With the unique circumstances posed by the Covid 19 pandemic and temporary closures of Council-sponsored sports and leisure facilities, Rob Hann, Sharpe Pritchard’s Head of Local Government outlines some of the challenges the sector faces.
The successful roll-out of the vaccination programme in the UK means that the drastic measures (such as lockdown) to try to control the spread of Covid 19 have been scaled down or have ceased altogether. Many who have been starved of their gym exercise or regular tennis or swimming sessions are now, once again, able to exercise, socialise and keep fit. Whilst a boom in sports and leisure attendance post lockdown is just what the sector needs, local authorities face a myriad of problems and difficulties following the loss of income and costs incurred to maintain facilities during prolonged periods of enforced closure.
Sports and leisure delivered or funded by local authorities has traditionally been a way to engage the public with a range of healthy living activities and to combat obesity. Many people during lockdown, when gyms, pools and other indoor facilities were closed, have explored their local parks to take part in outdoor exercise and recreation. The massive popularity of creative, cultural and leisure activities demonstrate the true value of these often-financially squeezed, subsidised services.
Councils collectively currently spend around £2.2 billion a year on culture, sports and leisure services in England, making them one of the biggest investors in this area. However, it may come as a surprise to some to learn that In England (the law may be different elsewhere), the relevant legislation empowering Councils to undertake leisure functions (namely Section 19 of the Local Government (Miscellaneous Provisions) Act 1976) is not expressed in terms of a mandatory statutory duty. Rather, it is a discretionary function that Councils can choose to undertake if they so decide. Consequently, in these times of unprecedented financial hardship, many Councils are under significant pressure to find some way of continuing these hugely important functions, whilst at the same time, meeting the myriad of other mandatory statutory duties they are required to perform.
In the past, in an earlier age of austerity, many councils explored alternative ways to deliver sports and leisure, such as through the (so-called) leisure trust route. There are reckoned to be around 100 such ‘arm’s length’ entities now established by Councils as ‘not-for-profit distributing organisations’ (NPDO’s) of one type or another (e.g., companies limited by Guarantee, community benefit societies or community interest companies). Some leisure trusts have also secured charitable status. The business cases underlying the establishment of the leisure trust model were often founded upon the ability of NPDO’s to secure business rate relief and/or more favourable VAT treatment. There was also the potential to secure grant funding from alternative sources. There were other drivers but the potential to make fiscal savings of one kind or another and to tap into additional income streams were certainly important factors in the journey towards leisure trust provision.
Unfortunately, during the Covid 19 Emergency, many council providers have been ineligible for much of the initial funding support provided to the wider business community. Whilst closed, such facilities generate zero income from users and much-reduced income upon reopening due to social distancing measures (which applied until comparatively recently). A significant number of leisure centres have high fixed maintenance costs (particularly swimming pools), which have forced some councils to dip into scarce reserves to meet on-going liabilities.
The charitable status of some LA leisure trusts also (somewhat ironically) proved to be a disadvantage as it meant they could not access much of the Government financial support or the Coronavirus Business Interruption Loan Scheme (CBILS). Financial support was limited to the Job Retention Scheme (JRS) and concession payments or rent holidays that were negotiated alongside any additional subsidy with their already hard-pressed Local Authority sponsors.
In the event, and despite the difficulties, many councils have (so far at least) made the commercial decision to continue to support their leisure trusts, not least because of the recognition that local and affordable leisure provision is, if anything, even more crucial to help communities recover from the physical and mental stresses of the past two years. Permanent closure of leisure facilities, swimming pools and other facilities would have left many without access to affordable participation in healthy living. Wide-spread closure would also impact on some of the most vulnerable people in communities, who have also been more adversely affected by COVID-19.
The Local Government Association (‘the LGA’) were quick to recognise the precarious position that local authorities and their leisure providers found themselves in and issued guidance to the sector. This guidance has been very helpful in scoping options and strategies for survival Options for councils in supporting leisure providers through COVID-19 | Local Government Association .
The main aim was to encourage authorities to consider their supply chain, and how it could best be protected so that the services, and healthy market competition, remained available to them at the end of the crisis. The LGA issued further guidance (A guide to the emergency insourcing of leisure services, June 2021) to councils some of whom, despite their best efforts, may yet need to significantly re-organise and redesign existing service delivery options to remain viable. The guide highlights some key considerations that should be addressed when making any decision on the future operation of the leisure service, and signposts further supporting information where this is already available in the public domain including options contained in Capital project development | Sport England.
Finally, the LGA have published several case studies demonstrating the value of LA led culture, sports and leisure facilities and their response to the challenges offered by the pandemic:
One of the options open to struggling LA leisure providers highlighted by the LGA guidance is to bring the leisure facility back ‘in-house’. This, as the LGA recognises, is probably a last resort but which might, nonetheless, provide stopgap whilst other rescue options (which might include retender) are more fully appraised. However, bringing such facilities back in-house requires several sub-options to be considered including whether to ‘ring-fence’ the undertaking within some form of Local Authority Trading Company.
The detailed consideration of the VAT, NNDR and other fiscal implications both from a historic perspective and going forward are crucial to fully understand and take account of what might be gained or lost from such changes. Recognising the sector’s importance to the public and the unique challenges faced by local authorities and their leisure operators, Sharpe Pritchard, PSTAX and Max Associates (Leisure consultants) will be hosting an exclusive online forum on Friday, 11th February 2022. The half-day event will help LA’s consider their options in the round and explore the market, tax and legal issues affecting the sector and its recovery.
For further information about the event, and how to book, please visit: https://www.sharpepritchard.co.uk/event/leisure-sector-forum/
It is essential the important role sports and leisure has played in community health and wellbeing during COVID-19 is recognised and that help is provided to ensure and assist with recovery of this crucial sector.
Rob Hann is Head of Local Government at Sharpe Pritchard LLP.
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