Real Media: Councils, Kickbacks, and the KCTMO
Financial journalist Joel Benjamin discusses evidence passed to the Grenfell inquiry regarding the connections between KCTMO ex-Councilor Tom Fairhead, Rona Fairhead, Council Tax Rebate schemes, and HSBC
JOEL BENJAMIN: This goes back to 2013, when I was researching the creation of a municipal bond agency, which was a plan hatched out of the Royal Borough of Kensington & Chelsea supported by the Local Government Association, for councils to issue their own debt to financial markets rather than going to the government via the public works loan board.
I found out HSBC were advising Kensington & Chelsea on the creation of the bond agency. Around the same time Matt Taibbi wrote for Rolling Stone about a scheme involving JPM, UBS and other high street banks who conspired to rig municipal bond markets in the US. The article was called ‘The Scam Wall Street learned from the Mafia’. I thought this is interesting. Here’s HSBC, a year after the £2bn Mexican money laundering fine, another scandal this time involving municipal government, and here’s HSBC advising a local authority, Kensington & Chelsea and the LGA (Local Government Association), about setting up a similar scheme in the UK, which immediately triggered my alarm bells.
A couple of people responsible for driving that scheme were Merrick Cockell who was leader of RBKC (Royal Borough of Kensington & Chelsea) at the time and the finance director was a guy called Tom Fairhead, the husband of Rona Fairhead.
They were the driving force behind the municipal bond agency coming out of RBKC & I decided to request these councilor’s declaration of interest forms – [these are] conflict of interest forms which record gifts, hospitality, property ownings in the borough – anything that could conflict with their role as local government members. And so I sent a Freedom of Information (FOI) to RBKC. A couple months later I got a response regarding Tom Fairhead. It transpired that he had received gifts/hospitality from a number of financial institutions including Goldman Sachs, UBS, and interestingly when it comes to the role of his wife, Pearson where she used to work at the FT and HSBC where she was at the time. This is 2007-08 Rona Fairhead was the non-exec Director of HSBC and chaired their audit and risk committee.
So HSBC broke its own rules to bestow gifts on councilor Tom Fairhead, while his own wife was head of group risk and audit and was supposed to be insuring that HSBC was complying with internal policy (HSBC claim to be politically neutral), so another enormous black mark against Rona’s tenure at HSBC.
Despite being a councilor since 1994, The Council claim to have lost or destroyed all the other forms for Tom, the one they gave me was for 2007-2008 – other forms were not disclosed – and for Merrick Cockell they claim to have lost or destroyed his forms as well. This raises a series of questions about the extent to which lobbying, gifts and hospitality play a role in local government.
The extent to which gifts and hospitality played a role in RBKC bringing on HSBC as an advisor on the municipal bond agency project which was pursued in 2014. There are a series of questions that have been put to Kensington & Chelsea, the BBC, HSBC while Rona Fairhead was still an employee there and in each case those institutions have refused to provide information on what these gifts and hospitality were. Whether this was a one off or were they part of a trend of schmoozing local government employees to attain some sort of financial benefit?
I also found out that Tom Fairhead was in charge of the council tax kickback scheme which basically involved handing back council tax paid to the council, to local taxpayers.
This came about in 2008/09 in the wake of the banking crisis, Kensington & Chelsea devised this policy of handing back £50 council tax in order to stimulate spending in the borough – to go out and blow the money in shops, spend it on local charities – so initially it was designed as a temporary measure to implement in the wake of the crisis and again in terms of who was responsible the scheme was devised by Merrick Cockell and Tom Fairhead, the director of finance at RBKC at the time.
They jointly devised the scheme which was originally piloted in 2009 and then widened and extended it to offer larger kickbacks of up to £100 in the advance of an election, which were targeted to wealthier RBKC residents.
So it seems in poorer residents in council houses, these residents did not receive any reimbursements from council tax. And after the Grenfell Tower fire this year, you’re reading stories in the paper of residents calling this ‘blood money’ because they begin to see the impact between council tax being reimbursed, not being spent and RBKC skimping and saving hundreds or thousands through fire safety or building safety measures, which could have saved dozens of lives.
What happened between 2009 and 2017, Kensington & Chelsea slashed council tax to such an extent – around 20% overall, it reduced the council’s income over this period by £140m, so thinking that the Grenfell Tower refurb cost about £10m – a significant amount of money, [this] represents a third of all the money lost by RBKC since austerity began as a result of council cuts.
Those tax cuts imposed by the council to offer rebates were entirely voluntary and a result of RBKC policy. This is nothing to do with Central Government and austerity, it’s indicative of a Conservative council slashing their own council staff and spending on services and evidence of an ideological motive to slash the state, despite the effects this could have on local residents.
REAL MEDIA: What makes the KCTMO unique?
JOEL BENJAMIN: Firstly it’s an ALMO (Arms Length Management Organisation) so these are pseudo-public pseudo-private organizations set up to handle infrastructure assets on behalf of a Local Authority but not directly controlled by it, so it gives the look of authenticity of something being attached to a public institution while being basically independent from it.
What you see is the movement of councilors and internal staff from Kensington & Chelsea into the TMO. One of the first employees and certainly the first Chief Executive of the KCTMO was none other than Tom Fairhead. His Companies House record states he was the CEO of KCTMO between 1995-1998. The Conservative government at the time passed this rights manage legislation to palm off their housing assets to an ALMO, like a TMO, so the progressive housing stock built up by RBKC was transferred to KCTMO, and those existing assets, the housing stock, was re-financed by the TMO typically using bank finance rather than government finance; a bung for the City of London. Rather than using cheaper government finance, you use bank finance and expand the balance sheet of these City of London firms.
The key point to make is housing associations and ALMOs are almost entirely unregulated. So in 2015, Eric Pickles shut down the audit commission which was an authority that audited local authorities and quangos including ALMOs and Housing Associations, so basically what that now means is there is no effective external scrutiny of these organizations. Councilors, individuals aligned to a local authority, taking on management roles, managing huge amounts of public money and being paid significant salaries on top of their standard councilor wage and they’re operating with complete impunity – so these ALMOs and quangos are not subject to FOI, they are not externally audited except by KPMG, EY – what I would term a soft audit. With the loss of the audit commission, you don’t anymore have these thematic studies which go in and look at issues such as fire safety, which could have identified some of the issues like unsafe fire issues somewhere like Grenfell.
What we’re seeing is increasing waste using a TMO or ALMO model, where previously you would directly manage these assets by local authorities. And there is several reasons for this, such as the significant increase in the cost of borrowing. Helia Ebrahimi for Channel 4 news looked at Grenfell Tower and found KCTMO were paying interest rates of 10% on billions of pounds of borrowing and she found that based on £58m annual income for KCTMO, £13m or 22% of overall revenue was spent on interest payments alone. So basically we’re seeing large sums of money transferred from public coffers to private firms who have been leveraging up on what was previously social housing assets but are being privatized and with policy like ‘Right to Buy,’ we’re seeing social housing stock being transferred to ALMOs and then the private rental market.