APPENDIX Ai
Pricing Strategy for Beach Huts
2010/11 to 2012/13
The information contained in this document is the property ofBorough Of Poole
1 Executive Summary
1.1 A formal review of the Borough’s Pricing Strategy for Beach Huts has been
completed by Officers in Leisure and Financial Services. This review has been undertaken in accordance with principles outlined in the draft Corporate Income Strategy[1] and seeks to consider the following areas:
· Legislative framework governing the charging capabilities of local authorities
· The extent to which the cost of providing, administering and maintaining beach huts is recovered through chargeable income (and whether there is scope for greater recovery of beach related spend)
· How Poole’s current fees and charges have changed over the years
· How Poole’s current (and projected) fees and charges compare with similar authorities
· Whether there is scope to increase Poole’s fees and charges further – in addition to current uplift within the MTFP
· Potential barriers to charging (including customer impact)
· Assessment of strategic direction - what should our pricing structure look like in 3 years?
· Development of an implementation action plan that underpins and delivers core objectives of the Strategy.
1.2 The following Borough policies and strategies have been considered in developing
this strategy:
· Corporate Income Strategy (draft)
· Beach Master Plan (in development)
· Medium Term Financial Plan
1.3 Consultation - Officers are grateful to colleagues from neighbouring authorities for
their assistance in completing this project. Property Services have been commissioned to help identify more commercial rates for beach huts – this is an area that requires additional consultation/work.
2 Overview – where are we now?
2.1 Poole currently provides 1,157 beach huts/sites along the Poole Bay frontage. All
Beach huts are licensed on either an annual or short term basis (998 annual licences, 114 sites only at Hamworthy and 45 available on short term lets). Prices for beach huts vary according to style, facilities and location.
2.2 The beach huts themselves are of varied construction and are sited at different
locations across the breadth of the frontage:
· Branksome Dene
· Branksome Chine
· Canford Cliffs
· Flaghead
· Shore Road
· Sandbanks
· Hamworthy
2.3 No formal benchmarked review (comparison with similar authorities) of Poole’s prices for beach huts has been completed for a number of years. Comparative research completed in order to produce this strategy has identified differences in approaches to pricing between Poole and neighbouring authorities as well as potential anomalies within internal pricing.
2.4 The majority of Poole’s beach huts are brick built constructions. In comparison Bournemouth offer timber built beach huts at a higher annual lease price than Poole. There is therefore scope not only to increase fees to similar levels but to charge a more commercial rate for brick built huts.
2.5 Excluding site rentals at Hamworthy, Poole currently offers two forms of beach hut hire – annual leases (96% of beach huts) or short term hire (4% of beach huts). Other authorities including Bournemouth offer a wider range of beach huts including 25 year long leases, private site only beach huts (where the lessees incur all maintenance costs).
2.6 Access to annual lease beach huts (96% of beach hut asset base) is restricted to residents of Poole only. Despite this there is currently a waiting list of 500 people – equivalent to an average waiting time of 8 years. The waiting list was closed to new entrants 3 years ago.
3 Legislative Framework
3.1 The provision of beach huts is a discretionary service governed by section 19 of the
Local Government (Miscellaneous Provisions) Act 1976. Under this act local authorities have freedom to set charges for recreational & sport facilities as they deem appropriate. With no legal restriction on the level of fees that can be charged, local authorities are also permitted to generate surpluses from recreational & sport facilities – i.e. income from fees can exceed the cost of service delivery. For most other discretionary services income from fees cannot exceed the total cost of providing the service.
4 Costs Recovered through Fees, Sales and Charges
4.1 In 2009/10 Poole’s beach huts and sites generated total income of £904k and an overall surplus of £456k (after central overheads and depreciation). This means Poole currently recovers 202% of direct beach hut related expenditure. In comparison Bournemouth Council realised an overall surplus of £1,291k in 2009/10 from the provision of higher priced beach huts (277% cost recovery) and the availability of alternative beach hut products (Super Huts and Private Sites) for which the Council incurs no maintenance and minimum administrative expenditure (709% cost recovery). Comparative 2009/10 income and expenditure for beach huts is summarised in exhibit 1 below:
2009/10 / Asset Type / Income from fees, sales and charges / Expenditure / Net Surplus / Percentage expenditure recovered£000 / £000 / £000 / %
Poole / Beach Huts / 904 / (448) / 456 / 202%
Bournemouth / Beach Huts / 450 / (162) / 288 / 277%
Bournemouth / Beach Hut sites only / 993 / (14) / 997 / 709%
Bournemouth / Super Huts / 19 / (13) / 6 / 146%
Exhibit 1: 2009/10 beach hut related income and expenditure (Bournemouth v Poole) showing difference in cost recovery per ‘product’ [2]
4.2 Costs summarised in Exhibit 1 do not include additional spend incurred by the Council’s Environmental & Consumer Protection Services for the cleaning of Poole’s beaches (i.e. foreshore and promenade sweeping). Should these costs be factored in to cost recovery calculations for 2009/10, the percentage of beach management and beach hut expenditure recovered through current beach hut fees charged falls to around 140% (from 202% above).
4.3 Poole’s beach huts are surplus generating assets – but there is scope to improve surpluses through a comprehensive review of fees and charges.
5 Current Fees & Charges – Annual Leases
5.1 The vast majority (97%) of Poole’s beach huts are disposed of through annual leases. Exhibit 2 below compares Poole’s average annual lease beach hut charges[3] over the last 5 years with South Coast authorities Bournemouth, Christchurch and Torbay. Despite offering ‘superior’ huts of brick construction, Poole’s annual lease fees (for all beach huts) have historically been lower than neighbouring authorities (17% lower than Bournemouth in 2006). What Exhibit 2 also demonstrates is the impact of Poole’s response to the legislative transfer of liability for National Non Domestic Rate (NNDR) from local authority to customer in 2008. Poole reduced annual lease fees in 2008 by around 10% to compensate customers for the additional burden of NNDR – Bournemouth and Christchurch did not. This had the effect of widening an already significant gap in annual fees charged (between Poole and Bournemouth) from 17% in 2006 to 35% in 2009. The difference between Poole and Christchurch is even wider.
As the majority of Bournemouth’s beach huts are timber built, the average of Poole’s annual wooden hut fees has also been plotted in Exhibit 2. This demonstrates an even wider gap between the two authorities.
5.2 Exhibit 2 also shows the difference in Councils’ approaches to annual price increases. For the last 5 years Poole has increased historic prices incrementally by on average 8% per annum (10% uplift in MTFP for 2011). Bournemouth in comparison took a more strategic and commercial approach and reached a 5 year strategic price target through phased increases of 10% per annum.
5.3 Based on an approved uplift of 10% in the current MTFP, the average cost of an annual licence in Poole in 2011 will be £931 (ex VAT). This will still fall short of 2010 fees of £1,115 (ex VAT) in Bournemouth and £1,107 (ex VAT) in Christchurch.
Exhibit 2: Chart demonstrating how Poole’s annual lease fees for all beach huts (and timber built huts shown separately) compare with other South Coast authorities.
5.4 In addition review of Poole’s annual beach hut prices has identified potential anomalies in annual prices for similar beach huts at similar locations. For example there is inconsistency in prices of beach huts on the upper terrace at Shore Road. Despite all offering the same position and facilities, some are priced at £763 per annum whereas others are priced at £979 per annum.
5.5 Poole’s beach hut fees were originally set with the financial aim “to be self financing having met all maintenance needs and an appropriate return on asset value”[4]. Beach Huts are surplus generating and are not subsidized by residents of Poole. Despite this, Poole has restricted access to annual lease beach huts to Poole residents. Bournemouth Council has no residency restrictions on beach huts, which enables them to target a wider customer base with more commercial annual prices.
6 Current Portfolio of Beach Huts Available
6.1 Poole’s capacity to generate additional income from beach huts is influenced not only by price but also by the volume and ‘product mix’ of assets available for hire. Bournemouth offers a much larger and wider (more commercial) range of beach huts that caters for different customer needs and budgets.
6.2 Only 4% of beach huts are available on a short term let basis – despite the fact that short term lets generate proportionately more net income than annual leases and facilitate wider access to beach huts for the local community. In addition Bournemouth Council offers a suite of beach huts available for hire on a 25 year long lease basis (‘Super Huts’). Bournemouth receives up front payments from customers for the use of the lease (varying between £30k and £40k) and customers are charged standard annual lease fees thereafter. Super Huts are marketed on the basis of exclusivity – i.e. each has private access. Bournemouth has had varying levels of success in their disposal (a small number remain vacant as at date of this report). Private Sites are also popular in both Bournemouth and Christchurch with the added bonus of maintenance expenditure incurred by customers and not the Council.
6.3 Officers in Leisure Services are in the process of developing a longer term Beach Master Plan – a long term beach management strategy for Poole’s foreshore. The Plan will address the need to rebalance Poole’s portfolio of beach huts and also explore the commercial viability of alternative products (e.g. long leases). In addition Leisure Services’ 2010/11 Business Plan includes a target of achieving 150 short term lets by 2015 - this may require the construction of additional beach huts.
7 Strategic Direction – where do we want to be?
7.1 Comparative research with other authorities further confirms that Poole is not securing best value from its beach hut asset base. There are known pricing anomalies between similar beach huts offered as well as an overall price difference in annual leases between Poole and similar authorities. Additionally Poole offers brick built beach huts (other authorities do not) – so there is scope to take a more commercial approach to pricing in future years (rather than comparing with near neighbours alone).
7.2 There is a clear opportunity and need to better maximise return by increasing annual lease fees in the first instance to more comparative levels over the next 3 years, with the potential for further increases to more commercial levels that better reflect the type of asset offered in later years. In the opinion of Officers parity with near neighbours needs to be achieved in phases over a 3 year period. Various options on how this should be managed are considered in Exhibit 3 below:
7.3 Exhibit 3 – 3 Year Pricing Strategy Options (to achieve closer parity with near neighbours)
7.4 Office advice is that Option 3 is pursued as the recommended option. This option introduces a phased programme of total increases of 15% per annum over the 3 years of the pricing strategy. In Year 1 this will mean an additional increase of 5% in addition to the 10% already in the Medium Term Financial Plan. Years 2 and 3 will require additional uplifts of 10% in addition to the 5% approved to date within the MTFP. The effect of Option 3 will be to price Poole’s annual leases at a more comparable rate with neighbouring authorities by the end of Year 3 of the Pricing Strategy. Under Option 3 the average annual lease fee for Beach Huts in Poole will increase to £1,286 by 1st Jan 2013 (compared to Bournemouth current rates of £1,115).
7.4 Exhibit 4 shows the impact of proposed increases in Option 3 on the average annual lease fee[5] (including average annual increases to the customer):
7.5 What is clear is that, at best, proposed actions in Option 3 will bring Poole’s annual lease fees more in line with current fees at neighbouring authorities. The need for additional benchmarking of fees in years 2 and 3 of the strategy therefore remains – as well as the need to explore more commercial rates to improve income generation further. These, along with other income related actions, are identified as planned activities within the 3 year Implementation plan underpinning this strategy (Appendix A). In summary these are:
· Series of phased annual price increases to achieve additional income (including MTFP increases) of £456k by the end of Year 3
· Review and address known pricing anomalies between existing beach hut fees
· Undertake comprehensive benchmarking of fees to understand near neighbour pricing structures/approaches
· Consider removing residency restrictions for annual leases (Officers recommend that annual leases will only be offered to non-Poole residents if current licence holder does not wish to renew and no one on the waiting list is interested)
· Introduce processes to allow for all leases not renewed to be charged at Year 3 prices from the outset (average turnover of annual licenses is 60 per year)
· Complete a review to understand the potential for Poole to move to more commercial rates for its beach huts (this may require external specialist support)
· Conduct customer impact assessments to understand the effect of price increases.