During the open period for Cambridge City Council’s accounts which ran from the 7th of July to the 3rd of August this year I visited the council to look at some of the details behind the published information. I found that £49,894.26 of “S.106” money had been returned to the developers who had built the Belvedere flats on Hills Road. The money could have been used to build new infrastructure in the city to mitigate the impact of the development. The payments refunded included:
- A £34,575 affordable housing contribution.
- Contributions to informal open space of £14,523.00
To find out why this money had been paid back, rather than being used for its intended purpose, I made freedom of information request to the council.
The council’s response defensively states: “There was no failure on the Council’s part”; but reveals that the problem was the council was unable to find suitable ways to spend the money before the deadline for paying the money back to the developer expired.
The money repaid was only 2.2% of the total amount the council had available to spend from the Belvedere development; but it shows the council are struggling to spend the money they are amassing.
It is interesting that the money paid back was not part of the initial capital contribution paid by the developers, but interest which accrued on the money while it was in the council’s hands.
What happened in this case suggests there may be a problem with the way the Liberal Democrats running the council decided to account for S.106 money collected from April 2008 onwards. Just over two years ago councillors decided that they would not apply interest to S.106 accounts, but instead transfer any interest raised to the council’s general funds. Whereas S.106 money collected from developers can only be spent in certain areas, relating very broadly to mitigating the effects of the development, it appears councillors thought they could cream off the interest for them to spend as they liked. If unspent interest can be claimed back by developers, even if all the capital contribution has been spent, it looks as if a flaw may have been found in the Liberal Democrat’s attempts at accounting trickery.
Writing on his blog Cllr Chris Howell has said that the accounting change was a response to financial pressures the council found itsself in. These pressures arose, in part, from the council placing money in Icelandic banks which went bust and carelessly failing to ensure the £640K of Folk Festival ticket money was paid to the council.
What is not yet public is if the Belvedere re-payment was prompted by a particularly on-the-ball developer who spotted and objected to the Liberal Democrats siphoning off the interest or if the developer’s lawyers had outwitted council officers and negotiated a S.106 agreement which was unusually strongly in favour of the the developer.
If other S.106 agreements have the same terms as the one relating to the Belvedere then by only spending capital, and not capital plus interest, further re-payments may have to be made in the future.
S.106 agreements on large developments are negotiated individually so every one is unique. It is not possible to tell from the information the city council has proactively made public if further such re-payments will have to be made in respect of other developments in the future.
It has been suggested to me that the response to my FOI request might leave open the option that interest has been paid back to other developers. I think councillors ought look into this at a scrutiny committee and they ought ensure that their accounting policies are compatible with both existing and new S.106 agreements.
Reference to Change in Accounting Policy
Where a developers agreement (Section 106) provides for the return of contributions made if capital projects are not carried out within a specified period, any advances are held as creditors until the Council is able to satisfy the conditions for keeping the money, usually on commencement of a project or payment of the sum to another body, for example the County Council.
Members approved a change in accounting policy and practice, effective from 1April 2008, whereby the Council ceased allocating interest to unspent developers capital contributions held by the Council. Should a contribution become repayable and, under the terms of the individual agreement, the developer was entitled to interest, then that interest would be met from General Fund resources or reserves
There is a similar statement in the 2008-9 Draft Statement of Accounts.
What has happened with respect to the Belvedere development appears to be different from the circumstance foreseen by councillors and council officers (where a developer might be entitled to some of their capital back with interest). These re-payments have occurred where the developer has asked for the council’s unspent interest back, despite the council having spent the capital.
Liberal Democrat Inconsistency
When Cambridgeshire County Council were holding s.106 funds from the Vie development in Chesterton (as they were to be spend on the highway) Liberal Democrat Executive Councillor Clare Blair spoke at the Traffic Area Joint Committee to call on the County Council to spend the money, plus interest, on allowing parking on Church Street in Chesterton. Had the funds been held by the City Council the interest accrued would not have been available to spend.
The transfer of the interest earnt on S.106 contributions to general funds are just one way the Liberal Democrats running the City Council treat the S.106 contributions as windfall spoils from harmless taxation. In fact it hits those trying to buy homes in the city and has the effect of keeping the open market price of housing artificially high.
I think that developer contributions should be limited to cases where funds are needed to pay for something, without which, the council would not give permission for the development to go ahead.