Trusts: Con

• Glasgow, even when taking advantage of both Trust and CIC models faces financial difficulties  “Despite finding £54,000 for a rebranding changing the company’s name to Glasgow Life, by 2010 it was having trouble meeting the bills, resulting in community centres closing down, major cuts to opening hours at libraries, hundreds of staff redundancies and strikes at many of the city’s top tourist attractions” (Private Eye).  Smaller scale single-centre trusts also face problems due to fluctuations in income.
• Libraries are no longer directly answerable to the council or their users. Indeed, Company Law demands that “all board members must place the interest of the trust before that of the local authority, including councillors and officers”.  Although councillors can and will be on the board, the law is clear that they are there in a private capacity and not present to reflect the needs of the council.
• This may lead to unpopular decisions being made by the Trust rather than the Council – “It’s a classic case of the council setting up an arms-length organisation and then when they make an unpopular decision, such as closing a library, the council can say, ‘not me guv’.” (Cllr Terry Stacy, Islington).
• Moving to a trust or CIC may not be legal.  Gloucestershire NHS Trust have halted a transfer of staff to a community interest company due to a threatened legal challenge.  This appears to be because no competitive tendering took place.
• Limited options to make cash savings mean staff may be affected. Staff may receive less pay or inferior terms and conditions (NB this is both a pro and a con depending on your viewpoint), be replaced by cheaper less skilled (often casual) alternatives.
• Assets previously owned by the council (and thus, in theory, the public) may be transferred to a third party with no financial gain to the council or the public.  Indeed, income for Trusts appears largely to remain to be from the council and government/quango funding, suggesting that, overall, there is little benefit to the taxpayer even if there is to the council involved.
• Assets may be moved out of council control without the full consent of the community.  Where a community is taking over running its libraries because the council has said otherwise it will close them, it could be said that the council is “dumping” rather than “transferring” services with possibly grave consequences for the long-term viability of that asset. (from Gary Green)
• The tax exemptions may not survive.  If a tax reform is made, all Trusts would find themselves with a budget hole of, conservatively, over 20%.  This is made more likely as the decision to give leisure trusts charitable status is controversial – the Charities Commission initially rejected the first attempt to form one – and the decision to allow trusts for statutory services such as libraries (rather than discretionary ones like leisure centes) is even more so.

“There is no barrier in law to charities being set up by the state, but they must be governed independently and have exclusively charitable purposes,” Kennedy says. “We think that, in terms of governance especially, it is doubtful that these trusts are sufficiently independent in practice from local authorities.” Jay Kennedy, Directory of Social Change.

• Trusts can go into receivership, eg. Enfield Leisure Trust.  Annandale and Eskdale Trust needed to ask for more fundings as increased fuel bills had not been budgeted for. East Hertfordshire Trust was £500k in the red in its first year of operation. Wigan has recently lost a reported £250,000 due to an unsuccessful event leading to calls for it to return to Council control.

“The trusts are efficient, entrepreneurial and less bureaucratic. They have to be in order to survive, because it’s not only public sector cuts that threaten them, but also competition from the private sector. The leisure sector is a jungle in which new gyms and clubs pop up fast and predators can take a huge bite from a trust’s regular users.”  Peter Cardy, Aquaterra Leisure.

• High set-up costs could may negate some of the benefits from tax and rates exemptions, at least in the short-term.
• Trusts cannot normally apply for commercial loans as they do not formally possess any buildings to usa as collateral. “Because they will be new organisations, without any market track record, “employee-owned organisations may be especially vulnerable to the effects of market forces” (Mutual Interest?)
• Libraries often serve as information points for the council, enjoying easy access to internal council information and contacts.  This may sometimes be more difficult, but not impossible, when the service becomes a different organisation.
• Poor trustees could lead to stagnation or cutting of service. (However, poor councils could be said to sometmes do the the same thing now). Trust libraries have not been notably more innovative than traditional council services.
• Danger council keeps library funding static/stagnating as it is no longer core to what it does.
• It is questionable that trusts are actually real charities, making a change to remove their tax exemptions (and thus greatly reduce their attractiveness) a possibility.
• Transferring to a Trust can be an “easy option” avoiding the need to make the service more efficient and keep in council hands, for example in Hambleton. The trade union UNISON put forward an unsuccessful legal challenge in 2007 in Glasgow on the basis that the council was neglecting its responsibilities.  Some councils transfer risk to the Trust in the form of poorly maintained buildings.
• Converting to a trust may involved losing any economies of scale gained by being part of larger council.  However, balanced against this is the gain from leaving an organisation who may only have a peripheral interest in libraries.

“This is a regrettable facet of the transfer of leisure services. Some councils have crudely unloaded risk on to the voluntary sector: decrepit buildings that are expensive to maintain, requirements for investment that can never be generated by uneconomic services and price controls that negate surpluses. It is not only naive and unwary trusts that have taken on such commitments, but larger and smarter trusts that believe critical mass and cashflow will see them through. In the two waves of trust formation to date, some failures and mergers were inevitable, and the current financial crisis is likely to generate more. ” Peter Cardy, chief executive, Aquaterra Leisure.

• Trusts are exempt from the freedom of information act and may not be open to proper or public scrutiny.
• Community interest companies are very close to the privatised model (although with some restrictions) and may thus also suffer or benefit from the pros/cons of private companies.
• Returning a Trust, or even more, a Community Interest Company back to council control is a complicated process.
• Trusts are given unfair advantages over councils.  Where councils are given the same advantages, their performance is the same or superior to that of private/trust methods.
• It is unclear what happens to the profits of a Trust, if there are any, “If the mutuals are successful in terms of sustaining themselves or growing, what happens to any surplus or profit they generate? Will they simply distribute it among the employee members along the lines of the John Lewis Partnership? And if so, what then is the difference for public service delivery between this mutualisation and a straightforward privatisation in which the profits are distributed to the shareholders?”
• If the government was serious about the perceived advantages of mutuals, it would be looking to extend them to the private sector as well as the public sector.

“The experience of UNISON members is that Leisure Trusts are not an alternative means of community ownership of public assets but a tax dodge. There is no improvement in services or higher rate of private donations. Instead the staff delivering the services are experiencing a deterioration in their terms and conditions” Charitable trusts delivering public leisure and cultural services, UNISON

“Rather than being a ‘solution’ to the current funding crisis, the trust and CIC models are the first step towards the privatisation of library services. We believe this would have a significant impact on the overall quality of service provided to local communities and impact particularly on.” Love your libraries

“a leader of the biggest union for council staff in Scotland claimed that employees in libraries and museums now had worse working conditions due to the transfer of powers from local authorities to the quangos. Douglas Black, Unison regional organiser, speaking at Holyrood’s education and culture committee, said: “Protection is not in place in the majority of places, where we have seen a diminution of our members’ terms and conditions as well as a huge casualisation of the workforce.” Scotsman, 4/9/12