The Tower Hamlets affair is a sad indictment of British local democracy

The Communities and Local Government Secretary Eric Pickles recent appointed commissioners to assist in the running of the London Borough of Tower Hamlets following the publication of a PwC ‘Best Value’ report. Chris Game argues that the affair shows the weakness of English local government and ignores the wishes of Tower Hamlets’ residents.

Credit: Alan Stanton, CC ND 2.0

He kept Communities and Local Government Secretary, Eric Pickles, waiting until almost literally the 23rd hour of the 14th day of his two-week deadline. In the end, though, Tower Hamlets’ elected mayor, Lutfur Rahman, having last Friday lost his second, and ill-advised, application for a judicial review, was left with little choice.

With forced smile and through gritted teeth, he was willing to accept and “welcome” the minister’s ‘intervention package’ and his three commissioners, who until March 2017 will take over specified mayoral and council responsibilities. About the only proviso he could muster to cover his mayoral modesty was that the solutions they offer should be “proportionate and workable” – which is about as low as climb-downs go.

The fortnight deadline had been conceded by Pickles when he made his intervention statement to the Commons on November 4, following a critical Best Value report by PricewaterhouseCoopers (PwC) into the borough’s governance arrangements. He could afford to be briefly conciliatory, because he knew Tower Hamlets’ fate had been effectively sealed in the summer, when the mayor’s first application for a judicial review was dismissed in the first line of the judgement as “hopeless”.

By one of life’s pleasing coincidences, that judgement coincided almost precisely with PwC’s regulatory advisory services unit being fined $25 million (or roughly Tower Hamlets’ annual transport budget) and suspended from consulting work for watering down a money laundering report.

I doubt if even Pickles suspects Tower Hamlets of money laundering, but, having also received hefty fines in recent years for failing to safeguard client assets – and “failing to comply with some of the most elementary auditing standards and procedures” – PwC must have seemed the ideal choice for someone who evidently reckons, like the ancient proverb, that an old poacher makes the best gamekeeper.

These PwC cases are, I suggest, more than mere debating points. The fines – and there are several easily searchable others – were for more serious and hugely more self-profiting misconduct than anything its report finds Tower Hamlets guilty of, and the company’s been violating best practice years longer than Mayor Rahman has been in office.

When the PwC report was published a fortnight ago the immediate response of the mayor and council was that it contained “no evidence of criminality or fraud”.

Unrefuted though it was, Rahman’s use of the F-for-Fraud word was (a) at least questionable, (b) a potential hostage to fortune, and (c) somewhat disingenuous. The questionability is that the report does refer (p.28) to “evidence of possible fraudulent payments” of grants to third-sector organisations (emphasis added), but, with the evidence now in the hands of the police, it is not examined further in the report.

The hostage to fortune is that many, probably most, of the fraud accusations levelled at Rahman concern the conduct not of council business but of elections – particularly his own 2014 mayoral re-election, which he won by only 4% from Labour’s John Biggs – and the investigations into these are still very much ongoing. There’s been a detailed judicial scrutiny of ballot papers, and an election fraud trial will take place in the High Court probably in January.

In relation to PwC’s Best Value Inspection report, the fraud reference is also disingenuous, because, as Rahman obviously knows, fraud is not what Best Value is primarily about.

BV was the concept introduced by New Labour in 1999 to supplant the Thatcher/Major policy of Compulsory Competitive Tendering. A council’s duty of BV is “to make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness” (emphases added). The 3Es are quite carefully defined, but “arrangements” aren’t.

The point is, though, that BV is about the existence and satisfactory operation of arrangements and processes. To demonstrate failure to comply, therefore, it isn’t necessary to demonstrate that money has been spent fraudulently, or even in a manner that has failed to achieve an appropriate standard of the 3Es; merely that satisfactory arrangements either haven’t been in place or haven’t operated satisfactorily.

Eric Pickles directed the PwC inspection to focus on the arrangements in four specific areas – those about which there had been most allegations, and essentially those that the commissioners will now take over: payment of grants, transfer of property to third parties, process and practices for entering into contracts, and spending and decisions on publicity.

The PwC report is roughly 200 pages long and by no means a hatchet job. Contracts, for example, were found unproblematic, and publicity received less criticism than Pickles personally would probably have liked.

On the other hand, three of the four property disposals examined were judged BV failures, and grant allocations were found to be all over the place – or rather, the very reverse, disproportionately concentrated on Bangladeshi and Somali groups and areas.

Best Value is a statutory duty and some of PwC’s findings showed serious deficiencies in “arrangements” and processes – much more serious than the mayor at first seemed to acknowledge, as he tried to downplay them as easily remediable “regrettable flaws”.

The really sad thing about this whole affair is the message it sends about local democracy. A Conservative minister, for whom most Tower Hamlets residents would never dream of voting, commissions a report from a bunch of highly-paid professionals, which finds that locally elected politicians have had the temerity to question and even override the advice of more highly paid, unelected officials, probably living outside the borough. And finally, a third set of highly paid unelected officials is sent in to take over.

At least some of those voters must surely be wondering why they bothered.

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Note: this post originally appeared on the INLOGOV blog. It represents the views of the author and not those of Democratic Audit or the LSE. Please read our comments policy before posting.

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Chris Game is a Visiting Lecturer at INLOGOV interested in the politics of local government; local elections, electoral reform and other electoral behaviour; party politics; political leadership and management; member-officer relations; central-local relations; use of consumer and opinion research in local government; the modernisation agenda and the implementation of executive local government.