Questions over whether councillors should resign after up to £40m misspent on wrong services

Nottingham's Council House
By Matt Jarram, Local Democracy Reporter

Labour councillors have been asked if they will resign after an investigation found up to £40m was misspent on the wrong services.

Cllr Kevin Clarke, opposition leader of Nottingham Independents, asked whether council members who were portfolio holders at the time should be “offering their resignation”.

An independent investigation found Nottingham City Council and Nottingham City Homes misspent up to £40m of ringfenced cash from its Housing Revenue Account.

The council housing tenants’ rent – which should have been pumped into council housing and repairs – was put into general council services instead.

The Penn Report, commissioned by the council and released last week, says the money was misspent, and in some cases was used to prop up other council services and to avoid job losses.

It found that the local authority has misspent up to around £22.8m since 2014/15 while Nottingham City Homes, which manages the council housing stock on behalf of the authority, misspent up to £17.1m.

The money must now be paid back into the Housing Revenue Account, but opposition council leaders are concerned there is not enough money in the bank to ensure that can happen.

Last week, the council decided to terminate its contract with Nottingham City Homes and bring the service in-house. This will cost around £750,000.

Cllr David Mellen, leader of the council, said the money would be paid back – with £15m coming out of reserves and £17m may be found within Nottingham City Homes accounts, which would leave a financial gap of £8m.

But Clive Heaphy, the corporate director of finance at the council, said at this point it is not clear if Nottingham City Homes has the £17m in cash available.

Cllr Graham Chapman (Lab) was Deputy Leader of the council when the misspending identified by the report started.

Cllr Chapman, who remains a city councillor representing Aspley, told the Local Democracy Reporting Service in April: “We were not aware of the degree of this. I think what was happening – officers were trying to keep, below the radar, other services going such as libraries, child protection and children’s centres and this was a source of potential income.

“They were pushing the boundaries, but it was done for ethical reasons. I am not going to blame anyone. They were trying to keep the ship afloat and keep services going.

“I do not think we knew the extent. It is a national phenomenon. It was happening across the country at other councils.”

Following these comments, Cllr Clarke asked the leader of the council, Cllr David Mellen, a question at full council on Monday, May 9.

He asked if intervention is necessary to prevent more of “the extraordinary financial mismanagement from this authority and that, in light of yet further revelations of unlawfully spent money, historical portfolio holders should be offering their resignation?”

Cllr Mellen said: “The Penn Report states that the original movement of money from the HRA account to the general account was something that was originated by a senior officer, no longer with us, not a device dreamed up by councillors.

“It was led by officers at that particular time and other officers and members asked questions at the time and were reassured.”

He said the money would be put back and he would work hard to ensure government commissioners do not take over the running of the authority as a result of this latest “revelation”.

“The council is taking swift action. We are not out of the woods. There is no complacency or resting on our laurels. We are absolutely committed to do what is necessary to maintain democratic control.”

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