Agenda item

The report provides an update from the Board of I4B Holdings Ltd on the progress it has made in mobilising the company and delivery against its business plan.

Conrad Hall (the Council’s Chief Finance Officer) introduced Mr Martin Smith, Chair of I4B Holdings Ltd, and provided background information about the company. Mr Hall pointed out that I4B Holdings Ltd (I4B) was an investment company wholly owned by the Council, which was a distinct legal entity with its own Board of Directors. He reminded Members that it was in the remit of the Audit Advisory Committee to scrutinise I4B’s financial models and forecasts and to consider governance matters that may arise. 

Martin Smith presented the paper and said he would focus on four key areas – the degree to which the company was fulfilling its aims; finance; governance; and next steps.

Delivery against the company’s original objectives 

Mr Smith said that I4B was delivering against its aims – it was buying the right type of properties, it was a responsible landlord which provided good quality accommodation and it generated revenue for the Council. Setting up the necessary banking arrangements for the new entity was difficult and this had delayed the purchasing of properties to build the company’s portfolio. Moreover, as it had been challenging to purchase a large number of properties in a short period of time and to refurbish them at the right pace, the aim of providing 300 units in 24 months might be achieved over 30 months. The Council had purchased properties on behalf of the Company which helped generate momentum. Mr Smith noted that the properties acquired so far deviated from the allocations  in the Business Plan (Brent – 40%; Greater London – 10 %; Home Counties 50%), but it was expected that this would be rectified.   

Finance

The Committee heard that the company had to generate net income through rent to pay its costs. Using the data gathered from the acquisition of 52 unites, the financial model predicted that property purchase and acquisition costs for 300 properties would exceed the agreed funding limit of £100 million and there would be deviation from the preferred locations reflected in the original assumption. For example, there would be underachievement of properties in Brent and Greater London, with a surplus in other areas.

Governance

Mr Smith noted that the company had virtual infrastructure, with Service Level Agreements (SLAs) with Brent Council in place to allow council staff to complete work for I4B. Moreover, the company utilised the Council’s Oracle system and shared a ledger with the Council. The advantage of such an arrangement had been that the company could use the Council’s set of controls and avoided potential tension between the company and the shareholder. This had made it necessary to ensure that there was a clear distinction between decisions taken by the company and by the Council in its role as a stakeholder. Mr Smith emphasised that the primary objective of I4B was to reduce the number of households in temporary accommodation and the secondary objective was to increase the supply of affordable housing.    

Next steps

The company would continue buying properties until the target of 300 was reached. In addition, it had explored a number of opportunities which could complement its landlord role, strengthen its Business Plan and deliver more benefits for the Borough. Councillor George Crane (one of the company’s Directors) added that the I4B Directors were in a process of reviewing the Business Plan which they had inherited in the form it had been agreed by Cabinet. He referred to section 7 of the report (pages 25-26 to the Agenda pack) and highlighted that there were a number of opportunities for I4B to move forward.

A member of the Committee asked a question that related to the contingencies that had been put in place to mitigate losses if tenants were not able to pay their rents. Mr Smith explained that the rent charged by the company would be equal to the local housing allowance level. In addition, an allowance had been made for loss of income, but it had not been possible to test it as there had not been any properties which had experienced this. In the event of change of the interest rate, Mr Smith said that the governance arrangements that had been put in place would be applied – as I4B was a borrower from the Council at a fixed rate, changes in the interest rate would not be detrimental to the local authority. Mr Hall added that interest rates would be monitored and said that these were expected to raise sooner than previously forecasted. He advised the Committee that the overall Treasury Strategy ensured that the Council’s accounts were balanced, but pointed out that the Council was more likely to enter into borrowing arrangements in the next 18 months in which case changes in interest rates would affect Brent’s position.

A Councillor who was attending the meeting as a member of the public referred to paragraphs 5.8 and 5.9 of the report (pages 22 and 23 to the Agenda pack) and questioned the way properties would be distributed. In response, Mr Smith said that the company had to start buying units as soon as possible. The main criterion which had been taken into account was whether a property was worth buying. He explained that for the yield that had been estimated, it was not possible to find any properties in the borough so other areas had been considered. The yield had been balanced in such a way that low yield properties in Brent were balanced by high-yield properties outside the borough. Mr Smith estimated that once the company’s portfolio had been completed, the division of properties would be expected to match the original Business Plan. Peter Gadsdon (the Council’s Director of Performance, Policy and Partnerships and one of the I4B’s Directors) seconded this view and said that the Directors were confident that they could manage the process in such a way that the company would acquire more properties in Brent than anticipated. The Committee heard that the Directors hoped that in the longer term the portfolio of I4B would be worth more than what it had been spent on it. It was highlighted that the company did not aim to make significant profit and that any revenue savings would belong to the Council.

Mr Sullivan commented that the Audit Advisory Committee had been tasked with giving assurance to the Cabinet and noted that the Committee had to be sure that the elements were in place for it to discharge its duty. He said that although the report was very informative, the contents were more suitable for a meeting of the Council Management Team (CMT) or the Housing Scrutiny Committee. He stressed the importance of internal audit and requested that information on Key Performance Indicators (KPIs) and risks was included in future reports. The Chair reminded Members that the Committee had the right to request the company to be audited internally if Members considered this to be necessary, and would need to be able to rely on audits commissioned by the Company. In response, Mr Smith said I4B had commissioned internal audit provision from the Council’s Internal Audit and Investigation Service (via their contracted partner –PricewaterhouseCoopers). I4B were content, once internal audit reports had been finalised that they would be shared with the stakeholder.

A Member of the Committee enquired whether the Directors present at the meeting were in agreement with the contents of the Business Plan and asked if there was anything specific they disagreed with. Mr Smith responded that the Directors accepted it, noting that it was a dynamic model that guided the company. Carolyn Downs (the Council’s Chief Executive) added that the process outlined in the Business Plan could be changed to implement the lessons learned and improve the performance of the company, but amendments had to be signed by CMT and agreed by Cabinet.

RESOLVED that the contents of the Update on mobilisation and initial operation of I4B Holdings Ltd report, be noted.

Councillor Davidson entered the meeting at 7:11 pm.

Councillor Crane left the meeting at 7:14 pm.