The Arm’s-Length Illusion: Who Really Pays for London’s Council Companies?
Photo: Chris Woodrich, CC BY-SA 4.0, via Wikimedia Commons
When a London borough wants to build homes, run a heat network or regenerate a high street, it increasingly does so through a company rather than a committee. The structure is not new. What is new is the scale and the fiscal pressure. With town hall budgets still tight in 2026, the returns from these arm’s-length vehicles matter more than ever. But the latest accounts suggest the dividend line is a poor guide to public value.
A patchwork of vehicles
London’s council-owned companies come in many forms. Some are wholly owned housing delivery vehicles, set up to build and manage homes. Others are energy services companies, leisure operators, or regeneration partnerships. A few are joint ventures with private developers. Each has its own governance, borrowing and reporting arrangements. The result is a landscape that is hard to see whole, even for councillors.
The 2026 accounts show a familiar split. A small number of companies pay dividends to their parent councils. These payments can be useful: they offset budget gaps and demonstrate commercial discipline. But dividends are not the same as profit in the ordinary sense. A council can receive a payment from a company that has benefited from council land, council borrowing or council contracts. The money may be real, but the accounting is circular.
Dividends and the risk beneath
The more important question is risk. Many council companies carry debt, guarantee obligations or long-term contracts. When they perform well, the risk stays hidden. When they do not, the council steps in. That step-in can take the form of a loan, a capital injection, or a quiet restructuring. In 2026, several boroughs are reviewing the financial resilience of their companies behind closed doors. The public sees the dividend, not the guarantee.
This is not to say the companies are failing. Many are delivering homes, managing leisure centres or improving energy efficiency. The point is that the dividend figure alone cannot tell residents whether a company is adding value. A company that returns £1m while exposing the council to £20m of contingent liability is not necessarily a good deal. A company that returns nothing but delivers affordable homes may be excellent value. The accounts rarely make that distinction clear.
The transparency gap
London boroughs publish their company accounts, but the information is scattered. Some companies file at Companies House; others report through council papers. The level of detail varies. Councillors on scrutiny committees often see more than the public, but even they can struggle to compare across boroughs. There is no common template for reporting public value.
This matters because the companies are using public money. When a council lends to its own company, it is making a choice about risk. When it sells land to that company at less than market value, it is making a choice about subsidy. These choices may be justified, but they should be visible. The 2026 accounts show that visibility is still uneven.
What scrutiny looks like
Some boroughs are improving. A few now publish annual company reviews alongside their budget papers. Others have set up shareholder committees with independent members. These are steps in the right direction. But scrutiny is only as good as the questions asked. Councillors need to ask not just whether a company is profitable, but whether it is delivering the public purpose for which it was created.
That means looking at outcomes: homes built, carbon reduced, leisure visits, jobs created. It also means looking at risk: debt maturity, contract terms, contingency plans. And it means looking at governance: who appoints the board, how conflicts are managed, how decisions are recorded.
A public value test
As budgets tighten, London boroughs will be tempted to treat their companies as cash cows or as escape hatches. Neither approach is sustainable. The better path is a public value test that is applied consistently. Does the company deliver something the council could not deliver directly? Is the risk proportionate? Is the subsidy transparent? Are residents able to see the answers?
The dividend question is important, but it is not the whole story. The real question is whether London’s council-owned companies are serving the public or simply moving money and risk around the town hall balance sheet. In 2026, with less room for error, that question deserves a clearer answer.
