was very different to the basis on which consultees, and the cabinet, had proceeded,’ said Mr Wolfe in a written legal summary seen by the court.
Lambeth claims that cabinet members made an informed decision having been separately briefed on the point, despite it not being spelled out in the relevant cabinet report.
The council’s director of finance Christina Thompson, sought to explain the issue in a witness statement dated September 29 this year, which suggested that Cllr Bennett may have known about the improved status as far back as October last year.
Following a further request for disclosure, Lambeth produced a briefing note from an October 2015 meeting with Cllr Bennett entitled ‘HRA Rent and Budget Setting 2016/17’, which suggested officers were at that time projecting the headroom to be £39 million, at its lowest.
Mr Wolfe argued that while documents relating to other informal meetings were disclosed by Lambeth, they did not back up the claim that other cabinet members besides Cllr Bennett knew the position when they made their decision, and he disputed the claim that members were given the opportunity to evaluate the information in the context of the Cressingham decision. No minutes or attendance sheets for the meetings were made available.
‘Nevertheless, Christina Thompson’s suggestion demonstrates, rather than curing, the problem,’ said the barrister.
‘In particular, it shows that, even if (which remains up in the air) final figures were not available when cabinet members took the 21 March decision, officers at least knew that the previously-published figure, which had underpinned the consultation and the officer report, could not be relied upon.
‘And yet the point was not made public, despite it plainly changing the basis on which consultees had responded to the consultation, nor provided to cabinet for its meeting.
‘Indeed, far from making public the realisation that the officer report was reliant on out-of-date information, the officers kept quiet on the point; and so, it seems, did the lead member.’
Even if, said Mr Wolfe, all cabinet members were aware, the same information should have been provided to consultees to enable them to ‘make representations’.
The court heard Lambeth accepts it did not provide the updated information to residents, but claims it would have made ‘no difference’, because it now says it could not afford to repay the debt if it did decide to borrow the money.
In particular, resident Gerlinde Gniewosz, one of the authors of the community-led alternative ‘People’s Plan’ (TPP), ‘is asking for it, getting rebuffed’, and ‘it’s sitting there’, the barrister told the court.
Mr Justice David Holgate asked, ‘Are you saying the point [made by Lambeth] is a bad one because when you look at the reports to the members, it doesn’t deal with headroom and borrowing?’
‘Yes,’ replied Mr Wolfe, ‘Or let alone regeneration of Cressingham – it’s just looking on the year ahead for rent setting.
‘What emerges when we push, is the documentation Ms Gniewosz was asking for in January and getting nowhere.’
As a result, ‘There appears to be a lot more available [headroom] in the very documentation she’d been asking for – she was still relying on in 2016, preparing their consultation response based on [out-of-date data from 2014], when the replacement was already in existence.
The barrister added, ‘We say that’s a very significant failure in terms of the consultation.’
The judge asked, ‘Now you have got the document [the full 30-year business plan], what do you ask me to do with it?…So far no-one’s said what difference this makes in terms of what people would want to say about it.’
Mr Wolfe replied, ‘What you have post April HRA business plan [is data] which shows a very much greater headroom in a context in which headroom had been the issue.’
‘The court needs to think about what on earth could you say about it that could conceivably change the price of eggs?’ pressed the judge.
‘I expect that’s what the council will say.’
Mr Wolfe claims that Lambeth’s fixed £408m debt cap was ‘expressed as the constraining factor’ during the consultation, however following the decision to demolish, the council has changed its stated reason.
The council now claims that the financial motive for demolishing the estate is its inability to afford to repay the debt, meaning that it does not have enough income to pay back the money it borrows.
One of the reasons behind this, appears to have been hinted at in the October 2015 Cllr Bennett briefing note.
In a section headed ‘Estate Regeneration’, it was confirmed that the rental income from the relevant council estates has been taken out of the HRA.
The passage explains that this is because the new homes will be owned by Homes for Lambeth, the Special Purpose Vehicle (SPV) or private company being set up by the council to redevelop the estates, and the income would not be available to the HRA.
The document stated, ‘This results in a reduction in income and expenditure but the debt associated with these properties remains in the HRA and continues to be serviced from within HRA resources.’
Mr Wolfe told the court, ‘Something else has been identified, but it wasn’t the basis on which we were consulted, and we didn’t have the material to respond to it, if that was the issue, and that certainly wasn’t spelled out to members in that way.’
On day two of the hearing, a further witness statement from Ms Gniewosz was received by the court, attempting to address the issue raised by the judge.
After noting that full analysis of the business plan spreadsheet is restricted by the removal of formulas, Ms Gniewosz stated, ‘However, it is now possible to see there is clearly sufficient HRA debt headroom to finance both refurbishment and the creation of new homes as TPP.
‘The full cost of the 37 new homes in TPP was costed at £3.9m, covering both the conversion of some of the undercroft car park area and the demolition/re-build at higher density of the block containing the void flats.
‘Together with the £7m for the refurbishment of the existing homes, the TPP would require £10.9m in investment upfront, which easily fits within the current HRA debt headroom profile even in the single year with the lowest level available.’
Addressing the council’s claim that it would not be able to afford the debt, Ms Gniewosz stated that the newly revealed spreadsheet is also an opportunity ‘to start to understand how the defendant is accounting for the impact of Option 5 [full redevelopment] on the HRA’.
She added that if given the opportunity, she would have observed how in later years, the redevelopment seems to be having have a ‘negative impact on the HRA …that arises through the loss of net rental income …as the rebuilt homes would no longer belong to the HRA, but rather the SPV (‘Homes for Lambeth’).’
The court was also made aware that councils which fail to account for housing within the HRA would be in breach of Government policy – that being the policy on the ‘general power of competence’, under the Localism Act 2011.
In a letter to a resident referred to in court, the Department of Local Government and Communities’ (DCLG) HRA Division stated that it is ‘not acceptable’ for local authorities to set up ‘new wholly owned or controlled housing companies deliberately to avoid the …limits on indebtedness put in place to help address the inherited deficit’.
It continued, ‘The Government’s policy is that where a local authority is developing or acquiring and retaining new social or affordable homes for rent, that they should be brought forward using the powers available to them under part II of the Housing Act 1985 and that housing should be accounted for through the Housing Revenue Account.’
James Goudie QC, defending Lambeth, said he objected to Ms Gniewosz’ late witness statement, calling it an ‘attempt to introduce expert evidence’, but later agreed to consider its contents overnight.
Mr Goudie went on to repeat Lambeth’s claim that redevelopment is preferable, mainly because it would not require funding from the HRA, and he described the headroom issue as a mere ‘technicality’.
The barrister also claimed the terms of engagement were made clear to residents in the January 2016 consultation booklet.
He highlighted the booklet’s claim that the estates going into the regeneration programme are partly those ones which the council has decided that refurbishment would not be ‘good value for money’.
The council is ‘concerned about not some technicality about HRA headroom but a readily understood concept of value for money’, argued Mr Goudie.
The barrister also said that the ‘cabinet wasn’t misled’ because, he claimed, the cabinet report itself did not cite headroom as the problem, and was ‘not critical’ in undermining the ‘People’s Plan’.
‘It’s simply a switch in emphasis from the restriction on borrowing’ against the HRA headroom, he said, ‘to prudential borrowing’, and, he claimed, ‘Prudential borrowing had been explained to residents at one of the viability workshops.’
Highlighting a need to ‘consider whether [the council] can afford to borrow the funds’, he said, ‘The central issue is affordability,’ adding, ‘All that the updated figures show, is that the situation is worse.’
Judge Holgate drew the barrister’s attention to the claimant’s argument, that ‘affordability of servicing the debt’ had not been highlighted to cabinet.
‘One has to consider the report as a whole, not whether this point is covered in a particular paragraph,’ said Mr Goudie.
‘I agree,’ said the judge, ‘Where else do we look then?’
Mr Goudie took the judge to a paragraph in the earlier January 2016 cabinet report, but the judge said, ‘The other point Mr Wolfe makes is, it’s concerned with setting rent levels.
‘Your witness has relied upon this [the condition of the HRA] as being something already known to members.’
Another paragraph highlighted by Mr Goudie in the same report, described Lambeth’s allegedly thwarted plan to ‘borrow the full amount of funding available to invest in the housing stock’, adding, ‘The Welfare Reform and Work Bill 2015 and more specifically the rent reduction of 1% each year for four years means that the utilisation of borrowing up to the limit is now unlikely due to affordability.’
Mr Goudie insisted the point was a ‘perfectly good’ one.
However Mr Wolfe reiterated that the passage does not address whether this is the reason for refurbishment options being ‘off the table’ on Cressingham.
In addition, Mr Wolfe argued against Lambeth’s point that either way, it still could not afford it,and the judge said, ‘I think they’re saying it makes no difference because even if they move along, it’s the bottom line.’
To emphasise his point that it was unfair of the council not to present these issues to residents for comment, the barrister referred again to the consultation booklet, and the lack of any reference to ‘value for money’ meaning ability to pay off debt.
The only connotation of ‘value’ in relation to the options is ‘what do you get for your money’, said Mr Wolfe.
‘Nothing to do with affordability of borrowing costs,’ confirmed the judge.
Mr Wolfe also highlighted two other references to ‘value’ in the report to cabinet – the profitability of the options, and estimated costs, adding, ‘Neither of them is affordability’.
‘We simply put it this way,’ he continued. ‘This was a materially unfair process, because we have not had an opportunity to comment on what is now said to be the reason for the decision.’
Alluding to Lambeth’s multiple changes in focus, from HRA headroom, to inability to service debt, to affordability to value for money, which are all precise and different concepts, “The judge said, ‘I detected there was a shift in Lambeth’s position from reading the papers,’ adding, ‘What difference would it have made?
The judge remarked that he understood that people feel they did not receive financial information, ‘but I’ve still got to decide whether this decision has to be quashed’.
Mr Wolfe paraphrased a comment made by the claimant in his witness statement, that ‘had we had the opportunity to address this point, we would have had things to say that might have made a difference’.
The barrister argued that ‘It’s not for the court to say’ how the issue would have progressed as a result of comments residents may have made.
‘We were beavering away on the headroom, because that seemed to be the issue,’ added Mr Wolfe.
Mr Wolfe referred back to Ms Gniewosz’ last witness statement, which highlights how TPP would create new income streams for the council, and remarking on ‘whether our project could cover its debt’. ‘She says it could,’ he said.
‘She has been deprived of the opportunity to make that point doing the consultation process.’
He added that Lambeth’s failure to offer residents that chance to comment on a key point they now declare to be the ‘show stopper’, constitutes ‘a breach of natural justice par excellence’.
‘What’s being said against me is, “This was all known in January”.
‘If that’s right, why wasn’t it said in January [when the consultation launched]?’ and suggested that the omission has rendered the consultation an ‘entire waste of time’.
Mr Wolfe distinguished the current situation from a change in circumstances after the decision, such as if the Government were to prohibit developments from being carried out through the HRA.
‘It’s said Cllr Bennett knew it even earlier, in October, or November,’ he added.
‘Something elliptical appears in the [January] report on rent-setting. If that turns out to be this show-stopper…’
Mr Justice Holgate suggested that it has been known for judges to determine what the decision between financial projects would have been by looking at the evidence.
Mr Wolfe argued that he should not try to answer the question that ‘arises from the failure in the consultation, in the context of knowing what was known by the council throughout’ but was not made public.
He added, ‘What we’re entitled to be told is what the issues are, given a choice to address them and have our responses taken into account by the decision-maker.’
In summary, Lambeth denies the four grounds that: The council erroneously included £7.5m income which would have otherwise for each of the options resulted in its own preferred demolition option failing its own ‘must achieve criteria’; Misled its own cabinet members as to ‘The People’s Plan’ and/or the members failed conscientiously to take into account key aspects of this consultation response; Failed to provide up-to-date data relating to the HRA finances to either the consultees or the Cabinet members, such that they were (respectively) not properly able to comment on or take into account the data; and Breached Mr Plant’s right to property under Article 1, Protocol 1 of the European Convention on Human Rights, combined with his right to respect for a home, by removing his existing ‘Right to Buy’, contrary to current government policy.
The case was heard between November 15 and 17 and the judge has reserved judgement, which is expected to be handed down within weeks