Cash-strapped councils are turning to private enterprise to plug their funding gaps – with mixed success

An artist's impression of the i360, from before its completion. Image: Marks Barfield.

The i-360 is a 162m-tall observation tower on Brighton’s seafront. It offers a fine view of the channel, the nearby Regency rooftops and, if you look hard enough, rough sleepers sheltering along the promenade.

The tourist attraction was funded by a £36m loan from the council, which it, in turn, borrowed from the government. The idea is that the tower will earn money from tourists which the authority can spend on cleaning the shop window of the city by the sea, freeing up council revenues for other projects.

In 2016-17, the council’s i-360 reserve contributed £840,000 to the upkeep of the seafront – namely, the landscaping works either side of the i-360 itself.

Meanwhile, the council’s plan to open an assessment centre for vulnerable homeless people has been shelved because none of the potential providers could do it with the funding the council offered: £280,000 per annum.

Andy Winter, chief executive of the Brighton Housing Trust, says: “It is a scandal that in one of the richest cities in one of the richest countries in the world we have almost 150 people sleeping on our streets.  The assessment centre is an important part of ensuring that everything is in place to help achieve that ambition. 

“But the council is trying to juggle its finances and commitment with both hands tied behind its back.  Adequate funding for the assessment centre is just not there at present which is one reason why Brighton Housing Trust did not bid for this contract.”

For its part, the council insists:  “We recently conducted a procurement exercise to secure a provider to deliver this new service. The bid we received met our financial requirements, but did not meet our quality requirements. We were therefore unable to award the contract.”

In plain English, the project has fallen into the funding gap: there isn’t enough money to do what it’s supposed to.

Brighton is a city that is a proud of its eccentric way of doing things. Elsewhere, councils have looked to more traditional methods of making money in the private sector.

Mole Valley District Council in Surrey, for example, has snapped up the building that houses a branch of supermarket Asda in Wales for more than £11m. Councillors say the deal for the supermarket in Ystalyfera will generate around £600,000 per year until the tenancy runs out in 20 years’ time. The authority expects to earn approximately £12m in total – a profit of around £500,000.

But the approach is fraught with risk. Surrey Choices is an arms length trading company set up by Surrey County Council to deliver social care services. An audit by Grant Thornton for the period ended 31 March 2016 found the company had made a loss of £4,152,821.

Hazel Watson, leader of the Liberal Democrats on Surrey County Council, says: “Using trading companies is not necessarily the answer to a council's financial difficulties. It is still possible to lose money and not to obtain value for money services for residents. Councils have to remember that public money is involved and that it has to be protected.


“Surrey County Council has spent millions of pounds using a wholly owned property company to purchase commercial properties around the UK. I believe that this is putting millions of public money at risk.”

There is a reason many councils are getting into these risky new ventures. Earlier this year the leader of Newcastle City Council, Nick Forbes, explained the sinister sounding ‘jaws of doom’ scenario for the benefit of Radio 4 listeners.

“If you imagine a graph with two lines on the graph,” he said, “One is plotting resources over time over time – and that is going  down. But the other line is the pressures on local governments and that is going up. Those lines are getting further and further apart. And it is that gap, what is local government terms we call the ‘jaws of doom’, that is filling local authority leaders with dread.”

But councillor Veronica Dunn, Newcastle’s cabinet member for resources, is less apocalyptic. “In these challenging times, the city council is keen to explore other avenues of investment and generating income,” she says. “We are currently reviewing our joint ventures, arms-length vehicles, governance, and our future direction of travel is being particularly reviewed.”

She added that the council is clear about its priorities. “Anything we do to commercially improve our position is done taking those priorities into account... Being entrepreneurial also means identifying the size of the risk and knowing what you should not get involved in or exposed to.”

So what steps are Newcastle councillors taking to mitigate that risk? The press office sent me a statement: “The review is a rolling programme of work, involving a number of people, and will take some time to conclude. Unfortunately we can’t provide specific details at this stage while the review is ongoing.”

Your guess is as good as mine.

Back in Brighton, Andy Winter is clear where the buck stops.

 “The responsibility rests with government which has to make the necessary funds available,” he says. “At the drop of a hat it was able to find £1bn for the DUP to prop up its precarious hold on power.  Can you imagine what difference even half that amount would make in tackling rough sleeping?

“That would provide a legacy that Theresa May could be proud of,” he goes on. “But I guess she has other priorities which history will not judge favourably.”

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Everything you ever wanted to know about the Seoul Metro System but were too afraid to ask

Gwanghwamoon subway station on line 5 in Seoul, 2010. Image: Getty.

Seoul’s metro system carries 7m passengers a day across 1,000 miles of track. The system is as much a regional commuter railway as an urban subway system. Without technically leaving the network, one can travel from Asan over 50 miles to the south of central Seoul, all the way up to the North Korean border 20 miles north of the city.

Fares are incredibly low for a developed country. A basic fare of 1,250 won (about £1) will allow you to travel 10km; it’s only an extra 100 won (about 7p) to travel every additional 5km on most lines.

The trains are reasonably quick: maximum speeds of 62mph and average operating speeds of around 20mph make them comparable to London Underground. But the trains are much more spacious, air conditioned and have wi-fi access. Every station also has protective fences, between platform and track, to prevent suicides and accidents.

The network

The  service has a complex system of ownership and operation. The Seoul Metro Company (owned by Seoul City council) operates lines 5-8 on its own, but lines 1-4 are operated jointly with Korail, the state-owned national rail company. Meanwhile, Line 9 is operated jointly between Trans-Dev (a French company which operates many buses in northern England) and RATP (The Parisian version of TfL).

Then there’s Neotrans, owned by the Korean conglomerate Doosan, which owns and operates the driverless Sinbundang line. The Incheon city government, which borders Seoul to the west, owns and operates Incheon Line 1 and Line 2.

The Airport Express was originally built and owned by a corporation jointly owned by 11 large Korean firms, but is now mostly owned by Korail. The Uijeongbu light railway is currently being taken over by the Uijeongbu city council (that one’s north of Seoul) after the operating company went bankrupt. And the Everline people mover is operated by a joint venture owned by Bombardier and a variety of Korean companies.

Seoul’s subway map. Click to expand. Image: Wikimedia Commons.

The rest of the lines are operated by the national rail operator Korail. The fare structure is either identical or very similar for all of these lines. All buses and trains in the region are accessible with a T-money card, similar to London’s Oyster card. Fares are collected centrally and then distributed back to operators based on levels of usage.

Funding

The Korean government spends around £27bn on transport every year: that works out at 10 per cent more per person than the British government spends.  The Seoul subway’s annual loss of around £200m is covered by this budget.

The main reason the loss is much lower than TfL’s £458m is that, despite Seoul’s lower fares, it also has much lower maintenance costs. The oldest line, Line 1 is only 44 years old.


Higher levels of automation and lower crime rates also mean there are fewer staff. Workers pay is also lower: a newly qualified driver will be paid around £27,000 a year compared to £49,000 in London.

New infrastructure is paid for by central government. However, investment in the capital does not cause the same regional rivalries as it does in the UK for a variety of reasons. Firstly, investment is not so heavily concentrated in the capital. Five other cities have subways; the second city of Busan has an extensive five-line network.

What’s more, while investment is still skewed towards Seoul, it’s a much bigger city than London, and South Korea is physically a much smaller country than the UK (about the size of Scotland and Wales combined). Some 40 per cent of the national population lives on the Seoul network – and everyone else who lives on the mainland can be in Seoul within 3 hours.

Finally, politically the biggest divide in South Korea is between the south-west and the south-east (the recently ousted President Park Geun-Hye won just 11 per cent of the vote in the south west, while winning 69 per cent in the south-east). Seoul is seen as neutral territory.  

Problems

A driverless train on the Shinbundang Line. Image: Wikicommons.

The system is far from perfect. Seoul’s network is highly radial. It’s incredibly cheap and easy to travel from outer lying areas to the centre, and around the centre itself. But travelling from one of Seoul’s satellite cities to another by public transport is often difficult. A journey from central Goyang (population: 1m) to central Incheon (population: 3m) is around 30 minutes by car. By public transport, it takes around 2 hours. There is no real equivalent of the London Overground.

There is also a lack of fast commuter services. The four-track Seoul Line 1 offers express services to Incheon and Cheonan, and some commuter towns south of the city are covered by intercity services. But most large cities of hundreds of thousands of people within commuting distance (places comparable to Reading or Milton Keynes) are reliant on the subway network, and do not have a fast rail link that takes commuters directly to the city centre.

This is changing however with the construction of a system modelled on the Paris RER and London’s Crossrail. The GTX will operate at maximum speed of 110Mph. The first line (of three planned) is scheduled to open in 2023, and will extend from the new town of Ilsan on the North Korean border to the new town of Dongtan about 25km south of the city centre.

The system will stop much less regularly than Crossrail or the RER resulting in drastic cuts in journey times. For example, the time from llsan to Gangnam (of Gangnam Style fame) will be cut from around 1hr30 to just 17 minutes. When the three-line network is complete most of the major cities in the region will have a direct fast link to Seoul Station, the focal point of the GTX as well as the national rail network. A very good public transport network is going to get even better.