The need for social distancing and restrictions on movement in order to contain the coronavirus have inevitably led to closure of leisure facilities. Such facilities could be important to maintaining the health of the public and stimulating economic recovery when we emerge from the pandemic but this will be difficult unless the providers of leisure services are able to withstand the impact of the crisis. A recent report from the Local Government Association - Options for councils in supporting leisure providers through COVID-19 identified some particular difficulties for providers of leisure facilities for local authorities because of the characteristics of the providers or the way in which leisure services are provided.
Although the UK Government and the devolved administrations in the UK have taken action to mitigate the economic impact of the pandemic, there is a risk, as the LGA identified, that providers of leisure facilities will fall into the gaps between the support available. Particular reasons for this are:
- It can be difficult for leisure providers to obtain loan finance because loan providers often assess viability on historical profitable financial records rather than on future financial projections. The tight contractual and operating margins and, for trusts, their reinvestment of surpluses into the community model can also make it difficult for providers of leisure facilities to gain access to loans. This means that Government guarantees and support for loans are likely to be of little use to them.
- Many have a rateable value above £51 000 so are not eligible to receive the retail, hospitality and leisure grants.
- The operators of local authority leisure services are not eligible for Sport England’s emergency response funds which are targeted at grassroots community organisations and are unable to be used to address financial impact on local authority service provision.
- It is not clear whether trusts who are providing leisure services will be eligible for the Government funding of £750 million made available for frontline charities, as they are not deemed to be ‘small’ nor ‘delivering frontline services.
Each leisure operator has its own unique features but a common feature is the total reliance on income from service users and management fees to operate. Contract margins are usually very tight, as contracts will make provision for profits to be invested back into services. If leisure providers are registered charities, community benefit societies or community interest societies, obligations for them to invest surpluses into their facilities and services and, in the case of community interest companies, the application of a public benefit asset lock, will mean that they are unlikely to have reserves.
In normal circumstances, these types of arrangements have been used successfully by local authorities to provide services which are cost effective for the local authorities and meet the needs of their communities. However, they are likely to have left leisure providers in a difficult position to withstand the economic impact of a national emergency.
In these circumstances, local authorities could consider what action they could take to help the operators of their leisure services survive any difficulties they may be facing in their current circumstances. They will need to ensure that any actions that they take are reasonable, represent good use of public money and do not contravene any legal requirements. There are a range of actions which local authorities could take within these constraints, such as:
- Agreeing arrangements for payments which allow their service providers to maintain cash flow.
- Identifying scope for flexibility within contracts or making variations to contracts which will give their service providers some flexibility of the timescale for meeting their obligations.
- Considering requests for deferral of payments due to local authorities, for example rental costs.
It will not be in the interests of local authorities or their communities for providers of leisure services to fail. If this happens, local authorities who intend to provide leisure facilities when they are able to operate again will either need to consider bringing services in-house or carrying out a new procurement. Either of these options will involve costs at a time when there are already likely to be many demands on the resources of local authorities. There could also be a risk of a gap in service provision whilst a local authority makes provision for new arrangements. It would therefore be beneficial for local authorities and service users for local authorities to consider what action they might lawfully and practically be able to take to encourage the providers of their services to continue to operate.
Tiffany Cloynes, Partner and Head of Public Sector (England)
Paul Hilsdon, Partner
Clare Hardy, Senior Associate
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