BOROUGH OF POOLE
CABINET
5TH APRIL 2011
MERGER OF POOLE AND BOURNEMOUTH ADULT LEARNING SERVICES: REPORT OF THE PORTFOLIO HOLDER FOR STRENGTHENING OUR COMMUNITIES
1.Purpose of report
1.1To seek approval from Cabinet to complete the implementation of a fully merged adult learning service.
2.Executive Summary
This report proposes the full implementation of a merged adult learning service between Bournemouth and Poole. This change builds on the current joint management arrangements that came into being in June 2010. Reducing funding from the Skills Funding Agency is the primary driver for a merger which will eliminate duplication, achieve economies of scale and protect the delivery of services.
The new joint service will be based in Oakdale Centre and the Borough of Poole will be the employing and managing council. There will be a joint governing board and a formal legal agreement is being prepared.
The report sets out savings for the merger in the region of £347k and work by Financial Services describes steps being taken to mitigate potential risks around VAT and Pensions. Transitional costs will be met within the services’ revenue budgets. Adult learning is funded externally and savings will not accrue directly to the council but remain operational to protect service delivery.
3.Recommendations
That Cabinet recommend to Council:
3.1That agreement is given to the merger of Poole and Bournemouth adult learning
services from the academic year 2011/12.
3.2Approval of a virement of £1m in 2011/12 to reflect the additional grant, fee income
and associated expenditure which will now pass through the accounts of the Borough of Poole as the relevant accountable body for the merged adult learning service.
4. Background Information
4.1On 16 December 2008 Council approved the merger of Poole and Bournemouth Adult Learning Services subject to further financial analysis and due diligence. Following a period of financial analysis it was decided that the best way to secure the efficiencies and benefits of joint working in the short term was to develop a jointly managed service model. On26th January 2010Cabinet approved the establishment of a joint management team employed by the Borough of Poole.
4.2The Joint Management Teamwas formally appointed from June 1st 2010 and a Legal Agreement signed by both councils. The Joint Management Team is accountable to both Borough of Poole and Bournemouth Borough Council Service Unit Heads with responsibility for line management with the Borough of Poole Service Unit Head. The Joint Management Team wasbudgeted to achieve a saving of £76k but is on schedule to save £91k in the first year of operation. There are a range of other efficiencies and user benefits achieved including a joint brochure (with £8k savings) joint curriculum planning and quality improvement and the staff development programme.
5. Rationale for full service merger 2011/12
5.1In the 2010 Spending Review the Department for Business Innovation and Skillsannounced that the further education budget will reduce by 25% by 2014-15.
The Skills Funding Agency communicated their expectation for providers to achieve ‘more for less’ through shared services and efficiency.
Changes in funding values for 11/12 will result in areduction of 13% in Poole and 11% in Bournemouth for an equivalent number of guided learning hours.This reduction is made up of several complex changes in the way the service is funded.
The funding agency is introducing Minimum Contract Levels which will increase incrementally and within a few years Poole might no longer be eligible to be funded as a stand alone service.
There are 6 staff vacancies being held across both services at present to help avoid redundancies but these vacancies are not sustainable and are limiting service performance. If the merger does not proceedon the proposed schedule additional costs would need to be incurred to enable both services to continue to operate and this would create financial pressures for both councils.
5.2Business Cycle
The adult learning business cycleallows implementation of a merger only once a year with the decision required between January – April to enable funding contracts, course programming and finance and data systemsto be ready for the commencement of the academic year. If a merger does not proceed during this current window it will be delayed for 12 months and this would result in an escalation of current service financial pressures within both authorities.
6.Financial implications
6.1Since the establishment of the Joint Management Team in June 2010 further financial analysis and due diligence has been ongoing to assess the risks and consequences of a complete merger. These risks have been assessed on the assumption that the Borough of Poole will act as the lead accountable body for the operation of the combined service in the future. The financial risks which need to be highlighted for member consideration can be listed as follows;
6.2Value Added Tax (VAT)
Adult learning is an exempt of VAT business activity for eligible bodies such as local authorities, further education colleges, universities, and charities.
Whilst in general, exempt of VAT organisations are unable to recover VAT incurred (exempt input tax), local authorities are able to recover exempt input tax within a concessionary (5% partial exemption) limit. The Borough monitors and manages the VAT partial exemption position to ensure that VAT does not add to the Council Tax burden.
The risk to the Borough of Poole is that the exempt VAT incurred by Poole in respect of the combined services pushes Poole’sexempt VAT partial exemption over the 5% de-minimus limit and exposes Poole to potential up to £600,000 of additional costs.
In order to mitigate this risk, Poole’s Corporate VAT officer has sought and received approval from HM Revenue & Customs for a “Joint Local Authority Service” that enables the exempt VAT to be shared between the two Council’s on an equitable basis (per head of population).
It will be critical to both the Borough of Poole and the success of the service going forward that the structure of the service continues to adhere to the principles of a Joint Local Authority Service as set out in the agreement with HMRC.
6.3Pension Fund
Both Poole and Bournemouth have separate funds within the Dorset County Council run Local Government pension scheme and the position in respect of both Council’s asset and liabilities in these funds is quite different althoughas with most pension funds, both are in deficit. The risk is, who should remain responsible for the deficit in respect of the Bournemouth staff who will transfer across to Poole.
In order to manage this issue it is proposed a new separate element is created within the pension scheme into which a share of the assets and liabilities of both Poole and Bournemouth respectively are transferred and this transfer is based on the service history of the staff being transferred into the new merged service.
This issue relates only to the back-office (Management and Administration) staff. Tutors currently employed by both Council’s are part of the Teachers Pension Scheme (TPS). The Teachers Pension scheme is administered on behalf of the Department for Education (DoE) by the Teachers’ Pensions (TP) organisation and as an unfunded scheme relies on current contributions to meet the current pension commitments.
Consultation with the pension fund actuaries as to the exact format of the new pension fund element will be undertaken once the Transfer Undertaking of Public Protection (TUPE) details have been established. However the principle will continue to be that the new merged service meets its pension backfunding costs as it does currently as separate organisations.
6.4FutureFinancial Viability
As the Accountable body all income and expenditure for the new service, including the grant income from the Skills Funding Agency and Young People’s Learning Agency will be directed through the Borough of Poole’s accounts.
The Borough of Poole will provide all central support services to the new joint service and provision has been made within the Medium Term Financial Plan of Bournemouth Borough Council to address any impact that this may have. Any additional costs incurred by Poole central support service units will be agreed as part of a Service Level Agreement (SLA) process to be met from the grant and earned income of the new service.
The indications are that financial savings of up to £347,000 can be achieved from this merge as follows;
- £275,000 Single Staffing Structure
- £60,000Single administrative headquarters in Oakdale
- £12,000Single financial and data systems
However it should clearly be established that these savings will not accrue directly to either Council. Instead these savings will better enable the new combined service to remain operational in light of the significant funding reductions from the Skills Funding Agency (section 4.1).
A proposed initial budget for the merged service is included as Appendix One. This will require a virement in the accounts of the Borough of Poole to reflect approximately an additional £1m of grant and fee income and the associated expenditure.
Any deficits from the operation of the new merged service will be shared equitably between the two Council’s as per the Joint Local Authority Service agreement which is on aper head of population. Each Council will separately address any surplus or deficit’s from the operation of their independent Adult Learning Services in respect of the 2010/11, and any previous, academic year.
6.5Transitional Costs
Any transitional costs from moving to a combined will be shared equitably between the two organisations or by the new merged service if incurred after start of the 2011/12 academic year.
7Legal Implications
The existing formal agreement between both Councils for the joint management arrangements of adult learning will be amended by Poole’s Head of Legal and Democratic Services to reflect the proposed full merger arrangements. Particular consideration will need to be given with regard to the implications of TUPE and how this will be managed. Ensuring robust governance and proper arrangements for review and termination will also be addressed. Once the revised agreement has been prepared by the two heads of legal services it will be approved by the two Portfolio Holders.
8Equalities Implications
Both services have strong records of supporting equalities with appropriate courses that are accessible throughout local communities. Accessibility remains a priority for the new combined service. The services have already aligned fee policies, concession rates and enrolment terms and conditions and joint course planning has reduced course cancellations. Bournemouth staff will experience a daily change of work location and Poole staff will be required to visit Bournemouth venues. Flexitime arrangements may be applied to staff with care responsibilities.
9Environmental implications
The duplication of utilities and technical resources created by the operation of two administrative sites will be removed.
There will be increased travel to work costs for some Bournemouth staff some of which will be reduced by working at home and car sharing.
Appendix One attached
Background Papers
Borough of Poole Cabinet Report 2 December 2008
Council 16 December 2008
Cabinet 26 January 2010
Equality Impact Assessment
Cllr Peter Adams
Portfolio Holder for Strengthening our Communities
Officer Contact
Kevin McErlane, Head of Culture and Community Learning
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