Auditors warn Cambridgeshire County Council may be unable to recover £113m owed by This Land

A deteriorating financial position at Cambridgeshire County Council’s housing development company means the authority could be unable to recover the £113million it is owed, auditors have warned.

The company, This Land, is wholly owned by the council and it oversees the acquisition and development of land and property for subsequent resale.

The council has loaned £113.85m to the company, invested £5.85m as equity and last year it handed over a further £6.3m due to a worsening economic outlook for housing developments.

Auditor KPMG says the company poses a “significant risk” to the authority as performance reports suggest it is “significantly” behind its business plan .

KPMG warns that, together with the council’s other financial pressures, it risks putting a long-term strain on the
financial sustainability of the authority.

The council says it is considering its options as to how to best support the company in the future and ensure an “appropriate risk exposure” going forward. It says it is drawing on advice from sector specialists as part of
the council’s shareholder oversight of the company.

“The net liabilities position in This Land Ltd has deteriorated year on year since 2021, which increases the risk in
relation to the recoverability of the £113.85m loan balance,” the draft auditor’s year-end report for 2023-24,
published last month, states.

It goes on to say: “We have reviewed the actual performance over time and note that whilst revenues have seen a steady increase there has been a steady decline in net liabilities over this period making the ability for the company to repay the loans to the council more challenging.

“In addition, the company continues to generate gross losses of 25 per cent to 56 per cent. This Land is not currently performing in line with its initial business plan, with significant increases in the net liabilities position noted between January 2022 to January 2024, and there remains [a] financial challenge into the future.”

The report warns that due to the current volatility in the housing market there is a “high probability” the company will default over the lifetime of the loan.

However, it acknowledges: “We are aware that there have been historical governance issues identified with This Land, resulting in the council as shareholder bringing in external advisors Avison Young to complete a review over the governance arrangements in November 2021.

“This report… identified a number of actions to be taken and also included a review of business case assumptions.

“We note that since that report there has been regular tracking of the actions by This Land and the council, and we
note that through 2023-24 further progress was made to strengthen the governance arrangements with a review of the shareholders agreement, the introduction of an additional governance layer and appointment of two new board NEDs.”

A Cambridgeshire County Council spokesperson said: “The council’s loans are due for repayment by 2030,
and the council continues to work with its wholly owned company, This Land, and the shareholder sub-committee
continues to consider and review the company’s business plan.”

The issue was also raised at the authority’s full council meeting on Tuesday when public speaker Phil Duff asked: “This Land has lost money every year since its inception eight years ago, and has now lost over £50m in total. These losses have accelerated to nearly £1m per month in the last year. Bearing in mind the every-growing gap between its liabilities of just over £120m and its assets of just £76m, how much longer is the council going to allow this company to continue?”

Council leader Cllr Lucy Nethsingha responded: “Whilst it is typical for a company of the nature of This Land to
experience accounting losses in the early years of development, the wider economic situation arising from the pandemic, the Ukraine war, alongside the impacts on inflation and interest, have adversely impacted nearly every
company in this sector.

“It is helpful, I think, to point out that the original plan was always a long-term one that saw the company did with
the company would deliver projects and a return by 2030 and that remains the focus of the company.

“The joint administration has transparently shared that it took a decision to support that delivery with a small additional cash flow to enable the company to progress its developments. In response to those challenging
economic factors, the company board has assured itself of the future solvency of the company, as it must regularly do, and I thank them for that challenging task.

“We remain focused on ensuring that the overall long-term cash flow to the council from this land is greater than its
outflows, and while also realising the huge tangible benefits to our community that have been secured
from the development of land and homes in Cambridgeshire.”