Tees Valley

Combined Authority

Time for the NAO

is Now

Scott Hunter

25 July 2024

On 12 July a number of regional newspapers reported that the Chancellor, Rachel Reeves, had refused to commit to a National Audit Office investigation into Teesworks. Her non-committal response to questions about it were in contrast to statements made by her prior to the general election. On 23 July, under the heading “Latest Government U-turn”, Politico reported an unnamed spokesperson for Kier Starmer was similarly non-committal. It concludes that it looks as if the investigation will not now happen.

For what it’s worth, Houchen has characterized further investigation as “old, tired and angry political games”, while Rachel Reeves said it was important for the new Labour MPs in the region to work with the mayor. In other words, she dodged the question about whether or not the government is committed to pressing ahead with the investigation into alleged corruption. Redcar MP, Anna Turley, meanwhile, has been on X to reassure those concerned by this apparent indifference that the investigation really is going to happen.

Anna Turley’s words will be of great comfort to all those with amnesia who can no longer remember the mayoral election campaign in May where Labour put up a candidate so scared of his own shadow that he made no attempt to challenge Houchen’s extremely dubious record in office. For those of us still in despair at that fiasco, on the other hand, a degree of scepticism about the new government’s intentions is inescapable. Such commitment as exists within government is vague at best. 

So, it’s write to your MP time again. Perhaps, if local MPs are able to report that they are getting lots of angry emails about this, the government may take some notice. And really, even if only those who have been blocked by Houchen on social media take the trouble to write, MPs will be inundated.

As for Tees Valley Monitor, our focus is on what we think must be the scope of the inquiry. Should it follow the Tees Valley Review and return to the issues around Teesworks, or is there a need for a more wide-ranging investigation? And who should the NAO be gathering evidence from?

An Investigation solely into Teesworks will not reveal where all the bodies are buried

Extending devolution in England was one of the measures included in the King’s Speech. This may sound like a nice idea, but it doesn’t sit well with the government’s apparent indifference to investigating what has been happening in the Tees Valley. Because what has been happening here shows how the devolution arrangements currently in place can be manipulated by rogue actors. And if that can happen in one authority, it can happen in others. 

Houchen was not working in isolation. In order to game the system in the way that he has done required, at certain times, the willingness of individuals in government to turn a blind eye to what he was doing, and at others to provide him with cover. Michael Gove’s refusal to bring in the NAO to investigate Teesworks in the first place is the most glaring example of the latter, but there are others.



In 2022, in an interview with the Northern Echo, Houchen claimed that the deal to bring in Corney and Musgrave as joint venture partners with the South Tees Development Corporation in early 2020 was thoroughly scrutinised by the Department for Business (BEIS) and the Treasury. Information subsequently obtained by Private Eye revealed that, in reality, little or no scrutiny had taken place by either department. Effectively, both departments turned a blind eye and left Houchen to get on with it. Where the buck stops for that failure of oversight is one of the issues that a full investigation must uncover. Such investigation did not fall within the remit of the Ridgwell Report.

The Tees Valley Review (Ridgwell Report)

The Ridgwell Report has been condemned as a whitewash by certain people who haven’t read it, and as a vindication of Houchen by other people who haven’t read it. Those who have examined it more carefully have found that it systematically dissects the way in which decisions are made at the South Tees Development Corporation, and how those whose role it is to scrutinise it are sidelined. It also reveals how decisions made by the STDC board have been remarkably favourable to the developers, Martin Corney and Chris Musgrave, allowing them to pocket millions in profits on a site that has no leaseholders whose operation is up and running. Board decisions also allow them to cherry pick which sites they choose to obtain freehold for and which to leave for the public to manage in perpetuity.

The report observes that it is not only the STDC board that is largely excluded from the decision-making process, but also the TVCA cabinet, where the leaders of the five councils that make up the Combined Authority have a statutory right to a place. It then puts forward 28 recommendations to bring about more transparent and accountable decision-making practices. Houchen was then tasked by Michael Gove to prepare a plan to implement those recommendations. If he’s done that, the public has seen no evidence of it so far, however.

On the other hand, Houchen will undoubtedly produce his plan in the fullness of time, and so is he justified in claiming that further investigation would just be ‘playing political games’? There is some justification for this, and for the NAO to simply repeat the process seems a costly way to achieve very little.

In reality, however, the point of bringing in the NAO should not be to repeat the process but with the added luxury of being able to cross examining witnesses. Of necessity, it must be much wider in scope.

Why should the inquiry look beyond Teesworks?

There is no denying that Teesworks is where the largest sums of money have changed hands. But it is not the place where profligate spending and opaque organisational arrangements by the Tees Valley Authority begin. That dubious honour goes to Teesside Airport, and TVCA documents give no indication that any government oversight was required to sanction it.

We’ll begin with the money. The purchase price of the airport was £40 million. This sum represents the amount paid by its former owners, Peel Holdings, to purchase the facility in 2004, plus all of their declared losses over the fifteen years that they were its principal shareholders.

Following the acquisition by TVCA, the airport declared losses of £13.6mn in 2021, £11.9mn in 2022 and £4.5mn in 2023 – a total of £30mn in three years. It currently offers flights to seven destinations (not including the special one-a-year flights).

Both acquisition and ongoing losses are debt financed, all of it through loans from the TVCA. Initially the authority made available £74.6mn to cover the cost of acquisition and ongoing losses over the first ten years of operation. That allowed £34.4mn to cover operating losses. TIAL accounts show that, of this, £20mn had been drawn down by the end of ty 2021. TVCA later increased the loan facility by a further £20mn. In addition to this, in 2020, a separate loan of £23.6mn was made available for the creation of the Southside business park. In total, then, the airport is on the hook for £119mn.

Will the loans be repaid? It’s highly unlikely. The TVCA business plan on which the airport acquisition was based is hopelessly unrealistic. Projected figures for increase in passenger numbers are based on the wholly unwarranted assumption that the propensity to fly of people in the region was set to increase. The plan also assumed that a low-cost airline would set up a base at the airport, despite the fact that the consultants’ report they themselves commissioned stated unequivocally that this would not come about. 

While we know that the plan was submitted to local councils for approval, we do not know if it had also to be submitted to any government department for scrutiny, whether the Treasury, BEIS or DLUHC. If it did, that department failed in its duty to carry out a thorough review. If no such approval was needed, then questions must be asked of former ministers as to why Houchen was given carte blanche to proceed with the scheme.

As for local councils, while we might wish that they had scrutinised the scheme more critically, we should point out that the costs were not coming directly out of their budgets, while Houchen was skilfully harnessing the local press to garner public support for his project.

Does the public know what its money is being spent on at the airport? For the most part, it knows only what appears in press releases. TIAL and TVCA answer no further questions. They get away with this as the tangled organisational structure of the airport enterprise allows them to refuse to disclose information.

Of the recommendations of the Ridgwell Report, many relate directly to the issue of opacity in the decision-making around Teesworks. As its terms of reference were confined to Teesworks, it appeared as if the opaque decision-making processes were unique to it. In reality, as the organisational arrangements for the airport show, a preference for scrutiny-free structures is Houchen’s trademark.

Even the authors of the Ridgwell Report were at one point refused information on the business park joint venture agreement between TIAL and developers, Corney and Musgrave. TVCA CEO, Julie Gilhespie, told them, correctly, that the airport was not subject to FOI legislation as it is a private company.

The fact that it was set up as a private company follows what is now standard practice where public authorities set up commercial operations. A private company is set up with its own board which is free to make commercial decisions without political interference.

Whether or not the airport is actually free of interference from Houchen is unclear. Many of his brash public announcements would give the impression that he and not the airport board is running the operation, such as when, during his re-election campaign earlier this year he stated that, if re-elected he would introduce flights from Teesside to Malaga and Tenerife. This may, in reality, be nothing more than pre-election bluster, but Houchen has consistently taken it upon himself to be the speak on behalf of the airport, and suspicion therefore lingers that he has considerably more influence on decision making than the organisational set-up should allow. But the conflict of interest does not end there.

The ownership and local oversight of the airport remain extremely complex. When Houchen claimed that the TVCA intended to buy the airport, what it was actually doing was buying the shares of Peel Holdings. Peel was the majority shareholder, but when the airport was sold to them in 2004, the consortium of local councils that had been the previous owners retained a minority share. Most of those councils became partners in the Combined Authority in 2017. 

As is also standard practice, a holding company – Goosepool 2019 – was set up. This held the TVCA’s shares and its task was to hold the airport board to account to ensure that the Authority was getting value for money. Several things about this arrangement should not have been allowed, but, again, there appears to have been no oversight of what Houchen was doing.

Firstly, while the local councils have close links with the TVCA, their shareholding was untouched and they continue to have representation on the TIAL board but have not been incorporated into Goosepool. The motivation for this arrangement needs to be interrogated. Is this arrangement intended to weaken their ability to scrutinise the decisions of the commercial directors? Their entitlement to demand to see evidence for board decisions would be much greater if they were on the board of Goosepool than on the TIAL board, where they can ask questions, but can do little if those questions go unanswered.

But if the exclusion of local council representatives is one of the issues concerning Goosepool, the inclusion of certain other people is another. The fact that the Goosepool board has, since its creation, had board members in common with the TIAL board, representatives a clear conflict of interest. Directors cannot simultaneously serve the interests of both organisations. The fact that TVCA CEO, Julie Gilhespie, is also a board member is less obviously deviant, but is nonetheless not standard practice.

The original business plan for the airport uses Cardiff, brought into public ownership in 2013, as a standard for comparison. Yet, at Cardiff, there are stringent rules about who may and who may not serve on the board of the airport holding company. Airport directors and members of the Senedd are strictly excluded in order to prevent any suspicion of there being any conflict of interest. No corresponding scruple has informed the composition of boards at Teesside.

Was this arrangement sanctioned by any government at the time, or was Houchen given licence to do as he saw fit? Only a NAO investigation can determine that.

Sometimes the government looked the other way, sometimes it helped cover up

While there has been a lack of oversight of Houchen’s mayoralty in certain quarters, the role Defra has played in supporting his enterprise is different. When crustaceans started washing up on North East beaches in vast numbers in the autumn of 2021, many suspected that it was due to pollution that originated in the Tees. Our inquiries into the conduct of agencies at the time reveal that the Environment Agency was investigating this possibility. Those investigations were over a period of around 7 weeks, until the end of November 2021, at which point Defra took over control and promptly shut the investigation down. When an explanation of the event was finally issued – that the die-off had been caused by a Harmful Algal Bloom – it was, essentially, just made up. And was later abandoned in favour of the ‘explanation’ that it could just as well have been a novel pathogen. This, similarly, was not the product of any investigation. In other words, all explanation pointed to the incident being entirely unconnected with work going on in and around the Tees, i.e. Teesworks and the freeport.

The case to be answered here is whether Defra was persuaded that the freeport was of such priority that all environmental damage was to be tolerated (and officially denied). Was Houchen and the freeport project shielded by Defra? Another question for the NAO to ponder.

Ultimately, what is under investigation must not be simply Houchen’s control of the Tees Valley Authority. The Ridgwell Report has already made significant inroads into that. What is required now is an examination of the devolution settlement that has enabled Houchen to operate in the way that he has, to be, to all intents and purposes, not just independent of government but a law unto himself. That situation, we believe, has been unofficially supported by those in government who were happy to give Houchen free rein provided that, in return, he could successfully maintain the pretence of levelling up on Teesside. Myth or reality, it didn’t matter which.