An enquiry into what went wrong with a taxpayer-funded loan to a hotel project in Leeds says that weak processes in place at the time the loan was being approved led to “poor judgement” by decision makers.
The £4.8m loan – which was supposed to help kickstart the stalled construction of a Leeds Arena Hilton Hotel – was granted to Wakefield-based Oxford GB Two (OGB2) by local quango, the LEP, in November 2013.
Just over two years later both Oxford GB Two and its building subsidiary had gone bust, and the part-built hotel was left in development limbo. The loan was finally written off in September last year.
The findings of the internal inquiry carried out by councillors on a working group of the West Yorkshire Combined Authority’s watchdog scrutiny committee were published yesterday and are due to be discussed at a meeting of the committee next week (Wednesday 24th January).
They say, inter alia, that:
“It is unclear who provided ongoing independent support to the project as it progressed through the approvals and monitoring processes … weak processes in place for LEP loans at the time led to poor judgement by decision makers … There does not appear to be clear director level oversight of the grant application at any point in the process … decision makers should have insisted on clear independent advice … “.
The report is critical too of the fact that the loan terms were agreed with members of the LEP’s investment panel not (as you’d imagine) at a formal meeting, but by email.
It also queries why the LEP accepted its role as “junior lender” for the project (a riskier role than senior lender, as the LEP admitted at the time), and says that it’s not clear whether the consequences of being “junior lender” (lack of influence, unlikelihood of recovering funds) were fully spelt out in the formal papers considered by the decision-making panel.
All in all, there’s a fair bit that the councillors on the watchdog committee haven’t been able to get clarity about, including why there was such a rush to get the loan approved.
There’s no mention in the findings either of the role in the project of Leeds City Council’s (now defunct) inward investment and tourism arm, Leeds and Partners. L&P had been supporting GB Group’s hotel plans and, by the time of the loan announcement, were “delighted” with the relationship they had established with the company.
The findings make it clear, however, that it was Leeds council (not the LEP or the WYCA) who had ultimate accountability for the LEP’s money at the time the loan was made.
As a handy timeline of events provided with the committee’s report shows:
It was the council who sold the hotel site to Oxford Group in 2011.
It was officers of the council who endorsed OGB2’s initial expression of interest in a loan in late 2012.
It was an LEP investment panel chaired by the leader of Leeds council who recommended approval of the loan three months later.
And it was two bodies (the LEP board and City Region Leaders’ Board) composed of local council leaders (including Leeds) who rubber-stamped the loan deal in April 2013.
“LCC officers confirm that they believe appropriate structures were in place to manage the decision making,” the report says. “The Working Group believes a more explicit statement clarifying relative roles and responsibilities between different decision-making bodies would assist in demonstrating and achieving good governance.”
Amen to that.
Could it happen again?
Under pressure from central government (n.b. devo fans), LEPs and combined authorities now have to take their governance, accountability and transparency much more seriously than was the case back in 2013. Never say never, but we’ll have to hope the “weak processes” identified by the report may well be a thing of the past.