PAPER C2
Purpose :
For Decision
Committee : EXECUTIVE
Date : 5 NOVEMBER 2002
Title : EXTERNALISATION OF WIGHT LEISURE - UPDATE
REPORT OF THE PORTFOLIO HOLDER FOR TOURISM AND LEISURE
1. SUMMARY/PURPOSE
1.1 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).
2. BACKGROUND
2.1 The
meeting of the Executive on 21 May 2002 agreed to proceed with the externalisation
of Wight Leisure. It also agreed to ask
the Economic Development, Planning, Tourism and Leisure Services 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.
2.2 The
Select Committee chose to discharge its role by meeting informally to
facilitate full and frank debate over all of the issues surrounding the
transfer, and has met on many occasions in this capacity. It has received a presentation from Wight
Leisure in respect of its proposals following externalisation and has received
advice from officers and consultants acting on the Council’s behalf.
2.3 The
Select Committee met on Monday 28th October 2002 and as part of its
order of business it formally adopted as recommendations to the executive all
of the informal guidance that it had given to officers and which is set out
below.
3. PROGRESS TO DATE
3.1
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 “work in progress” and
some of the following comments should not be read as being the final position.
4. LEVEL OF GRANT
REQUESTED
4.1 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.
4.2 The
informal meetings of the Select Committee agreed that any increase in funding
was unacceptable.
5. DELIVERY OF THE BEST VALUE
IMPROVEMENT PLAN
5.1 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.
5.2 The
informal meetings of the Select Committee agreed that an explicit link to the
improvement plan should be made in the NPDO’s business plan.
6. SERVICES TO BE TRANSFERRED
TO THE NPDO
6.1 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.
6.2 The
informal meetings of the Select Committee agreed to the suggested services to
be transferred subject to there being no additional cost to the Council in the
residual services.
7. NATIONAL NON-DOMESTIC RATE
(NNDR) RELIEF
7.1 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.
7.2 The
view of the 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.
7.3 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.
7.4 The
informal meetings of the Select Committee agreed that the eligibility of the
NPDO to receive mandatory NNDR relief must be confirmed prior to any transfer
proceeding.
7.5 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.
8. EFFECTS ON VAT
8.1 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
agreed that the VAT position must be absolutely clear prior to any transfer
proceeding.
9. MEDINA LEISURE CENTRE AND
THEATRE
9.1 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.
10. LEGAL AGREEMENTS
10.1 The
legal agreements comprise three main documents which have been prepared by the
Council’s legal advisor. All are
substantially complete in draft and were 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 have specifically recommended 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.
11. CENTRAL CHARGES
11.1 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.
12. CLIENT OFFICER
12.1 Members of the Select
Committee meeting informally felt 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.
13. NEXT STEPS
13.1.1 The Council’s consulting
team (leisure, legal, VAT) are continuing 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.
13.2 It is necessary for this
group to receive 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.