in the back

You can believe your Eyes...
Tees Valley special , Issue 1617
WHEN the Eye first revealed how businessmen involved in the Teesside regeneration project were profiting while investing nothing and taking no risk, regional mayor Ben (now Lord) Houchen dismissed the reports as "lies". He recently told a parliamentary inquiry into freeports that he could (but wouldn't) "spend considerable time disputing and disproving" evidence based on the Eye's reporting of the story.

VISIONARIES: Rishi Sunak and Ben Houchen point out Teesside's sunlit uplands
Now the report commissioned by levelling-up secretary Michael Gove from a panel led by Lancashire council chief executive Angie Ridgwell confirms the Eye's coverage, and in many places shows an even more serious position than the Eye indicated.

It sets out how a deceitfully run and possibly unlawful scheme swallowing half a billion pounds of taxpayers' money has delivered vast riches to a select few.

Power play
Last May, Eye 1597 revealed how the joint venture deal between the South Tees Development Corporation (STDC) and businessmen led by local developers Martin Corney and Chris Musgrave – signed in March 2020 as a 50/50 joint venture, Teesworks Ltd (TWL), with an option for the company to buy parcels of land at market value – had been a furtive affair from the outset.

Hatched after Corney and Musgrave had acquired a small strip of land giving them leverage over Houchen's planned compulsory purchase of the former Teesside steelworks, the deal was hurriedly approved by the STDC board.

"The minutes of what the Eye understands was an ‘emergency' meeting, held at 10am the same day [as a report recommending the plan] and with board members thus having no time to consider the details, record no mention of the joint venture or the option [for TWL to buy parcels of land]," wrote the Eye. "The absence of scrutiny fits with reports received by the Eye of the STDC board as no more than a rubber stamp for decisions made behind closed doors."

As Eye 1604 reported, Houchen had emailed board members explaining that a detailed report wouldn't be produced but that "the basis of the deal is [as] I have discussed with you on the phone".

It duly confirms that the board's briefing "omit[ted] to cover important details such as the absence of any obligation on the part of the JV partners to input any funding" and contained "no explanation of the land options to be granted to [TWL]" despite their "fundamental importance" to the deal. Board members told the panel "they were sometimes rushed and they didn't have sufficient information or understanding".

Scrap dealers
It was only in September 2022 that Eye 1581 could first reveal "a hitherto undisclosed agreement to share the proceeds of scrap sales".

It had been secretly reached in June 2020, when STDC chief executive Julie Gilhespie – also a director of TWL, but found by the panel to have been unaware of the conflicts of interest and to have allowed the businessmen's "wholly inappropriate" attendance at confidential STDC board sessions – signed a further agreement with, in the panel's words, the "astute and commercial" Corney and Musgrave.

This deal gave TWL rights to "all minerals, aggregate, metals and equipment and structures" across the site, then valued at £100m (now £150m). But it wasn't even mentioned to the STDC board.

It notes "no evidence of any formal decision-making process" for the deal.

Deal of the century
Eye 1596 also revealed how in November 2021, when Corney and Musgrave had been gifted a further 40 percent of TWL's shares – making them 90 percent owners – their options had been adjusted to allow them to buy land at £1 per acre (after STDC had determinedly refused to provide the figure under freedom of information laws).

The deal was ostensibly to incentivise them to accelerate the work and had been agreed by the STDC board, wrote the Eye, "in return for Teesworks taking on the future development of the site together with the net future liabilities in preparing the site for tenants". Up to that point, however, we pointed out: "Teesworks Ltd and the men who own it have invested nothing."

Despite repeated claims from Houchen that Corney and Musgrave were funding work, the panel confirms the Eye's findings. It says the STDC board was told the deal was agreed "in return for the commitment of TWL to undertake future remediation and development". But "the legal documentation doesn't impose any such obligation... and there is no evidence that TWL has yet done so". Not only was the deal every bit as cushy as the Eye said, but the board had been misled when agreeing it.

Aid memoire
Back in November 2022, with the details of the deal still secret, Eye 1581 raised concerns about it meeting "state aid" legal requirements banning giveaways – pointing out that advice had been obtained from Newcastle law firm Ward Hadaway, whose "partner dealing with the Tees Valley... happened to be the husband of Tees Valley [Combined Authority's] commercial director".

Posing more serious questions over the matter, the panel found that a KC had advised Houchen that a court would "more likely than not" approve the deal. But, critically, this was "on the premise that the whole site [with its huge liabilities, put by STDC at £172m] was to be transferred to [TWL] whereas [in] reality TWL is able to draw down any particular plot".

The company can, the panel says, "cherry pick" after taxpayers have footed the bill to remediate a plot – a radically better proposition for the businessmen. The affair typified how STDC obtained professional advice with, the panel says, "often limited and on occasion incorrect" instructions.

Land of opportunity
Last May, Eye 1597 pointed out how TWL's land option gave it the opportunity to buy at "way below the true value of the land once remediated (at public expense)". This is echoed by the panel's view that the deal "is likely to result in sales [of public land] at less than best consideration".

Nowhere is this more apparent than in the only complete deal to date, exposed in Eyes 1590 and 1596 and playing a large part in bringing about the review. Previously unpublished Land Registry documents revealed that a 90-acre site, on which Korean steel company SeAH is now building a wind turbine monopile factory, had been sold to Teesworks Ltd for £96.79 (after having been remediated by STDC).

There was also, STDC admitted after refusing to answer the Eye's questions on the matter, a separate £15m side "land value" deed – though the figure bore no relation to the true value of the land.

The Eye explained how TWL was cashing in its interest by leasing the land back to the public sector and then selling this lease to asset manager Macquarie, concluding: "The scheme will present an instant £65m+ payday" for Corney, Musgrave et al.

The panel confirms the Eye's analysis and puts TWL's profit from the deal at £68m, with a cost to the public sector of £51m. Once again, the briefing to STDC's board had been "incorrect".

Quay stroke
The other big deal so far involves TWL buying the new South Bank Quay, built with £114m borrowed by the combined authority, in late 2022 for £13.56 – again secret until revealed by Eye 1589.

This came with an "operating agreement", some of the profits from which would go to pay "tonnage fees" back to the authority – from which the latter would hope to repay the loan. Eye 1608 showed that if the company makes insufficient profits, it pays less.

"If the quay fails or is insufficiently successful," wrote the Eye, "TWL will pay nothing or not enough for [the authority] to repay the loan. The taxpayer, not them, is on the hook."

Confirming the Eye's reporting, it says: "There has been no financial risk transfer to the joint venture and TWL will accrue profits which exceed the financing payments [ie their loan]."

Compounding the taxpayer's bum deal, STDC, says the panel, is "providing direct financial benefits to TWL through meeting insurance costs and site maintenance". It adds that a £20m government grant for the project came with the condition that the money "should not benefit any particular private sector body". But "it is likely that they [TWL] are the direct beneficiaries".

Win-lose situation
The Eye has more than once summarised the TWL's all profit, no loss position as "heads- they-win-tails-the-taxpayer-loses".

It appears to agree, noting: "In reality... the JV partners [Corney and Musgrave] bear no risk or liability if the site is not progressed."

More top stories in the latest issue:

A high court judge has thwarted South Tees Development Corporation's attempts to deny access across its land to local port company.

At a London conference 35 countries pledged to crack down on spyware – but there were still several notable omissions from that list of signatories.

Provision for special needs in education is facing a national crisis, as costs escalate out of control and families fight for scraps of support.

The latest money-spinning wheeze involving struck-off dentist turned biotech chief Ajan Reginald, of dodgy "stem-cell" infamy, has unravelled.

The Irish planning appeals board is allowing the owner of a peatslide-hit windfarm site extra time to cover its backside over planning variations.

A university has uncovered "evidence of widespread plagiarism and cheating" at a private course provider whose degrees it was validating.

To read all these stories in full, please buy issue 1617 of Private Eye - you can subscribe here and have the magazine delivered to your home every fortnight.

Next issue on sale: 28th February 2024
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28th February 2024
Private Eye Issue 1616