Ploughing money into a private enterprise might appear controversial – the reality is more complex
Since this newspaper was launched last year it has featured numerous local businesses from small to medium enterprises to multimillion-pound operations. This week we focus on a ‘business’ that impacts all of our lives on a daily basis – Tunbridge Wells Borough Council
The £70million expansion of Royal Victoria Place shopping centre will be one of the most significant developments for Tunbridge Wells in decades.
When polled by the centre, almost 90 per cent of respondents expressed enthusiasm for the scheme, which will add an additional 140,000 sq ft of retail space alongside a new multiplex cinema.
However, few people realise that right now within the council discussions are being held on whether or not to invest up to £7million into the project.
The idea of the council ploughing public money into a private enterprise scheme is likely to appear controversial to many people – but the reality is more complex.
With government cuts to local authority grants hitting the borough council particularly hard, it has become ever more important for it to derive income through investment.
Regarded by the council as its ‘greatest asset’, its ownership of Royal Victoria Place freehold currently yields hundreds of thousands of pounds a year for the public purse.
But by making the investment, the council will have the opportunity to renegotiate the terms of its lease, which have not changed since 1992, to make them even more favourable.
These original terms state the council will be paid either ten per cent of net rents or a minimum ground rent of £837,000 per year, ‘whichever is greater’.
This means the council has received approximately £11.7million since the centre opened in 1992; a significant income stream for a local authority, but one with the potential to become even more lucrative.
“We have a number of options available and if we do decide to go ahead with the investment then, quite rightly, we would be looking for a return,” explained Lee Colyer, the council’s Director of Finance and Corporate Services.
“This would be a commercial type of return that would need to exceed either the cost of capital, when the council is using its own assets, or the cost of borrowing if we thought doing so would be more advantageous for that purpose.
“We are very mindful of the important role that the shopping centre plays in the town.
“Because we have been told that Hermes (who are the leaseholders) are willing to invest £70million, that is really compelling evidence that the private sector is comfortable with putting money into Tunbridge Wells.
“This reflects a vibrant and well-run economy and we want to be part of that.”
The decision on whether or not to make a contribution is just one of many which the council has to make when looking at how it can ensure taxpayers’ money is well utilised.
Like many businesses, the council has two budgets; one for revenue and another for capital expenditure.
As was widely reported in the Times at the start of the year, the council’s revenue budget, the one which deals with day-to-day spending on services, salaries and benefits, is facing a series of significant cuts in the coming years.
In order to avoid cutting services to the bone, and with only a minimal increase in council tax available, the council is looking to its capital budget of approximately £20million to deliver an income it can then use to plug the shortfall.
Investing in Royal Victoria Place is just one example of how turning capital investment into income works.
“As our grant from government disappears we will find ourselves in two years’ time with no central government support and will need to be self-sufficient. What we do is invest capital in order to derive income, and we either fund this through reserves, through heritage lottery grants, developer contributions or borrowing,” said Mr Colyer.
A second example of how this method has been employed is the Tunbridge Wells Sports Centre, run by Fusion Lifestyle.
Mr Colyer said the council has been lending money to Fusion at favourable rates for them to reinvest into the sports centre, the freehold of which is also owned by the council.
“The council owns three leisure centres,” he said. “The one in St John’s, one in Paddock Wood and one in Cranbrook. Only the centre in Tunbridge Wells actually makes any money, while the other two require a subsidy so what we do is pool all the income from them together and share it out so we can provide consistent service across them.
“Fusion wanted to make improvements not only to the service but also to the building in St John’s, so we entered a commercial arrangement where we loaned them £1.6million to invest.
“The benefit for the council is that we have the return from that loan, which is higher than if we had invested it elsewhere, and at the same time the money is invested in a council asset, extending its lifespan and raising its value.
“We also get a greater share of any uplift in activity from people using the centre due to the improvements.”
He explained that it was an example of where the council looks to benefit from its investments ‘in many ways’ while also supporting the services provided to the people of Tunbridge Wells.
Not every investment is going to have an immediate financial benefit for the council, but will instead provide other benefits for the town.
Mr Colyer said one example was the council’s approved spending of £1.5million for a refurbishment of the Assembly Hall Theatre, money which will never be made back.
“Although the council would like to operate in as business-like a manner as possible, our overarching purpose is civic responsibility.
“The Assembly Hall is cherished by many people, so sometimes we have to spend a substantial amount of money for no direct financial return.”
But even this will prove vital for the long-term health of the local economy, he believes.
“This town is thriving and successful and a lot of that is on the back of being well run.
“If you pick up one of the glossy brochures of developers attracting people to the town, one of those pages is an aerial photograph showing all the benefits of coming here.
“All of those attractions have something in common,” added Mr Colyer. “They are either provided by, or funded by, the council – the theatre, the museum, the award-winning parks and the shopping centre.
“If the council didn’t have the right financial resources, then it would be very difficult to sustain these services.”
HOW WOULD TUNBRIDGE WELLS BOROUGH COUNCIL LOOK IF IT WERE A COMPANY?
Those councillors in cabinet would be the equivalent of the board, elected by shareholders to represent their interests. They would be headed by Council Leader David Jukes as Chairman.
The Chief Executive (same title) would be William Benson – currently the most senior local government officer in the council.
He would be tasked with overseeing the delivery of the board’s vision, a role similar to what he does now.
But perhaps the most important position would be that of Chief Financial Ofﬁ cer, which would be Lee Colyer. His current title is Director of Finance and Corporate Services.
With a statutory obligation to ensure that shareholders’ money was well spent and invested, Mr Colyer would have the power to veto any board decisions if he felt it breached these obligations – much as he does now.
£200MILLION IN TAXPAYERS’ MONEY AND £95MILLION IN AN ARRAY OF ASSETS
We are frequently advised by members of the borough council that they run it ‘as a business’, and that if it actually were one, it would be a sizeable enterprise.
Each year it handles around £200million in taxpayers’ money and controls an array of assets worth £95million, which consists of nearly 200 properties and 300 plots of land.
Combined with the employment of 239 full-time and 65 part-time staff, as a business it far exceeds the European Commission’s definition of a ‘medium-sized enterprise’.
WHAT HAPPENS TO THOSE PARKING FEES? THEY GO BACK INTO THE PUBLIC PURSE
Parking is perhaps one of the most contentious issues in the borough, with revenue from the council’s major car parks expected to be around £3.5million this ﬁ nancial year.
However, Mr Colyer said that although car parking provided revenue, this goes back into the council to provide services ‘that don’t cover their cost’. He added: “We are quite fortunate in this town that the council controls many of the car parks. This helps us manage supply and demand because we can set the tariffs appropriately. Also, if they were run by private operators, the income would not be reinvested into providing services, but would instead go to shareholders or offshore companies, which is a loss to the local economy.”