An independent review has concluded that the final decision which led to Newham Council investing £40m into the transformation of the London Stadium after the 2012 Games was “flawed”.
The review by specialist local government lawyer Peter Oldham QC looked at decisions made by the council between November 2011 and March 2013 by which it approved a loan to Newham Legacy Investments Ltd (NLI), a company owed by the Council which was a 35 per cent shareholder of E20 Stadium Limited Liability Partnership, the owners of the former Olympic Stadium.
The report highlights that the council had the legal power to invest in the stadium but the final decision to invest £40 million in March 2013 was flawed because it did not meet one of its self imposed conditions for investment that a financial return of £3 million per annum, would be achieved.
Whilst the report made no direct findings on governance within the authority, because it was outside of the review’s Terms of Reference, the council has identified areas where governance and transparency can be improved. Newly elected Mayor of Newham Rokhsana Fiaz with the support of the council and officers has already promised more openness, accountability, and scrutiny in future decision-making, especially from the public.
Speaking at a meeting of full Council on Monday (July 16) Mayor Fiaz said: “The view we can draw from this report is this was ultimately £40 million down the drain. For me, the report helpfully tells us that concerns raised by financial advisors at the time – namely that a £3 million return on a £40 million investment was not achievable – were ignored.
“The vision for the stadium and the benefits it could provide was exciting, but the investment by Newham in 2013 was significantly flawed because not enough attention was paid to the detail when the final decision was made. The enthusiasm for the stadium’s potential far outweighed the scrutiny necessary into its limitations, which ultimately meant that the anticipated return in the £40 million investment could never have been met.”
The review questions the use of urgency procedures which meant that councillors and officers often did not have enough time to properly read and understand highly complicated reports. The QC’s report comments that the council should maintain its normal timetable for decision making unless there is a good reason to depart from it and should be challenging about assertions of urgency.
The council noted most of the decisions were also not made available to the public, press and other councillors on the grounds of commercial sensitivity. This would have been justifiable for key information when negotiations were taking place but it had the effect of limiting the transparency of the process, particularly to councillors who could have scrutinised the process but also maintained the confidentiality.
From the report, it can be determined that there was a potential lack of accountability created as decisions were made behind closed doors and delegated to senior officers, with input limited to a small group of elected members and the then Mayor.
Whilst the report makes no findings on this, it can also be concluded there may have been “optimism bias”, which resulted in the underestimation of risks and overestimation of perceived benefits of making the investment.
Mayor Fiaz said: “When I became Mayor, I pledged that openness and transparency in decision-making would run throughout the new administration. A vital part of that is strengthening our scrutiny measures and involving residents as much as possible.
“I have already started to introduce greater transparency by moving power away from myself as Mayor and I will be delegating decisions to the Cabinet collectively on most issues. I will also be ensuring that members and residents are involved wherever possible in our democratic process to ensure more accountability.
“As a council, we should not be opposed to exploring opportunities that regeneration can present, but robust scrutiny and increased clarity are essential to prevent such detrimental mistakes being made again.
“Led by myself and the Cabinet, the council will continue to work closely with all partners involved in the stadium including the Mayor of London and London Legacy Development Corporation so that all potential benefits from the stadium in future are maximised for our residents, including free access to world class events and proper community involvement.”
A broader review will be carried out into the culture and practices of Newham Council. Proposals will be brought to the next Full Council meeting in September including details of the process and individuals who will undertake this work.
Mayor Fiaz will also in September bring forward changes to the scheme of delegation and establishing the commission looking into the Directly Elected Mayoral Model and enhancing the role of residents in decision-making.
To ensure transparency, the review report is available here (PDF)
Terms of reference are available here (PDF)
You can also read the full statement by Mayor Rokhsana Fiaz OBE here (PDF)