PAPER B1

Committee :    ECONOMIC DEVELOPMENT, PLANNING, TOURISM AND LEISURE SERVICES SELECT COMMITTEE

Date :              25 FEBRUARY 2002

Title :              UPDATE ON ARRANGEMENTS FOR DELIVERING THE COUNCILS’ ECONOMIC DEVELOPMENT SERVICES

REPORT OF HEAD OF PAID SERVICE

SUMMARY/PURPOSE

This report updates members on the arrangements for delivering the Councils economic development services and, in particular, the role and current status of the Isle of Wight Partnership (IWP)

BACKGROUND

In April 1999 the Council determined to deliver its economic development services through the Isle of Wight Partnership (IWP). The IWP is a company limited by guarantee whose activities are overseen by a non-executive Board of Directors. Through the mechanism of a Service Level Agreement (SLA) the Council agreed to second the staff of its Economic Development Unit together with a cash contribution to the operational activities of the Partnership.

At the time of its establishment the IWP brought together the following agencies:

IW Council Economic Development Unit

Wight Training & Enterprise (WTE)

IOW Business Link

IOW Chamber of Commerce

Partnership Training (responsible for the New Deal training programme)

At that time the IWP was overseen by a Managing Director reporting to a non-executive Board of Directors consisting of 24 representatives drawn from the public, private and voluntary sectors. The Council had 5 directors drawn from the main political groups together with the Chief Executive.

 At the outset the IWP was financed as follows :

IW Council : 9.8 fte staff secondments and an annual financial contribution (£124,000 in the current year). The Council also agreed to underwrite the lease costs of the IWP office at St Cross Business Park through to 2006.

SEEDA (South East England Development Agency) : £50,000 core funding together with staff funding for the Area Regeneration Team responsible for SRB activities.

WTE : staff secondments, administration, equipment and office accommodation

The finances of the Partnership were particularly dependent upon the support of WTE and initial core funding of £220,000. The IWP utilised £110,000 of this contribution in the financial year to March 2001 with the balance being applied in the current year. As part of a change in Government policy, however, the national network of Training & Enterprise Councils was abolished with effect from April 1st 2001 and the responsibilities transferred to a new network of Local Learning & Skills Councils. Locally this resulted in a number of staff previously employed by WTE being transferred under TUPE arrangements to the IWP. At the end of March 2001 the IWP also relocated to Enterprise House on the St Cross Business Park in Newport.

The IWP has had much success in bringing new investment to the Island, creating new jobs and securing Government and European funds to support regeneration activities. However, it is also true that during the first full year of its operation following the demise of WTE in March 2001, it has become increasingly clear that it would have financial difficulties in 2002/3 unless

action was taken. The reasons for this are as follows:

It was unable to absorb fully the overheads inherited from WTE.

           Certain sources of funding assumed in the Business Plan have not been forthcoming.

There has been significantly reduced income from the training aspects of IWP operations arising from far fewer than anticipated placements by the Employment Service.

The Council, Government Office and SEEDA consider that the IWP continues to be needed to draw together the economic development strategies that will enable the Island to move forward. However, they also believe that it should have a sharper operational focus. The task, therefore, has been to reshape and re-focus the agency whilst at the same time enabling it to live within its means. The loss of the Partnership would seriously affect the Island's ability to seek Government monies for economic regeneration.

The emerging difficulties facing the Partnership and the action taken by the Board of Directors to remedy them were reported to the Executive Committee on December 11 2001. At that meeting the Council determined to continue financial support for the IWP in 2002/3 and to provide a number of additional support services to the agency.

ACTION TAKEN

At a Board meeting of the IWP on 8 October, it was decided that whilst there were real advantages in having a Partnership with a wide membership, there were too many directors (24) to facilitate effective decision making. It was decided to reduce the number of directors to six, three drawn from the business community and three from the Council. The Council's current

directors are the Leader, the Portfolio Holder for Economic Development and the Head of Paid Service. A new Chairman of the Board was also elected: Mr D Fisher MBE, Managing Director of Yokogawa Marex Ltd. The IWP has also recently determined to invite the Chairman of the Rural Community Council to sit on the Board to represent voluntary sector interests.

A number of other actions have been taken as part of the strategy of sharpening the focus of activity and reducing costs. These include:

A number of Partnership employees have left for other posts, been transferred to successor bodies or have been made redundant.

The Partnership's subsidiary training company has been sold.

Aspects of the Partnership's business have been outsourced.

The industrial units at Ryde Business Park (inherited from WTE) have been sold.

The Local Learning Partnership administration has transfered to the Council (this is a wholly grant funded activity and there is no cost to the Council).

The Chamber of Commerce has become an independent agency

The Partnership's 'Policy and Strategy Team', made up of five secondees from the Council and two IWP employees has re-located to County Hall. They will formally remain within the IWP until March 31st ; thereafter becoming the Council’s Economic Development Unit (further details below).

A Business Plan for 2002/2003 has been prepared which provides a sound foundation on which to build the 'new' Partnership. The County Treasurer has been centrally involved in this process and will continue to take an active role in advising on financial matters.

THE "NEW" ECONOMIC PARTNERSHIP - ASSUMPTIONS

To reflect the sharper operational focus, the 'new' Partnership has been re-named the Isle of Wight Economic Partnership with 2 executive staff teams :

Inward Investment & Marketing - responsible for attracting new investment and jobs, together with management of the Enterprise Hub building.

Area Regeneration - responsible for delivery of Single Regeneration Budget (SRB) and Rural Development Programme (RDP) activities

The staff in these teams are either Partnership employees or staff seconded from the Isle of Wight Council. It is planned that 6 Council secondees will remain in the Partnership. They will continue to be funded as now, by a combination of Council base budget, SRB and RDP budgets - an annual cost to the Council of £88,427.

The staff of what was the IWP Policy & Strategy Team have, as of January 2002, returned to County Hall - this consists of 5 Council and 2 IWP staff. The Team will formally remain part of the IWP until the end of March thereafter becoming the Economic Development Unit of the Council. The IWP staff in the Team are to be subject to a TUPE transfer to the Council with the costs covered through income generating activities. The Team will continue to be actively involved in Partnership activities having the following core responsibilities :

Co-ordination of major bid development activities ie. maximising the attraction of external funding to the Island

Advising the IWP and Council on the strategic and policy aspects of economic development

Research & Information

European activities

The Council’s Head of Economic Development will continue to work closely with IWP staff and Board directors in order to ensure an effective joint working relationship. The Economic Development Unit will also be responsible for advising members on the Council’s on-going relationship with the IWP and will, in particular, be responsible for oversight of the Service Level Agreement (SLA) between the authority and the Partnership. The SLA is a legal agreement setting out what the Council will provide to support the IWP and what, in turn, the Partnership is required to deliver.

The staff remaining with the Partnership have all now re-located to the 'Enterprise Hub' building adjacent to Enterprise House, thus freeing up Enterprise House for renting to other organisations or businesses. The Business Plan for 2002/3 makes assumptions about rental income for Enterprise House which the Council's Property Services Manager believes are realistic. The previous Council agreed to act as guarantor for the rent of Enterprise House up until March 2006.

 During the current financial year, the Council provides funding of £124,000 to the Partnership in addition to seconded staff. Of this sum, £20,000 is the Council's contribution to the costs of maintaining the region's Brussels office. Under the proposed arrangements, this sum will, in future, be paid directly by the Council rather than via the Partnership. The Business Plan for the

Partnership for 2002/3 assumes a continuation of Council funding at present levels, ie £104,000 pa.

In addition to the support of the Economic Development Unit, the Council will also assist the Partnership with the provision of strategic financial management and support and, if required, the provision of a financial administrative service (eg payroll, creditors, billing etc)

Further support from the Council will be required in the form of a cash flow facility. The nature of the Partnership's funding requires an ongoing cash flow requirement or 'overdraft facility'. This is estimated on occasions to be in the region of £150,000. The Council is not being asked to make an increased contribution to the Partnership but to facilitate this cash flow requirement

through its own cash flow management.

In order to ensure that all the assets and liabilities of the Partnership have been taken into account, the Board of Directors have also instructed Ernst and Young to carry out a full financial audit and to confirm that the assumptions made in the Business Plan for 2002/3 are sound. The District Auditor has also been kept informed of progress.

CONCLUSION

The past year has been a difficult period for the IWP. The financial difficulties which emerged following the demise of Wight Training & Enterprise have been addressed and the Partnership re-established on a sound footing. The independent audit by Ernst and Young will ensure that nothing has been overlooked or not taken into account and that a way forward for a successful

Partnership has been established.

Importantly, it should not be overlooked that, despite its financial difficulties, the Partnership has, and continues to be, a successful economic development agency. The new arrangements will provide a sharper operational focus supported by the Council’s Economic Development Unit. Continuation of Council support for the IWP is essential if the Council and Partnership are to achieve their mutual economic regeneration objectives.

RECOMMENDATIONS:

It is recommended that the Select Committee note and comment upon this report.

BACKGROUND PAPERS

None.

Contact Point : John Bentley, Head of Economic Development,

tel. 823346

ALAN KAYE

Head of Paid Service