Sheila Oliver's Campaigning Website

Local authorities are demonstrating ever more clearly their inability to manage, control and operate via wholly owned subsidiaries, the various functions hitherto run completely in house. This is for a variety of reasons but one cause is their lack of awareness of the fundamental principle of "arms length" relationship in finance, trading and elsewhere. The rules are necessary  in order to be able to judge performance but also to let the local management get on with the job and the Authority must act only as shareholders and as such they can get involved only at important meetings like AGMs, EGMs.  The operation of this principle is now being examined closely in its nationwide application to multi-national concerns by HMRC in order to ensure each unit is paying its fair share of tax. Google, for example, does all its billing from Ireland and Starbucks only pays a small fraction of what is expected in Britain - £10 million on sales of £3 billion.

While we must focus on the present triple dip recession, amateurs like Stockport Metropolitan Borough Council  should concentrate more on their own business or hire people who can and/or bring everything back indoors.

Stockport Homes is a company set up in 2005 to manage and carry out repairs on the housing stock on the Council's behalf. The company is LIMITED and is to operate "at arms length".

Comments:-

1) How was this kind of work carried out and managed before?  If in-house would all the personnel formerly involved be transferred to Stockport Homes Limited? Was new recruitment/redundancies involved?

2) A (arms length) limited company would create additional administration, presumably in filing its affairs at Companies House if it is registered in the UK.  It would be liable to Corporation Tax on any profits and the level of these profits would have to pass some kind of test to remain arms length.  If its trading was subsidised in the event of losses or excessive profits existed - keeping results at an arms length level could be difficult.

3) The constitution of the Board and the shareholders would be an indication of its independence in trading e.g., councillors on the Board. Also shareholders other than the Council would hope for profits to be distributed and this would mean that payments wold be denied to the Council. Did the shareholders introduce capital i.e., what price were shares issued at?

4) VAT? Can this be unchanged from previously?  

5) Question in short - what was the incentive for the Council to hive off to a limited company what was essentially simply a department of the council?

Stockport Homes Ltd
Directors' Report & Financial Statement
Year to 3/3/10

Contents
Details of Board of Directors, Exec Officers and Professional Advisers - simply a list - appointed/resigned, registered office etc.
Then executive officers listed - they meet every two weeks on various topics.

Incorporated 29/8/02 but only started trading 1/10/05.

The principle activity is to manage and maintain the stock of houses and also to manage the modernisation of which mumbered 11,483.  They also manage the allocation of homes and work.

This is an arms length management organisation - but is it arms length????

This company receives money from Stockport Council to carry out managing and maintaining the stock. The fee for this in 2010 was £22,257,000. The total turnover was £28,917,000.

The management agreement allows Stockport Homes to employ building contrators to undertake the capital investment programme of which the budget in 2010 was £34,534,000.

OUCH!!!!

It completed its first "new build" at Lantern Close - 17 homes for rent. The ownership stays with Stockport Homes. A further 18 are coming at Mendip Court and Marhill Court in 2011.

Stockport Homes got a new job in 2010 which was the collection of water charges on behalf of United Utilities. Thence an additional income of £461,000 came from Stockport Metropolitan Borough Council to cover the costs of collection.

Stockport Homes re-tendered the largest repairs in 2010 to Jackson Lloyd Ltd taking over from the previous contractor.  Is Jackson Lloyd arms length???

Any surplus after tax will be used to finance service improvement to customers.

Stockport Homes gets services from the Council - insurance, IT, financial systems and payroll (employees?).

The company is limited by guarantee.

Reserves at 31/3/10 £1,335,000,000

Income and Expenditure Account
Retained surplus after tax                                                              649,000
Tox on ordinary activities                                                                  (5,000)
Pension Plan Loss                                                                         (8,703,000)
Surplus for year                                                                               649,000

                                                                                                   (8,054,000)

An item appears in the operating surplus of the accounts as "PAST Service - gain on pension assets - £3,199 million, which represents 75% of the entire operating surplus.  What is this and why should it enhance OPERATIONS RESULTS?  Could it be that there has been not a gain on assets , but a reduction of a liability no longer payable?  If the answer really is a GAIN ON ASSETS, then what assets have given rise to the gain?

Pensions again - "actuarial" losses were recorded in 2010 at £12,991 million followed by "actuarial" gains of £6,065 million in 2011.  No doubt these are the result of changed assumptions on the adive of the actuaries.  I understand that actuarial REVISIONS are done periodically but these staggering changes could not have been the result of hugely changed circumstances in two successive years recently.

                                            2007          2008          2009          2010          2011
Pensions obligation            (14448)        (15658)      (16011)      (31087)     (24886)
Pension assets                    12559           15877        13922        20376        23714
(Deficit) on balance sheet(1889)         219     (2089)    (10711)     (1172)

So, after three years of comparative stability at c. £15 million the GROSS LIABILITY  doubled a c. £31 million and settled back to c £25 million by 2011. Surely not the influence of (assumed) interest rates.

I note that deficits are guaranteed by Stockport Metropolitian Borough Council  - What about the Arms Length principle?

I should like to know who the consultant actuaries are and have they acted throughout the 2007 - 2011 period? Who chose them?

There may be a simple explanation for the above and this page of my website is still a work in progress. I shall keep questioning so that I understand what has been going on.  I might be declared a vexatious waster of public money (as usual) by Stockport Council, but if I as a council taxpayer find myself suddenly liable to meet any massive black hole in the pension fund of Stockport Homes, I feel I am entitled to ask these questions.

Is this actuarial magic tricks?  I don't know. Some 800 pension schemes are in trouble and could collapse because of low interest rates on their investments and lower capital values plus crystallising future commitments to future pensioners still rising/remaining etc. These schemes have huge assets now but future liabilities larger.  I can hear the wolves at the door.  Beware!  No other target can show this kind of "assets now" and "screw the members".

The Government has these schemes in mind as the provider of roads and other structures. The demise of the schemes would be complete!  Our "friends" would no doubt be in the vanguard - planning, contstructing, demolishing, pillaging. Their jaws are drooling.

Unreasonable suspicions????

This is who Stockport Homes are and what they do:-

http://www.stockporthomes.org/main.cfm

Residents in Coleridge Close, North Reddish have contacted me regarding problems they are having.  I have contacted Mr James Hood  of Stockport Homes on the 28th of July:-

Dear Mr Hood

I have been contacted by several residents of Coleridge Close. There seem to have been some problems and I am hoping we can sort them out. I think if the residents are all given access to my website, then they can themselves follow the progress of this matter as we work towards a solution. So I will post details up.
I believe there are issues with security and the loss of much loved flower beds. I also believe there are some issues with drainage. I would really appreciate an update on where this matter stands currently.

I appreciate that you yourself might have problems with funding. There are apparently concerns about the Arms Length Management Organisations affiliated to Stockport Council, and consideration is being given currently to returning the NPS functions in-house at the Council. It may well be that the best thing for local people is to have the Stockport Homes functions also brought in-house again. If the current situation is not working well, then everything must be considered on how to give the best possible service to tenants.
I look forward to hearing from you.

Kind regards

Stockport Homes prides itself on winning all kinds of awards, so I am sure they are working hard to sort out the various problems these tenants are experiencing.  I will keep the website posted with the results.

2nd September 2012.  No reply from Mr James Hood yet!

The purpose of the payments from the Council is to manage and maintain the  housing stock of the Council. The calculation is obvoiusly complex and involves Central Government; apparently it is simply to provide the services that customers pay for.  My concer is, also simply, to have an assurance that this figure is the same as it would have been between unconnected arms length parties notwithstanding that the deal is between the wholly controlled ALMO and the wholly controlling Council.

My concern is that I cannot see how the savings in value of the Pensions Liability can be the change of assumptions only - they, of course, must be grave indeed, but can we be assured that these savings equal to about 30% of the gross liability in year and represent the usual life expectations and retirement ages and not a political moving of the goalposts?  Counting on not to have to meet the whole of the liability!.   Agreed that the Employers Balance Sheet has to show the actuarilly calculated liability of the Pension Fund less assets which have been put aside to meet it.  However, the assets to which we refer are used in fixing the net liability and equities of the pension fund represent two thirds of the total assests put aside as they did in 2009.

Bonds (equities) hardly seem like a safe haven in these times!

Lots of cash can be mistake for "we're doing fine".  However it can be a sign of quite the opposite. For example, an increase in liabilities (owing) will have caused an "inflow" of cash i.e., bills not paid  Therefore, a decrease in (especially) debtors (customers owing) could show that the operation is slowingdown while cash is piling up.  Business forecasts become vital as, if accurate, it will indicate future black (or red) spots and action can be taken. Furthermore, long and short term liabilities should be distinguished - loans repayable when?

Pension Fund of Stockport Homes

Note of the Pension Fund Assets and Liabilities 2010 and 2009
In millions £                                                                                       2010      Increase     2009

Liabilities calculated                                                                            31.1       15.1             16.0
Value of assets set aside now
to cover this only                                                                                 20.4       6.5             13.9

Shortfall in value of assets                                                                  10.7        8.6              2.1  

Message - more assets have been earmarked at £6.5 million (or about 50%) but the liability has gone up by £15.1 million (or 90%).
Therefore, profit/loss has been hit for £8.6 million more. The change cannot surely be explained by anything other than a fundamental change in assumptions - somewhere.


Assets - millions                                                                                    %          2010        %      2009
Equities                                                                                                 67         13.6        67       9.3
Property and bonds                                                                                22          4.6        23       3.2
Cash                                                                                                       11           2.2        10        1.4
Total                                                                                                     100        20.4      100       13.9

Basically between 2009 and 2010 the liabilities went up from £15 million to £31 million. How and why over the period of one year? How did that sneak up on them then? The total assets they have is £20.4 million so they are £10.7 million short, which I am liable for!