Councillors Will Recommend Not to Set up a Company

Councillors will recommend not to set up a company

A working group of Councillors from South Hams District Council and West Devon Borough Council are recommending to their Members that they should not move forward with the proposal to set up a company which would run their services.

This means that the proposal to set up a Local Authority Controlled Company (LACC) is now unlikely to move forward in its current form.

The Member led working group (Joint Steering Group) was set up to answer nine critical questions. They have concluded that, while there are no legal or technical matters that would prevent the Councils from setting up a LACC, additional costs in the early years would take the Councils longer to pay back than the Members of the Joint Steering Group were comfortable with.

A decision not to move ahead at this time could mean that both Councils will have to continue to explore other ways to close their looming funding gap of £1.5 millionbetween both Councils.

Setting up a company owned by the Councils to run their services is just one solution that the Councils have been looking into in order to close the funding gap in their finances, and provide a way for both Councils to continue to deliver essential services.

The idea to set up a Local Authority Controlled Company (a company owned by both Councils) has been talked about by both Councils who operate a shared staff arrangement, since the transformation programme called T18, began over 3 years ago.

The ambition of T18 has always been to transform how the Councils work; to deliver better value for money for the customer; be more customer focused; and ultimately close a huge funding gap of £4.7 million between both Councils, which the reduction in Central Government funding had created.

This would also have enabled the Councils to become self-sufficient and be able to sell their services to other organisations in order to generate a profit.

However, this would be a huge step for both Councils and not without risk. Elected Members had asked for a politically balanced working group (called the Joint Steering Group) to be set up. Their task was to work through nine unanswered questions to enable Councillors to make an informed decision.

Together Officers and Elected Members on the Joint Steering Group thoroughly explored all of the possibilities and ways of setting up a company.

Following months of discussion and exploration, and having taken detailed advice from finance and legal professionals, the working group have concluded that, while there are no legal or technical matters that would prevent the Councils from setting up a LACC, additional costs relating to pension contributions would cost the Councils more in the short term and take longer to pay back than the Members of the Joint Steering Group were comfortable with.

They will be recommending that their fellow Councillors vote against setting up a company when they meet on the 7 (West Devon) and 9 (South Hams) of February to make their final decision.

Leader of South Hams District Council Cllr John Tucker explains: “We have listened to the advice we have been given and we have worked through all of the outstanding questions that Members had.

“This revealed to us that the time it would take for us to pay back that initial investment was just too great and too much of a risk to take.

“I am greatly disappointed that this is the conclusion that we have come to, because we do have to find solutions to our funding shortfall. But this is the right recommendations for us to make, given the information that we have considered.”

Leader of West Devon Borough Council Cllr Philip Sanders said: “I can confidently say, as part of the working group set up to explore the unanswered questions, that Officers have responded to our concerns with robust information and thorough exploration of all of our questions.

“Despite our “no” recommendation to both Councils, one thing is certain and that is that we will have to become more commercial and find other ways of funding ourselves if we want to continue to deliver the services that we currently provide to our customers. This journey has not come to an end, it is just taking a different path.”

With a “no” recommendation from the Joint Steering Group, both Councils will make their final decision on the 7th and 9th of February. After both Full Council meetings, Officers and Members will undoubtedly have to focus their attention on the Councils’ other funding projects, and income generation ideas.

Notes to editors:

This Joint Steering Group was a politically balanced group of Members from both Authorities. They were charged with looking at nine outstanding questions:

Teckal compliance (Teckal is a type of company that they could set up, what they would need to do be a Teckle Company)
State Aid (lending of money and use of Councils assets)
Governance and Shareholding, (how the company should be run)
Reserved Matters, (how the Councils retain control over the company)
A mechanism for adding new partners (if the company want to take on more partners)
An Exit Strategy (should the company not work)
A Business Plan
How Corporation Tax would apply
What would happen to the pensions of the employees

Having taken expert advice from Bevan Brittan Solicitors and Grant Thornton Accountants, the Joint Steering Group will now submit a report West Devon Borough Councils' Hub Comittee on 24th January and South Hams District Council's Executive on 2nd February before a final decision is taken by both full counicls at the beginning of February.