Council agrees to independent investigation into novel £72m pension deal

The terms of an independent investigation into a £72m pension deal struck by Plymouth City Council that was "not in line with normal accounting practice" have been revealed.

In a letter sent in February, Local Government Minister Simon Hoare MP confirmed the Secretary of State for Levelling Up was minded to agree on a capitalisation direction of up to £72m, providing that the council agreed to the independent investigation.

The terms of the investigation recently came to light after the council released the letter to the press.

The investigation will consider a 2019 decision which involved capital borrowing to reduce the ongoing cost of a pension deficit to the council’s revenue budget.

This decision enabled the council “to make more than £9 million savings to its revenue budget because paying the interest on the loan was cheaper than paying the deficit every year,” it said.

In his letter, dated 27 February, Hoare wrote: "I have significant concerns around the decisions and circumstances that led to your council undertaking a transaction that auditors have now clearly concluded is not in line with normal accounting practice.

"Moreover, it appears to have sought to circumvent deliberately normal rules in relation to borrowing and capital expenditure."

The investigation will include scrutiny of the following:

• The transaction and the adequacy of the council's supporting governance and financial management underpinning the decision.
• The actions of the council and the role of the two companies involved in the deal.
• The value for money of any fees paid by the council to the two companies.
• The relationship of the two companies and their directors to and with the council, its officers and elected members.
• The history, track record, and bona fides of the two companies and the current status of both companies with regard to Companies House and HMRC.
• The detailed chronology leading up to the 2019 decision and actions taken by the council subsequently. This will include the advice (internal and external) received by the council and provided to members, and the consideration of that advice in the council's actions and decisions, with a clear audit trail.

Plymouth has also agreed to an external assurance review that will consider the council's financial position, financial management practices, and its work to improve productivity and efficiency.

Cllr Tudor Evans, Leader of Plymouth City Council, welcomed the investigation, noting that the council is "very comfortable with an independent team reviewing the transaction".

He said: "We knew that the transaction was novel in local government, but we were doing our best to think outside the box to ensure we didn't need to make cuts to local services as our funding continues to reduce. It has enabled us to save more than £9m of public money for local services."

Adam Carey