UPDATE: The government is to intervene in Tower Hamlets Council, putting restrictions on some of its financial activities.
In a highly-critical statement to the House of Commons, Pickles said Tower Hamlets Council has "a culture of cronyism risking the corrupt spending of public funds".
The Secretary of State is appointing three commissioners to ensure a package of improvement measures — aimed at stopping the council spending money wrongly, and ensuring it complies with best practice — is carried out. He has placed restrictions on council activities around disposal of property and allocation of grants. The commissioners will be paid for by the council and be in position for three years.
The radical action — which hasn't been seen in the UK since the case of Doncaster in 2010 — follows the publishing of a report into allegations of fraud at Tower Hamlets Council.
The publication criticised a lack of transparency in the authority's decision-making processes, but stopped short of saying there was any criminal activity.
PricewaterhouseCoopers (PWC) investigators were called in by Secretary of State for Communities and Local Government, Eric Pickles, following allegations made in a BBC Panorama programme that mayor Lutfur Rahman directly intervened to increase grants to organisations in exchange for political support. It's an allegation the mayor has strenuously denied — mounting a significant campaign against the programme.
While exonerating the mayor of any criminal doings, the report isn't exactly a glowing bill of health for the good governance in the borough. The report frequently says the council has failed in its duty to provide best value relating to the sale of council-owned properties. It also says there is a lack of transparency around the distribution of grants; and stated that there are the insufficient processes in place to clearly delineate whether public money is being spent on public relations for the council, or simply for the mayor himself.
In the report, PWC also criticises the council for delaying and obfuscating the investigator's progress — something which caused publication of the report to be put back from 30 June to 4 November.
Following Pickles' announcement, Rahman responded: "We need to be clear that there was no evidence of fraud or criminal activity identified in the PwC report published today.
"All governance issues identified in the PwC report have already been highlighted by our internal processes and are being rectified accordingly.
"Given that Tower Hamlets Council is one of the highest performing local authorities in London, and the wider UK for service delivery to our residents, I am surprised at the Secretary of State’s comments today in the House of Commons. I believe that there is a huge disparity between the detail of PwC’s report and the level of the Secretary of State’s comments.
"We will be responding to Mr Pickles in due course."
A council spokesperson said: "While the PwC report identifies some process and governance issues that needed to be improved, the council notes that no evidence of criminality or fraud has been identified by the government-appointed forensic auditors.
"In our view there is no evidence that these flaws of process are 'regular or endemic' meaning that there is no failure to comply with our best value duty.
"We await the government’s reaction to the report but we urge the Secretary of State to act proportionately and to acknowledge the steps we have already taken to tighten up processes as well as the high performing nature of the council’s services."
The council has 14 days to respond to Pickles' measures.
The actions were welcomed by local Labour MPs Rushanara Ali (Bethnal Green and Bow) and Jim Fitzpatrick (Poplar and Limehouse).
