MD2493 OPDC Supplementary Budget 2019-20

Type of decision: 
Mayoral decision
Code: 
MD2493
Date signed: 
15 July 2019
Decision by: 
Sadiq Khan, Mayor of London

Executive summary

This decision seeks Mayoral approval for the provision of a supplementary budget of up to £10m for the Old Oak and Park Royal Development Corporation (OPDC) to support the Corporation in securing the Government’s Housing Infrastructure Fund (HIF) allocation of £250m for Old Oak North.

The funding, which it is anticipated will be recovered from the HIF allocation once it is contracted, is required both to support the due diligence and conditions that need to be met prior to contracting with MHCLG and to maintain momentum to ensure that the deadline for spending the HIF funding is met.

Decision

The Mayor approves:

1. Revenue grant funding to OPDC of up to £10m in 2019 20 under section 121 of the GLA Act 1999 to support the work programme required to secure the Government’s Housing Infrastructure Fund (HIF) allocation of £250m for Old Oak North which cannot be contained within OPDC’s existing 2019-20 Budget.

2. That this grant be paid, as follows:

a. £1.8m to be paid immediately; with
b. further sums to be drawn down to support the work programme for HIF, by agreement with the Mayor’s Chief of Staff, in consultation with the GLA’s Executive Director of Resources.

3. The grant to be temporarily funded from the Mayoral Development Corporation Reserve (£1.235m) and the Strategic Investment Fund (all remaining payments), pending the sums to be repaid from HIF funds.

4. The Mayor’s Chief of Staff, in consultation with the GLA’s Executive Director of Resources, be delegated to review progress and risks monthly and agree any further expenditure required to secure the HIF funds which cannot be contained within OPDC’s existing 2019-20 Budget. This delegation is to supersede the existing delegation approved in MD2401.

Part 1: Non-confidential facts and advice

Introduction and background

In July 2017 the Government launched the Housing Infrastructure Fund, a capital grant programme of up to £2.3bn to deliver physical infrastructure and unlock up to 100,000 new homes in England.

OPDC submitted an Expression of Interest (EOI) for £250m of Housing Infrastructure Fund (HIF) funding in September 2017, to bring forward development in Old Oak North by delivering infrastructure and land acquisition to enable a first phase of development activity. The key deliverables were to:

• Fund the prompt delivery of road and utility infrastructure to make currently inaccessible land available for redevelopment; and

• Acquire a range of fragmented land ownerships to create viable development plots and catalyse OPDC’s vision for Old Oak.

The OPDC EOI was shortlisted on 20 March 2018 and the GLA (which led on all the London HIF bids) was invited to submit a ‘5 Case’ Outline Business Case (OBC) to Homes England (HE). This was submitted on 10 September 2018 following MD2355 and OPDC engaged with the Government and HE to clarify matters in connection with the OBC to enable the bid to progress.

The OPDC bid was awarded the full £250m at the Spring Budget on 13 March 2019, after which the Ministry of Housing, Communities and Local Government (MHCLG) outlined the further due diligence and conditions that are required to be met prior to contracting and draw down of funding.

OPDC’s budget for 2019 20 was set prior to the confirmation that its HIF bid had been successful and so contained provision only for its core activities (excluding any contingency provision held by the GLA), with no additional provision made for HIF related activity, although it was agreed that OPDC’s budget would be kept under review and revisited in light of a successful HIF bid.

Subsequently under the delegation in MD2401 given to the Mayor’s Chief of Staff, in consultation with the Executive Director of Resources, £450k was paid to UK Power Networks in May to help secure electricity in the area, it being more cost effective to align this with HS2 works. This payment was funded from the Mayor’s Development Corporation Reserve.

This decision seeks Mayoral approval for the provision of a supplementary budget for OPDC of up to £10m in 2019 20 to support the Corporation to secure the Government’s Housing Infrastructure Fund (HIF) allocation of £250m for Old Oak North which cannot be contained within OPDC’s existing 2019-20 Budget. The funding is anticipated to be recovered from the HIF allocation once it is contracted. It is a requirement of HIF that all funds be spent by March 2024 and therefore it is necessary to progress time-critical activities ahead of receipt of the HIF funding, as well as undertaking the work required to meet the Government’s proposed conditions.

An immediate payment of £1.8m is to be made which reflects what has been spent to date and what is about to be committed in the next few weeks, minus sums which can be contained within OPDC’s existing budget. Subject to ongoing monthly reviews, the Mayor’s Chief of Staff, in consultation with the GLA’s Executive Director of Resources, is to be delegated authority to consider and agree the further expenditure required to secure the HIF funds which cannot be contained within OPDC’s existing 2019-20 Budget.

Consideration has been given to providing the financial support to the OPDC in the form of a loan pending the receipt of the HIF funding. However, this would require interest to be charged and require the OPDC to set aside an appropriate amount to repay this loan from its revenue resources unless and until the HIF funding is contractually secured. As the GLA is funder of the OPDC, these costs could require additional funding to be provided by the GLA. As such there would be no financial benefit to the GLA from this approach.

Objectives and expected outcomes

Housing Infrastructure Fund

 

    1. The overall objective of the OPDC HIF programme (Old Oak – Delivering London’s Largest Opportunity Area) is to address market failure by installing strategic infrastructure and bringing forward key development sites to enable the building of 10,000 homes in the core development area of Old Oak North and a further 3,000 homes in the immediately surrounding area.  This will be the first stage towards delivery of OPDC’s wider vision for Old Oak as a major new mixed purpose district for London with up to 25,000 new homes, built around a major new HS2/Elizabeth Line interchange station and characterised by high-quality design and public realm, an intelligent mix of uses, affordable housing, and a sustainable approach to managing energy and other utilities.  
    2. Set out below at Table 1 is a summary of the additional expenditure OPDC has incurred up to 30 June 2019 and that which it is about to commit in the next few weeks to secure HIF funds, which cannot be contained within its approved 2019-20 Budget. This table reflects the re-prioritising of OPDC’s existing Budget to reduce the additional call on the GLA.

Table 1 – Summary of immediate expenditure to be paid

 

 

 

    1. Set out overleaf at Table 2 is a summary of the additional expenditure OPDC plans to incur to secure the HIF grant, over and above that set out in Table 1 above.

Table 2 – Summary of additional expenditure proposed to be incurred

 

Equality comments

Under section 149 of the Equality Act 2010 (the “Equality Act”), as a public authority, OPDC must have ‘due regard’ to the need to eliminate unlawful discrimination, harassment and victimisation, and to advance equality of opportunity and foster good relations between people who share a protected characteristic and those who do not. Protected characteristics under the Equality Act comprise age, disability, gender re-assignment, pregnancy and maternity, race, religion or belief, sex, sexual orientation and marriage or civil partnership status.

When considering the needs of the existing community and those that will be affected by the proposals for the redevelopment of Old Oak North, any resulting development activity will minimise disadvantages to all protected characteristic groups within society.

This decision is not expected to have any negative impact on persons with a protected characteristic under the Equality Act.

Further equality comments in respect of the GLA in relation to the OPDC HIF bid are set out in paragraph 3 of MD2355.

Other considerations

a) Key risks and issues

The key risk associated with this decision is that, without the additional funding, there are insufficient resources in OPDC’s core budget to progress the additional due diligence and technical work required to meet MHCG’s conditions to secure the £250m HIF funding that is essential to the project.

Expenditure controls are in place at OPDC which require the Chief Executive’s approval for new and additional expenditure, including the preparation of a business case for filling any vacant posts. The GLA and OPDC are, and will continue, reviewing progress and risks on an ongoing monthly basis, to inform decisions about releasing further funding to secure the HIF allocation which cannot be contained within OPDC’s existing 2019-20 Budget. This phased approach will ensure the prudent allocation of further funding alongside a regular review of expenditure requirements in light of the careful management of programme risks.

OPDC’s regeneration plans are fundamentally based around High Speed 2 (HS2) and the associated major new station. Despite HS2 having been legislated for and work being well underway, there has been political speculation regarding its future. The contingent approach to funding recommended in this report will allow the latest risks (both in regard to HS2 and otherwise) to be assessed before funding is released, making the commitments that are necessary to keep the development of OPDC’s area on track in recognition of HIF expenditure deadlines, but not more than is required given the uncertainty referenced above.

b) Links to Mayoral strategies and priorities

This project will support the following Mayoral priorities:

• Housing: More Londoners have access to good-quality homes that meet their needs and that they can afford – by delivering local infrastructure to support delivery of new homes, including genuinely affordable homes; and;
• Future Economy and Good Growth:

 London has an internationally competitive business environment, from skills to infrastructure investment, that supports sustainable growth, trade and investment by transforming brownfield land at Old Oak North into an exemplar new sustainable, residential and employment district around the new High Speed 2 (HS2) transport hub; and;
 Good Growth: All Londoners can participate, shape and share in the benefits of change and growth in their local communities by providing new jobs, developing skills and supporting businesses.

c) Impact assessment and consultations

Impact assessments have been conducted in the preparation of OPDC’s Local Plan, informed by the work of the Master planning team, including the completion of the Local Plan Second Regulation 19 consultation, prior to the commencement of the Examination in Public.

Financial comments

This report recommends that OPDC’s approved 2019 20 Budget of £9.5m be increased by up to a further £10m. Taken with the additional allocation of £0.45m already made, OPDC’s 2019 20 Budget is recommended to be increased up to £19.95m.

The basis of the £1.8m immediate additional payment to be made reflects OPDC’s actual expenditure up to 30 June 2019 and what is about to be committed in the next few weeks to deliver the programme set out in the approved HIF bid, less sums re-prioritised in their 2019 20 Budget.

It is anticipated that the additional sums to be recommended will be recovered from the HIF allocation once it is contracted. Therefore, the
intention is that there will be no permanent call on the GLA’s resources from this recommendation. However, there is a risk that full recovery of the amounts to be allocated may not be made.

In the interim it is proposed that the £1.8m is funded first from the balance of Mayor’s Development Corporation Reserve which is earmarked for OPDC of £1.235m and then £0.565m from the unallocated balance of the Strategic Investment Fund (SIF) from 2018-19. The additional expenditure proposed to be incurred of up to £8.2m is to be funded from the 2018-19 SIF. The proposed expenditure is a good fit with the criteria set for the SIF, as OPDC’s plans are designed to create significant jobs and homes in the area, leading both to increased business rates receipts and more affordable homes, the lack of which is recognised as a major barrier to London’s economic success.

Although the split of OPDC’s proposed spend is predominantly capital, in order to maximise OPDC’s flexibility it is proposed that the GLA pay OPDC a revenue grant, as this income source can be applied as necessary to finance capital expenditure.

The Mayor’s Chief of Staff, in consultation with the GLA’s Executive Director of Resources, is to be delegated to review progress and risks monthly and agree any further expenditure required over the immediate payment to be made to secure the HIF funds which cannot be contained within OPDC’s existing 2019-20 Budget.

As part of the Mayor’s Group-wide budget process, OPDC’s future year budgets will need to be reviewed once the HIF approval process is concluded.


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