A COMPANY could be set up to buy BCP Council’s beach huts, as part of the “non-traditional approach” included in the local authority’s budget proposals.

A cabinet report on the 2022/23 budget plan sets out the creation of a special purpose vehicle (SPV), which would be wholly or majority owned by the council.

The SPV would purchase the assets, namely the thousands of beach huts along Poole and Christchurch bays, at market value using mostly third-party debt and an additional shareholder loan from the council.

Current budget assumptions, which are “not without inherent risk”, suggest this ‘sale’ would give the council £54 million.

Subject to central government extending regulations around the flexible use of capital receipts (FUCR), the cash has been earmarked to plug a large gap in the budget for the approved transformation programme.

Going forward the SPV would use income generated from beach hut rents towards operating and maintenance costs, corporation tax, guarantee fees and paying back the money used to purchase the huts.

The cabinet report says the council could collapse the SPV once the debt had been cleared and return the assets to council control or refinance them again.

“Councillors need to recognise that the approach being proposed is a bold, non-traditional approach to the financing of local government and therefore it is not without inherent risk that this approach has been assumed to underpin the proposed 2022/23 budget,” the report to next month’s cabinet says.

“As set out previously, the budget as proposed will need to be redrawn if the model is not implemented for any reason including the absence of member endorsement.”

Opposition concerns

Raising concerns about the approach, Poole People councillor Mark Howell told the Daily Echo: “The costs of transformation, consolidation of services following merger, have increased to £67.9m and are being financed by selling the council’s rights to income from beach huts for 20 years.

Bournemouth Echo: Cllr Mark HowellCllr Mark Howell

“This means that the annual income from beach huts will not be available to the council during years two to 20 of that period and the overall receipts available to the council will be reduced by financing and administration costs.”

Assets, assets, assets

BCP Council deputy leader Cllr Philip Broadhead said the approach “fundamentally comes down to what we have now with the bigger council”.

“We have a tremendous amount of assets and using those creatively rather than just selling to make sure we can deliver the transformation, we can deliver the investment in the future, but without selling,” said Cllr Broadhead.

Council leader Councillor Drew Mellor said: “You can only sell an asset once outside of the council.

"We believe in this environment, particularly still with record cheap debt, we need to be investing in assets not selling them.”

'Leading not following'

Asked about the risk associated with the plan, Cllr Mellor said: “We have done a massively in-depth piece of work with KPMG, who are our transformation partner, and at the top CIPFA (Chartered Institute of Public Finance and Accountancy) in terms of ‘is our thinking legitimate’ in terms of how public financial accounts are done and also with our external auditor.

Bournemouth Echo: Cllr Drew MellorCllr Drew Mellor

“All of them have said this is absolutely right and bluntly government are really interested as well because that is what they are asking us.

"They have given us this dispensation and we are leading local government nationally in some of the solutions around it, which is what we should be doing.

“We are the 10th largest local authority in the country. We need to be leading not following a lot of time.”

Waiting game

The cabinet report says FUCR is currently due to end on March 31 this year. The government has reportedly set out an intention to extend the deadline for until March 2025, however, at the time of the report being published earlier this month the regulations to permit this had not been laid.

Bournemouth Echo: There are thousands of huts along the BCP Council area seafrontThere are thousands of huts along the BCP Council area seafront

“From discussion with government, they continue to provide assurance that the extension will be enacted however they also suggest that there will be some unspecified changes to the guidance,” the report says.

“This 2022/23 budget has been prepared on the basis that these regulations will be laid before and agreed by parliament and that they will be materially consistent with the current regulations.

“Council may need to formally review the 2022/23 budget to confirm it remains deliverable once the regulations that allow the further extension of the FUCR are published.”