Up to £500,000 of public funds will be spent on setting up special purpose vehicle (SPV) for Newham Pension Fund despite the council's oversight and scrutiny committee (OSC) calling for the project to be shelved.
Mayor Robin Wales and his cabinet have decided not to follow the OSC's recommendations to hold off further spending of public funds on the alternative funding proposal, PP understands.
Following a call-in by three councillors, the OSC recommended that spending be put on hold until the Investment and Accounts Committee (IAC) had a chance to fully consider the proposal and be made aware of all the possible costs and benefits at an emergency meeting.
It followed a decision by the mayor in consultation with the cabinet to release funding to develop the proposal.
The plan would see the council using property it owns to set up an SPV to fund schemes, which it believes could allow it to cut contributions by £5m a year.
The decision to release funds to explore the proposal had been suspended while the call-in was considered by the OSC, a body which holds the council and mayor to account.
Now, funding of up to half a million pounds will be released to develop the proposal without requiring the IAC to fully consider the proposal.
Labour councillor Dianne Walls who sits on the OSC, was one of three councillors to request the call-in. She is concerned about releasing the funds without reference to the IAC which "should really look at all of these things very closely".
Walls believes it is important to look at the proposal in more depth rather than "spending lots of money without due process".
She said: "It's a matter of principal, mainly because there's a lot of decisions made at cabinet and mayor level that have not been open and haven't been scrutinised properly."
She added: "As we've seen in the past, when decisions are made in haste or without due process, then we make mistakes and we lose money. This is not to say that this actual proposal is wrong - we just don't know - we need to look at it very carefully before we commit half a million pounds."
At a time when the council is being forced to make £50m in cuts, she said that spending public money without investigating properly raises the risk of making costly mistakes, which the council "cannot afford to make".
Call-ins are very rare, with Walls saying only two have been made by Newham's OSC in 12 years.
In a written response to the call-in, councillor Lester Hudson and Deborah Hindson, who is managing director of outsourcing firm OneSource, said this was a "spend to save scheme which will potentially save £15m over the next four years".
The possibility of using assets to deliver general fund savings was discussed as part of the business plan update to the IAC on 10 June 2015 prior to the cabinet meeting and detailed in both the agenda and minutes.
They said the cabinet had to agree the release of funding not just for scoping the proposal but to be able to get the appropriate legal and financial advice. They added that the only decision cabinet has made at the moment is to explore the possibilities.
"The plan is to develop the proposal in more detail precisely so that the IAC can take its own informed decision in October. The critical factors are the views of the council's actuary and the protection of the council's pension fund."
Newham Council has not yet responded to a request for comment.
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