Nottingham City Council: £15m of ‘illegitimate’ payments spent on council services instead of housing

Loxley House, headquarters of Nottingham City Council.
By Matt Jarram, Local Democracy Reporter

An investigation is under way after £15.86m of ringfenced cash allocated to Nottingham City Council’s housing stock was spent on other council services instead.

Labour-run Nottingham City Council said the “serious issue has been brought to light” as part of ongoing work the local authority is doing as part of its Recovery and Improvement Plan.

Funds to the tune of £15.86m from the council’s Housing Revenue Account have been incorrectly credited to the General Fund for all council services.

The Housing Revenue Account is strictly ring-fenced for transactions related to council housing landlord functions and cannot be used for other purposes.

The sum involved is circa £15.86m and has accumulated since 2014/15.

Cllr Kevin Clarke, leader of the opposition Independent Group at Nottingham City Council described the news as “outrageous” and said Nottingham’s council tenants had suffered as a result.

A draft report on the issue commissioned by the council from the Chartered Institute of Public Finance and Accountancy (CIPFA) has now been received and makes a number of recommendations.

While the council says it awaits a final version of the report, having regard to the nature of the findings, it is “acting without delay”.

Steps are being taken to refund the Housing Revenue Account from General Fund reserves by the full amount of £15.86 million (uplifted to current prices).

This will not directly affect the council’s revenue budget for day-to-day services, the council says, but it will mean a reduction in the council’s reserves.

The council is already under the watchful eye of Sir Tony Redmond, who has been appointed by the government to head a board making sure the council can balance its books over the next four years.

His appointment came after the council lost an anticipated £38m by setting up a failed energy company, Robin Hood Energy, which went into administration in January 2020.

If the council fails to sort out its financial situation then government commissioners could be called in to run the Labour-run authority in the future.

Cllr David Mellen (Lab), leader of Nottingham City Council, said: “Since I was elected leader in May 2019, this issue had not been raised directly with me by officers or auditors on whose advice elected councillors rely, until in recent months, when I agreed with the advice of the council’s Corporate Director of Finance and Resources that an external review should be commissioned.

“The initial finding of that review is that the payments concerned are illegitimate. I have therefore asked for an urgent investigation to be carried out to understand how this happened and put measures in place to ensure it cannot happen again.

“This report raises significant questions and as Leader of the Council, I am determined that those questions will be answered.

“We will be taking the necessary steps to ensure the funding in question is paid back into the Housing Revenue Account immediately.”

Mel Barrett, the council’s Chief Executive, said: “This issue is being taken very seriously by the council and needs to be seen in the context of the significant progress being made with the work under way to improve governance, financial management and organisational culture and underlines the importance of that work continuing.

“This event is clearly a setback for the council in the context of the significant improvement journey under way.

“That this arrangement continued for a number of years is disappointing, however it is positive that things that need discovery and have not been unearthed in the past, are being unearthed now and dealt with.”

Cllr Clarke said: “I think it is outrageous. It has been going on for six years. The residents – the council tenants – have suffered as a result of this. Repairs have not been done and unnecessary rent increases. You can’t believe it has gone on so long.

“This could be the nail in the coffin (for the city council). Sir Tony is not going to see this in a good light. This money is ringfenced for housing so why has it been put back into the General Fund.”

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