I want to write a blog post here about the Olympic stadium, because I want residents in Forest Gate North to be able to have one place where they could read the facts, and to know how they are being represented, all laid out clearly in one place.
Without wanting to sound worthy, I’m also writing this because it’s so important for public bodies and the people who work in them to be transparent. I am a cabinet member at Newham, and I take that seriously, but I am also one of your elected representatives in Forest Gate North, and I don’t feel I would be doing my job properly if I wasn’t always trying to be open, even when the topics are challenging and feelings run high.
Last week (Thursday 7th September) there was a cabinet meeting at 5pm. That afternoon before the meeting, I read on social media that the £40m loan that the Council made to the Olympic stadium had been ‘written off’ and that this formed part of that cabinet report and was being decided that evening.
I assumed that this must be in the agenda item Medium Term Financial Strategy, a report which is regularly updated and sent to Councillors. This report gives a commentary and information about where the Council’s finances are.
But in fact the report that contains the reference to the stadium loan is not one that was on the agenda for that evening. It is in the Draft Statement of Accounts 2016-17, which is due to go to the next Investment and Accounts Committee later this month. The draft statement of accounts which contains the reference is here.
The bit of this report that is particularly relevant is on page 12 which reads, ‘Impairment totalling £44.4m of a Long Term Debtor in one of the Council’s group undertaking, Newham Legacy Investments Ltd. These charges are subsequently written-off to the Capital Adjustment Account (Note 26)’
I was extremely concerned when I read this, as were many other residents. This was the first time I had seen this kind of assumption made about the Olympic stadium loan.
The Council’s statements
The Council has subsequently released a statement which I will reproduce in full here, saying:
“The council’s draft accounts for 2016/17 were first published on our website on 3 July and were then open to the normal period of public scrutiny until 11 August. These draft accounts are currently with our auditors for their review. The finalised accounts are due to be considered at a scheduled meeting of our Investment and Accounts Committee on 20 September.
“Our draft accounts, which are subject to change and approval, show a prudent, responsible and regulatory compliant treatment of a Council loan related to the London Stadium. The loan is shown, for accounting purposes, as currently ‘impaired’, or damaged, due to the current financial performance of the Stadium. It is not a write off of the loan.
“The financial performance of the Stadium in its first full year of transformed operation is a matter of public record and it was widely anticipated that the first full year of trading would be particularly challenging. Newham Council is working with the Greater London Authority, the London Legacy Development Corporation and our other Stadium partners on a range of options to improve the financial performance of the Stadium. The future value of our loan, and its treatment in our accounts, is directly linked to that future performance.”
end of statement
Other information given to journalists said:
1. The £40m loan is a repayable one over 40 years.
2. The Mayor of London has commissioned an independent review into the London Stadium and that to inform this work, all partners in the stadium are looking at options to improve commercial performance.
3. There has been a successful summer programme in the stadium, including three major concerts and World Championship Athletics and Para Athletics.
4. Newham residents have enjoyed benefits as a result of the council’s investment in the form of ticket giveaways. This includes 5,000 free tickets to West Ham United’s Carrbao Cup game on 19 September against Bolton Wanderers. These tickets are being issued to residents through community neighbourhoods, community groups, a ticket ballot, and to volunteers and staff.
I have subsequently also been told that:
– impairment is an accounting term and is not a write-off. If a substantial loan were to be written off, it would come to Mayoral Proceedings, which is a public meeting with a paper.
– there is a precedent for this, as during the financial crisis, loans made by Newham to Icelandic banks were ‘impaired’ by 100% but were subsequently revalued as the position changed, and were paid off.
– there are commercial negotiations ongoing which are currently confidential, and more information will be released as soon as an agreement is reached.
What happens next
This information takes us up to now. So I also wanted to set out clearly here what I think should happen next.
Firstly, I’m surprised that this is the first we’ve heard that there was doubt about the value of the loan. Although I have heard various conversations about the profitability of the stadium, and ways in which this could be improved (the costs attached to moving the seating is a relatively well known barrier to making money, just for example), previously the information about the loan has been what a good deal the Council has.
To summarise my understanding of this, we borrowed the money at a relatively low rate of interest, and have loaned it to the Stadium who pay us a commercial (higher) rate of interest. This means that we get back: the original investment, the difference in the two interest rates, the community benefits (community days, free tickets for residents) and also 30% of the profits in perpetuity. Although this loan has been controversial, I have always been assured that the terms of the deal were beneficial to us.
Secondly, I mentioned transparency above, and I think transparency is even more important when the topic is controversial. The impression given here, rightly or wrongly, is that the information has been hidden, and I think this is a great shame. I’m surprised that there wasn’t more explanatory text in the accounts document, and am even more surprised that the term ‘written off’ was used without anyone realising that if the accounts use these words, then residents reading it may – not unreasonably! – not understand the financial term ‘impairment’ and assume that the loan has indeed been written off. So I think we need more public information (where it’s possible to publish it, and recognising that commercial negotiations do sometimes need to be confidential for reasons that are entirely right) so that financial decisions and changes to financial circumstances can be not just published, but explained and understood.
Thirdly, I need to learn more about the loan, which increasingly appears not to be a loan at all but more akin to an equity share, despite having been consistently referred to as a loan. Apparently, the difference this makes includes the terms under which the interest is payable. Generally on a loan the interest is payable whatever happens. With our loan/equity share, I understand that interest payments are only made once the stadium is profitable.
For fairness, there are a few other things I need to point out which are points that have been made to me.
The investment that Newham made in the stadium was key in ensuring that it would become a multi-use venue in its own right, and not fail after the Olympics. Having a venue like this in Newham, bringing sporting and musical and other events into Newham, is really important to the borough and very positive in terms of employment, place-making, sporting opportunities, visitors, and much more.
Although no one else has made this connection, I also keep remembering the O2, which started life as the entirely ill-fated Millennium Dome, referred to with seeming certainty as a white elephant, but now reimagined as a thriving music venue. Obviously I understand that the analogy is not perfect, but it does show what can be done.
Also, I think it’s worth re-emphasising that since I have become a councillor in 2014, the Newham budget has been cut by around 30%. It’s difficult to overstate what an enormous impact this level of cuts has had on local government across the UK, and the signs of it are everywhere, from libraries closing (not in Newham, thankfully) to the increase in street homelessness. Local authorities are making commercial decisions and in many cases are making capital investments in order to secure longer term income so that they can continue to provide services.
The money invested in the stadium is capital investment not revenue, and was borrowed by LBN in order to invest. So while it’s still public money, and important to remind ourselves of the vulnerable people the Council has a duty to support, it’s not the case that, for example, ‘that £40m could have been spent on social care’. Also, the consultation that we held in the summer 2015 about makings savings was about cuts to our revenue, so this was absolutely not a consultation asking residents what they wanted to cut in order to fund the stadium.
I’m also reminded that previous investments the Council has made have been successful. The building at Dockside, for example, has risen in value significantly, whereas at the time the purchase of it was also controversial with strong feelings expressed against it in some cases.
Summary and conclusion
Overall for me the things that need to happen now can be summed up into: the ‘what’, the ‘how’ and the ‘what now’ . The ‘what’ being the money – when do we find out more, was it a good investment, can we be assured that the money comes back, what further information do we need? The ‘how’ being how this information was and is communicated, and the ‘what now’ being, well – obviously – what happens next.
The joint meeting of the Audit Committee and the Investment and Accounts committee (which approves the accounts) is due to take place on the 27th September. The Council’s statement above refers to the 20th, but this date has since been changed. I’ll attend it, and report back here as to what is discussed. This is the next important date, but it is not within this committee’s gift to ‘decide to write off’ the loan. The impairment is an accounting term which should reflect current financial values and assumptions, and should be a neutral not a political decision. It will nevertheless be interesting to listen to the discussion of the accounts, and find out more.
Along with all my colleagues, I will do my very best to get all the information I can, and will share whatever I’m able to. I have spoken to the Mayor already, and will do so again, and am going to sit down with my colleague Lester Hudson who is the political lead for Finance to talk to him. I should point out that although this blog post is mine (and I’m responsible for any errors in it) I am certainly not the only council member who wants to find out more. Here in Forest Gate North, we have a blog, and many of our residents are on social media, so it makes sense for me to share this here. Other councillors are doing the same things, but off line and in different ways.
As ever, I am happy to discuss any part of this, and will answer any questions that I’m able to. Please don’t hesitate to get in touch. I won’t release or leak confidential information but I will always be up front about what I am and am not able to share.
I really hope this post is useful.
Good post! Are you okay if I repost it on my blog and FGN FB?
I will send you copies of my questions to Council and I&A. Any thoughts about the South Park loan?
Hey John, yes of course – it’s all public so feel free to share. I don’t yet know enough about the South Park loan to do something similar, but I’d like to, for completeness.
thanks. posted at http://www.johnslabourblog.org/2017/09/the-stadium-loan-and-questions-to.html. I have also posted my questions to full council.
Thanks for the clarity and particularly some of the context about which I was also unaware. I have a few questions which may be helpful for you to find out:
1. Why, when West Ham has such a high turnover, was a comparatively small loan/ equity share for them needed from LBN and, given WH are apparently meant to be repaying the loan/ equity share, why did WH not just give LBN income instead?
2. You say the money was “borrowed in order to invest” – under what powers was LBN investing money it had to borrow to do so, who was it borrowed from and why them, what was the full risk assessment done at the time on this ‘loan to invest’, what is the full risk assessment now, and how do they compare?
2. Unless I’ve misunderstood, how the interest rate can be both “more than the rate at which LBN borrowed the money” and “dependent on WH being profitable”, over which LBN clearly has no control, and indeed could be manipulated by West Ham?
Does this not ring worrying bells about the similar London Pleasure Gradens “investment” – ££ written off. And can you ask Lord Wales (IRS only a matter of time) to update his comments at the time about the (oh so it’s not a) loan along the lines of even if it’s the worst case scenario we still make money?
The man manipulates the electoral process as he’s too scared to stand up to scrutiny within his own party, no wonder he’s hiding things from his councillors.