Is the ‘risky’ £39m tax payer funded Northampton station car park proposal under threat?
After questions from NN Journal, the councillor responsible for the town’s regeneration admits the plan is up in the air amid current financial uncertainties
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By Sarah Ward
The grand idea is to build a shiny new multi storey car park at Northampton rail station. An eye-catching design, far removed from the concrete structures of the past, the car park plan is supposed to be the first stage in the reignition of the long-stalled Waterside development. Following the build of the car park, which is estimated to cost between £36m and £39m, the plan is that Network Rail and its private development partner bloc Group would develop a hotel, hundreds of homes, plus shops and offices on the long neglected site close to the town centre.
But what the Northampton taxpayer may not have been aware of, as it was not mentioned in the media release sent out by West Northamptonshire Council (WNC) after approval was given by Jonathan Nunn’s Conservative cabinet last December, was that the council and its residents would have been borrowing the money to pay for the car park over a 40 year period. The income from the car park (which estimates say could be as much as £418,825 each year) would go into the council’s pot, but at the end of the four decades once the construction costs had been paid off, the authority would not own the asset, instead it would belong to landowner Network Rail.
In recent weeks the scheme has been consulted on ahead of a planning application being made by development partnership Blockwork LLP (made up of Network Rail and bloc Group). What it could look like can be seen on the website.
NN Journal took a closer look at the proposals and found that it could be a very risky venture for the authority in the current financial climate, with estimates made last year when forecasts were brighter, that at its worst, the venture could end up with a £6m loss. And when we put some questions to WNC, Daniel Lister, the councillor responsible for the town’s regeneration, he told us the cabinet must look at the costings again if the project is to go ahead.
The town’s rail station was built in 2015, as part of the Northampton Waterside Enterprise Zone which was formed in 2012. As part of the original masterplan a scheme was drawn up for a multi storey car park of up to 1500 spaces, to serve the station and the wider central town area.
In a paper last December to the cabinet, the history was explained along with how a new proposal had been put to the council by private developer bloc Group:
“Northampton Borough Council (NBC) previously considered a number of options of how to potentially fund the construction of a new MSCP in 2017, through prudential borrowing following dialogue with Network Rail (the landowner).
“In July 2017 NBC considered an outline business case which looked at the capital cost of delivering new MSCP over a 20- and 40-year period. However, NBC concluded at that point not to proceed, largely based on the financial proposition when comparing the level of net rent and the annual borrowing costs associated with the capital investment. At that point the level of return forecast was insufficient to justify the council intervention. Importantly the demand for a new MSCP had not materially diminished over the last few years (pre-COVID-19).
“The council has now been approached by Blockwork LLP which has presented an alternative approach to the council around the delivery of a new 1,200-space MSCP to support the train station and help unlock wider regeneration activity across the site.”
However, all of the details of the possible loan arrangements, the lease, projected usage and the developer cost and profits were not made public, only seen by the cabinet members and senior officers.
The basic gist of the scheme as laid out in the public papers is that the authority would borrow all of the money from a financial investment firm and then passport the cash over to the developer who would use the money to build the car park. The money borrowed by the authority would cover the multi-storey lease for 40 years, with the income coming back from the car park users going to the authority, with generous projections saying this income could reach £16.75m.
The planning application for the wider scheme for the hotel, homes, offices and shops will be put forward by Blockwork, with the local authority making the final decision on whether that planning application was acceptable. There are no current suggestions the authority would have any financial involvement in this second phase of the scheme.
The council has also made into an agreement with the local enterprise partnership for the area SEMLEP which would see it be excluded from paying business rates (estimated at £125,000 per year) until 2038.
The ten month old council paper outlines a number of risks which could hamper the scheme. The most significant is inflation.
The report, which was written by the council’s regeneration director Kevin Langley, says regarding risk:
“Inflation runs at high levels, increasing the head lease payments quicker than in the base scenario. This would lead to head lease payments overtaking the anticipated car parking income quicker than expected and lower levels of return to the council, including potentially leading to an overall deficit.”
By borrowing through an investment firm the authority would see its repayments rise in line with inflation and be linked to the retail price index (RPI).
The RPI is currently at its highest levels since the early 1980s and inflation is now at around 11 percent, according to the Bank of England, a climb of nine percent from when the council agreed to move forward with the borrowing proposal in December last year.
The lease of the car park from Blockwork LLP would also be linked to inflation, so the original cost could increase.
In the council papers, it says a consideration of borrowing from the government rather than a financial investment firm was considered, but said this loan payback would be inflation linked.
Another risk is car park usage. The plan is to replace the existing 800 car park space with a multi storey of capacity just under 1200. So this is a net gain of less than 400 spaces. However the usage of the rail station dropped post covid with the rise of home working and the report makes assumptions about usage but cannot give definites.
“Despite the short to medium term impact of COVID-19 it is assumed that over the long-term demand for rail travel and the associated car parking will continue. That said, in the short term the research indicates that there is anticipated to be a dip in demand ranging from ten per cent to 30 per cent, although this is likely to recover by 2025.
“Our consultant has advised that whilst there is confidence about improved demand for car parking, it might be prudent to wait until spring 2022 for updated data prior to embarking on a long-term commitment where demand is uncertain.”
There appears to be few financial risks for Blockwork LLP as the authority and its residents will be borrowing the money and paying it back. And the risks would come at a time of financial uncertainty for the unitary council.
Formed in April last year after its predecessor Northamptonshire County Council pulled off the ignominious feat of being the first local authority to go bust in two decades, it is not doing well with its budgets.
Last month the authority’s councillor responsible for finance, Malcolm Longley warned of a £10m black hole this current financial year, which would have to be filled by efficiencies (a euphemism for cuts).
The splitting of the county into two unitaries does not appear to have solved any financial issues, with the long standing problems of the costs of adult social care and children’s services still there, alongside new pressures of spiking energy costs, inflation and salary increases.
What the council says
We put a series of questions to the authority, asking whether the car park deal was a good one for local people. We had the following response from Cllr Daniel Lister, the cabinet member for economic development, town centre regeneration and growth, who said:
"The council recognises the benefits that a new multi storey car park at the station will bring to the area, both in aiding greater use of the rail network and through enabling the development of a key gateway site for Northampton town. Continuing to seek to provide improved car parking with increased capacity has also been a council promise since the new station building was delivered.
"The council previously delegated authority to enter into a lease to enable the development to take place, subject to various conditions set out in the report. This would have placed risk on the council but was forecast to provide a profit rent to the council from this investment.
"Since the report went to cabinet the due diligence and legal work has been undertaken, which includes the developer progressing the planning application for the site which has resulted in the recent consultation. During this time, as NN Journal has noted, the world and the financial markets have substantially changed, this has meant that the rates previously submitted by potential funders are no longer being offered and a new cabinet decision will be required if this project is to go ahead."
The council told us it has not entered into any financial agreement with any lender as yet.
The Labour opposition
Cllr Danielle Stone, who is the shadow cabinet member for finance, is now questioning the whole station gateway scheme:
“The ten year delay in delivering the car park means costs have escalated significantly. It’s right the decision goes back to Cabinet. Increased borrowing impacts the revenue budget.
“I am predicting a £50 million budget gap next year. We need a council that listens to residents, that takes action in a timely manner and future proofs development. It’s a plan from ten years ago, with ideas from ten years ago. The question, apart from finance is, are the plans still fit for purpose?
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