PAPER E

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

Date : 28 OCTOBER 2002

Title : EXTERNALISATION OF WIGHT LEISURE

REPORT OF THE HEAD OF COMMUNITY DEVELOPMENT AND TOURISM

SUMMARY/PURPOSE

Members are invited to review the progress made to date in respect of the externalisation of Wight Leisure to a Not for Profit Distributing Organisation (NPDO), Wight Leisure Limited (WLL).

BACKGROUND

The meeting of the Executive on 21 May 2002 agreed to proceed with the externalisation of Wight Leisure. It also agreed to ask this Select Committee to oversee the negotiations between the Council and the embryonic Not for Profit Distributing Organisation (NPDO) to ensure the completion of the transfer as effectively and quickly as possible.

As Members will be aware, the Select Committee decided to meet on an informal basis so to facilitate full and frank debate over all of the issues surrounding the transfer. A number of informal meetings have been held and members attending these have received a presentation from Wight Leisure in respect of its proposals following externalisation also advice from officers and consultants acting on the Council’s behalf.

PROGRESS TO DATE

This report summarises some of the work completed to date, but especially considers some of the works outstanding. It is important to note that this report very much reflects “works in progress” and some of the following comments should not be read as being the final position.

LEVEL OF GRANT REQUESTED

A first business plan proposal for the NPDO was received from Wight Leisure on 20 June 2002 and indicates a grant requirement which is approximately 1% above the existing Council subsidy for the services provided through it. This was after allowing for anticipated savings in VAT and National Non Domestic Rates (NNDR) being allocated to other areas of work not presently funded or thought to be under-funded.

The informal meetings of the Select Committee recommend that any increase in funding was unacceptable.

DELIVERY OF THE BEST VALUE IMPROVEMENT PLAN

A key driver in the decision to externalise Wight Leisure was that it offered the best way forward in the delivery of its Improvement Plan, developed as part of the service’s Best Value Review. It is unclear from the first business plan proposal how Best Value could be achieved through the improvement plan considered within it. It has been suggested that some of the improvements would be funded from the NNDR savings.

The informal meetings of the Select Committee recommend that an explicit link to the improvement plan should be made in the NPDO’s business plan.

SERVICES TO BE TRANSFERRED TO THE NPDO

The first business plan proposal identified the range of services which Wight Leisure is intending to manage and a number which would be better managed by the Council because of their synergy with other Council services. The apparent difficulty with the suggestion being that the Council would be left with an increased cost by taking on the residual services. It has however been suggested that these services are cash neutral and the matter is under review.

The informal meetings of the Select Committee recommend the suggested services to be transferred, subject to there being no additional cost to the Council in the residual services.

NATIONAL NON-DOMESTIC RATE (NNDR) RELIEF

The ability of the newly formed NPDO to attract mandatory (80%) rate relief on the buildings it will occupy is a central strategy in its proposals to deliver the best value improvement plan and other service improvements. There remains some uncertainty about whether this NPDO will attract this benefit.

The view of the Strategic Director for Finance and Information and County Treasurer follows guidance from the DTLR (as was), in that the NPDO must be established “exclusively for charitable purposes” and must use the property concerned for these purposes to receive mandatory rate relief. A NPDO that acts as a charity would be entitled to exemption from taxes under the provisions of section 505 of the Income and Corporation Taxes Act 1988 and would have a letter from the Inland Revenue confirming its exemption. Such a letter would also be sufficient to grant mandatory rate relief.

Wight Leisure have made an application to the Inland Revenue for an exemption from corporation tax but as yet have not had this confirmed. It is however confident that this will be forthcoming. Given the importance of the availability of the savings on NNDR to the success of the transfer, the Council’s legal advisor has been asked to give a view as to whether it thinks such a letter may be forthcoming. It is currently reviewing both the rules and certificate of incorporation of the NPDO for this purpose.

The informal meetings of the Select Committee recommend that the eligibility of the NPDO to receive mandatory NNDR relief must be confirmed prior to any transfer proceeding.

Following the receipt of the first business plan proposal, the Property Services Department have been successful in achieving a reduction in the rateable value of some of the properties associated with the transfer. The net effect of this is to reduce by £19,000 the level of savings to be generated from mandatory NNDR relief, were it to be achieved.

EFFECTS ON VAT

The first business plan indicates that the NPDO may be slightly better off in VAT terms than at present. The Council’s VAT advisors are unable to confirm this as yet and indeed, have suggested that, as the difference is so slight, it might be in the opposite direction. The informal meetings of the Select Committee recommend that the VAT position must be absolutely clear prior to any transfer proceeding.

MEDINA LEISURE CENTRE AND THEATRE

The Leisure Centre and Theatre are major contributors to the first draft business plan in every aspect. The Council through Wight Leisure, occupies the premises under the terms of a dual use agreement which is in need of a formal renewal. This must be done prior to any transfer and will involve all parties to reach a new common agreement.

LEGAL AGREEMENTS

The legal agreements comprise three main documents which have been prepared by the Council’s legal advisor. All are substantially complete in draft and, at the time of writing, were scheduled to be delivered to the NPDO’s Solicitor on Wednesday 23 October.

· The Transfer Agreement; sets out the assets which the Council will transfer to the NPDO.

· The Funding Agreement sets out the basis on which the Council will fund the NPDO on an annual basis. The final business plan when produced by the NPDO will form a core part of this document. The informal Select Committee meetings have reviewed this document and specifically recommend that:-

o the NPDO be paid quarterly in advance

o the quarterly payments be profiled to match the cashflow needs of the NPDO

o the NPDO should comply with the reporting requirements of the Charity Commission which are more exacting than those of the Registrar of Friendly Societies.

o If the transfer proceeds on 1 January 2003, then the first year agreement should be for a period of 15 months.

· The Lease Agreements; a separate agreement will be required for each facility to be occupied by the NPDO. Leases will be for a period of 15 years (3 months) with appropriate break clauses, should, for example the Council wish to develop a facility or the funding agreement be cancelled. Officers from Wight Leisure and the Council have agreed the boundaries of each facility to be included.

CENTRAL CHARGES

The first business plan proposal indicates that the NPDO anticipates taking 100% of the central charges currently allocated by the Council to Wight Leisure. At the same time the NPDO gives no indication of wishing to purchase any of these services from the Council in the short-term. It is anticipated that there will be some residual effect on the Council’s existing services which is still being fully evaluated.

CLIENT OFFICER

Members of the Select Committee meeting informally believed that there would be a need for a Council policy/strategy officer to deal with all issues surrounding the NPDO and the services provided by it. Furthermore, it was felt that this post should be funded in part (£15,000) by the anticipated savings on NNDR.

NEXT STEPS

The Council’s consulting team (leisure, legal, VAT) are seeking to continue to seek clarification from Wight Leisure in respect of the issues raised in this report and many others of specific detail which have not been covered here. It is the intention of this group to gain a final business plan relating to the NPDO transfer, so that it can be signed off and recommended to the Council as a working document that is realistic, achievable, sustainable and focused on Best Value. The Council’s team are not yet at this stage.