The Companies in the Room Next Door: Council Subsidiaries Missing From Transparency Returns

Council-owned companies are no longer a fringe feature of local government. They run leisure centres, build housing, manage regeneration schemes, operate energy projects and hold land. Their legal form is separate from the council. Their accountability is not.

The Local Government Transparency Code 2015 tells councils in England to publish details of companies in which they have an interest. In practice, that publication is often a single line in a spreadsheet: a company name, a company number, perhaps a director. It is a starting point. It is rarely a map.

For this audit, The Ferret compared a sample of published council transparency returns with Companies House filings and councils' annual accounts. The exercise was not designed to prove concealment. It was designed to test a simpler question: could a resident follow the public money from the town hall to the company and back again? In several cases, the answer was no.

What the registers are meant to show

The transparency code is a disclosure regime, not an accounting standard. It asks councils to identify companies in which they have an interest. It does not prescribe a group structure chart, a statement of loans and guarantees, or a plain-English account of what each company does.

Companies House fills some of the gap. It provides legal ownership, filing history and directors. But it does not show which council officer signed off a loan, whether a contract was awarded without competition, or how much public money is exposed if a company fails. Annual accounts can show group positions, but consolidation rules and materiality judgments mean that not every subsidiary appears with the clarity a resident might expect.

The result is a paper trail with three different languages: the transparency return, the statutory filing and the council's statement of accounts. They do not always speak to each other.

Where the trail breaks

The discrepancies found in the sample fall into recurring patterns.

The first is the holding company layer. A council owns a holding company. The holding company owns operating subsidiaries. The transparency return lists the holding company and stops. The operating subsidiary may hold the assets, employ the staff or carry the liability. Residents who search the register for the council's name will not find it.

The second is the naming problem. A company may trade under a name that residents know, while its legal name is different. A leisure operator, a housing vehicle or a regeneration company can appear in council communications under a brand that bears no resemblance to the name filed at Companies House. Without a cross-reference, the link is invisible.

The third is the dormant or newly incorporated entity. A company may be set up years before it trades. It may have no income, no staff and no public profile. It may still be able to borrow, grant guarantees or enter contracts once activated. If it is absent from the register because it is not yet active, the public has no early warning of the structure being built.

The fourth is the joint venture and the limited liability partnership. Councils increasingly deliver projects through vehicles where ownership is shared or where the council's interest is held through a member rather than a direct shareholding. These arrangements can fall between the categories in a simple transparency return. They may be disclosed elsewhere, but not in a form that joins the dots.

There is also the barely described entry: a company that is listed, but with no explanation of its purpose, its funding, its directors' allowances or its relationship to the council's own services. A name on a spreadsheet is not transparency if nobody can say what the name does.

How public money reaches the gap

Money can reach a council company in several ways. The council can lend to it. It can take equity. It can pay it through a contract for services. It can provide a grant. It can guarantee a loan or indemnify a liability. It can second staff or provide premises at below market rate.

Each route has a different disclosure footprint. A loan may appear in the accounts as a debtor. A contract may appear in a procurement notice. A guarantee may appear only in a note to the accounts, or not at all until it is called upon. When a company sits below another company, the footprint becomes fainter.

This matters for scrutiny. Councillors are asked to approve budgets and borrowings. Audit committees are asked to review risk. Residents are asked to trust that the structures are properly governed. If the group structure is not visible in one place, each of those groups is working from a partial picture.

It also matters when things go wrong. A series of high-profile council company failures in recent years has shown how quickly arm's-length optimism can become a public liability. The lesson is not that councils should never use companies. It is that the public should be able to see the exposure before the failure, not after the rescue.

What residents can ask their council to disclose

The first request should be structural. Ask for a full group structure chart covering every company in which the council has a direct or indirect interest, including dormant entities, joint ventures and limited liability partnerships. Ask for legal names, company numbers, ownership percentages and the council's stated purpose for each.

The second request should be financial. Ask for the total value of loans, guarantees, equity injections, grants and contract payments to each company, with terms and repayment schedules where public money is involved. If the council refuses on commercial confidentiality grounds, ask for aggregate figures and the existence of the agreements, not the negotiated detail. Section 43 of the Freedom of Information Act 2000 can apply to commercial interests, but it is not a blanket shield.

The third request should be about control. Ask who appoints the directors, what allowances they receive, how conflicts of interest are recorded, and which council committee receives performance reports. Ask for the business case approved before each company was established.

The fourth request should be about scrutiny. Ask the audit committee for its most recent review of the council's group companies. Ask internal audit whether it has audited the companies and what it found. Ask the section 151 officer what contingent liabilities are attached to the group.

None of this requires a new law. It requires councils to treat the transparency return as the beginning of an explanation, not the end of one. The subsidiary gap is sometimes an administrative oversight. Sometimes it is a design feature. Either way, the effect is the same: the public record stops short of the public money.