Swings and roundabouts

Leaving council control to become a trust is a popular topic amongst those organisations directly managed by their local authority. So often the grass appears to be greener on the other side, but as well as the many pros, there are also cons to transferring to a trust. Before doing anything else, ask yourself who expects to benefit and how. A pro for one party may be a con for the other. For example, a benefit to the local authority may be reduced financial support: it’s a perspective unlikely to be shared by the arts organisation. So, agree separate shortlists of primary benefits that each desires, then test these against likely management options to see which add up to delivering the greatest long-term benefit. On the plus side, you may find the following benefits of transferring to a trust:

BETTER VALUE FOR MONEY: Would a trust-managed organisation deliver better value for money in terms of making its existing grant go further? For example, this can be measured by reducing the level of subsidy per ticket sold (through selling more tickets), or reaching more ‘hard to reach’ groups that are a Council priority. This is usually, but not always, the case. If so it supports the ‘making our money go further’ policy, making the authority look smart and richer in reputation.

SAVINGS: Not everything will be cheaper but there are areas where savings can be made, such as:

• Reduced business rates: A body with charitable status can claim an 80% mandatory reduction in business rates.
• No internal recharges: These are the bane of many arts managers’ lives, being a sizable area of expenditure over which they have little or no control – the recharges are applied simply because ‘that’s your share’ of the local authority’s costs. Of course, unless they can make consequent reductions in the budgets of their own affected departments, the authority may not see this as a benefit.
• Better procurement: While local authorities can secure low rates for utility services, for example, they are often tied to supplier agreements which can turn out to be more expensive than the price something can be purchased ‘on offer’ when it is needed. I travelled to London recently with a colleague on the same train going to the same conference. He’d had to indent for a travel warrant and paid £150 for his return ticket in compliance with his authority’s procurement. I paid £26 by booking online.
• Lower pension contributions: Local authority pensions cost a lot more than private pensions. While employees are protected by TUPE legislation when they transfer, over time, as staff changes occur, employers can still offer healthy employer contributions at a fraction of the cost to councils who may need to contribute large sums towards clearing the black hole in their pension schemes.

BETTER BUSINESS FOCUS: Look around you: how many successful businesses succeed because they try to reach all sectors of the market with pricing policies to match? Local authorities frequently force their theatres and arts centres to be all things to all people. (They don’t put it quite like that in their policies – but you know what I mean). If you operate on a non-profit or charitable basis, legal requirements have to be met, but beyond this you can focus your programme on areas in which you know you can really build a reputation for excellence to achieve greater financial sustainability. You don’t see Glyndebourne pulling in tribute bands or The Globe running tea dances.

INCREASED REVENUES: Having trust status opens the doors to raising funds from tax-effective giving or grants from a wider range of trusts and foundations. (But ask yourself if you’re the kind of organisation that will attract funding from this source – see cons below!)

A WEBSITE OF YOUR OWN: Marketing and sales options are severely limited by having a website that is effectively a few pages on the local authority’s own website.

DECISION-MAKING: Opportunities to earn or save more can be lost because of lengthy decision-making systems that are often subject to scrutiny by committees with very different objectives to the needs of your business. A trust can focus on making decisions that suits its business interests best – far quicker than a local authority: recruitment, for example.

However, there are inevitably some cons:

IT TAKES TIME: It can be least two years from agreeing to look at the options to transferring – and often longer, especially if an election leads to a change of political power.

TRANSFERS COST: Taking into account due diligence issues, legal costs, surveys and other compliance requirements, it is wise to assume that there won’t be much change left in the local authority’s purse from a budget of £40,000 – maybe more.

VAT: This could be a pro or a con. Have an expert do a full VAT analysis of what the budget would look like under likely VAT scenarios to ensure that the organisation doesn’t find itself worse off.

FUNDRAISING TAKES TIME: Although having charitable status means a much wider range of fundraising options, it’s a competitive world. It can take 3–4 years to generate a sizable and sustainable level of fundraising income, and only then if someone in the team is given the time, training and resources to take it on. Also, don’t expect other funding bodies to leap in to fill the gap left by the local authority.

CULTURAL CHANGE: A different working ethos will prevail as a trust which can occasionally present difficulties unless staff are properly prepared to adjust. For example, adapting times of operation to suit the market, rather than local authority working hours. Staff who’ve been with the local authority for years can present challenges!

Clearly there are arguments for and against transferring to a trust. The win-win option will only be reached if you take time to review the benefits against the options in order to find a model and feasible targets to which the authority and the new management body both agree.