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That the Motion in the name of Mr Pat McFadden relating to Financial Assistance to Industry shall be treated as if it related to an instrument subject to the provisions of Standing Order No. 118 (Delegated Legislation Committees) in respect of which notice has been given that the instrument be approved . -(Mr. Blizzard.)
Anne Snelgrove (South Swindon) (Lab): I am pleased to be able to bring this debate to the House, as it covers serious questions about Swindon borough council and its wi-fi scheme. In November 2009, the council announced an initiative with two newly formed Swindon-based businesses, Digital City (UK) and a London-based and Isle of Man-registered company, aQovia. It was an ambitious project that would deliver a limited free internet link to all who signed up, alongside three paid packages aimed at businesses, homes and roving users. A third company, Avidity Consulting, is also involved in the initiative.
I want to ensure that it is understood that the issue under debate today is not wi-fi itself but probity. The debate is about the behaviour of ruling Conservative councillors and, as a consequence of that, the behaviour of officers. It is also about accountability to the public and the lack of effective scrutiny procedures at Swindon borough council.
I am grateful to my constituents, and those of my right hon. Friend the Member for North Swindon (Mr. Wills), who have spent many hours investigating Digital City and its connections with the council. They have provided a good deal of the factual information that I will be putting forward today. I thank Geoff Reid and members of the Talkswindon website, particularly the blogger known as Komadori, and Chris Watts, a local businessman whose involvement came about through his anger at the restrictive practices adopted by the council.
I wish to state clearly at the outset that I support universal internet access, innovation and local councils working with local businesses. However, neither I nor the Government support excessive secrecy, and I believe that Swindon borough council should have been open, transparent and prepared to engage with everyone on these issues. Sadly it has been exactly the opposite.
"Super-fast broadband is the electricity of the digital age....it must be for all-not just for some...We have already decided to commit public funding to ensure existing broadband reaches nearly every household in Britain by 2012".
In his speech, he gave details of how Labour will ensure that super-fast broadband reaches every home in the UK, creating thousands of new jobs in the process. Labour's plans will see universal access to broadband by 2012, with 90 per cent. of UK households having access to next-generation broadband by 2017.
Labour's support, and mine, for universal access to high-speed broadband, rather than a two-speed scheme as envisaged by Digital City, should not be doubted. Although that is the major issue, my constituents raise many other issues about the wi-fi project that damage that aspiration in their eyes, such as whether the best technology has been employed, the effect of the council's secretive deal with a newly established company on other, well established small and medium-sized enterprises in Swindon, and the health implications of a wireless network.
Swindon borough council has provided a loan of £450,000 on commercial terms to Digital City to enable it to create the wi-fi network across Swindon. In return for that loan, the council has received a 40 per cent. equity stake in the company. If the loan is repaid within two years, Avidity Consulting has an option to purchase 5 per cent. of the company's shares from the council for £1. Avidity already has a 25 per cent. stake in the company. The other shareholder is aQovia, which holds the remaining 35 per cent. of the company. Digital City intends to install wireless internet across the entire borough of Swindon. Both Digital City and Avidity Consulting were incorporated on 14 August 2009 as off-the-shelf companies. They became active on 21 and 22 September respectively and thus have a negligible track record. On 13 March 2009, aQovia was incorporated and it appears to have become active on 16 September, and thus it also has a limited track record.
According to a timeline produced for me on 19 March 2010 by the chief executive of the council, for which I am grateful, discussions commenced at officer level at the council on 19 January 2009 involving the instigator of the initiative, Rikki Hunt, and members of aQovia. According to the timeline:
"On 25th June 2009 Rikki Hunt presented an outline proposal to the Leader and various members of the Cabinet; this consisted of the business idea, the level of investment that was being sought and the potential level of return if the Council chose to invest. Subsequently, officers were asked to do some more detailed work in order for a funding proposition to be considered.
3rd - 10th July 2009 a financial plan and written outline business case was received from Rikki Hunt."
Following that, a decision was taken by Rod Bluh, the Conservative leader of the council, to deal with the proposal using a lead member briefing note. Crucially, that confined the formal consultation and decision making to two councillors only-the leader, Councillor Bluh, and the lead member for finance and benefits, Councillor Mark Edwards. Both those councillors subsequently signed a cabinet member briefing note in mid-October, following which officers were able to exercise substantial delegated powers. That meant that the proposals did not have to be discussed in committee at an early stage or voted on by a larger group of councillors.
The immediate consequence was that the councillors could ensure that officers were able to use council powers to the advantage of Digital City and the wi-fi project. For example, an earlier resolution made at full council specifically for rapid action to be taken on town centre regeneration was used to enable the loan of £450,000 to be made, which meant that the loan did not have to go through the normal council processes. The requirement for a credit rating of the companies concerned under treasury management rules was set aside, presumably because the companies were less than a year old and had no substantive credit history. Given the lack of a corporate track record, the decision by Swindon borough council was made
"primarily on the track record of the key individuals concerned and on the basis that risks and rewards would be fairly apportioned",
In a letter to me dated 4 March 2010, my right hon. Friend the Minister for Regional Economic Development and Co-ordination detailed the background of EU
procurement directives that set out the legal framework, detailed procedures and criteria for the specification, selection and awarding of contracts above certain thresholds. She stated that
"even below these thresholds, the EU treaty-based principles of nondiscrimination, equal treatment, transparency, mutual recognition and proportionality apply."
"in most cases there should be a competitive procurement advertised".
Swindon borough council asserts that because the £450,000 was a loan, it is not subject to the normal procurement rules, despite its own shareholdings in Digital City and place on its board. However, the council is using EU competition rules to prevent our local dial-a-ride from competing for council contracts to carry the disabled, and other councils, including Norfolk county council, have published a tendering process for their wi-fi networks.
The cosiness of the relationships of those involved, and the lack of external scrutiny while they were being set up, should alarm all who are interested in local government probity. At the very least, it calls into question the judgment of those concerned, who should have been well aware that they would be called to account, and that they therefore needed to put extra safeguards in place to protect themselves from suspicion as their roles cross over so many times. At worst, it obfuscates actions which gamble public money in untried companies with inexperienced and naive directors, who had no sustainable business plan and were unprepared to answer serious and searching legitimate questions from other elected members as well as local people.
I shall quote at length from the important timeline that the chief executive of Swindon borough council provided for me-I remind the Minister that the document from which it is taken is dated 19 March 2010. It states, under "conflict of interest":
"It came to light that an officer involved with this project had been registered as a Director of Digital City (UK) Limited since September 2009. He was unaware of this. He had pre-signed but not dated a registration document during the preparatory phase of this project and this was highlighted to colleagues at the time. The signed form was held by Digital City (UK) Limited, on the understanding that this was a contingency measure to be invoked if required and if agreed by the Council. The registration was sent off in error by Digital City (UK) Limited and they have apologised to the officer for this. The officer asked to resign from the Board of the company as soon as this came to light and this was effected on the 11th March 2010. He is no longer a Director of Digital City (UK) Limited. At no time did the officer receive any communication from Digital City (UK) Limited stating that he was a Director of the company nor did he receive any remuneration or any other consideration from Digital City (UK) Limited. There have been no Board Meetings of Digital City (UK) limited. This officer has, however, participated, with other Swindon Borough Council colleagues, in regular project and progress meetings."
I have quoted that at length because it contradicts two other sources of information sent directly to me. The first is a letter to me dated 28 January 2010, again from the chief executive. In response to my question in a letter about the council's involvement in the day-to-day running of Digital City, it states:
"This is an arm's length arrangement; we hold shares in Digital City and there is governance in place that allows us to protect the Council's interests; we have a Director on the Board".
That contradicts the 19 March briefing note to me, which implies no knowledge of the officer's appointment to Digital City's board on 26 September 2009. Despite
the chief executive's reassurances, the officer concerned was one of the authors of the briefing note to Councillors Bluh and Edwards written two weeks after he had become a director on 12 October 2010. The briefing note recommended providing the loan of £450,000 to Digital City and I am sorry to say that his directorship was not disclosed.
"As well as myself, the two other board members are Hitesh Patel, a Director of Swindon Borough Council and Mustafa Arif, a Director of aQovia",
although there is no record at Companies House of Mr. Arif being a director. Anecdotal evidence also suggests that officers and councillors referred to the officer's appointment to Digital City's board on several occasions. In addition, the officer himself was clearly aware that he was a director of Digital City, as he apparently self-publicised the fact for five months via his LinkedIn profile. I can conclude only that when it was advantageous for the council to have an officer on the board of Digital City, it publicly claimed that that was so, but as soon as the matter became too hot to handle, it found a way of disposing of the board membership.
Bob Spink (Castle Point) (Ind): The hon. Lady is a caring and assiduous constituency Member of Parliament, who works hard for her people in Swindon. Does she feel that the cabinet system that she describes allows a small number of councillors to become cosy and close to senior officers in a council, and that that enables such circumstances to develop, when a more traditional cabinet system would give more councillors more information and prevent such things from happening?
Anne Snelgrove: I understand the hon. Gentleman's concerns. The problem has been the process. I think that sufficient safeguards exist, but the cabinet member brief brought about all the secrecy. That is my concern-it is a very unusual process. The hon. Gentleman gives me an opportunity to say that I have a high regard for the officers and particularly the chief executive of Swindon borough council. I believe that the ruling Conservative group has placed pressure on those officers. Even if all seats are won by opposition parties at the local elections in May, that group will still be in power in Swindon. That is a difficult situation for officers to combat.
As I was saying, a number of questions arise about the robustness of Swindon borough council's contract with Digital City. Does it reflect the council taking on what appears to be 100 per cent. of the risk? That question is relevant if wi-fi does not succeed in attracting sufficient customers in a crowded market, because £450,000 of taxpayers' money will be lost. If wi-fi succeeds, will the contract bring the council sufficient rewards, or does the larger proportion go to the individuals behind the recently set up companies Digital City and aQovia? That should be subject to the council's scrutiny process, but it is impossible for me, my constituents or councillors of any party not involved in that enterprise, including the ruling Tory party, to find out, because the council determines that such questions are for Digital City-not
the council-to answer. Digital City has provided basic information, but it cannot be tested through the normal democratic process, thus disfranchising councillors, MPs and their constituents.
No opposition councillor has had sight of the contract or the business plan, but at the beginning of this month the company had sold only five packages, rather than the 100 private-use packages and 25 business packages in the original loan conditions, and it had not managed to attract any private sector investment. It is clear from the cabinet briefing paper of 10 March 2010 that there had to be a significant downgrading of the original progress measures to allow the council to agree to the release of the second phase of the loan-£150,000.
Although that was agreed by the cabinet, in an unprecedented move last week's scrutiny committee meeting at the council referred the decision back to the next cabinet meeting on 31 March. I sincerely hope that the cabinet does the right thing and delays any further allocation of taxpayers' money until a full cross-party investigation can be carried out into the actions of councillors and officers-I mean an internal investigation, with councillors from the Tories, Labour and Liberal Democrats, and independents, who I am sure would be welcome. The robustness of the business plan and the loan agreement terms also need investigating, as does the lack of a tendering process, which gave an advantage to one company over others.
The technology used by Digital City is a wireless network with signals sent from boxes attached to council-owned lamp posts throughout Swindon. For that, Digital City needs planning permission and an electricity supply for the planned total of 1,400 boxes, which one of my constituents estimates will cost approximately £35,000 per annum. It is not clear whether Digital City or Swindon borough council will bear the cost. That is old technology, and whether it will produce the speeds quoted by Digital City remains to be seen, but there is scepticism that it will consistently provide speeds of 20 megabytes, which are crucial for wide take-up. Those who sign up for free wi-fi will not have access to the fastest speeds, creating the kind of two-tier network that was criticised by the Prime Minister in his speech today.
Digital City relies on Swindon borough council's connections, which I understand must be upgraded to take that into account at a cost of approximately £45,000. Although there is nothing wrong-in fact, it is good-with councils increasing their internet capacity, the issue is one of openness and transparency, because of the cost to taxpayers and the potential commercial gain by Digital City, which is not required to provide expensive infrastructure.
There are many opportunities for IT companies to provide digital access for Swindon homes, and we already have one of the highest take-ups in the country. It is a very crowded marketplace, with some of the largest companies in the country competing with small local businesses: our newest housing estate, Wichelstowe, provides fibre optic connections to all homes for both television and internet access; the Toothill estate in west Swindon is one of BT's pilot areas for comprehensive and very fast fibre optic connection; and an international company with headquarters in Swindon is upgrading its internet signal and considering making free wi-fi available after office hours within a 20-mile radius of its building.
I welcome those initiatives, because they promote social inclusion and ensure a marketplace for my constituents that will keep prices competitive and offer a wide choice.
However, the entry into the marketplace of a council-backed company-effectively, it is publicly subsidised-will have a detrimental effect on small and medium-sized IT companies in Swindon. Several local companies have raised considerable concerns with me, particularly about the lack of opportunity to tender for the business and the loan given to Digital City during the worst recession for many years, when most SMEs were finding it impossible to get loans at a decent rate of interest, especially brand-new companies without a track record. Had Digital City gone instead to a high street bank for a £450,000 loan on the evidence of its business plan and ropey marketing strategy, I imagine it would have been laughed off the premises. The rate of interest on the loan has not been disclosed. As I said, it has been described as a loan on commercial terms.
In addition to the loan, Digital City has been given council premises for its headquarters at no cost to the business, and free access to council officers' time and advice. Councillors and officers claim that the council premises have no value and Digital City would enhance the offices, but that is at odds with the cabinet member briefing note of 12 October 2009, which states:
"The space will be made fit for office occupation and this cost will be met through the existing corporate repair and maintenance budget."
This is a massive subsidy, as all small businesses will know that start-up office costs are a big initial outlay for new ventures. In addition, the briefing note acknowledges that Digital City will need to install wireless boxes on council-owned lamp posts and states, in advance of any discussion at planning committee:
"The Council will also grant Digital City licences to install equipment at a number of its facilities across the Borough. Discussions are continuing around the possible need for Planning permissions to be granted."
Again, any business that has had dealings with council planning departments will know what a massive commercial advantage the automatic granting of licences gives, alongside officer help through the planning process if needed.
Swindon borough council, unlike Essex county council, does not have a small loans scheme for local businesses, so there are no opportunities for other SMEs in Swindon to take advantage of a council loan in the way that Digital City has. While Swindon borough council states that the loan is at "commercial rates", there is no evidence of what these rates are and how they compare to what was being offered to similar SMEs last year, when interest rates averaging 15 per cent. and secured against their own homes were being quoted to my constituents. Was this a condition the council set for the directors of Digital City? I very much doubt it.
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