Agenda item

It was agreed by the Corporate Governance Committee, following their meeting on 20 November 2018, that the Chairman write to the Chairman of the Overview and Scrutiny Committee in relation to the apparent financial deficit outlined in the Statement of Accounts in relation to the trading operations of the Markets; Port as well as the Light Industrial Units and Business Centres.

Councillor Boden explained that following the Corporate Governance Committee meeting on 20 November 2018, it was agreed that the Chairman of Corporate Governance Committee write to the Chairman of Overview and Scrutiny Committee in relation to the apparent financial deficit outlined in the Statement of Accounts in the following areas; Markets, Ports, Light Industrial Areas and Business Centres.

Members asked questions, made comments and received responses as follows;

1.    Councillor Booth explained that as a member of Corporate Governance Committee he had been present at the recent meeting. He explained that members had had to make difficult decisions during CSR about certain services and the committee felt that effectively, these highlighted areas are loss-making and the true cost of these are not being reflected when the Council set their Fees and Charges. He highlighted that whilst the Council is not a business, it must operate in a business-like way to ensure the tax payer is getting the best value for money.

2.    Councillor Boden thanked officers for the breakdown they had provided in relation to these trading areas. He said the accounts produced show depreciation as a cost however these are removed during the processing of accounts. He said if we consider these areas from a commercial viewpoint it is relevant to use these accounting adjustments as the Council can then compare them on a like-for-like basis to a privately run operation.

3.    Kamal Mehta explained that in Local Authority accounting, non-cash adjustments are reversed out as regulatory framework states that these adjustments cannot impact the tax payer’s bottom line. In commercial accounting this would be shown in a profit and loss account. He asked members to consider whether they wanted these trading functions to operate on a commercial profit and loss basis or for a wider purpose as a Local Authority function.

4.    Councillor Booth said the Council must consider how accounts are produced and how we run these functions commercially. He highlighted that in relation to Business Centres, members must consider the additional income they generate and how they can be used to benefit the District in the future.

5.    Councillor Boden proposed that this report should be considered by members of the Economic Development Review Group as all of these functions relate to Economic Development.

6.    Councillor Boden asked for evidence that the business centres are being utilised as incubator units and therefore as their intended purpose and whether the Council have a waiting list of prospective tenants for these. Councillor Buckton confirmed that it is a balance of supply and demand and in general, there is no waiting list. Due to this, there is not the appetite for the Council to encourage people to move on to larger secondary accommodation.

7.    Councillor Owen asked for clarification that the Council does not have a waiting list or is it that the case that nobody is waiting for a vacancy at these units. Councillor Buckton confirmed that there are no companies currently waiting for premises however if there are any enquiries that come in, these are followed up immediately.

8.    Councillor Oliver clarified that when an enquiry is received it is actively pursued by the Business Premises Manager and the Valuation & Estates Surveyor.

9.    Councillor Owen suggested that a list of all enquiries are collated and maintained in order to not miss any opportunities across all business centres. He said without this, we cannot assess the demand of the business centres. Councillor Oliver said if somebody expresses an interest in one of the business centres, staff conduct viewings and retain their details where required.

10.Councillor Owen said that during his last visit to the Boathouse Business Centre in Wisbech, he was surprised to see such a high occupancy rate. Justin Wingfield confirmed that the Boathouse Business Centre is almost fully occupied with new tenancies set to begin in the coming months.

11.Justin Wingfield confirmed that the Council do have a waiting list and database of enquiries and explained that the demand at each Business Centre can fluctuate greatly. He said that initially, new businesses looking for premises can take up to a few months to make a decision about leasing an office space therefore it can take time before initial enquiries produce results. He confirmed that the Council is proactive in pursuing these enquiries.

12.Councillor Boden said the Economic Development Member-Led Review Group must assess if the Council are operating as a commercial landlord or are we achieving the initial objective of business centres acting as incubator units.

13.Councillor Humphrey questioned why the Business Centres are operating at a deficit if occupancy rates are high. He asked how the rent and terms of leases at the Business Centres compare to commercial premises. Justin Wingfield said rents at the Business Centre are largely in-line with the commercial rental market however the Council do offer more flexible commercial lease terms. These flexible terms appeal to new businesses as it reduces their upfront liabilities associated with renting office space. He added that rents are reviewed annually and the quality of each of the premises is assessed accordingly. He highlighted that business centres also generate income via their meeting room facilities.

14.Councillor Boden asked for figures in relation to the average length of time for occupiers and the turnover rate of occupiers. Councillor Buckton explained that the first generation of Light Industrial Units (developed in the 1980’s) has an average tenancy of 9 ¾ years with the longest serving tenant being in-situ since 1991. The second generation Light Industrial Units (developed in the 2000’s) has an average tenancy of 3 ¾ - 5 ¼ years with the longest serving tenant being in-situ since 2005. The Business Centres (The Boathouse Business Centre, Wisbech and South Fens Business Centre, Chatteris) have an average tenancy of between 2 ½ - 6 ¼ years with the longest serving tenant being in-situ for 13 ½ years at South Fens Business Centre. Councillor Buckton confirmed that the Council’s main issue is the lack of secondary premises for business owners to expand into.

15.Councillor Boden thanked Councillor Buckton for the figures. He asked Councillor Mrs Laws to consider the inclusion of secondary business units as part of the Local Plan review.

16.Councillor Booth said figures contained within the Full Council agenda pack for 13 December 2018, show the percentage of occupancy for each site. He highlighted that South Fens Business Centre currently has an occupancy rate of only 58% whilst the Boathouse Business Centre has an occupancy rate of 93%. Justin Wingfield explained that both of the business centres operate on similar business models and until only recently, the occupancy rates had been lower at the Boathouse Business Centre than South Fens Business Centre.

17.Councillor Boden said the issue is the lack of secondary business premises within Fenland, for expanding business.

18.Councillor Boden asked for clarification regarding the difference between the Competent Harbour Authority (CHA) and the Statutory Harbour Authority (SHA). Councillor Oliver explained that the CHA in the United Kingdom are those harbour authorities that have been given statutory powers relating to the provision of pilotage in their waters SHA. The description was created by the Pilotage Act 1987, at which point a CHA had to be one whose harbour was wholly or partly within a pilotage district where at least one act of pilotage had been performed, or where a pilot exception certificate had been in force between 1984 and 1987. Councillor Oliver said the Harbours Act 1964 is the central piece of primary legislation governing the imposition of harbour dues by statutory harbour authorities. In additional, other primary legislation such as Harbours, Docks and Piers Clauses Act 1847 and a vast array of local acts of parliament apply to each statutory port. This means that the powers of a statutory harbour authority can vary from port to port.  Local acts should therefore always be considered when deciding whether a harbour authority has the power to levy a harbour due. He confirmed that the split between statutory and non-statutory activities can be provided but there will be costs (staffing, vessels, equipment) that are apportioned where they cannot be identified to one activity only.  Such apportionments can vary from year to year depending on the activities that time is spent on.  These can be significant to give variances year on year in terms of the bottom line.

19.Councillor Boden asked for reassurance that the International Accounting Standards (IAS) adjustment figures and Pension Fund figures provided on page 35 of the agenda pack will not reoccur in future years. Councillor Mrs Hay explained that the IAS adjustment is not a one-off adjustment and will occur every year. This is because the accounting standard requires the fund liabilities to be valued annually using particular parameters in respect of the discount rate used. The Chartered Institute of Public Finance (CIPFA) Code of Practice requires an accounting adjustment to be made so that the Income and Expenditure account reflects only the actual cash payments made by the Council as employer contribution to the Pension Fund. She highlighted that the reasons behind these being classified as accounting adjustments is detailed in the notes on each appendix (contained within the Agenda Pack). These are not a cost to the Council as they do not hit the bottom line of the Council’s accounts. She said it is the actual cost to the Council of operating these services which is the important figure when making comparisons. She added that although the reporting can be used for comparison purposes with the commercial sector, great care needs to be taken as the commercial sector’s motive is always profits and shareholders wealth in the company whereas the public sector motive is to serve communities economically, efficiently and effectively.

20.Councillor Boden said whilst he accepts annual adjustments must be shown under IAS, is it likely that this will continue at the figure of £60,000 as reflected on page 25 of the Agenda Pack. Kamal Mehta explained that this figure is an adjustment that includes all LGPS staff pension liability valuations of those involved with the Port operation. The Annual Valuation for IAS19 given is based on high quality corporate bonds whose returns are used for the discounted rate. He confirmed that the Council’s accounts only reflect actual payments made by the Council to the Pension Fund.  In relation to the Pilot Pension Fund adjustment, he confirmed that this is a one-off payment.

21.Councillor Boden thanked Kamal Mehta for the explanation and asked if the corporate bonds are held as a long or short term investment. Kamal Mehta confirmed that they are long-term.

22.Councillor Booth asked if the IAS adjustment includes past employees who are now drawing a pension from the Council. Kamal Mehta confirmed this is correct.

23.Councillor Booth said page 26 of the Agenda Pack states that in relation the Pilot Pension Fund adjustment, it states that ‘this has now been settled and no further adjustments are required’. He said that this phrase does not reflect that there may be future liabilities on the fund. Mark Saunders confirmed that the Council are not anticipating this in the foreseeable future and a note referencing this is contained within the Statement of Accounts. He confirmed that the Pension Fund provider had assured the Council that there would be no charges levied in the foreseeable future.

24.Councillor Boden asked what other benefits the Council gain from operating the Ports that would not apply if it was privately run. Kamal Mehta said as the Council are the Statutory Harbour Authority there are costs that arise from this that cannot be avoided. He explained that from a commercial perspective the Council offer other activities that allow them to recover some of the costs associated with running the Port.

25.Councillor Humphrey asked why the premises, supplies and services costs associated to the Ports (page 25 of the Agenda Pack) have increased so much. Mark Saunders explained that these were costs associated with improvements to the Port which have largely been covered by insurance reimbursement. He confirmed that the work was undertaken last year however the insurance money does not get reported until the following year therefore the figures for 2018/19 will be significantly lower.

26.Councillor Boden asked for a breakdown of the Market’s premises costs as referenced on page 29 of the Agenda Pack. Councillor Murphy explained that the premises costs are as follows; Repair & Maintenance at a cost of £882, Electricity at a cost of £718, recently installed Electricity Feeder Pillars at a cost of £12,699, Business Rates at a cost of £3,283, Water Rates at a cost of £248, Cleansing Recharge at a cost of £36,740 and Insurance costs of £312. This is a total figure of £54,612. He explained that the Electricity Feeder Pillars have just been replaced and therefore are a one-off cost. In relation to the Cleansing Charge, the waste from the Markets is classified as Trade Waste and therefore is much more expensive to dispose of. Councillor Boden thanked Councillor Murphy for the clarification.

27.Councillor Humphrey asked if these costs are associated to Wisbech Town Market too. Councillor Murphy confirmed that Wisbech Town Council run the Market and are responsible for the associated costs.

28.Councillor Humphrey asked if there was scope for the other Town Council’s to take over operation of the Markets. Councillor Murphy said this is a consideration however the Cleansing and staffing costs to Town Councils would be much higher as currently Fenland District Council splits these costs across the three Markets.

29.Councillor Humphrey asked if Wisbech Town Council make a profit from the Market. Councillor Oliver confirmed that Wisbech Town Council make a slight profit but is unsure of the exact amount.

30.Councillor Boden highlighted that the Council is currently spending around £76,000 per year for the purpose of the District’s towns retaining their Markets.

31.Councillor Booth said including other events costs in the figures is not a true reflection of the costs associated with operating the Markets. Councillor Murphy confirmed that events such as Four Seasons are run by the Council but still show as a charge in the figures as there are still associated Cleansing costs.

32.Councillor Booth said the costs of these events should be included under a separate heading in the accounts to reflect the true costs of operating the Markets. Councillor Murphy agreed.

33.Councillor Boden asked if members could be provided with the costs associated with hosting the Four Seasons events on the Markets.

34.Councillor Boden asked the Council’s Land Estate comprises of. Councillor Oliver explained that the Council own a broad range of assets for differing reasons and purposes. He highlighted that information on all of these, can be found in Section 5 of the Asset Management Plan 2017-20, which can be found on the Council’s website.

35.Paul Medd said a lot of the issues discussed today revolve around the position of the Council in terms of its policy and priorities going forward. He said the information presented today reflects how the Council currently operates however, if they wish to, members can consider changing the direction of these policies.

The Overview & Scrutiny Panel noted the content of the report and AGREED to refer this item to the Economic Development Review Group.