SUMMARY/PURPOSE

1. This report provides the Committee with further information on the operation of Industrial Units, reported in the Council’s Statement of Accounts as part of the note on Trading Operations in accordance with the reporting requirements of the Code of Practice on Local Authority Accounting in the UK: A Statement of Recommended Practice (SORP) and the Best Value Accounting Code of Practice (BVACOP).

2. The Committee is invited to note the contents of the report and to seek clarification of any issues arising from the provision of Industrial Units by the Council.

BACKGROUND

3. Details of the Total Cost analyses for the Industrial Units trading operation are set out in Appendix A. These analyses show a consistent deficit of between £40-50,000 per annum. The most significant costs in the trading account relates to the capital charges attributed to various industrial units, and arising from the capital investment in providing the facility resulting in an asset value in the Council’s Balance Sheet which is depreciated each year over the expected life of the asset.

4. The other significant cost incurred in 2005/6 is that for Property Services staff in managing the various industrial units. Council policy is to provide start up units for emerging businesses, and these units tend to require a greater level of management input, particularly when businesses move on or cease to trade, often resulting in void rental periods and the need to identify another tenant to lease the available units. The resultant vacancies can have a detrimental impact on the income generation budget if the industrial units remain unoccupied for an extended period of time.

5. Rentals charged for industrial units are based on market value, and it is considered unlikely that they can be increased across the board by an amount significant enough to cover the additional management costs, particularly in circumstances where the Council offers beneficial terms for small businesses such as easy in, easy out leases as an encouragement to economic regeneration.

6. The industrial units represent an asset of the Council and are recorded as such in the Council’s Balance Sheet. One option to consider would be disposal of the industrial unit portfolio to generate capital receipts. Currently the industrial units are held for a ‘social’ reason i.e. as starter units for small businesses and not for investment purposes. Any decision to dispose of the assets would require a policy change of the Council, and to declare the assets surplus to requirements.

CONSULTATION PROCESS

7. No specific consultation process has been undertaken in preparing this report.

FINANCIAL IMPLICATIONS

8. Whilst the bottom line cost for Industrial Units indicates a trading ‘loss’ on a total cost basis, in accordance with the BVACOP reporting requirements, on a controllable budget basis the Units contribute some £100,000 per annum to the Council’s budget.

LEGAL IMPLICATIONS

9. The Accounts and Audit Regulations 2003 require the Council’s Statement of Accounts to be prepared in accordance with proper practices. For purposes of reporting on Trading Operations proper practices are defined as compliance with the SORP and the BVACOP.

10. The Council’s power to charge for services stems from a number of different statutes. Those powers have recently been extended by the Local Government Act 2003.

11. With regard to option d) below, many of the Council’s industrial units have been created in partnership with English Partnerships and assisted by the payment of grants. Prior to making any decision to dispose of the assets, the Council would have to establish whether there are any restrictions to title or covenants of any significance which may have an impact on the disposal of each property.

OPTIONS

a) Maintain existing arrangements

b) Enhance existing arrangements by implementing a more active in-house estates management regime

c) Enhance existing arrangements by seeking to implement an active estates management regime with an island based partner. Such an arrangement should seek to ensure that any rental increases achieved by the partner on rent reviews and lease renewals will be sufficient to cover any management fee

d) Consider the option to dispose of the industrial portfolio, thus removing the running expenses and charges as well as the source of income, but generating a source of capital receipts in the process as well as eliminating any backlog of repairs.

RECOMMENDATIONS

Option c or d.

BACKGROUND PAPERS

Accounts and Audit Regulations 2003

CIPFA Code of Practice on Local Authority Accounting

CIPFA Best Value Accounting Code of Practice

ADDITIONAL INFORMATION

None

APPENDICES ATTACHED

Appendix A – Trading Operations – Industrial Units

Contact Point : Barry Cooke, ( 823266, email: [email protected]

BARRY COOKE

Corporate Property Manager