The Draft – Otterpool Park Business Plan is a very badly assembled document. It is a low quality document for such a high-value project (£2.7 billon). The person responsible for drafting this document has made use of copy and paste from other documents. And it raises more questions than it answers.
Folkestone & Hythe District Council’s recently released Draft – Otterpool Park Business Plan it states at Section 3.2 (Land Capture Value)
“The capital receipts will result from the selling of serviced plots to housebuilders, some receipts will be reinvested in the project and some will be payments to the Council to enable the repayment of loans to the company and to support improved Council services. Further capital receipts could be generated if the Council wanted to directly develop land for housing or commercial uses.”
Now for those of you who might not be aware, the Council cannot use capital income [money made from the sale of the plots of land at Otterpool] to fund revenue expenditure [ the council’s day-to-day expenditure on homelessness, planning, salaries and wages, fuel, utility bills and service contract payments, etc].
If they were to do this, that would amount to money laundering and we suspect the Council will not do this.
So how do they extract the money and allow services to be funded to improve the district and the lives of local residents?
They offer potential solutions, as opposed to concrete one’s at section 3.2 of the document, by stating: revenue receipts could [not will] manifest from a range of sources which could include:
“Income from land and/or buildings through the payment of rent (residential and commercial). The Council could retain the freehold interest in parts of the site and achieve ground rents or it could potentially construct commercial buildings to let.
The provision of services to the LLP e.g. Grounds maintenance”
If the council use the first of these methods they would become a much larger landlord than they already are. Given there track record as a landlord: see ⇒ Folkestone & Hythe Regulatory Notice issued – September 2019, we should all be concerned.
At section 5.3 Distribution of Surpluses it states:
“Each year the board will meet to decide what proportion of the net profits (if any) should be retained for the working capital reserves of the LLP and for reinvestment in the LLP in accordance with the business plan. The remainder will be distributed to the members in accordance the proportion each member is entitled to, currently the Council is entitled to 99.9% and the Limited Company 0.1%”
As the law stands regarding LLP’s, profit cannot be retained in the same way as a company limited by shares. This means all earned profit is effectively distributed with no flexibility to hold over profit to a future tax year. So retaining any profit is NOT allowed, yet the document makes it clear profit made by the LPP can be retained. This is very worrying as it shows the Council and those who put the document together do NOT understand how an LLP works.
To fund Otterpool the council will have to borrow money. At Section 8 (page 26) of the Draft Otterpool Business Plan, they set out a range of options but do not opt for any specific arrangement.
At section 8.1, the document speaks of “our financial models”. Will Cllrs and/or the residents of the district be allowed to see these documents? Don’t hold your breath.
Also at Section 8.1 it states:
“All costs and revenues are day one, ie, do not include inflation. This approach has been taken because it is not possible to credibly forecast build cost inflation or house price inflation in the medium to long term. Past performance would suggest that the house price indices rises faster than the build cost index, and fluctuates to a greater extent. Both rise and fall over the economic cycle. Ultimately the spread between these indices over time will define profitability”
An investment model that does not include inflation (or even anticipated models) is surely a bad investment model?
Section 8.1 goes onto state:
“Even in the absence of House price inflation, evidence from similar schemes suggest that values rise through ‘betterment’ when a scheme becomes established making the assumption that this does not happen at Otterpool very conservative.”
Where is the evidence that supports the council’s presumptions. And which similar schemes are the council referring to?
“We have adopted the Infrastructure costs provided by Arcadis version 2.4 review with amendments provided by FHDC. This model is subject to ongoing review both in terms of the quantum of individual costs; and also in terms of the requirement of each cost item within a given phase of development.”
Has the Arcadis version 2.4 been seen by Cllrs and/or residents before? This document does not appear to be in the public domain.
Again section 8.1 says:
“All phases stand alone and profits are extracted, not reinvested in the next phase”
This utterly contradicts Section 5.3 which states:
“Each year the board will meet to decide what proportion of the net profits (if any) should be retained for the working capital reserves of the LLP and for reinvestment in the LLP in accordance with the business plan.”
It is our opinion that the Draft – Otterpool Park Business Plan is a very badly assembled document – low quality for such a high-value project. It contains a lot of copy and paste from other documents and raises more questions than it answers.
We will look at other aspects of the document in the near future.
The overview & scrutiny committee who will look at this on the 1st Dec 2020, need to recommend the current draft document be scrapped and redone, as it raises more questions than it answers.
We hope they will do this.
Finally we note the document is based on a template written by this person:
The Shepway Vox Team
Being Voxatious is NOT a Crime