Teesside Development Corporation

HC Deb 10 November 2000 vol 356 cc620-6

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Dowd.]

2.12 pm

Dr. Ashok Kumar (Middlesbrough, South and Cleveland, East)

I thank you, Mr. Deputy Speaker, for allowing me to have this Adjournment debate. I return to a subject that I have raised in the Chamber and on which I have tabled many parliamentary questions: the murky legacy to my constituents and to the wider public of Teesside by the Teesside development corporation.

I have often criticised the attitude and ethos of that former urban development corporation. In an Adjournment debate in January 1998, I raised the circumstances that preceded the winding-up of the body. I have echoed, and will echo, the views of many people on Teesside that TDC played fast and loose with public moneys and public investment. Those moneys were not small sums.

Over TDC's 10-year lifetime, many hundreds of millions of £ were channelled through the organisation. Playing fast and loose with large sums concerned many on Teesside and they have continued to raise concerns in the local media, including The Northern Echo and Evening Gazette. Those fears were crystallised by my meeting on 15 December 1998 with the then Under-Secretary of State, Department of the Environment, Transport and the Regions, my hon. Friend the Member for Mansfield (Mr. Meale), at which a dossier of allegations and fears about TDC were shared with him. I thank him and his successor, the Minister for Local Government and the Regions, for ensuring that the DETR's internal audit section was tasked with the job of examining those fears and allegations and pronouncing on them. It was obvious that, if the allegations had substance, action would be taken.

I regret to say that the completed report—which is now in the public domain and a copy of which is in the Library—is a document that, in the words of the Middlesbrough Evening Gazette, raises "more questions than answers". The report deals with matters and raises issues that most reasonable people would think demand further probing, and I should like to deal with those elements of the report in this debate. I also suggest that, on the basis of the incomplete report, the Minister should further investigate TDC's activities.

I do not doubt that the audit was conducted with good intentions. However, although I realise that the time taken to complete the report—from February 1999 to October 2000—was necessary to conduct interviews, the finished report laid on Ministers' desks for a very long time. It was not released until June 2000, so that, with the ensuing summer recess, only now is it possible to debate it.

I suspect that civil service advice has been that it is best to let sleeping dogs lie. I realise that some people will argue that TDC and all the other former urban development corporations no longer exist, and that only little good will come from raking over allegations of possible corrupt practices and maladministration. Such an argument, however, is fatally flawed. The true story of TDC's failings and malpractices must be exposed, especially as we are again considering an urban regeneration company for Teesside. It is extremely important that the lessons of TDC's mismanagement be learned.

TDC took very easy options in deciding to erect an out-of-town shopping centre on the former Stockton racecourse and to build a marina at an empty dock in Hartlepool, but more difficult issues were not addressed. After 10 years, the old Middlesbrough dock area, next to the new Riverside stadium, still looks like a world war battlefield, and large tracts of contaminated land adjoining the Teesport dock have been completely ignored. Despite the exuberant promises that TDC made using its massive publicity budget, it did not accomplish many of its objectives. The nature of its high-handedness and its chief executive's management were clearly exposed by the DETR' s audit team.

I should like to examine some of the allegations and make some suggestions about possible action. Although some of the conclusions in the report merited follow-up action, so far they have been ignored.

The audit team was given the names of individuals, organisations and companies and invited to question them. Section 3.3.1 of the report details allegations that moneys were used to facilitate the establishment of an environmental body, the Teesside Environmental Trust. By a miraculous coincidence, the board of that body contained various former TDC board members and favoured contractors.

In section 3.3.4, the audit team said that the commitment of moneys for such a long time was irregular if not improper. If such a verdict were delivered on a local authority, for example, intervention by a district auditor would quickly follow. I do not believe that any other public body would have been let off as lightly as TDC has been.

Section 3.4 of the report deals with allegations that assets were doubled-counted by both TDC and Middlesbrough football club in the development of the new Riverside football stadium. The auditors lamely concluded that the files that would shed light on the matter "were not available", and that Middlesbrough football club's files "were not readily available". Are we really saying that the files on one of the most prestigious, high-profile projects in which TDC was involved were not available and that a premier league football club could not or would not accommodate the request of a team of DETR investigators? As PricewaterhouseCoopers acted as auditors of the football club and of TDC, surely it would have been a simple matter to have interviewed the staff involved in both audits.

Section 3.5 of the report contained the serious allegation that City Grant, a Government-backed and audited financial instrument, was misused by TDC in relation to a land development for industrial units. The report concludes that two tranches of cash were granted to a developer, Foster Church Business Centre Ltd. in Billingham. The size of the first grant was not disclosed; the second tranche was for £2.18 million. It seems that the agreement made in 1992 between TDC and Foster Church stated that the development was to be some 81,750 sq ft and that a grant of £2,188,459 would be given to help it happen.

No works were carried out on the site. The developers went bust and the site was sold by the receivers for £1.2 million. What did the audit team say about that? It said: we did not make any other enquiries and were unclear about whether the second tranche had been paid as it was all a long time ago. Any other public agency that had mislaid £2.18 million would by now have received serious attention from its auditors, if not from the police. It gets worse. After the centre went into receivership, the Financial Times in April 1995 advertised the building for sale and advised potential purchasers that it had a net area of some 48,000 sq ft. It appears, therefore, that TDC gave a grant for a building that ended up much smaller and cheaper than that at which the grant offer was originally pitched. Again, no one seems interested in investigating the matter.

Section 3.6 of the report contained the allegation that the chief executive of TDC had failed to declare an interest as a potential chair or director of a "Tall Ships Centre" that was to be sited near the former Middlesbrough docks, before the determination of a planning application that would help to release the cash needed to bring the centre into being. The auditors say that they "were told of this", but it was not just a vague verbal allegation—it was admitted as such by Mr. Hall under questioning by the north-east regional Sunday paper, the Sunday Sun. A copy of the article was given to the audit team, but the team says that no actual impropriety took place, presumably as the tall ships development never took place. However, the intent surely was there.

Another allegation contained in section 3.7 of the report was that there were fire sales of land immediately before TDC was wound up. The sales were precipitated by the fact that without them TDC might have gone out of existence with more liabilities than assets.

It was further alleged that these deals were made without full market testing of site value and without proper advertising. Again, it seems that the audit team did not or could not talk to the principals involved in these deals, which could have short-changed the taxpayer.

There is no evidence that the audit team talked to the Commission for the New Towns or the national office of English Partnerships, the residuary body. The audit team says in its conclusion that because TDC was no longer in existence, there was no need to investigate possible maladministration.

Again, I can conclude only that this would not mean that possible maladministration by a local authority reorganised out of existence by the recent local government review would not be looked at by the local government ombudsman.

It was common knowledge on Teesside that the shredding of documents was taking place on a massive scale at TDC's Stockton headquarters. Unfortunately, the auditors did not seem inclined to ask why that occurred or whether the huge gaps in files that they commented on so often in the body of their report had occurred because of those practices.

There seem to be other huge gaps in the record about who exactly the auditors talked to. There is no evidence that they talked to the Commission for the New Towns or English Partnerships or to the civil servants at the Government office of the north-east who were responsible, at least in theory, for oversight of TDC. There is no evidence that they talked to TDC's own solicitors, Richardson, Boyle and Blackmore.

I have a list of questions that have to be asked. Was a list obtained of disposals and acquisitions for the final months of TDC? Above all, there is no evidence that the auditors talked to Duncan Hall, TDC's chief executive; to Sir Ron Norman, its chairman; or to the ex-employees of its finance department. Today is the ideal time to ask my hon. Friend the Minister those questions. There is a need for totally open and transparent answers.

Even now, after the publication of the report, fresh stories are coming to light. Recently, our local paper, the Middlesbrough Evening Gazette, reported that English Partnerships had to pay £2 million to get itself out of the mess left to it by TDC.

TDC started life in office accommodation in two blocks in Middlesbrough, but after buying those premises it decided to move to bigger premises, Dunedin house, on the Teesdale business park in Stockton. There, it entered into a 25-year lease from 1991, at a rent of £310,525 a year. The former premises remained empty. Needing cash to balance its books, it decided to market the properties; but it was also committed to paying rent on the empty properties at a rate of £124,000 a year. Those liabilities transferred to English Partnerships on 7 December 1999. It had to buy back the Middlesbrough properties at auction for £1.15 million and to pay the owners of Dunedin house another £1 million to get out of the lease.

The people of Teesside need an explanation of what happened and how. Existing and potential board members of quangos need to be aware of what they can and cannot do. They need to be constantly reminded of good practice and of what can happen when the organisation's objectives override good governance.

I believe that there is still time for that to happen, and I appeal to my hon. Friend the Minister to recognise that the audit report is incomplete and that far more thorough work must be done by the National Audit Office. I believe that the matter should also be examined by the Public Accounts Committee. I have already written to the Chairman with that request, and I look forward to his answer.

Those are the actions that I want to see, and I believe and hope that my hon. Friend will now understand why further work is needed.

2.29 pm

The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Ms Beverley Hughes)

I congratulate my hon. Friend the Member for Middlesbrough, South and Cleveland, East (Dr. Kumar) on securing this debate and on the assiduous way in which he has campaigned on this matter and persisted in raising in many places what he feels to be serious issues concerning the way in which the former Teesside development corporation conducted its affairs.

In many ways, I can understand my hon. Friend's concerns, and the genuine frustration that he feels, because, from his perspective, matters have not come to a satisfactory conclusion. I am grateful for the opportunity to put on record what my Department has done in response to my hon. Friend's concerns and those of my hon. Friends the Members for Stockton, North (Mr. Cook) and for Stockton, South (Ms Taylor), who have also raised some aspects of the issue.

It being half-past Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Motion made, and Question proposed,That this House do now adjourn.—[Mr. Dowd.]

Ms Hughes

My hon. Friend the Member for Middlesbrough, South and Cleveland, East talked exclusively about the report prepared by the internal audit services division of my Department, which we made public this year. I want to set out some of the stages along the road to its publication.

Nearly two years ago, my hon. Friend met my predecessor in the Department and made a number of allegations about the way in which the former Teesside development corporation had operated and wound down. Those allegations were discussed with the National Audit Office. The NAO made it clear that it did not wish to undertake an investigation at that time, particularly in view of the possibly criminal nature of some of the allegations. Nevertheless, it reserved its position for the future.

My Department's internal audit services division therefore talked to my hon. Friend and followed up the leads that he gave them. At the same time, my hon. Friend the Member for Stockton, North also approached my Department with information concerning a company in his constituency and its relationship with the corporation. The auditors agreed to follow up that information as well. During the course of the investigations, it became clear that a number of people had deeply held concerns about the way in which the corporation had gone about its business.

My hon. Friend has criticised the scope of the investigation and the report, and the way in which the investigation was conducted. Let me make it clear what this internal report was designed to do. Because of the large number of allegations against TDC and its officers, it was agreed that the team would first conduct a preliminary investigation by interviewing my hon. Friend and his colleagues to explore the availability and whereabouts of evidence. On completion of the initial investigation, the team reviewed the results of those interviews and agreed that further work should concentrate on the three allegations which seemed to provide reasonable prospects of obtaining evidence of wrongdoing. My hon. Friend has referred to those three allegations.

It became apparent during their investigations that the auditors were being referred from one person to another. They went to considerable lengths to identify people who might have relevant information and persuade them to provide tangible evidence.

The auditors never doubted the motives of the people to whom they spoke. However, for one reason or another, most of those people were unwilling or unable to produce any evidence. Some suggested that the auditors should question the judgments of professionals—individuals and companies—who had acted for the corporation. The implication was that they might not have acted with due diligence. As will be appreciated, making such suggestions is potentially slanderous, and great care is needed to ensure that unproven allegations are not carelessly bandied about.

With the best will in the world, the auditors were largely unable to obtain the evidence that would have allowed them to take matters further. This left them in an unfortunate position—they were unable to disprove all the allegations, as my hon. Friend said, but were not given the evidence to substantiate them.

Shortly before the auditors finalised their report last year, they were shown papers suggesting that the proceeds of a grant made by the development corporation to the Haverton Hill Engineering Company had been transferred out of the company's bank account. The company co-operated with the auditors to obtain confirmation from their bank that this was the case. The result of that line of inquiry was that the auditors passed their papers over to the police.

During subsequent discussions, the police and the auditors reviewed each of the allegations and all of the papers that the auditors had assembled on the matters to which my hon. Friend has referred. The final report by the auditors was sent to the Minister for Local Government and the Regions shortly before Christmas, against the background of police investigations being under way. My hon. Friend criticised the time scale but, although my right hon. Friend the Minister received the report just before Christmas, the police investigation was continuing. It was felt to be important that the people affected by the report had the opportunity to comment on it, so my right hon. Friend sent a copy to the former chair of the corporation and later met with both him and former deputy chair. She also met my hon. Friends the Members for Middlesbrough, South and Cleveland, East and for Stockton, North before the report was made public—as a matter of courtesy—to talk about its findings and the way forward.

As a result of those meetings, it was decided that a copy of the report should be placed in the Library. The House was informed on 7 June in an answer to a written question. I must stress to my hon. Friend that, during that period, the Cleveland police remained active. They made official visits to the offices of English Partnerships to look more closely at all the corporation's files, which were now that body's responsibility.

The police investigation continued from early this year—after the report had been written—until very recently. In the last few days, my officials have been told by the police that they do not intend to refer to the Crown Prosecution Service any of the evidence relating to the grant diversion and that they will be filing all the papers unless and until further evidence comes to light.

I must conclude from that that, although the police have investigated the range of material with which the auditors presented them and investigated the leads that that information presented, they have now decided not to refer the matters to the CPS. I have no hard information, but we all know that the normal reason why the police do not refer to the CPS is that, in their view, the evidence is not sufficient to support the allegations. That was the problem that the auditors themselves found in terms of their investigation.

The National Audit Office—the body that oversees the proper use of public funds and the behaviour of public bodies—has been fully informed of developments along the way. My hon. Friend will appreciate that I cannot speak for the NAO as to its future intentions; it must be independent of Government and it will decide about the inquiries it wants to pursue. However, the NAO has received a copy of the auditors report and is aware of the involvement of the police. I can only suggest that my hon. Friend talks directly to the Comptroller and Auditor General about whether the NAO wishes to pursue the matter.

Dr. Kumar

What about my suggestions concerning the many people who were not talked to and are still available? Will the Minister ask the audit team to talk to those people, as they might shed some more light and bring some more evidence forward?

Ms Hughes

If people have not been interviewed, the question is who is best placed and has the appropriate powers to pursue investigations further. The Government have no wish to see any form of whitewash, but believe that we have fully tested all the internal audit systems available to us. The auditors have done what they were asked to do by following up the allegations. My hon. Friend must bear in mind the fact that the auditors have no special powers. Unlike the police, they cannot demand that people be interviewed or produce documents. They must rely on people's co-operation. In some cases, for that reason, their leads did not take them far.

We have made all our information available to the police. We have no reason to believe that the police have been anything less than assiduous in investigating the matter or in following up all the leads that presented themselves in the documents. The police were apparently unable to find anything substantially new. We have kept the NAO informed at all stages, and it too has seen the audit report. I assume that the NAO was aware of the police involvement.

It is open to my hon. Friend to pursue other avenues and ask why the police did not pursue the investigation further. He can discuss the matter with the CAG at the NAO. That role does not fall to the Government, because the NAO is, rightly, independent of the Government. Unless the police or the NAO pursue the matter further, there appears to be no immediate prospect of further criminal investigations. There is no new firm evidence of wrongdoing. I realise that my hon. Friend may be disappointed by that, but he must understand that the limited powers available to an internal audit of a Government Department have been fully tested and that we have given all the available information to other bodies that have greater powers to further the investigation.

Question put and agreed to.

Adjourned accordingly at eighteen minutes to Three o'clock.