Seismic shifts

There can be no doubt that local government is in the midst of a difficult period. The Comprehensive Spending Review will mean cuts, a large proportion of which will be felt within the next 12 months. The trend will be for local authorities to involve the private sector more in delivery of services, for the reorganisation of the delivery of services, and for a reduction in local government employment. The arts looks to be in a difficult position, demonstrated by the decision of London Councils to axe the funding they provide for arts in the capital and early announcements by district councils for reductions in funding.

In November, the government announced a £10m fund aimed at enabling public sector workers to take over the running of the services they provide. Though this may be seen as most likely to apply to health and education, and the fund does not seem aimed at funding costs of transfer, it may be of interest in the context of transfers of arts assets. The term being used by the government is “mutualisation”, which is broadly drawn and indicates not just co-operative organisations, such as industrial and provident societies, but also organisations with developed share ownership structures such as John Lewis.

The Localism Bill introduces two particular measures of note. The first is the “community right to challenge”, which means that local bodies such as charities, parish councils, and two or more employees of a local authority, have the right to express an interest in providing a service for which the local authority is currently responsible. The “community right to buy” will require local authorities to maintain a list of public or private land of “community value,” so that when this land comes up for disposal the communities themselves will have the chance to develop a bid and raise capital for the land. There is not a great deal of detail on either measure at the moment but it is clear that Local Government will be at the centre of how the ‘Big Society’ is rolled out.

ASSET TRANSFERS

For many years, local authorities have transferred out cultural assets (such as venues or arts centres), either as part of capital projects or by transferring responsibility to independent organisations – which may be charities or commercial entities. The challenge for local authorities has always been to ensure that there will be a good working relationship between the newly ‘independent’ organisation, providing the services formerly provided by the local authority, and the local authority which generally continues as funder and residual owner. The local authority typically retains a significant degree of control as owner of the freehold, and the landlord under a long lease. Having worked on numerous such projects, the key, in my opinion, is for there to be a genuine win-win relationship so that the new provider is doing more than just delivering services that would otherwise be delivered by the local authority. They also need to be bringing new expertise and funding so that the provider is able to offer more without the local authority having to increase grant funding.

A key consideration in any such arrangement is the nature and extent of the local authority recharges (i.e. costs levied by the local authority for the use of local authority staff, facilities or other items such as gas/electricity or insurance). Prior to any transfer, a local authority will usually have imposed recharges in relation to the asset. If there is a significant degree of asset transfers, the provision of such services (whether used or not) may no longer be needed. This in itself may cause local authorities to review these staffing levels and give rise to other cuts.

AMALGAMATION AND RESTRUCTURING

The budget pressure will also create an environment where, apart from asset transfers, local authorities may look to co-ordinate certain sorts of arts service provision across their region. Management teams, box offices, IT and marketing might be delivered across a series of venues. Whether or not this is viable will depend on the nature of provision across the relevant geographical area and whether, from a business point of view, this integration is viable. This may also extend to integration between local authorities – a more challenging prospect but one which could deliver significant benefits.

For many years, the favoured legal vehicle for the transference of cultural assets has been the charitable company limited by guarantee. This will have an independent set of trustees and may include representation from the local council. It is generally not controlled by local government officers so as to not be subject to Local Government Acts regulations. The major benefits are the tax advantages charities enjoy, particularly charity rates relief (a discount of 80% is mandatory, and the local authority has discretion not to charge the remaining 20%), tax exemptions on profits and the ability to make applications to trusts and foundations which fund only charities. The ability to offer the benefits of Gift Aid can be helpful.

There are an increasing number of community interest companies (CICs) which can be set up either as companies limited by guarantee or, in order to facilitate investment, as companies limited by shares. CICs cannot be charities, but like charities have an “asset lock”, which ensures that assets held by them are applied only for the fulfilment of their objectives. There is also the prospect of the charitable incorporated organisation, which is included in the Charities Act 2006 but is yet to be implemented. This would have the advantage of having one regulator (i.e. the Charity Commission) and being a limited company. Currently, charitable companies are subject to regulation under company law as well as being regulated by the Charity Commission.