Council accused of ‘trophy investment’ for £9m purchase of Harrogate’s Royal Baths

North Yorkshire County Council has been accused of making a “trophy investment” by buying Harrogate’s Royal Baths for £9m, as part of a bid to raise money for frontline services.

The council set up the Brierley Group of firms, ranging from house builders to lawyers, in 2017 to bring together council-owned companies and save money. However, last year it reported a loss of £639,000.

With further losses forecast for the current financial year, some members of the authority have questioned whether the council has the necessary business acumen to run the array of firms.

A meeting of the Tory-led authority’s corporate and partnerships scrutiny committee heard the pandemic was continuing to significantly affect some arms of the Brierley Group.

Officers have estimated revenue returns for its property investment this financial year of £282,000, which equates to a return of 2.38 per cent.

The meeting heard the Royal Baths property comprises four commercial units, including a nightclub, bar and restaurant that had all closed for extended periods over the last two years, but also that “the longer term viability of some tenants is a concern”.

Officers said covid and the resulting lockdowns could not have been foreseen and officers were working closely with tenants to achieve a return to pre-covid performance as soon as possible.

‘Absolutely speechless’

After learning of the rate of return, Conservative member for Escrick, Councillor Richard Musgrave, told the meeting he was “staggered” to learn the council had invested £9m in the Royal Baths:

“I thought you might say a million for example for four units. I am absolutely speechless.”

“The performance looks very very poor. Several of the tenants are struggling by the looks of things. It looks like a poor investment, it looks like a trophy investment.”

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The meeting heard the council had carried out thorough checks before accepting tenants.

Councillor Gareth Dadd, the authority’s deputy leader who also chairs the council’s Commercial Investment Board, said the Harrogate Baths investment had been approved by the council’s executive.

He said businesses sometimes had to take non-payment of rent “on the chin”:

“It’s about the percentage rate of return of investment that we would expect and at the time it looked good. Even with covid, which has clobbered the market, we are still the right side of the line in terms of leaving the money in the bank. Overall, yes it hasn’t performed as well as anybody would have hoped, but we are still making a margin on it.”

The meeting heard a proposal, first revealed three years ago, for the council to set up a solar farm to generate more funding had been shelved after the set-up costs and time for a return on the investment were found to be prohibitive.

Scrutiny of loss-making Brierley Group delayed by nine months

North Yorkshire County Council has been criticised for delaying scrutiny of its loss-making Brierley Group.

The council set up the Brierley Group in 2017 to bring together council-owned companies and save money.

But the group, which includes housebuilding company Brierley Homes, reported a loss of £639,000 last year.

Brierley Homes’ developments include Woodfield Square in Bilton and Millwright Park in Pateley Bridge.

Council officials this week told a shareholder committee the group had bounced back with a “really positive” first three months of the financial year.

But a Conservative councillor questioned why the Tory-run authority had delayed its corporate scrutiny committee examining the performance of the Brierley Group by some nine months.

Cllr Richard Musgrave, who represents Escrick, said: 

“Our scrutiny is pretty much pointless if it is so out of date considering it.

“The Brierley Group made a whacking great loss for the year to March 2021.

“I certainly have some questions I would like to ask about the performance of the Brierley Group.”

Does council have business acumen?

Cllr Musgrave’s concerns follow other members of the authority questioning whether the council has the necessary business acumen to run the array of firms, in particular housebuilding.

However, senior county councillors said they were positive the losses could be recouped.

The committee was told the Brierley Group was seeing “promising shoots of recovery”, with a predicted profit by the end of the year of £51,000 as complications arising from the covid pandemic begin to wane.

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Members heard the Brierley Group’s education service was adapting to meet changing demands and its internet access arm had seen a strong start to the year.

They were also told First North Law, a council-controlled law firm, had been buoyed by improved performance, waste management company Yorwaste had performed well and its building design consultancy was forecasting a return to profitability.

However, Brierley Homes was forecast to generate a loss for the year of £712,000.

The meeting heard a primary concern for Brierley Homes was the availability of materials and labour to complete committed projects to time, cost and quality.

Brierley has a ‘perception problem’

Cllr Don Mackenzie, executive member for access, said the outlook for Brierley Homes was much more positive than the council had become accustomed to over the last year, and highlighted how the authority was forecast to receive £4.3 million in savings and benefits this year from its companies.

Cllr Gareth Dadd, the council’s finance executive member, said Brierley Homes was suffering from a “perception problem” due to upfront housebuilding costs and when its developments in Harrogate and Pateley Bridge were completed next year the figures would look different.

He said: 

“If you were a layman looking at that sort of balance loss or perceived loss you would be quite startled by it. We know that it is not a true reflection.

“We have a duty to shoot this loose rabbit dead that it is costing the taxpayer hundreds of thousands of pounds or has even snowballed into millions.

“It is going to take some time before we realise the benefits of it. Politically we are going to have to live with the perception issue with the hope that those who are casting doubt on it listen to the full story and not just a headline figure.”

County council ‘optimistic’ over redeeming Brierley Group losses

Leading figures at North Yorkshire County Council, which launched numerous loss-making commercial ventures, have spoken of their optimism of turning things round.

The council’s Brierley Group firms made collective losses of £639,000 last year.

Gary Fielding, corporate director at the council, said the losses experienced by its firms, such as housebuilders Brierley Homes, needed addressing after he was repeatedly challenged over the extent of the black hole.

A meeting of the authority’s shareholder committee heard the group was not “a money pit” at which taxpayers’ money was being thrown without being properly accounted for.

Officers and executive members gave a range of explanations as to why the group of firms, which includes ones offering auditing, waste and legal services, had gone into the red.

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Members were told the covid pandemic had been “tremendously difficult” for the schools’ catering firm, as kitchens had been kept open for the small number of pupils attending during lockdown.

Councillors heard the £639,000 loss over the last financial year was just a temporary position as some of the council’s firms worked on long-term ventures, such as housebuilding.

‘Hold our nerve’

Officers added the authority would be able to offset its tax position at a group level, utilising the losses of some of its ventures against its profitable ones, to be as tax efficient as possible.

Mr Fielding highlighted that some of the council’s firms had accumulated profits over several years.

He said:

“This is part of the rhythm of commercial activity. You don’t always have positive years and this has been an exceptional year. I think we just need to hold our nerve and look at that in the broader perspective.”

However, Cllr Mike Jordan, a Conservative representing South Selby, replied:

“A loss is a loss and at the end of the day we started these companies not just to provide a service, but to offset having to raise council tax. That’s one of the things we’re trying to do which we’re not going to do.”

Mr Fielding responded:

“If we weren’t worried about losing money that would not be natural and we would be accused of being complacent.”

The council’s finance executive member Cllr Gareth Dadd then said alongside aiming to limit council tax rises, the ventures were set up to provide services.

The meeting heard the council had calculated that the firms had generated £5.2 million of shareholder value in 2020/21.

The council’s chief executive Richard Flinton said the diversity of the group had helped the authority into a better position than the one many other councils were facing.

He said some of the firms were providing unique services for the county. Without the broadband firm NYNet, the meeting heard, many people in North Yorkshire would not have received superfast broadband.

Mr Flinton said Brierley Homes was “a potential disrupter to the market” as it would be more prepared to move forward with developments faster than some major building firms, responding to the need for homes.

County council’s trading company records £639,000 loss

North Yorkshire County Council’s trading arm, The Brierley Group, recorded a loss of £639,000 last year.

The council has created numerous companies to generate funding for frontline services.

The authority’s leader and deputy leader, Councillors Carl Les and Gareth Dadd, defended the strategy ahead of the council’s first meeting to discuss the group’s performance during the first year of the pandemic.

An officers’ report to the meeting said the ventures, to which the council has committed to loaning some £54 million at preferential rates, had seen a continued “mixed performance” from the previous year.

Provisional figures show the group, which includes education and business services, housebuilding, internet, legal and waste enterprises, delivered a loss after tax for the 2020/21 financial year of £639,000.

The report stated the total revenue generated of £59.9 million was under budget by £4.8 million.

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Officers said North Yorkshire Education Services faced unique challenges throughout the year, and that the pandemic had an adverse impact on the school catering business due to school closures.

While First North Law’s trading in the first half of the year resulted in a £14,000 underperformance, officers said broadband provider NYnet experienced some challenging trading conditions throughout 2020-21, particularly with regard to new customer sales.

The report states waste management company Yorwaste performed well during the last quarter despite trading continuing to be difficult and the business services Veritau group exceeded its budgeted profit for the year.

Cllr Les said:

“The pandemic has had an impact across not only the council, but the council-owned companies and we are looking at the business plan for the future post-pandemic.”

He said he was optimistic about the firms staging a recovery this year, providing covid variants did not have a major impact on the county.

Cllr Dadd, who is also the council’s finance executive member, said he was proud of what the authority had achieved with its commercialisation agenda.

He said:

“It’s been done in a cautious manner, but nonetheless has provided and post-pandemic will provide vital resources to the county council’s budget on behalf of the taxpayer.

“We are not risking millions and millions like other authorities, which are buying shopping centres. We are taking a cautious, level-headed, reasonable approach to this and any extra funds goes into support services, especially for vulnerable people, and that’s why we’re keen to pursue it.”

He added the authority had a better chance of getting a variety of work done than many if not all other councils because it was the firms’ shareholders, so they had to perform for the authority.

Cllr Dadd said:

“Their focus is entirely on service delivery to make profit or reach what the residents of North Yorkshire expect. It’s had a positive effect on service delivery.”