London Borough of Tower Hamlets

Part of Oral Answers to Questions — Treasury – in the House of Commons at 12:36 pm on 4th November 2014.

Alert me about debates like this

Photo of Eric Pickles Eric Pickles Minister for Faith, The Secretary of State for Communities and Local Government 12:36 pm, 4th November 2014

With permission Mr Speaker, I wish to make a statement about the London Borough of Tower Hamlets.

The Government have long been concerned about the worrying pattern of divisive community politics and alleged mismanagement of public money by the mayoral administration in Tower Hamlets. Following persuasive evidence presented to me making serious allegations in April, I commissioned PricewaterhouseCoopers to undertake a formal best value inspection report of the council. In my written statement this morning, I published the PwC report. It paints a deeply concerning picture of obfuscation, denial, secrecy, the breakdown of democratic scrutiny and accountability, and a culture of cronyism risking the corrupt spending of public funds.

Let me outline some of the conclusions. PwC found that the mayoral administration’s grants programme handed out taxpayers’ money with no apparent rationale for the grant awards. There were no objectives, and there was no fair or transparent approach to grants, which the council’s so-called corporate grants programme board was supposed to ensure. There was no proper monitoring. Grants were systematically made without transparency. Officer evaluation was overruled—across mainstream grants, 81% of all officer recommendations were rejected. More than £400,000 was given to bodies that failed the minimum criteria to be awarded anything at all.

On land disposal, properties were sold to third parties without proper process. Poplar town hall was sold to a company involving a person who had helped the mayor in his election campaign, against internal advice, and the winning bid was submitted after other bids had been opened. A number of other property transactions similarly had dubious processes.

Taxpayers’ money was spent on unlawful political advertising for the mayor. Ofcom ruled that the spending was in breach of the Communications Act 2003 and the code of broadcast advertising. There was a lack of any documentation or monitoring of the use of media advisers, so taxpayers’ money could be improperly and unlawfully used to pay for the mayor’s political activities.

Irregular practice took place in the awarding of contracts. For example, PwC identified cases in which one of the council’s officers recalls that, during a meeting, the mayor allegedly annotated a list of suppliers to indicate which suppliers he did not wish to be selected. As a whole, PwC concluded that the council had failed in numerous aspects to comply with the best value duty.

The council’s core governance arrangements have centred on the three statutory officers: the head of paid service, the chief financial officer, and the monitoring officer. The council has failed to make permanent appointments to those key positions. Currently, all three posts are held by interim appointments. PwC concludes that the governance arrangements do not appear capable of preventing or responding to the succession of failures by the mayoral administration. Executive power is unchecked and executive power has been misused.

The PwC report is not the only evidence of where the council is seriously failing on high profile activities that are open to abuse by, for example, political interference. Concerns have been raised about the ability of the senior officers responsible—the electoral registration officer and the returning officer—to ensure the proper administration of elections. The current election petition on the May 2014 European and mayoral elections is now sub judice. I will make no comment on anything before the election court, but I note that on 1 July the Electoral Commission published a report on the elections in Tower Hamlets. The commission concluded that there are significant lessons for the returning officer appointed by the council. Immediate and sustained action must be taken to provide assurance that future elections and electoral registration will be well managed and efficiently and effectively delivered. Free and fair elections must be the bedrock of local democracy.

There is a clear picture that there has been a fundamental breakdown of governance in this mayoral administration. If unchecked, it will allow improper conduct to run rife, further undermining public confidence in the council, damaging community cohesion, and, ultimately, putting public services across the borough at risk. The consequence of this conclusion, expressed in formal terms, is that I am satisfied that the council is failing to comply with its best value duty. I will therefore need to consider exercising my powers of intervention to secure compliance with the duty. To that end, in line with procedures laid down in the Local Government Act 1999, I am today writing to the council to ask it to make representations, if it wishes, both on the PwC report and on the intervention package I am proposing.

The proposed package will need to do three things: first, it will need to put an end to all council activities that are not compatible with its best value duty; secondly, it will need to remove, so far as possible, the risk of further failures to comply with the duty; thirdly, it will need to rebuild the governance and financial management capacity of the council to secure its future compliance with the best value duty. My proposed intervention is centred on putting in place a team of three commissioners who I will appoint and who will be accountable to me. Their role will be to oversee or, as appropriate, exercise certain functions of the council. I envisage that the commissioners will be in place until 31 March 2017. It will be open to Ministers to review this in the light of the progress made by the council to secure compliance with its best value duty.

To help me assess progress, I propose that within three months of launching the intervention the council will, with the commissioners, draw up and agree an action plan to secure the council’s future compliance with the best value duty. The commissioners will report to me at six-monthly intervals on progress being made. The action plan must reflect the specific intervention measures in the proposed package, which are as follows.

First, I propose to direct the council as a matter of urgency to undertake, as the commissioners may direct to their satisfaction, a recruitment exercise to make permanent appointments to the positions of the three statutory officers, all currently only interim appointments. I also propose to direct that any subsequent dismissal, suspension or further appointment of statutory officers must be with the agreement of the commissioners.

Secondly, I propose to direct that the council’s functions on grant making are to be exercised by the commissioners. The council must provide the commissioners with all the assistance they need. The commissioners will have regard to any views the council has on individual grants.

Thirdly, I propose to direct that the council obtains the prior written agreement of the commissioners before entering into any commitment to dispose of, or otherwise transfer to third parties, property other than individual housing.

Fourthly, I propose to direct that the council prepares a fully costed plan for how its publicity functions can be properly exercised. It must agree that plan with the commissioners, report to the commissioners on the delivery of that plan and adopt any recommendation of the commissioners with respect to that plan or to publicity more generally.

Fifthly, I propose to direct that the council’s functions of appointing an electoral registration officer and a returning officer for elections are to be exercised as a matter of urgency by the commissioners.

Sixthly, I propose to direct the council to prepare with the commissioners a plan for addressing the weaknesses on contracting identified in the PwC report. It must seek the written agreement of the commissioners before entering into any contract or service agreement contrary to any recommendation of the statutory officers.

Finally, I am seeking two written undertakings from the council: first, that it will not, without my approval, enter into any agreement or modify any existing agreement for the making of grants, pending any decision on any proposed intervention package; and, secondly, that the council will not appoint or designate any statutory officer without my prior approval, pending any decisions on any proposed intervention package.

If I receive no satisfactory undertaking within 24 hours, I will use the urgency powers I have under statute. I can direct the council not to take any action on the making of grants or appointing of statutory officers without my approval in this interim period. I am also asking the council to provide information about any property transactions it has in the pipeline. Depending on what, if any, information I receive, I may need to use my urgency powers of direction to safeguard the council and its resources.

The council now has 14 days to make representations to me on the PwC report and on my proposed intervention package. I shall then consider carefully any representations the council makes and decide how to proceed. If I decide to intervene along these lines, I will then make the necessary statutory directions under the 1999 Act and appoint the commissioners. Any directions I make will be without prejudice to my making further directions, should it prove necessary. I will update the House on any conclusions in due course.

The report has cost just under £1 million, which will be borne by the council. It would have been much cheaper, had the mayoral administration not been so obstructive. But to place this spending in context, the financial irregularities identified relate to a £1.4 billion a year council budget. There is significant scope for taxpayers’ money to be protected and saved from these interventions. This is a rare occasion where central Government intervention is required.

The commissioners I sent into Doncaster in 2010 show that such a targeted approach can turn around a dysfunctional mayoral administration. This thorough scrutiny by independent auditors shows we now have a stronger audit regime following the abolition of the Audit Commission, which did nothing to stop corrupt practices from emerging.

Localism requires local accountability and local democracy. Municipal corruption undermines the local checks and balances that are vital in a democracy and essential in mayoral systems with their concentration of power. We cannot risk such corruption elsewhere, but it is not just about the money. The abuse of taxpayers’ money and the culture of cronyism reflects a partisan community politics that seeks to trade favours and spread division on the rates. Such behaviour is to the detriment of integration and community cohesion in Tower Hamlets and in our capital city.

This is a borough where there have been widespread allegations of extremism, homophobia and anti-Semitism that have been allowed to fester without proper challenge. Certainly, Tower Hamlets has challenges given its level of deprivation and its diverse population, but one has only to look across the border at the mayoral system in Newham to see that there is an alternative. Councils should be championing a common sense of identity and Britishness—across class, colour and creed.

In all of this, it is the residents of Tower Hamlets who are being let down, whose services are being put at risk, whose taxpayers’ money is being wasted and whose home borough is being criticised rather than being cited with municipal pride.

Despite rare cases such as that of Tower Hamlets, councils as a whole have a good record of transparency, probity and accountability, and that is a reputation worth protecting. As a former councillor, I am proud of the standing that local government has in the United Kingdom, and of what it contributes to the lives of our communities up and down the country. I will take whatever steps are necessary to uphold the good name of local government, because there can be no place for rotten boroughs in 21st-century Britain.