Council's £40m misspend was for 'ethical reasons' to 'keep the ship afloat'

Coun Graham Chapman (Lab) also said councillors were not aware of the full extent of the misspending highlighted in an independent report published on April 26.

The Penn Report into the council’s Housing Revenue Account (HRA) found millions of pounds – which should have been spent on council tenants’ properties including housing repairs – ended up in funds for other council services.

The HRA is strictly ring-fenced for council tenants and cannot be used for other purposes.

But the Penn Report says from 2014-15 this was not the case and in total funding of up to £40 million was transferred to the council’s general fund for all council services.

The Labour-run authority had already been handed an extremely rare Section 114 legal notice in December for ‘unlawfully’ spending more than £14 million of the money.

Further investigations as part of the Penn Report – commissioned by the council – have now uncovered more potential wrongful spending up to £25.6 million across Nottingham City Council and Nottingham City Homes – the company that manages its housing stock.

It concludes the practice was first proposed by officers and not first created specifically to move money to the general fund – but ‘poor governance’ allowed it to continue.

Coun David Mellen (Lab), the authority’s current leader, said the authority was committed to dealing with the issue and learning lessons, adding the money had still benefitted local people despite being moved from the HRA.

Coun Chapman was deputy leader of the council when the misspending identified by the report started.

Coun Chapman, who remains a city councillor, representing Aspley, told the Local Democracy Reporting Service: “We were not aware of the degree of this.

"I think what was happening was officers were trying to keep, below the radar, other services going such as libraries, child protection and children’s centres and this was a source of potential income.

“They were pushing the boundaries, but it was done for ethical reasons.

"I am not going to blame anyone – they were trying to keep the ship afloat and keep services going.

“I do not think we knew the extent.

"It is a national phenomenon – it was happening across the country at other councils.”

On April 27, the Local Democracy Service also attempted to contact the former leader of the council, Jon Collins, who is no longer part of the authority having stood down at the May 2019 local elections, but he could not be reached for comment.

In December, following the discovery of the initial £14 million worth of misspending, Mr Collins told Nottinghamshire Live these payments had not been questioned by anyone at the time and decisions had been taken following input from officers as well as councillors before being assessed by auditors.

Coun Dave Liversidge (Lab) was the portfolio holder for housing in 2014-15.

He no longer holds this position but continues to represent St Ann’s on the authority.

When contacted by the Local Democracy Reporting Service he said: “I have got no idea what happened at all, and I am not going to give any views.”

In total, the investigation found up to around £22.8 million was misspent by the council and £17.1 million by Nottingham City Homes.

A spokesperson for Nottingham City Homes said: “Nottingham City Homes is wholly owned by the city council.

“We only undertake activity requested by or supported by the council.

"There has been full transparency and accountability to the council throughout.

“We report on performance and finance to the council, and we have council nominees on our board.

"Nothing we do has been undertaken without the council’s full knowledge since we were established in 2005.

“We have noted a number of concerns in the reports being presented to the council, the most concerning being the comment that NCH may have ‘potentially’ spent £17 million HRA funding on non-HRA activity.

“We would like to confirm that we haven’t and that this funding remains available for council housing.

“In addition to managing council housing, we also provide homes for homeless families and survivors of domestic violence – we fund these from the rental income received from those homes without using any funding earmarked for council housing.

“Since Nottingham City Homes was established we have delivered for council tenants, we brought more than £200 million investment into Nottingham to meet the Decent Homes standard, greatly increasing tenant satisfaction, and delivered the largest programme of new council house building for a generation.

“We have also managed and maintained council housing very cost effectively. Independent benchmarking shows we are nearly £8 million a year most cost-effective than other councils and housing associations.

“This has enabled the council to keep rents low for tenants – and tenant satisfaction with repairs has risen from 54 per cent in 2005 to 80 per cent in 2022.”

The news comes at a time when the council is trying to claw back £38 million of savings over the next four years.

Proposals include closing five of its nine children’s centres and three libraries.

The council is also being monitored by the Government after an improvement board was set up following the demise of council-owned energy company Robin Hood Energy.

The company went bust in 2020 and left taxpayers picking up an anticipated £38 million bill.

If the council fails to become ‘financially resilient’ then Government commissioners could be called in to run the Labour-run authority in the future.

The Government’s Department for Levelling Up, Housing and Communities said it was aware of the development.

The department also stated the improvement board ‘continues to work with the council to ensure these historic poor practices are addressed for the benefit of Nottingham residents’.

It also stressed that ministers will continue to review their options in relation to Nottingham City Council, including considering their powers of intervention should the council fail to make the necessary improvements.