The Government is planning to bring in commissioners to intervene in the running of Nottingham City Council after more than £40m was misspent on the wrong services.

The Labour-run authority is already being monitored by a Government-appointed board, chaired by Sir Tony Redmond, after the collapse of Robin Hood Energy in January 2020.

The council energy company lost taxpayers an anticipated £38m and an improvement board was set up to monitor its recovery plan.

But in May it was revealed that up to £40m of ringfenced cash from the council’s Housing Revenue Account had been misspent on the wrong services.

The council housing tenants’ rent – which should have been pumped into council housing and repairs – was put into general council services instead.

The Penn Report, commissioned by the council, says the money was misspent, and in some cases was used to prop up other council services and to avoid job losses.

It found that the local authority has misspent up to around £22.8m since 2014/15 while Nottingham City Homes, which manages the council housing stock on behalf of the authority, misspent up to £17.1m.

In a letter published on Thursday (June 23) to Sir Tony Redmond, Kemi Badenoch MP, junior minister for levelling up communities, said: “I am writing to you as chair of the Nottingham City Council Improvement and Assurance Board (‘the Board’) following the Secretary of State’s decision that he is minded to intervene in Nottingham City Council.

“The Secretary of State has carefully considered the findings and recommendations of the independent reports from Richard Penn and the Chartered Institute of Public Finance and Accountancy (CIPFA) regarding the unlawful Housing Revenue Account (HRA) expenditure, alongside the evidence presented in the Board’s latest progress report and assessment of the council’s response to the HRA issue.

“He is satisfied on the basis of the evidence provided that Nottingham City Council is failing to comply with its Best Value duty.

“He is therefore minded to exercise his Best Value powers under the Local Government Act 1999 and appoint Commissioners.

“He is also minded to appoint you as Lead Commissioner, subject to representations received, given the constructive working relationship you have established with the Council and your understanding of the challenges facing the City.

“I would like to take this opportunity to formally recognise the hard work of the Board who have provided a valuable source of advice, expertise and challenge to the Authority since your appointment in January 2021.

“Under your chairmanship, the Board has played a critical role in helping the Council to lay the foundations for its recovery.

“The ‘minded to’ decision is not a reflection on the effectiveness of the Board in helping the Authority to drive forward the necessary improvements, indeed it is clear that the progress that has been made to date would not have been achieved without your support.

“Despite this progress, more difficult decisions will be required moving forward and the scale of the challenges facing the Council cannot be underestimated.

“All interested parties are now invited to make representations to the Secretary of State about the intervention he is proposing by  July 7.

“Once received, all representations will be carefully considered by the Secretary of State and I in making a decision as to whether to appoint Commissioners.”

Nottingham City Council have since offered a response:

Council leader, Cllr David Mellen said: “The Government’s decision to appoint Commissioners follows our discovery last December that Housing Revenue Account funds had been allocated unlawfully. This was a significant setback but it’s important to understand that we brought the matter to light ourselves as part of our work to tighten up our financial and governance arrangements and have already taken swift and direct action to address the issue, including seeking the necessary ministerial direction to pay the money back into the Housing Revenue Account.

“In light of the improvements we have been making, it’s clearly disappointing that the Housing Revenue Account issue has led to the Government taking the action it has. We understand that it will be a major concern for city residents, council staff, our partners and local businesses but we are committed to working with Commissioners on any further improvements we need to make.

“Our staff do a great job providing vital services to city residents and we will support them to continue to do that in the months and years ahead.”

Chief Executive, Mel Barrett said: “We have been making good progress on our recovery and improvement plan over the last 18 months, working closely with the independent Improvement and Assurance Board appointed by the Government to oversee its implementation.

“We have had a positive relationship with the Board and its chair Sir Tony Redmond. Sir Tony’s appointment as the lead commissioner therefore provides reassurance and continuity. This, and the fact that commissioners have been appointed for two years rather than the normal three, is recognition of the progress we have already made over the last 18 months.”