wielding the axe

Chris Marriott on how to make

Councils have for some time been working out what they can cut, how much they can save, and when they can do it. All services will come under intense scrutiny and all are likely to suffer, some more acutely than others. So, what is the future of ‘leisure and arts’, as a non-statutory service? Some councils may be tempted – as they are free to do at their discretion – to close their leisure centres and theatres and sack staff. Closing the doors is a very efficient way of making savings, but the problem is, whilst councils do not have to provide leisure and arts services at all, they do represent some of their most visible activities and are integral to the delivery of a far wider social and economic agenda.

So what is the alternative to closing facilities? Well, for those councils who are operating their facilities directly, the simple answer is to get someone else to do it for you, under contract. About 65% of leisure centres in England are still operated inhouse, whereby the council takes responsibility for the delivery of the service and takes on all the risk. The other 35% is run by a mature stable of specialist private contractors (Leisure Connection, DC Leisure, Parkwood, SLM, Serco) and trusts (Fusion, Greenwich Leisure, Active Nation, SIV).

Leisure operators typically charge the council a management fee in return for taking on the financial risk of operating the facilities. Councils tend to find it cheaper to contract with a partner rather than deliver the service themselves. This is for a number of reasons, including more commercially astute management, better marketing and programming and faster decision making, leading to higher sales and lower costs. Also, trusts (although not private operators) benefit from business rate relief and tax benefits which they can pass on to the Council via a reduced management fee.

On the cost side, cynics might question whether these contractors will reduce the staffing base, but the truth is council employees are transferred across as part of the contract and their terms and conditions will be protected under the Transfer of Undertakings Protection of Employment (TUPE) Regulations. That’s not to say that over the course of a contract (which will typically be around ten years) they will not be banking on making savings through improving the productivity of their workforce – savings that they will pass on to the council in the form of a lower management fee.

Given that staffing typically represents the single biggest cost (around 75% of the total) it warrants some consideration here. We have undertaken a number of reviews of local authority leisure operations over the past few years. Compared to trust and privately operated facilities staffing costs - almost without exception – proved to be significantly higher, due to a combination of better pay and higher numbers of staff.

Going forward – and there is no avoiding it – councils are going to need to address this if they want to retain the scope of their service and continue operating in-house. Up until now it’s an issue they have been unwilling to tackle and they have not been under much pressure to sort it out. It’s been easier to just cut back on repairs and maintenance. That’s just not sustainable.

Regardless of how they make these savings, the fact is that external partners can substantially reduce the cost of the service to the council and can prove this through a demonstrable track record over a number of years. One of the leading leisure contractors in the UK will tell you that it typically delivers a £200,000 saving to a Council for each leisure centre it takes on (reducing the net cost from £300,000 to £100,000). If they can all demonstrate that the quality of service can be improved and they take on the risk of operating the facility, this makes for a very attractive proposition.

Proponents of in-house delivery will argue that councils are generally more in tune with the needs of their community and are better at delivering sports and arts development programmes. This may well be true and there are some councils we know who do it extremely well. However, leisure officers will have a difficult job convincing their chiefs that this is important in the current climate and whether they are indeed any better at doing it than a third party contractor. And then they will have to make a convincing case to continue funding it.

Even if they can put forward a compelling case for retaining their sports and arts development service in-house, the business of managing the facility is a separate issue. Councils will find a very competitive market out there and contracts are likely to be keenly priced. The fact that all councils who currently manage their leisure and arts facilities in-house will be reviewing their options at the same time is positive; there will be opportunities for like-minded neighbouring councils to club together and jointly offer a larger portfolio of facilities to the market (e.g. Guildford and Woking). The bigger scale opportunities tend to be more aggressively pursued by operators and can help drive a keener price, whilst the councils can share the burden of the procurement costs.

So, in the face of swingeing cuts and competing budgetary priorities local authorities will need to demonstrate a sound business case for continuing to operate their services in-house. In fact, from now on, the onus is likely to be on why councils should not outsource their service.

Chris Marriott (chris.marriott@capita.co.uk) is Principal Consultant at Capita Symonds.

Further information at: www.capitasymonds.co.uk/sportandleisure