Risks to the Cambridge Library Enterprise Centre project

[See below for an update]

At yesterday’s meeting of Cambridgeshire County Council’s Highways and Community Infrastructure Committee, one of the issues councillors had to decide was whether to proceed with the proposed Enterprise Centre at Cambridge Central Library. This controversial project proposes to close a large part of the third floor of the library to the public, and effectively rent it out to a private company, Kora, who would charge users a fee to access it.

There are thirteen members of the committee, whose makeup reflects the political balance of the council: six Conservatives, three UKIP, two Lib Dems, and one Labour and one Independent councillor.

In the event, the vote came down to the wire, as the project was approved by just seven votes to six. All six Conservatives voted in favour of the project; the four Lib Dem, Labour and Independent councillors, who all represent districts in or near Cambridge, voted against. That left the three UKIP councillors, who split two-to-one against the project. However, that single UKIP vote in favour, from Ramsey councillor Peter Reeve, was enough to see the project go through.

It’s notable that all the councillors on the committee who represent districts in or near Cambridge voted against the project, whereas those in favour were all from parts of Cambridgeshire more distant from the library. Here’s a map showing the places that the councillors on the committee represent. Instead of colouring by political party here, I’ve used green for councillors voting in favour, and red for those against:

If Peter Reeve’s Ramsey constituents wanted to visit Cambridge Central Library, Google Maps tells us that they would face a round trip by car of at least 90 minutes – and that’s when both the A14 and the traffic in Cambridge are in a good mood. Public transport would take about twice as long. It seems bizarre that the fate of Cambridge Central Library is being decided by the vote of a councillor whose district is so far away from it, and whose constituents, as well as having a library in their own town, can get to Peterborough Central Library much more quickly.

Thanks to Freedom of Information (FoI) law, we know a good deal about the Enterprise Centre project. An FoI request from Paul Lythgoe produced a response including redacted minutes of 37 meetings between Kora and Council officers dating back to December 2013 – though it seems that the initial approach from Kora was in January of that year. One of the many interesting facts revealed by the minutes is that Cambridge Central Library is the fourth-busiest public library in the country, receiving 850,000 visits per year – pretty impressive given that Cambridge is only the 49th-largest UK city. Another interesting fact is the existence of a “Risk Log” for the Enterprise Centre project. I have asked for a copy of this to be released under FoI, so we may find out more about it. But one Risk Log entry that the minutes did mention was about the committee meeting itself. The minutes commented that “The risk is around delay to the meeting date. There is not a high chance of the proposals being turned down at the Committee meeting.” I expect those involved felt rather differently by the time of yesterday’s vote.

We’ll have to wait and see what, if anything is revealed about the other risks to the project covered by the Risk Log. But there is one particular risk that I would like to know more about, and I wonder whether it has been fully considered – the question of state aid. The EU rules on state aid are designed to prevent governments using taxpayer-funded resources to give particular organisations an unfair advantage over others. In general, state aid is not allowed. The rules are quite complex, but it is interesting to consider whether they might apply in this case – after all, here we have a taxpayer-funded resource, Cambridge Central Library, being used to provide a valuable commercial opportunity to one particular private company. Fortunately, the Department for Business Innovation and Skills (BIS) has published a handy document outlining how to decide whether something qualifies as state aid or not. Let’s have a look at what it says (page 4):

  1. Is the assistance granted by the state or through state resources? In the UK, this means national or local government. So, clearly, yes.
  2. Does the assistance give an advantage to one or more undertakings over others? It’s clear that Kora comes within the definition of an “undertaking” – it’s a private company, providing services to paying customers. The definition of an “advantage” is crucial here – the document says it’s “…not just a grant, loan or tax break, but also use of a state asset for free or at less than market price.” Let’s come back to this in a minute.
  3. Does the assistance distort or have the potential to distort competition? This isn’t a very high hurdle – the document says “If the assistance strengthens the recipient relative to its competitors then the answer is likely to be yes”. Certainly, having the use of the top floor of the Central Library will indeed strengthen Kora relative to its competitors.
  4. Does the assistance affect trade between EU Member States? Kora is part of an international network of Regus “business lounges” which allow members from many countries to access their facilities. So they are certainly providing services to other EU member states.

So it looks like the question of whether this is state aid or not boils down to whether the arrangement involves “use of a state asset…at less than market price”. So just what is the market price for the top floor of Cambridge Central Library? It seems to me that we don’t know the answer to this question, because instead of offering the facility on the open market, the County Council has been working in secret for many months with a single company on an exclusive basis. Have they really got the best possible price for this valuable taxpayer-funded asset? If they can’t show that they have, how can they be sure that this isn’t state aid?

I am not an expert in EU law, and there may be some glaringly obvious reason why this project does not qualify as state aid. But I would be very interested to know what it is. I am sure those involved will want to be careful that they are not contravening the rules. As the BIS document says: “A scheme that does not follow the rules could be forced to close, even after it is launched. Giving state aid illegally could result in the money having to be clawed back with possibly very serious consequences for the recipient.” I think that’s definitely one for the Risk Log.

Update (4 June): One reason why this may not count as state aid, it seems, is the “de minimis” rule, which specifies a minimum threshold. According to the Government website, the limit is €200,000 over a three year period, which at current exchange rates would amount to around £49,000 per year. If the benefit to Kora amounted to less than this, then it would not count as state aid. Without knowing more about the financial arrangements between the Council and Kora, it’s hard to say whether this limit might apply. Also it’s not clear (to me at least) whether any similar arrangements entered into by Kora with other councils would also count towards this limit. But we can at least estimate what the rental value of the top floor of the library would be, by looking at its rateable value. According to the City Council’s website, rateable value is “an assessment of the annual rent the property would demand if it was available to let on the open market at a fixed valuation date.” Currently, the valuation date is April 2008. Thanks to another Freedom of Information request, (number 2321 of 2013) we know that the library’s business rate valuation is £510,000. Assuming the third floor is worth about a third of this, that would suggest an annual rent of £170,000 – though that is based on 2008 prices, and I imagine commercial rents in Cambridge have gone up a bit since then. On the other hand, Kora is only planning to occupy some of the top floor. Still, on the face of it, it still seems likely that the question of state aid needs to be considered.

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13 Responses to Risks to the Cambridge Library Enterprise Centre project

  1. Rachel Mariner says:

    Thanks for your update and your analysis.

  2. Allan Brigham says:

    Good analysis, thank you. One thing that the decision made clear was that if the Counties apparent preferred option re the future of local government is a unitary authority covering the
    Whole county then Cambridge, the largest, fastest growing centre of population, would be ignored. The argument from one councillor that he would rather see cuts in a well used library like Cambridge than in small , less well used rural libraries also raises questions about the distribution of resources per head of population? And about what Democracy means?

  3. Janet Wright says:

    Very useful information, thanks Phil. I can’t see how this wouldn’t qualify as state-funded aid to a private company. Who should we be reporting this to?

    Allan: you mention a councillor saying he’d rather see cuts in Cambridge library than in rural libraries. This seems to acknowledge that the Kora plan will cost us money, not provide an income. That negates the council’s claims about the scheme. It also raises the valuable point that, by pouring money into Kora — at best a very high-risk, high-cost scheme — the council is gambtling with the future funding of all its libraries.

  4. Allan Brigham says:

    Janet, I meant that reducing service provision in the Central Library was an acknowledged cut that this Councillor would rather see than cuts to rural libraries. But it probably impacts on far more people given the numbers who use Cambridge Central Library ?

  5. Anonymous says:

    I think some perspective is needed here, not to mention a bit less of the type of characterisation of this project as “privatising the library” or “selling the library from under us”.

    The general public and other authorities do not yet have a grasp of the kind of cuts that are coming in the next five years (vs what has happened so far), now that the once improbable scenario of a Tory majority has become the ugly reality. The County Council essentially has to cut its budget in half from what it has already been pared down to. There is no little bit here and there any more. This is financial armageddon. Lots of services will be stopped and if people are squealing over this project god only knows what they’re going to say when other things are stopped completely. This project is bold and brave and is being taken forward in the hope that it will mean libraries are one thing that can be kept going across Cambs. Of course rural councillors voted for it – they are being faced with a decision re the entire library service. Their remit is not just one library. One of the things that the authority absolutely must do to try and survive this nightmare is make absolute best use of its assets. It has some great assets, but if they are costing the authority a fortune, ideas must be found for how to a) reduce that cost b) generate revenue from its assets. That will very often mean working with the private sector, making use of its expertise where appropriate and developing joint services where we can have common goals. A private company is not automatically incompatible with public service delivery, although clearly care has to be taken. The idea that this is some kind of sell off is misleading unless you simply want to look at and only focus on one aspect of the project. The enterprise centre is just as much about mixing some of Cambridge’s enterprise spirit and community with the wider community, in particular young people, learners from all backgrounds and anyone who might be keen to get more involved in enterprise and entrepreneurship. There will be plenty going on that will be accessible to all, it’s only private use of particular business facilities that will be for Kora members. Study spaces will remain as before and the central library ‘offer’ will not change save for the enhancement that the centre will offer. An enhancement in terms of people’s ability to get more involved in enterprise. There will be other service providers offering free and subsidised enterprise events and workshops and the like.

    I revert back to the point that this offer and all the perceived horror is but nothing compared to the choices the authority will have to take in the coming years. I’m talking about care, public transport, social services, waste, highways. The process of paring back another near half of the budget hasn’t even begun yet. So if the authority has some assets that are attractive to the private sector and offer revenue generating opportunities, however unpalatable that might be, it absolutely has to look at that and see if a partnership can be formed that keeps a public service functioning while perhaps offering something to the private sector in the process.

    Things will have to be stopped and or challenging decisions around revenue generation within public services like this will have to be taken. We have got to be more pragmatic about the challenges in public services across all the authorities that run them, otherwise things are going to get really unpleasant. 😧

    • Phil Rodgers says:

      Thank you for your interesting though anonymous comment. Would I be right to guess that you’re speaking with some inside experience of the situation at the County Council?

    • Bev says:

      Councillors were still, however, making a decision on something that wasn’t put out to tender. There is still no way of knowing if this is the best option or not because we have nothing to compare it to.

      And yes I do understand that councils will have a very difficult time in the coming years. I do get that the austerity will bite and bite hard and that money will have to be sought in (legally) creative ways. But we need to apply sense here and not just grab at the first and only option presented to us, surely? Would you do that at any other time?

  6. Anonymous says:

    I have worked at authorties around the area, including both the ones concerned with this decision, and still know people currently employed. So i have a certain amount of knowledge about the situation. But to be honest, despite the pictures being painted by some people, there is nothing being hidden here. The FOIs with associated minutes of meetings show everything that has gone on with the project from the start. The only bits redacted are names of individuals at Regus – which are of no consequence to the proposal – and a few commercially sensitive aspects, but all the headline figures are in the newspaper article. What is unfortunate is that the proposal came forward when the Council was still operating under a cabinet system, through which the proposal had already passed. But of course that means it doesn’t get discussed in detail by all councillors, only those from the controlling party. The authority then moved to a committee system (which i think is better from a democratic point of view) when the controlling party lost overall control, whereupon the proposal ‘suddenly’ appeared in front of all the councillors, some of whom, understandably, felt a bit jumped by it all.

    Re State Aid – that should not be an issue as the ‘entity’ will not, i believe, be in receipt of direct net funding from the state of more than 200,000 euros – the threshold for state aid.

  7. Clare Burgess says:

    @Anonymous – you state that there is nothing being hidden here. But it should not have taken an FOI request – the response to which was severely delayed and only released three days before the meeting – for elected councillors (and members of the public) to be given further details of the process. It was not just the public who have been kept in the dark – elected councillors on the committee knew very little until March this year, over a year after the meetings had begun.

    You’re right about the scale of the cuts but that makes it even more important that public money is not thrown away on a gamble – a project for which there is no robust evidence that it will deliver the projected income. As late as Tuesday we learnt that the company had not even carried out a market appraisal of the demand for the services that they claim will be so profitable.

    It is essential that the other options are fully researched and costed so that the decision is not made solely on the basis of statements made by one vendor. Caveat emptor remains a sound principle – particularly when the cuts are so severe and there are no reserves to gamble with.

  8. Somba Dih says:

    Don’t vote conservative

  9. Paul Lythgoe says:

    Good to see that the risk register has now been published. Whilst the register was written, I suspect, from the perspective of the implementation committee there are a number of things that of interest.
    1. There are no risks listed related to the involvement of a private partner, or relating to Regus in particular.
    2. There are no financial risks relating to the project implementation.
    3. The risks associated with democratic approval by the city council, or the county councils committee are rated fairly low. So a relatively high assumption that they had throughout a mandate to proceed.
    4. The risks associated with the public consultation only relate to timing of implementation. It was assumed throughout whatever the public view this was not a meaningful risk to implementation. Might we assume that public consultation was considered a tickbox task.

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