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An opportunity for change Exploring the trust option for museum services A practical guide to the feasibility stage

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Page 1: An opportunity for change Exploring the trust option for museum

An opportunity for change

Exploring the trust option formuseum services

A practical guide to the feasibility stage

Page 2: An opportunity for change Exploring the trust option for museum

BUnlimited is a consultancy service driven bya desire to release potential. We look at howto take the constraints off organisations andthe people in them, so that they can buildand flex their creative muscle and move fromgood to great. This may be about process andorganisational configurations but more often itis about culture and confidence. BUnlimited isabout helping clients to meet their potential.

Lawrence Graham LLP

We’re business lawyers, advising clientsaround the world. Our base is in London but,like our clients, our reach is global.

We’re not just commercially-minded, we’reentrepreneurial and results-minded. Ourapproach is to get deep inside our clients’businesses and the industries in which theywork. It’s this depth that gives us an extraedge in tailoring the most effective legal andcommercial solutions.

We’re lawyers. Just different.

Page 3: An opportunity for change Exploring the trust option for museum

Foreword

The constant challenge for local authorities is tocontinuously improve public services with limitedresources. With conflicting priorities and demandsfor local authorities, cultural services do notnecessarily get all the attention, commitmentand drive that they need.

In 2001, the City of York Council asked meto chair an Initiation Group to investigate theoption of establishing a new charitable trustto take over the Council’s key museum andarts facilities: the Yorkshire Museums andGardens, the York Art Gallery and the YorkCastle Museum, which was ultimately agreed.

These facilities remain in Council ownershipbut the Trust has total responsibility for theirmanagement and development.

Some elected members at the time objectedto what they perceived to be the ‘privatisation’of the services. However, a charity is not aprivate body: it is publicly accountable andlegally answerable.

Indeed the new charitable trust, YorkMuseums Trust, has gone from strength tostrength in its now six years of operation.Relations with the Council, at both officerand councillor levels, are good. There arefresh staff, fresh energy, fresh funds fromexternal sources, and new and imaginativeprogrammes. Each side has kept to theiroriginal commitments.

Joanna Bussell and Sandra Bicknell havenow produced this excellent report, whichsets out clearly and fully how such transferscan be set up, monitored and be successful.Their personal experience in York, I like tothink, has contributed to their thinking andwhat they have written here. I warmlyrecommend this report to any group orlocal authority who might be thinking ofsuch a change, and indeed to those ofus who have already embarked on thetransformation. We all have much to learn.

Robin GuthrieChairYork Museum Trust

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Contact details

Joanna BussellPartner (Local Government and Public Authorities)Lawrence Graham LLP4 More London RiversideLondon SE1 2AU

T/ +44 20 7759 6664DX/ 1332076 London Bridge 4E/ [email protected] www.lg-legal.com

Sandra Bicknell DirectorBUnlimitedT/ +44 1226 767179E/ [email protected]

Janet ThompsonHub ManagerRenaissance Yorkshire Museums SheffieldLeader HouseSurrey StreetSheffield S1 2LH

T/ +44 114 278 2672E/ [email protected]

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Contents

Page

Foreword i

1. Introduction 1

2. Your present position and aspirations 7

3. What are your options? 12

4. Options assessment – is a trust the right option? 19

5. Next stages 25

6. Communicating possible change 27

7. Reflections from existing trusts 30

8. Concluding remarks 32

Appendices

A The NPDO options 33

B Comparison between alternative NPDO options 38

C Risk matrix 40

D Key legal tasks for a museum transfer 42

E Schedule of legal documents 44

F Trustee recruitment 45

G Person specification for trustees 46

H Draft advert for prospective trustees 47

I Model object clause 48

J Local authority powers 49

K Background to VAT position of NPDO 51

L NNDR briefing 54

M Staffing issues 56

N Definitions 57

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1. Introduction

A practical guide

This is a practical guide targeted at localauthority officers who have responsibilityfor, or who are involved in, a local authoritymuseum service and who are consideringthe transfer of services from the localauthority to a Trust.

It is intended to be a practical documentto help you to think about what might beinvolved in transferring a local authoritymuseum service to a Trust. The criticalfocus of this guide is the first stage of thetransfer process – the feasibility stage.

The transfer of services to a Trust is a majororganisational change. It is imperative,therefore, to the success of an initiative ofthis nature, that you undertake a thorough,objective and professional approach to thefeasibility stage of the transfer process.

The aim of this guide therefore, is to highlightthe key issues you need to consider whenexploring the Trust option. We have not givenyou all the answers, as your answers will bespecific to you and they will depend uponyour own circumstances. We have focusedinstead on the issues and the processinvolved. The contents of this guide does notnecessarily offer you a blueprint but shouldoffer enough detail, with examples, to helpyou with your own planning.

You will see that throughout this guide westress the importance of communication.This is because of the very simple fact thathow you communicate possible changes willmake or break the possibility of initiatingthose changes.

The experience offered within this documentcomes from two main sources: legal teamswho have extensive experience of transferringlocal authority services to Trusts and peoplewho have headed local authority museumservices both pre- and post-transfer.

Other sources of information

This practical guide to the feasibility stage ofa transfer of museum services to a Trust isintended to compliment other sources ofinformation published in recent years lookingat the advantages and disadvantages of theTrust Option for museum services and thekey legal, financial and operational issuesinvolved. Most significantly key sources ofbackground information on the Trust Optionfor museum services includes the MLA’spublication ‘Moving to Museum Trusts:Learning From Experience’ (2006) in(the ‘MLA’s Report’) and the 7th Edition ofLawrence Graham LLP’s publication ‘Culturein Trust’ (2007).

This guide focuses in particular on thefeasibility stage of the transfer process, thatis determining whether the Trust Option is theright option for your museum service and thecritical issues to be addressed during theimplementation stage to ensure the transferis a long term success for all parties involved.

Transferring a service to a Trust will not initself transform the service. It is essential,therefore, that the feasibility stage identifiesthe critical success factors and mostimportantly resources are put in place todeliver the required change programme.

Quick wins are important. However, the realmeasure of success must be sustainabilityand continuous service improvements.

This practical guide will help all thoseinvolved in the change programme toidentify and put in place the platform fora successful transfer of museum services.

The ‘Trust Option’

The ‘Trust Option’ referred to in this guide isa generic term for arranging for the deliveryof the services by a ‘non profit distributingorganisation’ (NPDO).

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The Trust Option would involve therefore:

n establishing a new NPDO (or identifying asuitable existing NPDO);

n transferring the existing services includingstaff to the NPDO; and

n entering into new partnership arrangementswith the NPDO for the delivery of museumservices.

NPDO’s take a number of different legalforms including a:

n unincorporated charitable Trust;

n company limited by guarantee (charitableor non-charitable);

n industrial and provident society (charitableor non-charitable);

n charitable incorporated organisation; and

n community interest company.

Whatever its legal form the key distinguishingfeatures of an NPDO is that its profits cannotbe distributed (eg to shareholders) but mustbe reinvested back into the organisation tofurther its objectives.

This is the fundamental difference between aprivate sector share company and an NPDO.It means that all of the profits generated bythe organisation are continually reinvested toimprove the services provided.

We set out the advantages of the Trustoption in Appendix A of this guide. However,it must be emphasised that these potentialadvantages do not arise automatically fromthe legal status or the structure of theorganisation alone.

Success will depend on the leadership,commitment and culture of the neworganisation and importantly in this context,the willingness of the staff involved toembrace the organisational change andopportunities the NPDO presents.

An overall process model

We recommend a four stage process. Thisis summarised as the flow chart overleaf(Table 1).

The chart is intended to model the overallprocess of transferring a local authoritymuseum service to a Trust. This is followedby short descriptions of each stage. Asstated above, the main narrative of this guideconcentrates on the first stage of this overallprocess: the feasibility stage.

We have focused primarily on the feasibilitystage of the process because carefulconsideration of issues during this stage isessential to establishing a sound basis forany further development of a Trust option.

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Table 1

Key stages for a transfer of museum services to a trust

Issues to be addressed

Stage

1 Feasibility(Sections 2-4)

2 Detailed planning (Section 5)

3 Transfer(Section 5)

4 Post-transfer

Legal

Assess existingarrangements

Prepare necessarydocumentation

Establish shadow boardwith chair-designate

Establish full Trustee Board

Initial training of Board

Finalise suite of documents

Establish legal entities

Ongoing Trustee training

Business

Define aim/intention(Section 2.2)

Assess present position (Section 2.3)

Identify options(Section 3)

Assess options(Section 4)

Develop recommendationfor future governance(Section 4)

IN PRINCIPLE DECISION

Develop detailed businessplan with 5-7 year horizon

APPROVAL

Deliver any pre-transferorganisational changes

TRANSFER DATE ANDPARTY

Implement business plan

Communications/relationships (Section 6)

Identifying stakeholdersand their concerns

Inform stakeholders of keystages

Keep stakeholdersinformed in an appropriatemanner

Discuss findings withstakeholders

Involve stakeholders in thedevelopment of the detail

Maintain and buildrelationships

Maintain and buildrelationships

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Stage 1: Feasibility

This stage is about exploring what mightconstitute the best governance option forsecuring an effective museum service. Itneeds an assessment of the existing legalstatus of the service, its collections and itsproperties, and needs a broad look at theorganisational and business implications.Key questions for this first stage of theprocess include the following:

n Does the principle of establishing a Trustfor the museum service make sense?

n Is it viable?

n What’s the best overall portfolio fortransfer?

n Are there any insurmountable legal,financial or operational obstacles?

As inferred by the last question, this stageshould also explore what might make atransfer impossible at the present time. Thiscould be a legal issue, a political one, atiming one, a capacity one, or it could bethat disentangling from the local authority’scentral services is perceived to be toodifficult.

Stage 2: Detailed planning

If an in-principle decision to look further at aTrust option has been given then a far moredetailed set of work will be needed. From theorganisational and business planning sidethis means developing a full business planfor the Trust with 5–10 year financialprojections. The aim being to ensure financialsurety: you know what the new organisationwill cost to run, you have taken into accountyour aspirations for service delivery,addressed any issues of capital need(dilapidation, and/or match funding for amajor grant application, and/or means ofdealing with cash flow projections),developed robust income projections and youknow what the transfer costs will be.

Stage 3: Transfer

The transfer itself comes with costs and needscareful planning. Like all change management,if it is not planned well, and communicatedeffectively, then it can easily flounder and fail.The level of legal work required to secure atransfer is significant (see Appendix E for aguide list of the documentation required). Froman organisational and business point-of-viewthis is about ensuring as smooth a transitionas possible. This includes a mutually beneficialoutcomes-based partnership agreementbetween the Trust and the local authority.

Stage 4: Post-transfer

The organisational changes of moving to a Trustcan be challenging and need ongoing supportand review. These changes can be supportedby the ongoing training of staff and Trustees.

Some key principles

Although, generally, we are convinced of themerits of the Trust Option, we do not assumethat this is the right option in all circumstances.It is imperative therefore to undertake anobjective analysis of the advantages anddisadvantages of the Trust Option as appliedto each local authority’s particular circumstances.

The MLA Report highlighted some of the keyadvantages of Trust status for museums.These included:

n greater financial stability and sustainability;

n greater sense of direction and ability tofocus on core business;

n access to additional resources – from ratesavings and reallocation of central servicecosts and greater attractiveness of a standalone body to potential donors and funders(and lenders);

n greater flexibility and freedom to developaccording to audience needs;

n management structures that allow fortimely decisions;

n opportunity for organisational culture change;and

n develop new connections and partnerships.

In addition, a survey of existing Trustsconducted by Lawrence Graham LLP (‘Culturein Trust’ 7th Edition September 2007)highlighted a number of other advantagesof Trust status including:

n the speed of decision-making when freed fromlocal authority bureaucracy – fleet-of-foot;

n being a single-focused body;

n a customer-first improved quality of service;

n the opportunity for improved investment byrecycling surpluses and NNDR savings;

n a more focused and business-likemanagement team; and

n more able to control own destiny.

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As noted in the MLA Report on Trusts, whilstthere can be a number of reasons for trans-ferring a museum service to a Trust, oftenthe key driver is a financial one – savings tothe local authority, or a means of stabilisingcosts, or a means of securing alternative(previously inaccessible) sources of funding.

It is not unreasonable to assume that anymuseum service that continues to be deliveredthrough the organisational mechanism of alocal authority will continue to be challengedto offer efficiency savings and cut costs tosupport the overall imperative to reduceexpenditure – particularly in areas that arenon-statutory. The pressure and expectationto do more for less is inescapable – with thedanger that the time will come when costshave become so significantly reduced thatthe delivery of services is so compromisedthat more radical solutions are required. Thiscould include very difficult decisions aboutclosures and cessation of provision.

This legacy of reduced costs is modelledin Table 2, using a nominal year-on-yearreduction in budgets.

This is overlain by two other financialprojections for re-engineering. One scenarioplots a projection that suggests the financialposition plateaus based on the funding levelat Year 5 – and that through a range ofmeans no further reduction in annual incomeis seen. The ways of maintaining financiallevels might be through an inflation-proofedfixed budget, or through securing othersources of revenue via other grant-funders,or by means of increased income generation.The other scenario implies not just aplateauing of funding but growth, againby means of a range of mechanisms.

If a museum service were to be reformedwithin a Trust framework what is the likelyprojection? One of continual financialdecline, one of stabilisation, or stabilisationfollowed by growth?

More than money

One of the questions that must be posedprior to any outsourcing option is whether theorganisation is viable in financial terms.Some local authority services have beenpared down too far to be viable in terms ofgrowth and even maintaining the status quois problematic.

We strongly agree with conclusions in theMLA report which states that the keyobjective for moving to Trust status shouldbe the intention to develop the service andimprove its quality of delivery. We see themove as primarily one of organisationaldevelopment, such that the continuousimprovement of services for public benefitcan be most efficiently, effectively andeconomically delivered.

Many museum services have responded tothe challenges of CAA, CPA, and Best Valueand have shown, and are continuing to showimprovements – although as with allimprovement issues the law of diminishingreturns will impact at some point. Keyquestions upon which to assess the meritsof a service transfer are:

n Will the service improvements continue?

n What is the likelihood of even greaterimprovements?

Table 2

Theoretical model: funding projection

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This basic premise is modelled in Table 3above.

This sort of graph could be expected for anyof the following measures of success:

n general effectiveness;

n general efficiency measures, such as costsper user, or costs per programme;

n user numbers;

n satisfaction ratings;

n value for money measures;

n numbers of services delivered;

n number of partnerships secured; and

n public awareness of services.

The above suggests that it is important toassess the reasons for considering movingthe services to a Trust:

n What is the motive for the move: financialor continuous improvement?

n Do all the stakeholders agree with this ordo they have other reasons for encouragingthinking about a transfer?

Understanding and stating the reasons forconsidering a transfer can be critical to itsdevelopment as a realistic option. This isbecause problems will arise if differentstakeholders have different reasons andmotives for the potential change. Mutuallyagreed reasons are essential; or at least anunderstanding of each others perspectiveseven if they are not fully congruent.

As has been identified in the MLA Report onTrusts, there can be a number of reasonswhich can mitigate against the establishmentof a Trust regardless of the overall outcomeof an options assessment. According to theMLA Report these can include the following:

n legal – complex legal issues to overcome;

n financial – insufficient savings for the localauthority;

n local authority-wide impact – the effects onthe corporate centre and perceived difficul-ties in disentangling support services;

n political – opposition to devolution in any form;

n emotional – strong ties to the museumand its collections (equivalent to ‘sellingthe family silver);

n opposition from stakeholders – eg friendsgroups;

n current success – outsourcing is often seenas an option for failing services only;

n other priorities – better to focus resourceson other development opportunities;

n lack of capacity – staff already committedto other activities;

n change of key personnel lack of a ‘champion’to drive the project through at officer ormember level; and

n unhappy previous experience.

Throughout this guide we stress the importan-ce of good communications – the need forhonest information, for consultation andgenerally involving people in the process andthe thinking and discussing impact. Many ofthe issues noted above can be alleviatedwith proactive, timely communications. Wediscuss this further in Section 6. The nextsection explores assessing where your serviceis at the present time, so you can assessstrengths, weaknesses, opportunities andthreats and thus develop a range of possibleoptions for change.

Table 3

Theoretical model: continuous improvement

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2. Your present position and aspirations

Introduction

As with all possible major changes to anorganisation, it is crucial to assess where youare at present as well as where you wish to be.

Part of this analysis of the present andthinking about the future could include thefundamental questions of:

n What matters to you?

n Why do you do what you do?

Aims and intentions

Being clear about what matters to yourmuseum service and why you do what youdo will help with setting overall aims andintentions for any governance changes. Asnoted earlier, different stakeholders can havedifferent reasons for pushing (or resisting)the Trust option. Ideally agreement isneeded, but if the drivers for change arevaried then they need to be articulated andunderstood. This is essential or the results ofyour deliberations are less likely to be openlyreceived as the various stakeholders riskdisappointment as their expectations are notmet. For example, the range of aims couldinclude:

n to secure a sustainable future for themuseum service;

n to provide savings to the local authority;

n to ensure continuous improvements toservices;

n to encourage effective partnership working;

n to reach new audiences;

n to achieve freedom to operate in anentrepreneurial and timely manner suchthat opportunities can be seized; or

n a mix of these.

In addition to these aims there will beunderlying issues associated with a transferwhich may matter greatly to your service’skey stakeholders. These issues must be

carefully considered and addressed withinyour deliberations as their resolution (or lackof resolution) will have an impact upon yourstakeholders reactions to your proposals andrecommendations.

We have listed some of these issues below:

n having regard to the interests and concernsof staff;

n the need for ongoing democraticaccountability;

n the protection of the collections;

n the creation of a true partnership with thelocal authority with due recognition of theauthority’s strategic vision for services;

n continuing to work with local communities,responding to customer needs and thedelivery of social inclusion agendas; and

n ongoing involvement with existing interestgroups (such as existing trustee bodies, orfriends groups).

Current position – ‘business’ issues

In general terms you need to assess fourareas:

n your strategic context;

n your operational performance;

n your financial performance; and

n your legal position

These are all interlinked, especially theoperational performance and financialposition but the latter is perhaps the areathat needs most careful consideration hencewe list it as a separate element.

Another way of looking at your presentposition is to think about your ‘assets’ withan associated question:

n Are your assets actually assets or in arethey in fact liabilities?

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This suggests thinking about the following keyareas:

n collections;

n buildings (and grounds);

n staff (and volunteers);

n money (income and expenditure, revenueand capital); and

n governance and leadership.

Your strategic context

Whether your museum service is a Trust ornot it will need to respond to, and contributetowards, meeting the goals of key funders.This could be the local authority’s coreobjectives, or DCMS’s targets, HLF’s strategicgoals or MLA’s goals.

This is part of the process of determiningwhat matters to your museum service and itsfunders. It is also part of the process ofthinking about the environment within whichyou operate, the agendas to which you needto respond and identifying changes on thehorizon that may be coming your way. Itagain suggests issues to which you mayneed to respond.

An assessment of this context is necessaryas it is a critical element in weighing up thebenefits of your options (key stakeholders’strategic aims should influence the draftingof your options assessment criteria). Thesuggested changes to your governance canthen be assessed in terms of their effectupon meeting the expectations of yourstrategic context – will the changes improvethe service’s ability to contribute to thesestrategic goals?

Operational performance

You are likely to have a range of informationalready available to help with a reflectivereview of your current position. This couldinclude:

n CPA and audit-related assessments;

n customer satisfaction surveys;

n other market and audience research;

n evaluation studies;

n complaints feedback; and

n benchmarking studies.

All of these can be used to help identifywhere you might offer improvements toservices and the implications these changesmight have on the organisation and the costsof running the service. They may suggest thata change in governance might also need tobe accompanied by capacity building,developing new skills, greater expenditure onprogramming, re-focusing budgets, and soon. All of this can help with developing andassessing options for the service.

The full costs of providing the presentservice

Part of assessing your current position is adetailed interrogation of the full costs ofproviding the museum service. Localauthority museum services’ annual budgetbreak-downs rarely cover the full extent ofall of their costs.

Support for the running of the service willbe coming from a number of other serviceareas, groups, individuals and servicecontacts, whose costs may be borne byother departments or other service providers.

Some of this support will be moretransparent than others and may be listedas ‘central services’.

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To get to the true costs to the local authorityof providing the museum service all of thesecosts need to be quantified. Table 4 shows alist of the types of support areas to beassessed and, as different local authority’scan have different arrangements, we havelisted these by task areas rather than budgetheadings, departments or service areas.

Funding sources

A key issue for many services is the level ofunsustainable funding support they rely upon.This may relate to specific staff posts orproject/programming activities. There needsto be a distinction between the ongoingrevenue costs of the museum service andtime-limited funding. It may be that some ofthe time-limited funding needs to become‘core’ funding and so the costs of running asustainable service may be higher than thepresent budget allocation suggests. Forexample, at the time of writing this guidesome Hub museums have education postsfunded by Renaissance. These are posts thatcan be argued to be ‘core’ as without themthe education service would be severelycompromised.

An assessment of recent capital projectsmight also be useful in terms of thinkingabout future opportunities and partnerships.

Condition of the buildings

Many local authority museum services haveto deal with a legacy of dilapidation and alack of capital investment in the fabric andinfrastructure of the buildings and groundswithin which the service operates. Anassessment of this legacy is important andneeds to include:

n the capital needs: in a prioritised format,perhaps as a capital asset plan, with thecosts of putting defects right. It will beextremely helpful to commission conditionsurvey’s at this early stage to inform thefeasibility study and pre-empt negotiations

concerning future landlord/tenant repairand maintenance responsibilities andassociated costs;

n maintenance needs: an assessment ofwhat is needed as well as what is actuallyprovided and forward projections for thenext five years or so;

n conservation plans: consider whether aconservation plan is more appropriate toyour circumstances than a condition surveyand maintenance programme; and

n the consequences of non-investment inthe short, medium and long term.

Legal issues

Potential restrictions on transfer

There may be legal issues which impact onthe ability to transfer the service to a Trustincluding for example:

n prohibition on alienation or restrictivecovenants on the museum properties:it is likely that there will be restrictionson leasing all or part of the buildings toanother party or restricting the use of thebuilding;

n restrictions on assets/collections: it is alsolikely that there will be certain collectionsthat are subject to specific terms andconditions which might restrict alternativemanagement options eg, special trusts,permanent endowments or specific termsattached to gifts;

n existing Trusts: it is common for collectionsor particular items within a museum to beheld on special trusts which again mayrestrict management options for thecollections; and

Table 4

Example of indirect costs of museum services

Strategy developmentSenior management support (ie support from management tiers above the head of service)Personnel support/HR (including health and safety, policy development, negotiation)TrainingAccountancy services (including payroll)Internal auditExternal auditICT provision and support (including helpline support)Legal supportInsurancePostal servicesPrint servicesAsset management support (including maintenance, condition surveying, architectural services)Centralised procurementMarketing and pressMarket research

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The recommended way forward therefore isthat the local authority retains legal title tothe collections or, where the collections areloaned to the local authority by a third party,the local authority remains as ‘custodiantrustee’.

The local authority then loans the collectionsto the Trust for the duration of thepartnership arrangement.

The Trust would be responsible for themanagement of the collections and the localauthority would set out its expectations inthis regard in a ‘Loan Agreement’ which theparties would enter into.

The Trust would also be responsible for themaintenance of the collections and therewould be express obligations in the LoanAgreement dealing with:

n third party loan arrangements;

n acquisitions;

n disposals;

n special displays;

n use by the local authority;

n inventory;

n security;

n insurance; and

n storage.

Most importantly, in the event that theTrust ceases to exist or to provide museumservices to the local authority (for whateverreason) then the Trust would be under anobligation to deliver up the collections tothe local authority and would cease tohave any right to manage the collections.In such circumstances it is anticipatedthat the lease for the museum facilitieswill also automatically terminate.

n ownership of assets: it is possible that thelocal authority does not own the museumbuildings freehold and/or have legal titleto the collections for example where thecollections have been loaned to the localauthority. Similarly, certain items havebeen purchased by a ‘friends group’ anddonated to the museum. What is thestatus of this gift?

None of these legal issues are insurmountable.However, it will require additional work andconsultation with legal advisers and potentialparties to agree a way forward.

A lease, for example, is not fundamental toa museum transfer and a licence would besufficient. However the significance of alease is that it creates a presumption ofoccupation. In other words by granting alease to the Trust, the Trust is presumed tobe in occupation of the building and thusliable to business rates. As a charity (or a‘not-for-profit’ organisation) it can apply forrate relief thus releasing potential resourcescurrently applied by the local authority tomeet the rates liability. These ‘releasedresources’ can be used to reinvest in themuseum service to help drive serviceimprovements. However, a similar argumentcan be structured around a licence if aleasehold interest cannot be guaranteed.

Safeguarding the collections

In a transfer of museum services to a Trust,it is imperative that the collections aresafeguarded in perpetuity. If legal title to thecollections is transferred to the Trust as partof the service transfer, then the collectionswill be in the ownership of the Trust. Thesignificance of this is that if the Trust got intofinancial difficulties, then the collectionswould be treated as an asset of the Trustand could potentially be seized by theinsolvency practitioner to settle outstandingdebts and other liabilities. This wouldtherefore put the collections at risk.

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Local authority powers

Clearly it will be necessary to satisfy the localauthority’s in-house legal team that the localauthority has the power to support alternativedelivery options for museum services andspecifically to enter into partnershiparrangements with a Trust.

Local authorities have both general powers(Section 2 of the Local Government Act2000) and specific powers (Section 145 ofthe Local Government Act 1972). This ‘powerbase’ provides the local authority withsufficient powers to enter into contractualarrangements with a Trust and to providefinancial (and other assistance) as requiredin relation to providing the services.

Local authorities will be aware of the recentcase* (the Brent Case) which considered theextent and use of the ‘wellbeing powers’.Whilst the ‘wellbeing powers’ are widelydrawn and intended to facilitate innovativeprojects, the case helpfully provides guidanceon the use of the power and mostimportantly reinforces the extent of thepower. This particular case found that theargument that potentially lower insurancepremiums for the authority could result inadditional resources being available forreinvestment in services, was not sufficientto justify the use of the wellbeing powers.

Section 2 of the Local Government Act 2000(the ‘2000 Act’) provides that a localauthority has the power to do anything whichthey consider is likely to achieve any one ormore of the following objects:

n the promotion or improvement of theeconomic wellbeing of their area;

n the promotion or improvement of the socialwellbeing of their area; and

n the promotion or improvement of theenvironmental wellbeing of their area.

Of particular relevance here are the powers to:

n enter into arrangements or agreementswith any person;

n provide financial assistance to any person;and

n provide staff, goods or services.

In exercising the power a local authoritymust consider the objectives and prioritiescontained in their Community Pan.

Whilst Section 2 of the 2000 Act provides arobust statutory basis for this initiative, it isessential that:

n the local authority considers the objectivesin its Community Plan to satisfy itself thatthe use of the wellbeing powers in relationto this initiative are consistent with thePlan’s broad objectives; and

n the local authority is satisfied that theinitiative is likely to promote the wellbeingof their area or their inhabitants andspecifically that it will promote one or moreof the three objects in the 2000 Act; and

n the primary purpose of the initiative is notto raise money and that the action is notexplicitly prohibited on the face of otherlegislation.

Here it is argued that the use of the powersis not to raise money or prohibited by anyother legislation but rather to secure thesignificant advantages of working with a Trustas highlighted in Appendix A of this guide.

It is strongly recommended that you reviewyour Community Plan during the feasibilitystage of the options appraisal to ensure thatit contains express reference to “working inpartnership with not-for-profit organisationsto improve service delivery” and specificallyindentifies looking at alternative managementoptions for museum services.

Details relating to local authority powers areset out at Appendix J.

*R (on the application of RiskManagement Partners Ltd) v. BrentLondon Borough Council also knownas Risk Management Partners Ltdv Brent London Borough Counciland Others (2008) All ER (D) 302(Apr) (2008 EWHC 692 (Admin)

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To help with exposing the advantages anddisadvantages of any major organisationalchange a cold look at options can be useful;this is a key part of the first stage ofassessing the potential of a transfer.

Starting from why a transfer is beingconsidered, your strategic context, where youwant to be, and where you are at present,then you can sketch out descriptions of thetypes of organisations to be consideredwithin an options appraisal.

We recommend four or so options bedescribed – you could do more but the moreyou have, the more they tend to be sub-setsof another. As the first step is to look at theprinciple of which type of governance modeloffers most in terms of meeting publicbenefit, too much detail can be unnecessary.One of the options must be the status quo.

Possible options

Your options need to fit the opportunitiesoffered by your local environment. However,past experience suggests that there are anumber of common options others haveconsidered and we have described thesebelow:

n Option 1: The status quo ie no change tothe governance arrangements.

n Option 2: A new stand alone Trust ie wherea new local Trust is established to managethe museum service. The staff wouldtransfer to the new Trust and the localauthority would enter into variouscontractual arrangements with the newTrust setting out the terms and conditionsof any funding, the managementarrangements for the collections and keyoperational issues relating to staffingmatters and performance standards.

n Option 3: An arrangement with an existingTrust to manage the local authority’smuseum service. The staff would transferto the existing Trust. The existing Trustwould already have in place an executiveteam and support service function so therewould be no need to duplicate thesefunctions (and costs). The local authoritywould enter into various contractualarrangements with the existing Trustrelating to the funding, management andoperation of the service.

n Option 3a: An arrangement with anexisting Trust but where the existingTrust establishes a new local Trust forthat particular local authority’s museumservices (as part of a group structure).Staff would therefore transfer to that localTrust entity and the local authority wouldenter into various contractual arrangementswith the new Trust setting out its funding,management and operational requirements.There would be a sharing of overheadcosts and ‘head office’ services.

n Option 4: Transfer of the services to a newor existing cultural Trust involving a widerportfolio of cultural services including arts,heritage, cultural, leisure as well asmuseum services.

n Option 5: A contract with a private sectoroperator.

Describing the options

You need to describe the options withenough detail such that any underlyingassumptions (and potential costs or savings)can be exposed and made explicit ratherthan be implicit.

3. What are your options?

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We offer three examples below:

Example 1: The status quo option

This option is based on the present serviceprovision. The assumptions associated withthis option could include the following:

n ongoing budget pressures and a potentialdecline in allocation over time;

n dilapidation issues unlikely to becomprehensively addressed;

n potential rationalisation of the number ofsites due to increasing financial pressuresand their impact on service provision;

n no significant increase in earned income;

n external project funding uncertain; and

n potential impact on ability to retain/attractgood staff.

Example 2: A new stand alone trust

This option is based on the assumption thata Trust is established for the running of themuseum service. The advantages anddisadvantages of the Trust option anddifferent Trust vehicles are set out in full inAppendices A and B.

It is important to stress that any benefits ofTrust status do not arise automatically fromthe legal status or the structure of theorganisation alone. They depend onleadership, organisational culture andpeople’s willingness to embrace change morethan on legal and organisational structures.

The assumptions associated with this optioncould include the following:

n a new Trust is established through a highprofile/professional trustee recruitment board;

n its primary objective or ‘business focus’is to develop museum services in yourparticular locality (either by expressreference to the museums themselves orthe geographical area or potentially both);

n the Trust is a charitable organisation(registered charity if a company limited byguarantee or an exempt charity if an indus-trial and provident society) to maximisepotential NNDR, VAT and tax savings;

n the properties are leased to the Trustresulting in NNDR savings;

n the Trust acts as principal for the servicesthus maximising VAT exemptions;

n lease arrangements allow the Trust to keepcapital receipts from the sale of sites (oragreed proportion of capital receipts) toenable redevelopments (and linked to thecapital needs noted above);

n the existing museum staff transfer underTUPE to the new Trust. The new Trust seeksstatus within the local government pensionscheme to protect the staff’s existingpension provision;

n a grant, with an inflation allowance, isprovided by the local authority and is inthe form of a rolling three to five-yearprogramme with regular annual reportsto the local authority;

n the grant is based on the current baselineand also includes the transfer of savingsfrom rates and allocation from centralcharges to allow the museum service tosecure the support services it needs(based on Best Value criteria);

n the partnership agreement with the localauthority is based on outcomes (ratherthan activities or processes);

n external project funding is secured for thefirst three years of operation but cannot beassumed beyond that time;

n other externally funded projects areincreased slightly from present levels;

n dilapidation issues are significantlyaddressed;

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n expenditure is increased due to need fordesignated skills and services: these includethe additional costs of a Chief ExecutiveOfficer as compared to a Head of Service,financial services (including a seniormanager, payroll, and audit), HR, ICTsupport, legal, estate and buildingmanagement and uplifts to the marketing,audience development and training budgets;

n a central charge reallocation is includedwithin the grant to the new Trust; this isbased on present (and/or recent) costs ofservices from the local authority to supportthe running of the museums (this includesmanagement support, HR, finance andpayroll, ICT, asset management, legalcosts, marketing and research). The Trustagrees to ‘buy back’ some or all supportservices from the local authority for anagreed period of time and subject to aservice level agreement. The Trust will,however, have to independently sourcefinancial and audit advice and have a firmof solicitors who can provide independentlegal advice (and if necessary represent theTrust’s interests in deliberations with thelocal authority);

n set-up costs including legal fees, businessplanning support, recruitment of a ChiefExecutive and Trustees and Trusteetraining; and

n the savings (all or part) are reinvested backinto the service.

Clearly this narrative description needs to bequantified, albeit it as estimates, to helpinform the assessment process. (If an in-principle agreement for a transfer is securedthen a full business plan would need to testthese estimates and develop more robustcost projections for the new Trust.)

Example 3: An arrangement with anexisting Trust

This option assumes a partnershiparrangement with an existing museum Trust.Clearly there are now a number of Trustsproviding museum, arts and heritageservices. It is possible therefore that anexisting Trust could operate a wider portfolioof services and extend its existing area ofoperation to include another local authority’smuseum service.

This option seems most likely where anexisting Trust is operating in an adjoininglocal authority area or even in a geographicalregion but strictly this is not a requirementprovided you are satisfied that the existingTrust has sufficient resources and can put inplace adequate operational arrangements todeliver the required quality of services in yourlocal authority area.

The assumptions associated with this optioncould include:

n a partnership with an existing charitableTrust (to maximise potential NNDR, VATand tax savings);

n a proven track record in delivering highquality museum services;

n an opportunity to realise significant savingsfrom a reduction or sharing of overheadcosts and economies of scale;

n an opportunity to attract external fundingwith the help of an organisation withexperience and a proven track record;

n an opportunity for staff to join a largerorganisation with career progression;

n robust contractual arrangements to ensurethe existing Trust delivers yourrequirements and addresses local issues;and

n governance arrangements which addressissues relating to local representation.

Exposing your assumptions

As noted above each option will have a rangeof underlying assumptions, some of whichwill be shared across all the options andsome will be unique to an individual option.These need to be articulated for a numberof reasons:

n they may have cost implications;

n they may have operational implications; and

n they will affect the scoring of the optionsagainst key strategic and operationalcriteria (see section 4).

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We have described some typical assumptionsand their impact below:

New costs

These include any new resources needed bya Trust as compared to a local authority’smuseums service, such as:

n new posts and their costs; and

n the cost of providing new services to bepurchased from others.

These could include the costs of a ChiefExecutive (generally at a salary higher thanthat of the head of museums service), asenior finance post, HR support, ICT support,uplift in marketing provision, training budget,estate management, and so on.

These new costs can be off-set by thecessation of the local authority’s central (anddepartmental) service costs associated withthe provision of the museum service. Thisrequires that the local authority takes onboard the consequences of reduced centralservice provision. However, the benefit is thatthe potential central service cost savings andthe rate rebate savings are generally greaterthan the additional costs of running themuseum service as a Trust, providing a netsaving to the local authority.

Improvement initiatives

Ideally any partnership agreement will beoutcomes based, rather than being based onactivities or processes. So, for example, theagreement might include building audiencesincluding the increased use of the service bycommunity groups by 15% over three years,not providing ten community events a year.

The outcomes may have cost implications.So, for example, if one of the agreedpartnership outcomes is to increase level ofuse then this is likely to have programming,marketing and possibly staffing implications,all of which can have associated costs. Inother words the aspirations for the serviceneed to be matched with suitable resourcesincluding staffing levels, training,programming and marketing.

Leasing arrangements

Any assumptions about the leasing (or free-hold transfer) agreements with the localauthority for the buildings and sites need tobe made explicit. This could be linked to arationalisation programme and could includean agreement about capital receipts for anysales to be used by the Trust in the pursuitof its charitable objectives.

Earned income

This could include assumptions about levelsof spend per head, franchise arrangementswith caterers, room hire fees and so on.Benchmarking with others might help withthis set of assumptions. You might also dotwo sets of assumptions: one based on areadily achievable projection, and the other arealistic target. It can be difficult for museumTrusts to create income generation as, unlikeleisure, there are fewer opportunities to doso. However, Trusts which invest in staffing,improved training and qualifications for staff,management development programmes andcustomer care programmes have seen realresults in terms of improving the service andso maximising any potential at the facilitiesfor income generation.

NNDR savings transferred to the new Trust

The local authority will currently pay businessrates or National Non Domestic Rates (‘NNDR’)on all of its properties including the museums.Charities and certain ‘not-for-profit’organisations are relieved in all or part fromNNDR thus reducing this cost of deliveringthe service. This generates a potential savingthat can be reinvested in the service. Thearrangements need to be carefully structuredto maximise these potential savings. Thereare principally two types of NNDR reliefrelevant to these types of projects:

n mandatory rate relief; and

n discretionary rate relief.

Details relating to these different types of reliefare set out in Appendix L. A summary of thepotential reliefs is set out below:

Mandatory Rate Relief

Section 43 of the Local Government FinanceAct 1988 provides that charities pay onlyone-fifth of the rates that would otherwise bedue, if the rate payer in occupation:

n is a charity or Trustee for a charity; and

n the property liable to be rated is wholly ormainly used for charitable purposes.

Where the rate payer is a registered charityunder the Charities Act 1960 (as amended)it will be entitled to mandatory rate reliefautomatically. However, non-registrationunder the Act is not conclusive as to thenon-charitable status of the rate payer andthe charging authority has to determinewhether the rate payer qualifies for the relief,applying appropriate case law and statutes.

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If the new NPDO is a registered charity, itwould therefore be entitled to 80% relieffrom the business rates levied on thepremises.

Discretionary Rate Relief

A charitable NPDO would also be entitled tofurther relief from rates if the Council decidesto exercise its discretion under Section 47 ofthe Local Government Finance Act 1988.There are three instances where discretionaryrate relief is available:

1 where the rate payer is a charity or Trusteefor a charity and the hereditament (theproperty liable to be rated) is wholly ormainly used for charitable purposes. Ifgranted, relief may be given beyond themandatory 80% rate relief;

2 where the rateable property is occupied forthe purposes of one or more institutions ororganisations, none of which is conductedfor profit and each of which main objectivesare charitable or otherwise philanthropic,religious, or concerned with education,social welfare, science, literature or thefine arts; and

3 where the rateable property is wholly ormainly used for purposes of recreation andall or part is occupied for the purposes ofa club, society or other organisation, notestablished or conducted for profit.

This will be determined by reference to thelocal authority’s discretionary policy.

The crucial issue, however, is whether ornot the property can be regarded as being‘occupied’ by the NPDO for the purposesof the rate relief. The issue of occupationapplies to both mandatory and discretionaryrate relief.

VAT and tax savings

For most local authority museum services thetransfer to a Trust is generally treated as aVAT neutral issue. This is because the level

of trading activities are rarely large enough tosee a significant benefit. However, if majorcapital works are likely in the near futurethen recouping VAT can become an issue.As part of the options assessment VATimplication needs to be noted and as a Trustthe service would be able to benefit fromother reduced rates and relief as follows:

n trusts only pay VAT at 5% on fuel andpower. This could well be a significantsaving for all the facilities on the basis thatalthough at present the local authority canrecover the VAT, the Trust will be able torecover only part of it. The reduced ratemeans that the irrecoverable amount isless;

n trusts do not have to pay the climatechange levy;

n trusts are eligible for zero rates of VAT onpurchases of all advertising, includingrecruitment advertisements and otherpublicity which could amount to anadditional saving of £10,000 to £20,000;

n trusts are eligible for zero rates of VAT onadaptations to allow disabled access tobuildings; and

n trusts (registered charities) do not paycorporation tax and can reclaim tax on giftaid donations from individuals. This couldprovide additional benefits through (say) anannual membership arrangement for yourmuseum service.

Should a local authority be minded toconsider further the transfer of a museumservice to a Trust then the implications ofthe above will need to be incorporated intoa full business plan as part of the detailedplanning phase. This would require an in-depth analysis of VAT implications for boththe Trust and the local authority.

A key VAT issue will be whether the fundingfrom the local authority is treated as aVATable supply. This could potentially improvethe Trust’s VAT position and thus should beexamined carefully. Most Trusts havesuccessfully agreed that the funding receivedfrom the local authority is a VATable supply.

A detailed examination of the VAT positionin relation to the Trust option is set out atAppendix K.

Maintenance backlogs and capitalcommitments

This needs to expose any assumptions abouta local authority’s ongoing commitment todealing with any outstanding buildingdilapidation issues. It could be that acommitment is offered over an agreed timeperiod and could be used to secure matchfunding from other potential funders, suchas HLF or the Arts Council.

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The sites

Any assumptions about the neworganisation’s ability to control thetransferred portfolio of sites need to beexposed. For example, there are times whenthe buildings and sites instead of beingassets are liabilities; it could be that somesites cost far more than others to run, or itcould be that some sites have far fewer visitsthan others. The new organisation mightneed to make some fundamental decisionsabout the more costly, less well used sitesand the mechanisms for resolving theseissues need to be described. There mightalso be an assumption that the Trust can usereceipts for the sale of one site to developothers; if so the mechanisms for dealing withthis in an equitable and agreed manner withthe local authority also need to be described.

The overall portfolio

Although in this guide we are talking solelyabout museum services, it is recommendedthat when undertaking the options appraisalconsideration is given to a wider range ofcultural services. This could be for twostrategic reasons:

n Synergies in customer needs, operationalneeds or collection areas; and

n subsidising museum costs by incorporatinga more ‘profitable’ but linked service area.

Others have considered a broader portfolioof services to be transferred to a Trust. Thiscould incorporate some or all of the followingservices:

n Leisure

n Cultural

n other historic/heritage sites

n parks and open spaces

n theatres

n archives

n contemporary arts programming/public art

n tourism

In our experience, local authorities areincreasingly considering transferring a widerportfolio of cultural services to a Trust.

Whilst a wider portfolio has the advantageshighlighted above, the most significantpotential disadvantage of a wider portfolio isthe potential loss of focus. Having said thatthere are examples of Trusts combining arts,heritage, leisure and culture workingextremely well.

Economies of scale

Any assumptions about working with otherssuch that economies of scale can be offeredneed to be explained; this might be sharedstores, shared HR activities or shared ICTsupport.

External funding

This needs to look at what is presentlyprovided by external funding sources and thelikelihood of this continuing (eg Renaissancein the Regions) and the opportunities forother similar support.

Care is needed when thinking about a neworganisation’s potential to secure private andother finance. There has been a degree ofmisplaced optimism about securing fundingfrom private donors and charitable givers.Many of the recently devolved museumservices have found securing funding fromthese sources to be harder than theyanticipated. However, they acknowledge thatthese are potential sources of additionalfunding and are still actively developing theirrelationship with such potential givers.

The new Trusts do show success in gainingadditional funding from public funds. This isthe result of a mix of factors: quickerresponse times; more focused responses;building upon proven success; anddeveloping very positive relationships withtheir funders.

We set out below other sources of externalfunding, beyond the local authority:

n A Trust can borrow funds independentlyof the local authority. A Trust would haveaccess to loan finance from banks andbuilding societies on the same basis asprivate commercial companies. The Trustwould also have access to shorter-termloan finance such as an overdraft facility.This would be useful in meeting pressureson cash flow, which may occur due toseasonal changes in trading or throughhaving limited cash reserves.

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n Without a track record, a new Trust mayexperience some difficulty in obtaining aloan in its early days. However, organi-sations with charitable objectives may alsoaccess alternative sources of loan financesuch as Community Development FinanceInstitutions. These institutions provideinvestment for social purposes (socialinvestment) and provide finance forprojects that would not always besupported by commercial lenders. This israpidly growing as a new source of financeto charities and social enterprises throughsupport from Government.

n Charitable Trusts have access to a widerange of new sources of funding availableonly to charities. Grant-making Trusts andfoundations will fund work with particularclient groups, new projects and specificareas of work, such as visual arts. Part ofthe Big Lottery Fund is distributed only tocharitable organisations and a Trust wouldbe eligible to apply to the Big LotteriesFund, and the successor merged body.The Association of Charitable Foundationsreports that UK Trusts and foundationsnumber almost 10,000 and contributean estimated £2 billion in grants annuallyto charities.

n The Government is looking for initiativeswhich will assist them to deliver publicservices in the areas of health and socialcare, crime and social cohesion, educationand learning, and support for childrenand young people. One of these is futurebuilders, a one-off investment fund,specifically to assist voluntary andcommunity sector service providingorganisations in their public service work.

n Companies, particularly high street stores,banks and building societies, have anactive involvement in their local communitiesand provide grant support to the voluntarysector. There is also potential for generatingfunding from the business sector throughcommercial sponsorship arrangements.

n Gift aid is available on donations to acharitable activity. Museums are a keycomponent of a vibrant city, or region, anda Trust may well be able to gain furthersupport from individuals to increase itsvoluntary income (through donations) assuggested in the MLA report. In addition aFriends organisation for any Trust could utilisegift aid to fund discrete areas of work.

n More emphasis is placed on fundraisingfrom sponsors, donors and charitable Trusts.Although local authority museums andgalleries nationally have been successfulin raising such funds via Friends or similarorganisations, a charitable Trust is generallybetter placed to attract such funding.However competition is fierce and largesums have to be worked for, particularlyas there is significant regional competition.

Set-up costs

The transfer of the museum service to a Trustwould have significant set-up costs,including:

n legal costs (for the Trust and possibly thelocal authority) for the preparation of thegoverning document, the fundingagreement, the asset transfer agreement,the collections agreement and any leasesand/or licences. Also advising on the TUPEprocess and pension issues;

n business planning support includingdetailed VAT assessments;

n restructuring costs;

n recruitment of a Chief Executive and otherstaff (if required);

n recruitment of Trustees and chair ofTrustees;

n actuaries fees;

n development of a new corporate identityand costs of uniforms/signage/stationeryetc;

n launch costs; and

n trustee training.

If a local authority wishes to pursue atransfer further then these costs, and anagreement as to who pays for them, wouldneed to be addressed in the next phase ofa transfer (the detailed planning phase).

In our experience, set up costs are in theregion of £75k to £125k depending on thelevel of external legal, financial and businesssupport required. These will be ‘one off’costs in year 1 only and can be set againstyear 1 savings.

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A scoring method

To help with this process of assessing the coreoptions available to you we have offered anexample that allows you to see the relativemerits of each option in a systematic manner.This uses grouped criteria (as noted previously),a scoring method and a weighting method(both described below). The aim being to offeran objective, cold assessment of the options.

The options, once described, can be comparedagainst each other by means of a scoringsystem. The scores can be based on thinkingabout how each of the options might beperforming in five to seven years’ time inrelation to your criteria. With the scoresbeing 0 for no change from present, -5 beingthe worst possible outcome, and +5 beingthe best possible outcome.

Each option can then assessed based ona series of questions (Table 5). So, forexample, an assessment of the options interms of, say the heritage in your care,could be based on the following questions:

Will this governance arrangement enable themuseum service to:

n maintain and improve the stewardship ofthe collections?

n maintain and improve access to thecollections?

n maintain and improve the knowledgemanagement of the collections?

The status quo option might result in a scoreof -2 for stewardship because your stores havepoor environmental control and no improve-ments are planned for the foreseeable future,so in five to seven years time the conditionof the collections is likely to have deteriorated.

The scoring sheet in Table 6, as an example,includes a weighting for each of the keycriteria headings. We have done this so thatthe relative scores for each option can beseen and can be considered in a little moredetail that just an overall score.

4. Options assessment – is a trust the right option?

The aim of doing this sort of optionsassessment is to offer a degree of objectivityto the process and provide information tohelp with sound decision making. The basicaim being to see if transferring the museumservice to a charitable Trust makes goodsense, fits your circumstances and will allowthe service to better meet its potential foryour audiences. Key questions are thereforeto ask yourself (and others):

n What matters to you?

n Why are you considering a Trust?

n Will the new arrangement build upon yourinternal strengths and mitigate against yourweaknesses?

n Will the new arrangement enable you toexploit external opportunities and mitigateagainst threats?

n What are the advantages anddisadvantages of any new arrangement?

Assessment criteria

Basically the criteria will be a list of whatmatters to you: what matters to the museumservice, what matters to the local authority,what matters to the sector.

In past assessments we have found thefollowing questions can help with the initialfeasibility stage assessments as they can beused to expose areas of concern, and/orunexpected benefits (see Table 5).

It is likely that this long list of criteria can begrouped into key headings. For example itmay be that what mattered most is a seriesof development and improvement issues thatcan grouped into the following four headings:

n Strategic context

n The heritage in your care

n Organisational development

n Outcomes and impact

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Table 5

Key questions

1. Will this option offer value for money?

2. Will it offer added value and in what way?

3. Does it involve closures?

4. How well will it handle any current problems with the service?n will it create new problems?n such as?

5. Will it deliver partnerships?

6. Will it deliver capital investment?

7. Will it ensure the best possible staffing arrangements?

8. Will it deliver high quality customer services?

9. What will be the reactions of?n the public?n the politicians?n the museum/art/heritage sectors?n pressure groups?

10. Is there evidence that this works elsewhere?

11. Will it enable audience development?

12. Does it protect the service from ongoing budget reductions?

13. Does it offer opportunities for developing other ongoing revenue streams?

14. Do all the elements of the present service fit?

15. Does it make sense for other service areas to be included within the transferportfolio?

16. How well does the option meet the vision for the service in seven years time?

17. Will it help meet targets?

18. What are the revenue implications for the next five years (on a year-by-year basis)?

19. What are the capital investment requirements?

20. Is investment required fromn the local authority?n the private sector?n other public sector?

21. When could this option be implemented?

22. How long will it take?

23. Who needs to be involved?

24. What external help do you need?

25. Are there any HR implications?

26. Are your present operational budgets sufficient?n based on what benchmarking?

27. Is a restructuring needed?n and if so when?n and at what cost?

28. What will be the impact on visitor numbers?n What are the projections for the next five years (on a year-by-year basis)?

29. Can income be increased?n secondary spend?n events?n other commercial developments?

30. Does it offer opportunities for partnerships?

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Table 6

Options scoring matrix

Criteria Option 1 Option 2 Option 3 Option 4(status quo)

Strategic – will this arrangement enable the museum service to:

Better meet its vision, mission and core objective? (focus and fit for purpose) -2 2 3 2

Better meet the core objectives of the local authority? (List the local authority’s objectives)

Objective 1 0 2 2 3

Objective 2 -3 2 2 3

Objective 3 0 2 2 3

Objective 4 0 1 2 3

Objective 5 0 1 1 2

Strategic score total (maximum of ±30) -5 10 12 16

Strategic score weighted (maximum of ±100) -17 33 40 53

Heritage – will this arrangement enable the museum service to:

Maintain and improve the stewardship of the collections? -2 2 3 1

Maintain and improve access to the collections? -2 2 3 1

Maintain and improve the knowledge management of the collections? -2 2 3 1

Heritage score total (maximum of ±15) -6 6 9 3

Heritage score weighted (maximum of ±100) -40 40 60 20

Organisational development – will this arrangement enable the museum service to:

Be suitably resourced with freedom to use to best effect? -3 3 2 2

Develop a more secure and sustainable revenue base? -2 3 3 2

Offer opportunities for further capital developments? 0 3 3 2

Respond quickly to opportunities? 0 3 3 2

Develop an adaptable ‘can-do’ culture? 0 3 3 3

Develop new services as well as maintaining existing? 0 3 3 2

Develop new partnerships as well as maintaining existing? 0 3 3 3

Organisational development score total (maximum of ±35) -5 21 20 16

Organisational development score weighted (maximum of ±100) -14 60 57 46

Outcomes and impact – will this arrangement enable the museum service to:

Maintain and broaden its audiences? -2 3 3 3

Contribute to the wider social, economic, educational and cultural agendas? -2 3 3 3

Enhance meaningful engagement that will make a difference to people? 0 3 3 3

Better meet personal, community, specialist, and social needs? 0 2 2 3

Secure its role as a key agent for social and economic regeneration? -2 2 2 3

Outcome score total (maximum of ±25) -6 13 13 15

Outcome score weighted (maximum of ±100) -24 52 52 60

Total weighted score for the option (maximum of ±400) -95 185 209 179

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So from this example you can see that theoverall score for Option 3 places it as thebest option. However looking in more detailat the main groupings, it scores less wellthan Option 4 for the ‘Strategic’ criteria.This suggests it may be worth exploringwhether positive elements from Option 4can be incorporated into Option 3 to furtherstrengthen the benefits of that option.

More issues to consider

Reality checks

An options assessment alone is not enoughas there can be critical issues, beyond thecontrol of the museum service, that meansthat no matter how good an option mightscore it cannot actually happen. This meansthat a reality check is needed and this caninclude an assessment of political will as wellas assessing financial implications such ascapital need and revenue uplifts. The followingtable offers a way of summarising some ofthese issues. We have included some examplefigures to show how the table might look.

Reserves

Reserves are described as the unrestrictedfunds of a charity which the charity trusteescan make available to apply for all or for anyof its purposes.

Whilst there is no specific legal rule aboutthe amount or proportion of the charity’sincome that it is allowed to hold as reserves,it is strongly recommended that all charitiesretain some income in reserves.

It will be appropriate therefore for a newTrust to develop a reserves policy and buildinto its business plan a level of reserveshaving regard to the reserves policy and inparticular the charity’s aims, needs andobjectives and most importantly the potentialrisks that it faces.

The concept of reserves can be sensitiveduring the business planning phase.

However, it should be emphasised thesignificance of reserves is to:

n help absorb setbacks;

n help mitigate against short-termfluctuations;

n help the Trust plan for growth and/or takeadvantage of opportunities as they arise;and

n enable the Trust to plan for specificinvestment projects.

In summary a reserves level should beset after careful consideration of risksand opportunities of the service but mostimportantly will enable the organisationto operate in a more dynamic andentrepreneurial way and thus deliverbetter value for money in the long-term.

The Charity Commission produces anexcellent guide with regard to establishingcharity reserves and clear guidance ondetermining the level of reserve.

Board members

A preliminary assessment of potential forestablishing an effective Board needs to bemade at this feasibility stage. This shouldinclude a list of the skills needed andperhaps the range of the people who couldbe considered. This is discussed in a littlemore detail in the next section.

Recommendations

Any recommendations that you develop as aresult of your assessments need to takeaccount of both the option scores and realitychecks – sometimes the best score is notactually feasible because there is no will(political or otherwise) to do it.

In general, your conclusions need to bemeasured and transparent with realisticinitial/provisional cost projections.

Option 1 Option 2 Option 3 Option 4(status quo)

Reality check – is this feasible?

Now? N/A 2 2 2

In a year with consultation? u 2 u

In two to three years with a communication plan and detailed planning? u ? u

In five years? u ? u

Never? 2 ? 2

Capital investment needed £5m £5m £5m £5m

Expenditure increase (annual) £250k £250k £250k

Income increase (annual) £100k £100k £100k

Annual savings compared to Option 1 (including rate relief and VAT) £100k £100k £100k

Central charge potential annual savings £250k £250k £250k

Set-up costs £120k £100k £80k

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Cost projections

It may be wise to model the financialassumptions over a five to seven year horizonbecause the initial set-up costs will affectthe first year, income projections will taketime to deliver, and disentangling from thelocal authority’s central service provisionmay take time.

The following sets of figures can be adaptedand used to show the net cost implicationsof running the museum service as acharitable Trust.

Using the figures from the Reality Checktable on the previous page and adding abit more detail, a worked example is offeredin Table 7 below:

Table 7

Cost projections

PART 1: Costs within the local authority:

Museum service budget £2,700k

Central (and departmental) service costs £300k

Full cost of the service £3,000k

PART 2: Trust cost projections:

Base budget (excludes rate rebate) £2,600k

Additional costs (for direct purchase of services and enhanced capacity) £250k

Additional income (£100k)

Grant allocation from local authority (£2,750k)

Net cost 0

PART 3: Council cost projections:

Ongoing local authority costs (contract monitoring, liaison, etc) £50k

Grant to Trust £2,750k

Full cost of transferred service £2,800

Net saving to the local authority £200k

These savings, as noted above, are unlikely to be fully available immediately upon transfer.A five year cost projection can be used to show how the savings might be recouped:(Table 8).

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This particular example offers favourablesavings to the local authority (and it can beargued that some of these savings be sharedwith the Trust for the establishment of its‘reserves’). Unfortunately, as noted earlier,this exercise can expose that a particularservice is not viable as a stand aloneorganisation. If the service’s budget has beencut too severely over the past years, or isbeing subsidised by other unsustainablefunding streams, then there will be a seriousrisk of financial failure as a Trust, or majorclosures, or redundancies, or all of these.

Table 8

Five year cost projection

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

The Trust’s costs:

Base budget 2,600 2,600 2,600 2,600 2,600

Additional running costs 250 250 250 250 250

Additional income (20) (60) (80) (100) (100)

Grant from local authority (2,830) (2,790) (2,770) (2,750) (2,750)

Local authority costs

Set-up costs 120

Additional costs of Trust (grant to the Trust as compared to Museum Service base budget) 130 90 70 50 50

Rate rebate and VAT savings (100) (100) (100) (100) (100)

Central services savings (150) (150) (200) (250) (250)

Transition and ongoing central service costs 150 150 100 50 50

Services brought by the Trust (100) (100) (50) - -

Annual (savings)/costs 120 (70) (110) (180) (250) (250)

Cumulative (savings)/costs 120 50 (60) (240) (490) (740)

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25

5. Next stages

Next stages

After an in-principle ‘yes’ following thefeasibility stage of the process, then detailedplanning is needed. This includes:

n checking and validating all assumptions; and

n developing the detail of the transfer: thebusiness plan, the legal documentationand the new legally established entities.

The aim of this work is to offer the greatestpossible surety about the needs and shapeof the new organisation based on itsaspirations and what it is expected (andintends) to achieve.

Organisational change

This can be the most challenging area toexplore and expose when considering anytransfer of a museum service. It is howeveralso a critical factor to the long-term successof an externalised service. The assumptions(backed by evidence) are that an externalisedorganisation can be more responsive, moreentrepreneurial, more effective, moreefficient, offer greater value for money,be joined-up, be focused on deliveringexcellence of service and be very customeraware so that audience development isimplicit in everything the service does.

There are some critical questions associatedwith these assumptions; questions that mayhave uncomfortable answers and difficultsolutions.

n Is the present organisational structureappropriate to the new organisation andthe services it will be providing?

n Is the present skill-base appropriate? Whatnew skills might be needed? What trainingis needed?

n Is the present capacity appropriate? Aremore (or less) people needed?

The answers to these questions will have costimplications. Costs that need to be quantified.

If fundamental change is needed a decisionwill then have to be made as to whetherchanges happen prior to transfer, or aftertransfer. If changes are to be made post-transfer then a decision is needed as towhether the costs of the changes areincluded within the funding agreement.If the costs are not included then a carefulassessment of the viability of the neworganisation must be made.

The Board

Selecting and appointing the right Boardmembers will be critical to the success of theinitiative. Time and effort must be put intothis aspect of the transfer. It is essential thatthe authority puts in place a high profile andprofessional Trustee recruitment programmeto ensure that the highest calibre of Trusteesare appointed.

Ideally Trustees should not only beknowledgeable of the arts, museum oreducational services but also have business,professional or management experience. Inparticular, it is ideal if the Board can harnessadditional added value skills including:

n Finance

n Legal

n HR

n Commercial property

Details of a Trustee recruitment programme,together with a draft Trustee advertisementand person specification are set out inAppendices F, G and H.

As part of the Trustee recruitment campaign,careful consideration should be given toidentifying a potential chair for the neworganisation. The chair will play a critical rolein the success of the initiative – particularlyin the early years of operation. In additionthe chair is likely to be involved in the finalnegotiations for the transfer and approvalof the project documentation including thebusiness plan. Ideally therefore the chair shouldhave corporate or management experienceand experience in conducting board meetings.He/she will be the principal point of contactfor email, stakeholders, the executive andmedia. He/she should therefore have a highlycredible track record and leadership skills.

Funding arrangements with the localauthority

This needs to note the time period of thefunding agreement and its re-negotiationand the basis of that funding agreement:the core budget with uplift related to extracosts (off-set by the savings and reallocationof central charges).

Ideally you should aim for a rollingprogramme of funding, over a three to fiveyear time span. A five year funding regimewould mean that as the funding for Year 1ends then Year 6 is set, so that the newTrust always has a five year financial planninghorizon. This is not an easy option for localauthority to agree but the minimum viableoption a three year package – with negotiationfor the next three starting in Year 2 of theagreement.

As noted in Section 3, it is essential toassess the full costs of the local authority’scentral (and other support) service recharges.This can be critical to the success of a

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26

transferred service as an agreement isneeded such that all, or a large proportion ofthese costs, are transferred to the Trust so itcan buy the services it needs. Examples ofcentral support recharges are set out below(Table 9). Some of these services are easierto disaggregate than others and it may bethat some form of phased transfer of fundswill need to be agreed. The table below canbe used as a tool for assessing a phasedapproach and this could be adapted to fitthe circumstances of any particular museumservice and its sponsoring local authority.

Partnership agreement between the localauthority and the Trust

Linked to a funding agreement will be someform of performance expectation from thelocal authority. This is best configured as amutually beneficial partnership agreement

such that it recognised shared responsibilities,shared aspirations, shared liabilities andestablishes a framework for working as partnersin the delivery of excellent museum services.As noted earlier, this means that the partnershipagreement should be couched in terms ofoutcomes rather than activities so that theTrust can develop the best solutions and beflexible in the way it achieves its goals.

Up to date records

Another series of activities needed during theplanning and transfer stages is to ensure thatall records are as up to date and completeas possible. This applies to buildings,collections and staff. Some of this will bedriven by the detail needed to support thelegal documents, and some of this is simplygood management and enabling the Trust tostart off on as good a footing as possible.

Table 9

Central support recharges

Service area Phase 1: Phase 2: Service suppliedInitial direct transfer Second transfer by local authority

of funds to of funds – within for agreed period the Trust (£) 2–3 years (£) of time

Personnel

Accountancy

Payroll

Internal audit

External audit

IT hardware, development & support

Postal services

Insurance

Telephones

Legal

Marketing and press

Market research/consultation

Strategy development

Senior management support

Procurement

Asset management

Member support 1

Scrutiny 2

Transport

Grounds maintenance

Totals

1 The new Trust will need to provide support for its Trustees so it can be argued that ‘member’ supportcosts be transferred to Trustees support costs2 The new Trust will need to report to the local authority as the local authority is likely to be the Trust’smain funder and as such it is accountable and open to public scrutiny.

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27

Throughout this guide, we have tried toemphasise the importance of opencommunications both about the process ofassessing potential change and theconclusions you are drawing. Failure tocommunicate these potential changeseffectively may impact on the success of anyrecommendations you may make.

It is crucial that careful consideration begiven to the impact of an organisationalchange of this nature on each stakeholdinggroup. Each group will have differentinformation needs and potentially different‘takes’ on a potential transfer and its impactupon them either as individuals, or groups.This will include employees, theirrepresentatives, funding bodies, professionalorganisations, and friends groups, as well aslocal authority members and officers, notonly those involved in museum services, butalso employees from service areas whosejobs could be affected by a transfer.

We set out below a suggested communica-tions programme (Table 10). It identifies:

n your key stakeholders;

n what matters to them;

n at what stage you need to communicatewith them; and

n what you need to communicate.

We would emphasise however that this is anexample only and needs to be tailored toyour particular circumstances.

6. Communicating possible change

Page 33: An opportunity for change Exploring the trust option for museum

28

Tabl

e10

Sug

gest

edco

mm

unic

atio

npr

ogra

mm

e

Who

–th

egr

oups

Elec

ted

mem

bers

Not

es:

need

toga

inun

ders

tand

ing

and

invo

lvem

ent

rath

erth

anpr

esen

ting

afa

itac

com

pli

Sen

ior

loca

laut

horit

yof

ficer

s

Not

es:

Mus

eum

serv

ice

staf

f

Not

es:

aco

nsis

tent

and

clea

rm

essa

geis

need

edfro

ma

seni

orm

anag

erw

holis

tens

toco

ncer

nsan

dad

dres

ses

them

Volu

ntee

rs

Not

es:

Ste

erin

ggr

oup

for

the

tran

sitio

n(if

ther

eis

one)

Not

es:

Ong

oing

,op

enan

dho

nest

deba

tene

eded

.R

isks

expo

sed

and

miti

gatio

nst

rate

gies

deve

lope

dm

utua

lly

Any

exis

ting

Trus

tee

bodi

es

Not

es:

ifno

tin

form

edan

dco

nsul

ted

then

coul

dbe

com

eve

ryre

sist

ant

toch

ange

sth

eyse

eto

bede

trim

enta

lto

the

mus

eum

san

dth

eir

colle

ctio

ns

Area

sof

inte

rest

/con

cern

–th

eas

sum

ptio

ns

Sig

nific

ant

impa

ctth

eref

ore

Mem

bers

will

have

avi

ewon

rela

tive

mer

itsof

the

optio

ns

Fina

ncia

land

orga

nisa

tiona

lim

plic

atio

ns

Thei

rjo

bs–

will

have

dire

ctim

pact

onth

eir

day-

to-d

ayw

orki

ngen

viro

nmen

tan

dth

eir

livel

ihoo

d

Will

have

am

ajor

impa

cton

thei

rw

ork

and

wor

king

lives

This

grou

psh

ould

bead

voca

tes

for

the

proc

ess

and

beab

leto

unbl

ock

bloc

ksto

prog

ress

and

resi

stan

ceto

chan

gew

ithin

the

loca

laut

horit

y

The

colle

ctio

ns(a

nd/o

rbu

ildin

gs/g

roun

ds)

and

thei

rca

rean

dth

eir

deve

lopm

ent

Key

mes

sage

sto

besh

ared

Wha

tth

ech

ange

sw

illde

liver

for

the

loca

lare

aan

dits

citiz

ens

That

impa

ctis

bear

able

and

over

allc

onse

quen

ces

can

bede

alt

with

The

chan

ges

are

for

the

bene

fitof

cust

omer

san

dto

secu

rea

sust

aina

ble

futu

refo

rth

ese

rvic

e

Ditt

o

Des

crib

eop

tions

and

cons

eque

nces

fully

soun

ders

tood

,de

bate

dan

dow

ned

Rea

ssur

eth

atco

llect

ions

will

not

beco

mpr

omis

ed

Why

you

need

tosa

yit

Cro

ss-p

arty

supp

ort

for

the

chan

ges

may

bene

eded

;fu

llun

ders

tand

ing

ofth

eim

plic

atio

nsof

actio

n(a

ndno

actio

n)ne

eded

Impa

cton

othe

rde

part

-m

ents

and

dire

ctor

ates

ispo

ssib

leso

need

sst

rate

gic

supp

ort

from

high

est

leve

l(c

abin

etan

dex

ecut

ive)

Ther

em

aybe

deep

conc

erns

abou

tth

eim

pact

ofpo

ssib

lech

ange

san

dm

isun

ders

tand

ings

abou

tw

hat

the

chan

ges

may

mea

n

Ditt

o

Nee

dto

unde

rsta

ndth

epo

ssib

lech

ange

sin

rela

tion

toth

elo

cala

utho

rity’

sbr

oade

rag

enda

,so

nosu

rpris

esan

dca

nac

tas

advo

cate

s

Bec

ause

they

will

care

and

they

have

lega

lre

spon

sibi

litie

s

How

itne

eds

tobe

said

and

byw

ho

Pers

onal

brie

fings

for

the

port

folio

hold

er;

mem

ber

brie

fing

sess

ions

Asan

dw

hen

brie

fings

from

Hea

dof

Ser

vice

/D

epar

tmen

talD

irect

or/

supp

ortin

gco

nsul

tant

s

Say

itho

wit

is,

open

foru

m.

Sta

ffm

eetin

gst

yle

Ditt

o

Info

rmal

prog

ress

mee

tings

Initi

alfo

rew

arni

ngm

eetin

g.Fo

rmal

brie

fing

sess

ions

Whe

nit

need

sto

besa

id

Atth

em

ost

appr

opria

tetim

esba

sed

onde

cisi

ontim

ing

and

othe

rlo

cal

fact

ors

Whe

nvi

abili

tyof

assu

mpt

ions

need

chec

king

Reg

ular

upda

tes

Ditt

o

Atle

ast

mon

thly

a)Ve

ryea

rlyin

the

proc

ess,

and

b)W

hen

the

optio

nsha

vebe

enas

sess

ed

Page 34: An opportunity for change Exploring the trust option for museum

29

Tabl

e10

Sug

gest

edco

mm

unic

atio

npr

ogra

mm

eco

ntin

ued

Who

—th

egr

oups

Frie

nds

grou

ps

Not

es:

Oth

erlo

cala

utho

rity

staf

f

Not

es:

Peop

lew

hoha

vedo

nate

dob

ject

s

Not

es:

Maj

orfu

nder

s(in

clud

ing

spon

sors

)

Not

es:

Loca

lPre

ss

Not

es:

Prof

essi

onal

bodi

es(e

gM

LA)

[NB

whe

reap

prop

riate

use

your

own

pers

onal

cont

acts

with

natio

nal/r

egio

nalb

odie

s.]

Not

es:

Area

sof

inte

rest

/con

cern

—th

eas

sum

ptio

ns

Ditt

o

Impa

cton

thei

rda

yto

day

wor

kan

dca

paci

ty

Will

care

abou

tth

eco

llect

ions

and

wha

tm

ight

happ

ento

them

Prop

erm

anag

emen

tof

the

orga

nisa

tion

and

judi

ciou

sus

eof

fund

s;m

aint

aini

ngpa

rtne

rshi

psto

mut

ual

bene

fit

Loca

lpeo

ple

will

care

abou

tth

eir

mus

eum

sev

enif

they

don’

tvi

sit

soth

ePr

ess

will

take

anin

tere

stin

the

chan

ges

Prof

essi

onal

stan

dard

sbe

ing

met

cons

iste

ntly

;su

stai

nabi

lity;

syne

rgie

sw

ithot

her

cultu

ral

prov

ider

s;na

tiona

land

regi

onal

polic

ies

bein

gap

plie

d

Key

mes

sage

sto

besh

ared

Ditt

oan

dth

atw

ant

the

best

poss

ible

outc

ome

for

the

serv

ice

asa

publ

icfa

cilit

y

Rel

ate

tode

liver

ing

the

loca

laut

horit

y’s

over

all

obje

ctiv

es

Cha

nges

are

abou

tse

curin

ga

sust

aina

ble

futu

refo

rth

em

useu

mse

rvic

e

Look

ing

tode

velo

pth

ese

rvic

ean

dbu

ildup

onpa

stsu

cces

san

dsu

ppor

t

Posi

tive

outc

omes

bein

gso

ught

tose

cure

the

futu

reof

the

serv

ice

New

orga

nisa

tion

will

mee

tth

eir

expe

ctat

ions

Why

you

need

tosa

yit

Ther

em

aybe

deep

conc

erns

abou

tth

eim

pact

ofpo

ssib

lech

ange

sco

mpo

unde

dby

mis

unde

r-st

andi

ngs

abou

tw

hat

the

chan

ges

may

mea

n

Con

cern

sw

illbe

pres

ent

and

may

esca

late

Bec

ause

they

will

care

and

tom

inim

ise

the

pote

ntia

lfo

rm

isin

form

edre

actio

ns

Ong

oing

supp

ort

and

good

will

need

edfo

rsu

cces

sof

the

serv

ice

rega

rdle

ssof

gove

rnan

cear

rang

emen

ts

Neg

ativ

est

ory

lines

may

influ

ence

polit

ical

deci

sion

s

Ong

oing

supp

ort

need

edso

need

toke

epin

form

edof

deve

lopm

ents

How

itne

eds

tobe

said

and

byw

ho

Ditt

o

Ste

erin

ggr

oups

mem

bers

and

loca

lDire

ctor

s

a)In

itial

fore

war

ning

mee

ting

and

b)fo

rmal

brie

fing

sess

ion

Focu

ssed

brie

fing

sess

ion

Brie

fing

from

head

ofse

rvic

esu

ppor

ted

bypo

rtfo

lioho

lder

Sho

rt,

focu

ssed

mee

ting

toou

tline

optio

nsan

dim

plic

atio

ns

Whe

nit

need

sto

besa

id

Ditt

o

Eith

erju

stpr

ior

toa

form

alre

port

,or

atth

etim

eof

afo

rmal

repo

rt

a)Ve

ryea

rlyin

the

proc

ess,

and

b)W

hen

the

optio

nsha

vebe

enas

sess

ed

Whe

nop

tions

have

been

asse

ssed

and

prio

rto

are

port

bein

gis

sued

Prio

rto

any

repo

rtbe

ing

issu

ed

Whe

nop

tions

have

been

asse

ssed

Page 35: An opportunity for change Exploring the trust option for museum

30

The selection of the Chair of Trustees

This individual is crucial to the success ofthe new organisation. The Chair’s relationshipwith the local authority (and other organi-sations and individuals who are influentialwithin the local area) is critical to thesuccess of the set-up of the Trust and itsability, in the early stages, to establish itself.It is also apparent that how this individualgoes about their role as Chair can have ahuge influence on the development of theculture and approach of the Trust. Thisperson is key to the delivery of the detail ofthe nascent Trust – as they are likely to bethe ‘shadow chair’ – and will be leading therecruitment of the first set of Trustees.

The selection and re-selection of Trustees

Again this can be crucial to the success ofthe new organisation and its ability to operateeffectively within its local environment. Theskills and experience of the board can be ahugely important resource for the Trust andin supporting the Chief Executive and thestaff in delivering the expectations of the neworganisation and dealing with organisationalchange. Mechanisms need to be in place toenable the Board to be refreshed after anagreed period of time (between five to sevenyears into the Trust being formed). As theTrust matures as an organisation there is adanger of becoming moribund so new energyand faces within the board can help.

Financial agreements

Clear, medium-term financial agreementswith the local authority, as the Trust’smain funding body, is absolutely critical,and generally the longer the term ofthe agreement the better. If the fundingagreement is secured for a five year periodthen renegotiation needs to start abouthalfway through so that there is no hiatus –and ideally a rolling five-year agreementshould be sought.

Care is needed in ensuring that unforeseenand uncontrollable changes in circumstancescan be addressed mutually by the Trust andthe local authority. For example, majorincreases in utility bills can have a majorimpact on expenditure and so a renegotiationof the base grant with the local authority maybe needed and mechanisms for this need tobe in place.

Relationships with the Local Authority

Ongoing good relationships are essential tothe ongoing success and influence of theTrust. This relationship needs to be built andnurtured at a number of levels within theorganisations: Chair of Trustees and leader ofthe local authority, chief executive with chiefexecutive, portfolio holder and head ofcultural services. Direct interest in the Trust’sactivities needs to be held at the most seniorlevel within the local authority such thatadvocacy can be more effective and theTrust’s contribution to the local authority’sagendas is clearly communicated andunderstood. Added value needs to be provenat every opportunity so that the grant is seento be good value and the Trust is worth thelocal authority’s ongoing support. The dangerof cuts, even with robust financialagreements, will not go away as localauthority’s are under huge pressure toreduce costs, and non-statutory services areat most risk. An important issue here is theinclusion of local authorities as Trustees.

As part of the thinking about whether atransfer to a Trust is feasible or not will be tooffer projections for the service should it staywithin the Council. This model can be usedas a baseline to show how the Trust is doingin comparison to the projections for the non-transferred service and be used to indicatevalue for money.

7. Reflections from existing trusts

Having spoken to a number of senior managersfrom recently transferred museum services itseems that some elements of a transfer aremore crucial than others. We have summarisedthese below:

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31

Leadership

The appointment of a chief executive withstrong leadership skills is essential. Thisperson will be driving the change processand it is a challenging one. Being aware ofdeveloping issues within the local, regionaland national environments can help withidentifying and seizing opportunities forfunding and partnerships and servicedevelopments. The person appointed to therole of chief executive needs to know howthe sector works, have good networks andknow how to use those networks for thebenefit of the Trust’s activities.

People management

The Trust may not have the resources tohave large HR support teams so allmanagers have to develop and hone theirpeople management skills and theirmanagement of performance.

Inward looking to outward looking

Initially a new Trust will tend to be inwardlooking as it deals with the immediacy andimpact of transferring to a Trust; internalprocesses, structures, and day-to-daymanagement will preoccupy people’s time.As these new ways of working becomeembedded as a new organisational culturethen the Trust’s focus can change andinstead of looking inward it will be readyto look outward. The focus will shift todeveloping relationships, building audiencesand looking outside the walls of theorganisations. This means that the balanceof skills for both staff and Trustee may needto shift over time. (From an organisationaldevelopment point-of-view these are signs ofa healthy, confident, learning organisation.)

Looking back

We set out below a comment fromRodney Hill, Chief Executive of WiganLeisure and Culture Trust. WLCT wasestablished in 2004 to operate theCouncil’s entire cultural portfolio.

As you will appreciate, when we becamea Trust, there were three reasons –strategic, operational and financial. Thefinancial aspect was the obvious carrotand, undoubtedly, having an investmentfund made out of the NNDR savings hasbeen extremely valuable. However, Iwould contend that our success has beendue to reasons beyond purely finance.Some of these are:

n becoming a Trust was a step changeand gave us the energy and focus tomake a number of significant changeswhich might not otherwise have beenpossible;

n operating our services as a businesswith the challenge of meeting bothsocial and financial objectives, ie thebottom line, has led to a much keenerfocus on what we do;

n our Board have been very effective onbeing business focused and providinga good challenge;

n being at arm’s length from the localauthority has given us the ability tobe more fleet of foot which enablesdecisions to be implemented morequickly;

n this does not preclude us workingclosely with the local authority indeveloping a wider strategy for culturalservices and, in partnership, we havebeen able to make a number of keystrategic changes which have helpedto transform services; and

n the focus of our first five years hasbeen on increasing participation withimprovements in all our main indicatorsaround participation.

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We hope that by working through this guide you will be able to undertake adetailed feasibility analysis of the opportunities for changing the governanceof your museum service.

We hope the examples are useful (and may also offer you evidence tosupport your arguments for change) and that the tables can be adaptedto help you present your findings to others. The appendices are intendedto offer further detail and examples of what can be involved in the processof a transfer to a Trust.

Whether your deliberations result in a recommendation to transfer yourmuseum service to a Trust or not, the process of thinking about this shouldhelp with clarifying the challenges, successes and development opportunitiesfor your service.

Please let us know if this guide has helped – or hindered – your thinking;and let us know how we might improve the guide to help others embarkingon this process.

Good luck in your deliberations.

Joanna BussellPartner (Local Government and Public Authorities)Lawrence Graham [email protected] 7759 6664

Sandra [email protected] 76717

8. Concluding remarks

32

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33

Key Advantages of the NPDO Option

The key advantages of the NPDO option areset out below:

n NNDR – There is mandatory relief of 80%in respect of national non-domestic rateson property which is wholly or mainly usedfor charitable purposes and occupied by aninstitution or organisation established forcharitable purposes only. Local authoritiesalso have discretion to grant additionalrelief to charities in respect of all or partof the remaining 20% of which 25% isfunding from the central pool thus involvinga net 85% saving overall for the localauthority. Thus a charitable NPDO could be100% exempt from paying the businessrates that would otherwise be due inrelation to the properties it occupies.

The local authority also has power to grantdiscretionary NNDR relief up to 100% tovoluntary organisations or NPDOs which arenot charitable or where the activities arenon-charitable in nature at a net cost ofapproximately 75%.

n Off balance sheet borrowing – Provided thatthe relationship between the local authorityand the NPDO is arms length, then any borrow-ings of the NPDO will not impact on theauthority’s own prudential borrowing position.

n Community involvement – There would bean opportunity for community involvementin the management of the NPDO throughBoard membership as well as creating localmanagement groups for individual facilities.This has been a particular strength of theNPDOs Lawrence Graham has represented.

n Staff involvement – The staff would beable to have greater influence on thedirection and administration of a focusedNPDO. In addition, many NPDO boardsinclude staff nominees. This is an enor-mously exciting opportunity for staff to beinvolved at the strategic decision makinglevel of the new organisation.

n Social and economic agenda – An NPDOrunning leisure facilities could contributetowards the local authority’s social andeconomic agenda for the health andwellbeing of the area.

n Improvement of the facilities – An NPDOcould access private finance for improvingand enhancing any of the facilities. Thiswould enable the NPDO to respond tochanging demands and pressures forsuch facilities.

n Other fiscal advantages – Registeredcharities are in a privileged tax positionboth in respect of their own tax positionand their relationship with those whosupport them. Charities are generallyexempt from corporation tax on their owntrading income provided that the activity ispursuant to the primary purposes of thecharity (or is ancillary to it) and the incomeis used only for charitable purposes. Therewould, therefore, be no tax on theoperating profit if the NPDO is establishedas a charity. Any significant “non-primarypurpose” trading or non-charitable activitywould need to be handled through atrading subsidiary.

n Corporate sponsorship, fund-raising anddonations – The fiscal advantage referredto above should attract sponsorship fromindividuals and companies so that gift aidwould enable a charity to claim £22 for every£100 donated to it following active fund-raising activities (based on the pre-April 2008changes to income tax). It is reasonable toassume that local businesses are morelikely to support an NPDO than the localauthority although only charitable entitieswill benefit from the fiscal advantages.

n National Lottery – Funding from thissource might be more readily available toan NPDO supported by its sponsoring localauthority.

n Other sources of funding – The NPDOwould have access to various sources ofpublic, private and grant funding.

n Council’s continued involvement – Localauthorities can retain a significant strategicrole in relation to the future delivery of theservices. The local authority will continue toprovide significant grant funding to the newNPDO which will be subject to specific termsand conditions. Thus the local authoritycan ensure that the grant funding is usedto deliver the authority’s corporate andstrategic objectives and in particular isfocused on key priorities for participation bytarget groups. In addition, the authority willremain landlord in relation to the propertyportfolio and may also seek representationon the board of the NPDO. The newarrangement between the new organisationand the local authority should be describedas a “strategic partnership”.

Appendix A

The NPDO options

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34

Potential Disadvantages of the NPDO Option:

There are a number of potential‘disadvantages’ of the NPDO option:

n regulation by the Charity Commission –if the NPDO is registered as a charitablecompany limited by guarantee, it will beregulated by the Charity Commission andthe new entity must have regard not onlyto company law, but also to the require-ments of charity law. There is an argumentthat Charity Commission registration is apositive advantage and an importantmeans of safeguarding the assets andservice provision. Charitable industrial andprovident societies are currently “exempt”charities and not subject to regulation bythe Charity Commission.

n the position for exempt charities is,however, changing under the CharitiesAct 2006. Whilst those have always beentreated as exempt because it has beenassumed that they were adequatelyoverseen by other public bodies, such asthe Financial Services Authority or HousingCorporation, there was concern that thiswas not always the case. Hence, the Actnow makes sure that charities set up asIPSs are also monitored for their compliancewith charity law. Monitoring will either bethrough a “principal regulator” (such as theHousing Corporation) or it will be throughcompulsory registration with the CharityCommission.

n reversibility – the assets of a charity canonly be used for the charitable purposes ofthat charity or transferred to anothercharitable body for similar purposes.Reversibility can be, therefore, difficult.

n independence of Charity – the Trustees’overriding priority is to the beneficiaries ofthe Trust. The Trustees cannot becontrolled by any outside organisation orbody and their discretion must not befettered in any way.

n non-primary purpose trading activities –any non-charitable or significant tradingactivities which are not pursuant to the“primary purposes” of the charity couldnot be carried out by the charity but wouldbe hived off and carried out by a tradingsubsidiary. The trading subsidiary would beestablished as a company limited by shares.It would be wholly owned by the parentcharity. Any surpluses generated by thesubsidiary would be subject to corporationtax. To mitigate the tax liability, thesubsidiary can utilise the gift aid schemeand gift all (or part) of the subsidiary’sprofits to the parent charity. Thus eliminating(or mitigating) any tax liability.

n administration – any NPDO will involvestatutory and administrative requirementsassociated with any corporate structure.

n trustees – potential difficulty recruitingTrustees of suitable experience and calibrecoupled with the considerable obligationsupon them. Whilst this is a potentialdisadvantage, it has not been borne out inour experience – particularly if the rightapproach is adopted to recruitment.

n lack of capital – perceived inability toattract significant capital investment toundertake major work.

n loss of Council control – although therewould be greater community involvementwith an NPDO, there would nevertheless bea loss of local authority control and thusthe NPDO could become vulnerable tochanges in the political climate.

LG surveyAdvantages of Trust statusn speed of decision-making free from local government bureaucracy;

n single focused body;

n customer-first improved quality service;

n opportunity for improved investment by re-cycling surpluses or NNDRsavings;

n more focused and commercial management team; and

n able to control own destiny independent from the local authority.

© Lawrence Graham LLP

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35

The different NPDO models

An Unincorporated Charitable Trust:

Key characteristics

n such a Trust is created by a simpledeclaration of Trust by the local authority ora constitution. The Trust deed would setout the terms, objects and functions of theTrust, the names of the Trustees, and itsarea of operation;

n the Trust would need to be registered withthe Charity Commissioners using theappropriate head of charity;

n the objects of Trusts created in this wayare not easy to amend and require theconsent of the Charity Commissionerswho also exercises regulatory control; and

n the Trust will benefit from all the advantagesof a charitable entity (as detailed below).

Key considerations

n the Trustees of an unincorporatedcharitable Trust have unlimited personalliability. The Trustees as individuals wouldbe jointly and severally liable for anyliability of the Trust where there wereinsufficient assets within the Trust, whetheror not arising from a breach of duty of thatindividual Trustee. Although indemnityinsurance could be obtained for theTrustees which would protect them frommost third party claims, the possibility ofpersonal liability means that this particularNPDO option is not appropriate for atransfer of this nature.

Charitable and Non-Charitable Industrialand Provident Societies:

Key characteristics

n an Industrial and Provident Society is asociety registered under the Industrial &Provident Societies Act 1965;

n it is a body corporate with limited liability;

n the IPS qualifies for registration under the1965 Act if it is within either of the twoclasses permitted to be registered set outin Section 1 of the 1965 Act. Theseconditions are that it is an IPS for carryingon an industry, business or trade (includingdealing of any description with land)whether wholesale or retail and (i) it iseither a bona fide co-operative society or(as would be the case here) (ii) the societyis for the benefit of the community andthere are special reasons why it should beregistered under the Act rather than as acompany under the Companies Act;

n IPSs are regulated by the FSA whichreports annually to Parliament on theactivities of industrial and providentsocieties;

n to establish an IPS it is necessary toprepare the IPS rules and submit these tothe FSA for approval. Three members arerequired to form an IPS. Registration timevery much depends on the current caseload of the FSA. The time for registrationhas, however, significantly improved andcurrent estimates of the FSA are that asociety would be registered within a fewweeks of the application being received;

n an IPS formed for charitable purposesis currently deemed to be an ‘exempt’charity (ie exempt from registration)and can still enjoy the fiscal advantagesavailable to charities. The Inland Revenueare responsible for the registrationformalities for such exempt charities andthe formalities are comparativelystraightforward. However, the positionhas changed under the Charities Act 2006and, from 2009, charities established asIndustrial and Provident Societies whichdo not have a “Principal Regulator”, willbe required to register with the CharityCommission;

LG surveyDisadvantages of Trust statusThe survey revealed a number of different comments, most of whichhad a bearing on the negotiations prior to transfer – examples included:

n difficulty for the Trust and staff overcoming ‘public’ perception ofactivities;

n lack of definition of relationship between the Trust and the localauthority;

n the local authority can become ‘divorced’ from the leisure/cultureservice;

n rising insurance costs; and

n unreasonable expectations.

© Lawrence Graham LLP

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36

n a non-charitable IPS can have a significantdegree of employee involvement in therunning and management of the IPS atBoard level; and

n typical IPSs which qualify for registration asan industrial and provident society includevillage halls, sports clubs and housingassociations.

Key considerations

Although not currently monitored by theCharity Commission in the same way ascharitable companies:

n the regulatory regime for IPSs underthe control of the FSA is considered tobe less flexible;

n the monitoring regime will change from2009 when many currently exemptcharities will need to register with theCommission and so, potentially a higherdegree of monitoring will apply;

n this type of vehicle is one with which theprivate sector is less familiar;

n the 1965 Act provides that each memberof the IPS is only entitled to one vote.There is not, therefore, any possibility ofweighted voting rights and the ability ofthe Council to retain some control in thegovernance of the IPS will be dissipated asmembership of the IPS increase. However,it is possible to encourage an open member-ship within classes and thus exercise somecontrol against ‘entryism’, and

n a non-charitable IPS would not benefitfrom the advantageous fiscal regime forcharitable entities and thus would besubject to corporate tax on any profits. Thenon-charitable model would, however, allowsignificant employee involvement in themanagement of the IPS if it were a priorityto the Council. In addition, a non-charitable IPS (like a non-charitablecompany) would not need to place anytrading activities within its subsidiary.

Company Limited by Guarantee

Key characteristics

n a charitable company limited by guaranteeis an entity incorporated under theCompanies Act 1985 (as amended). It doesnot issue shares – instead the membersof the company undertake to guaranteeto contribute a sum of money (usuallynominal) in the event that the companyis the subject of an insolvent winding up;

n it is, of course, a body corporate and theliability of the members is limited;

n it is a vehicle familiar to the private sectorand the type of NPDO which has beenmost widely used by local authoritiescontemplating the charitable Trust route.The table above demonstrates thepopularity of this model as opposed tothe IPS model;

n to register as a charitable company itwould be necessary to have the constitu-tional documents of the company approvedby the Charity Commission. The entitywould then be regulated by the CharityCommission as well as being subject,generally, to the requirements set out inthe Companies Acts.; and

n a charitable company limited by guarantee(‘CLG’) does not have to use the word‘limited’ after its name.

Key considerations

n it is considered that the company regimecurrently offers greater flexibility than otherregimes and companies are able to changetheir rules to meet changing needs moresimply than other types of vehicles;

n a provision relating to dissolution andapplication of assets on dissolution willbe provided for in the company’sMemorandum of Association. Subject tosatisfying the provisions of this clause, anapplication can be made to the CharityCommission for registration as a charityfollowing the incorporation of the company.Although the Commission undertakes torespond to such applications within 15working days, this inevitably involvesrequests for further information;

n one of the key disadvantages of a charitablecompany limited by guarantee is that it willinevitably involve compliance with companylaw as well as charitable law. It, therefore,requires a greater degree of sophisticationin its administrative arrangements thanthat required for other NPDO options. TheCharities Act 2006 has introduced a newvehicle which will be only be available forcharities – the Charitable IncorporatedOrganisation. This will not be a companyvehicle and so will avoid the currentdifficulty of dual regulation. Further detailsof this new vehicle are set out below;

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37

n the directors of the charitable company, asthe principal decision making body, are thecharity Trustees and are responsible for theproper administration of the charity in thesame way as charity Trustees of otherforms of charity, as well as complying withtheir duties as company directors underthe Companies Act. New codified dutieshave been brought in under the CompaniesAct 2006; and

n a company can be established very quickly.As indicated above if a charitable route isselected, once incorporated, an applicationis made to the Charity Commission toregister the newly incorporated company asa charity. We would suggest, however, thatbetween 2-4 months be allowed for thisstage of the project if the charitable routeis proposed.

Community Interest Company (CIC)

Key characteristics

A Community Interest Company (CIC) is alegal entity created by the Companies (Audit,Investigations and Community Enterprises)Act 2004. Key features are:

n it is a corporate body with limited liabilitywith members and shareholders;

n it is available exclusively for use by thesocial enterprise sector thereby creatinga new brand for social enterprise;

n it is regulated by an independent regulatorbased at Companies House;

n it can be either a guarantee company ora share company;

n it must meet a community interest test;

n it has an asset lock in the memorandumand articles although assets will be availableto be used as collateral for raising finance(which means they would be available tocreditors in the event of default);

n it can distribute a dividend (subject to a cap);

n if an entity chooses to be a CIC, it cannotalso be a charity and, as such, would notbe eligible for any of the advantages ofbeing a charity – in particular, the taxreliefs; and

n it is easy to convert an existing CLG to a CIC.

Key considerations

n our experience of CICs is that they havebeen predominantly used by social enter-prises which either do not meet the testsfor charitable status or do not wish to bebound by the constraints of charitable status.

n in most cases, an organisation eligible forcharitable status is unlikely to choose to bea CIC because of the loss of the financialbenefits that would otherwise be availablethrough charity registration.

n the other key role for CICs has become astrading subsidiaries. Some charities havefound the CIC an attractive model for atrading subsidiary as it retains the communityand social focus but, because it is able toissue shares, it can attract outside invest-ment and so raise finance in this way.

Charitable Incorporation Organisation

Key characteristics

n a stated above, the Charities Act 2006introduces a new legal vehicle, theCharitable Incorporated Organisation (CIO);

n this vehicle will be registered and regulatedby the Charity Commission only and not byCompanies House thus reducing theadministrative burden on charities;

n the introduction of the CIO will requiresecondary legislation and is unlikely tobe available until later this year. Onceavailable, existing charities will be ableto convert to a CIO by following a verystraightforward procedure (anticipatedto be a single resolution); and

n the CIO will therefore be a bespoke and‘fit for purpose’ vehicle for charitableorganisations in the future.

Key considerations

n we envisage that the CIO is likely to bewelcomed by the charitable sector and maywell become the preferred vehicle for newcorporate charities; and

n however, until it is seen how the vehicle isworking in practice and the extent of regu-lation imposed by the Charity Commission,we would suggest some caution in adoptingthis vehicle. Given the ease with which acompany limited by guarantee will be ableto convert to become a CIO, this createsflexibility to adopt this structure, once ithas been seen working.

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38

Appe

ndix

BC

ompa

rison

betw

een

alte

rnat

ive

NPD

Oop

tions

Lega

lStr

uctu

re

Uni

ncor

pora

ted

Asso

ciat

ion

Trus

t

Com

pany

Lim

ited

By

Gua

rant

ee

Key

feat

ures

Info

rmal

stru

ctur

eN

ost

atut

ory

regu

latio

nof

this

stru

ctur

e;go

vern

edby

own

rule

s.N

ole

galp

erso

nalit

y

Set

upby

way

ofTr

ust

deed

.D

eed

will

set

out

the

term

sof

the

Trus

tin

clud

ing

the

purp

oses

for

whi

chas

sets

are

held

and

for

who

m.

Lega

low

ners

hip

isse

para

ted

from

bene

ficia

low

ners

hip.

Inco

rpor

ated

vehi

cle

Boa

rdof

dire

ctor

san

da

mem

bers

hip.

Flex

ible

and

fam

iliar

vehi

cle.

Mos

tco

mm

only

used

corp

orat

ele

gals

truc

ture

.

Ow

ners

hip,

gove

rnan

cean

dco

nstit

utio

n

Nob

ody

owns

anun

inco

rpor

ated

asso

ciat

ion.

Run

entir

ely

acco

rdin

gto

own

rule

s.

Lega

ltitl

ein

alla

sset

sis

held

byth

eTr

uste

es.

Ben

efic

ialo

wne

rshi

pof

the

asse

tsis

with

the

bene

ficia

ries

ofth

eTr

ust.

The

Trus

tees

adm

inis

ter

and

man

age

asse

tsfo

rth

ebe

nefit

ofth

ebe

nefic

iarie

sin

acco

rdan

cew

ithth

ete

rms

ofth

eTr

ust.

Dire

ctor

sm

anag

ebu

sine

sson

beha

lfof

mem

bers

.S

ome

gove

rnan

cere

quire

men

tsar

eim

pose

dby

stat

ute

but,

with

inth

ose

rest

rictio

ns,

ther

eis

cons

ider

able

flexi

bilit

yov

erin

tern

alru

les.

Isit

ale

galp

erso

ndi

stin

ctfr

omth

ose

who

own

and/

orru

nit?

No,

itis

anun

inco

rpor

ated

entit

yan

d,as

such

,ha

sno

sepa

rate

lega

lper

sona

lity.

Thos

eru

nnin

git

will

have

toen

ter

into

allc

ontr

acts

and

hold

allp

rope

rty

inth

eir

own

nam

e.U

nlim

ited

liabi

lity

for

thos

eru

nnin

gth

eas

soci

atio

nw

hoco

uld

bepe

rson

ally

liabl

e.

No,

itis

anun

inco

rpor

ated

entit

yan

d,as

such

,ha

sno

sepa

rate

lega

lper

sona

lity.

Trus

tees

will

have

toen

ter

into

allc

ontr

acts

and

all

hold

prop

erty

inth

eir

own

nam

e.U

nlim

ited

liabi

lity

for

Trus

tees

who

coul

dbe

pers

onal

lylia

ble.

Yes;

itis

anin

corp

orat

eden

tity

and,

assu

ch,

has

ase

para

tele

galp

erso

nalit

y.Th

eco

mpa

nyits

elf

ente

rsin

toco

ntra

cts

and

hold

sal

las

sets

.M

embe

rs’l

iabi

lity

limite

dto

amou

ntof

the

guar

ante

e,Li

abili

ties

ofth

eco

mpa

nysi

tw

ithth

eco

mpa

nyits

elf

alth

ough

dire

ctor

sm

aybe

pers

onal

lylia

ble

inlim

ited

circ

umst

ance

s.

Can

itsac

tiviti

esbe

nefit

thos

ew

hoow

nan

d/or

run

it? Dep

ends

onow

nru

les.

Ifth

eas

soci

atio

nis

tobe

char

itabl

e,re

stric

tions

onso

me

pers

onal

bene

fits

will

appl

y.

Ifth

eTr

ust

isno

tch

arita

ble,

then

Trus

tees

can

bene

fitfro

mth

eTr

ust.

Ifth

eTr

ust

isch

arita

ble,

then

the

gene

ralr

ule

isth

atTr

uste

esca

nnot

pers

onal

lybe

nefit

unle

ssth

ego

vern

ing

docu

men

t,th

eC

harit

yC

omm

issi

onor

aco

urt

has

sanc

tione

dsu

chbe

nefit

s.

Ifno

tch

arita

ble,

then

yes,

bene

fits

can

bepa

id.

Ifch

arita

ble,

dire

ctor

san

dm

embe

rsca

nnot

bene

fitun

less

the

gove

rnin

gdo

cum

ent,

the

Cha

rity

Com

mis

sion

ora

cour

tha

ssa

nctio

ned

such

bene

fits.

Asse

ts“l

ocke

din

”fo

rco

mm

unity

bene

fit?

The

rule

sof

the

asso

ciat

ion

coul

dpr

ovid

efo

rth

isbu

tdo

not

nece

ssar

ilyha

veto

unle

ssch

arita

ble

stat

usis

bein

gso

ught

.

Not

nece

ssar

ily.

For

soci

alen

terp

rises

and

char

ities

,as

sets

wou

ldne

edto

belo

cked

info

rco

mm

unity

/pub

licbe

nefit

.

For

aso

cial

ente

rpris

eor

ach

arity

,as

sets

can

only

beap

plie

din

furt

hera

nce

ofth

eco

mpa

ny’s

obje

cts

(whi

chw

ould

stat

eth

atth

eyw

ere

for

publ

icbe

nefit

).In

addi

tion,

ther

ew

ould

bea

‘non

dist

ribut

ion’

clau

seen

surin

gth

atal

lsur

plus

esw

ere

rein

vest

edin

toth

est

ated

obje

cts

ofth

eco

mpa

ny.

Can

itbe

ach

arity

and

get

char

itabl

est

atus

tax

bene

fits?

Yes,

ifit

mee

tsth

ecr

iteria

for

bein

ga

char

ity.

Yes

ifit

mee

tsth

ecr

iteria

for

bein

ga

char

ity.

Yes

ifit

mee

tsth

ecr

iteria

for

bein

ga

char

ity.

Page 44: An opportunity for change Exploring the trust option for museum

39

Lega

lStr

uctu

re

Com

mun

ityIn

tere

stC

ompa

ny(C

IC)

Indu

stria

l&Pr

ovid

ent

Soc

iety

(Ips)

(Com

mun

ityB

enef

itS

ocie

ty(B

enco

mm

))

Cha

ritab

leIn

corp

orat

edO

rgan

isat

ion

(Cio

)

Key

feat

ures

Lim

ited

com

pany

stru

ctur

esp

ecifi

cally

for

soci

alen

terp

rise.

Sec

ure

‘ass

etlo

ck’a

nda

focu

son

com

mun

itybe

nefit

.Th

eas

set

lock

mea

nsth

atal

lass

ets

ofth

eC

ICan

dan

ysu

rplu

ses

gene

rate

dby

them

are

used

for

the

bene

fitof

the

com

mun

ity.

CIC

‘bra

nded

’.C

anbe

agu

aran

tee

ora

shar

eco

mpa

ny.

Ifa

shar

eco

mpa

ny,

can

issu

edi

vide

nds

toin

vest

ors

subj

ect

toa

cap.

Inco

rpor

ated

entit

yFo

rth

ebe

nefit

ofth

eco

mm

unity

gene

rally

ieno

tits

own

mem

bers

.B

oard

mem

bers

and

shar

ehol

ders

.C

omm

onm

odel

inho

usin

gse

ctor

.G

over

ned

byth

eIn

dust

rial

and

Prov

iden

tS

ocie

ties

Acts

.

Bes

poke

vehi

cle

spec

ifica

llyfo

rch

ariti

es.

Cre

ated

byth

eC

harit

ies

Act

2006

.Ex

pect

edto

beav

aila

ble

inea

rly20

08.

Will

have

abo

ard

and

mem

bers

.Tw

om

odel

sav

aila

ble

–ei

ther

mem

bers

asTr

uste

esor

aw

ider

mem

bers

hip.

Ow

ners

hip,

gove

rnan

cean

dco

nstit

utio

n

Asfo

ra

com

pany

limite

dby

guar

ante

eab

ove

but

subj

ect

toad

ditio

nal

regu

latio

nto

ensu

reco

mm

unity

bene

fits.

Boa

rdm

embe

rsm

anag

eon

beha

lfof

the

mem

bers

.O

nem

embe

r/

one

vote

irres

pect

ive

ofth

esi

zeof

shar

ehol

ding

s.

Sim

ilar

toa

com

pany

.Ex

pect

edto

have

diffe

rent

term

inol

ogy

toa

com

pany

(eg

ther

eis

likel

yto

beno

conc

ept

of‘d

irect

ors’

–in

stea

d,‘c

harit

yTr

uste

es’).

Isit

ale

galp

erso

ndi

stin

ctfr

omth

ose

who

own

and/

orru

nit?

Yes;

itis

anin

corp

orat

eden

tity

and,

assu

ch,

has

ase

para

tele

galp

erso

nalit

y.Th

eco

mpa

nyits

elf

ente

rsin

toco

ntra

cts

and

hold

sal

las

sets

.M

embe

rs’l

iabi

lity

islim

ited

toam

ount

ofth

egu

aran

tee

orth

eam

ount

unpa

idon

shar

es.

Liab

ilitie

sof

the

com

pany

sit

with

the

com

pany

itsel

fal

thou

ghdi

rect

ors

may

bepe

rson

ally

liabl

ein

limite

dci

rcum

stan

ces.

Yes;

itis

anin

corp

orat

eden

tity

and,

assu

ch,

has

ase

para

tele

galp

erso

nalit

y.Th

eS

ocie

tyits

elf

ente

rsin

toco

ntra

cts

and

hold

sal

las

sets

.M

embe

rs’l

iabi

lity

islim

ited

toam

ount

unpa

idon

shar

ehol

ding

s.Li

abili

ties

ofth

eS

ocie

tysi

tw

ithth

eS

ocie

tyits

elf

alth

ough

boar

dm

embe

rsm

aybe

pers

onal

lylia

ble

inlim

ited

circ

umst

ance

s.

Yes;

itw

illbe

anin

corp

orat

eden

tity

and

have

ase

para

tele

gal

pers

onal

ity.

The

CIO

itsel

fw

illen

ter

into

cont

ract

san

dho

ldal

las

sets

.M

embe

rsw

illha

veei

ther

nolia

bilit

yor

limite

dlia

bilit

y.Li

abili

ties

ofth

eC

IOw

illsi

tw

ithth

eC

IOits

elf

alth

ough

Trus

tees

may

bepe

rson

ally

liabl

ein

limite

dci

rcum

stan

ces.

Can

itsac

tiviti

esbe

nefit

thos

ew

hoow

nan

d/or

run

it? Yes,

but

mus

tbe

nefit

wid

erco

mm

unity

asw

ell.

Can

pay

limite

ddi

vide

nds

topr

ivat

ein

vest

ors.

Ther

eis

ast

atut

ory

cap

onth

eam

ount

ofdi

vide

nds

paya

ble

whi

chis

set

byth

eS

ecre

tary

ofS

tate

.Th

ecu

rren

tm

axim

umdi

vide

ndpe

rsh

are

is5%

abov

eth

eba

sele

ndin

gra

teof

the

Ban

kof

Engl

and.

The

othe

rca

pis

onth

eam

ount

ofpr

ofits

capa

ble

ofdi

strib

utio

n(c

urre

ntly,

the

aggr

egat

eca

pis

35%

ofdi

strib

utab

lepr

ofits

).

Mus

tpr

imar

ilybe

nefit

non-

mem

bers

.As

set

lock

appl

ies.

Cha

rity

Trus

tees

can

only

bene

fitpe

rson

ally

ifth

eco

nstit

utio

n,co

urt

orC

harit

yC

omm

issi

onpe

rmit

it.

Asse

ts“l

ocke

din

”fo

rco

mm

unity

bene

fit?

Yes,

thro

ugh

stan

dard

prov

isio

nsw

hich

allC

ICs

mus

tin

clud

ein

thei

rco

nstit

utio

ns.

Yes.

Yes.

Can

itbe

ach

arity

and

get

char

itabl

est

atus

tax

bene

fits?

No,

aC

ICca

nnot

bea

char

ityan

da

CIC

does

not

bene

fitfro

man

yta

xad

vant

ages

.

Yes,

ifit

mee

tsth

ecr

iteria

for

bein

ga

char

ity.

Dep

endi

ngon

the

part

icul

arci

rcum

stan

ces,

itw

ould

eith

erbe

are

gist

ered

char

ityor

anex

empt

char

ity.

Can

not

bean

ythi

ngbu

ta

char

ity,

and

mus

tm

eet

the

crite

riafo

rbe

ing

ach

arity

.

Page 45: An opportunity for change Exploring the trust option for museum

Appendix C

Risk matrix

We set out below an example of a risk matrix. This can be tailored for eachauthority’s particular circumstances.

Table 1

Listing risks with an assessment of likelihood of occurrence and impact of risks

Risk factor Likelihood Impact

Risk A High/Medium/Low High/Medium/Low

[Describe]

Risk B High/Medium/Low High/Medium/Low

[Describe]

Risk C High/Medium/Low High/Medium/Low

[Describe]

Risk D High/Medium/Low High/Medium/Low

[Describe]

Etc. High/Medium/Low High/Medium/Low

[Describe]

40

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41

Table 2 Identifying major risks

Table 3 Strategies for managing the major risks

Risk factor Preventative mechanisms Contingency actions

Major risk factor 1

Major risk factor 2

Major risk factor 3

Major risk factor 4

Major risk factor 5

Etc.

Pote

ntia

lim

pact

Low

Med

ium

Hig

h

Low Medium

Likelihood of occurrence

High

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42

Key tasks Lead Target date

Prepare a project plan and timetable

Confirm roles and responsibilities

Establish staff consultation protocol

Inform district auditor of project and timetable

Legal review meeting

Prepare “advert” in accordance with EU procurement/EU Treaty requirements if required

Agree Trustee recruitment process

Prepare advert for Board members

Draft Memorandum and Articles of Association

Prepare Heads of Terms for transfer documentation for discussion with project team

Review management structure

Review staffing structure

Review support service requirements

Review property portfolio

Legal review meeting

Place advert for Trustees; prepare Trustee induction pack; fix date for open evening.

Agree Memorandum and Articles of Association

Agree Heads of Terms for project documents

Legal review meeting

Review responses to advert for Trustees; confirm open evening; hold open evening; establish selection panel

Confirm management structure / identify new posts if required

Confirm support service requirements

Conduct building surveys

Legal review meeting

Interviews for Trustees; selection of ‘core board’

Appendix D

Key legal tasks for a museum transfer

Each project is different in terms of the key tasks to be undertaken. However,the following is an outline project plan which sets out the key legal tasks tobe undertaken on the implementation of a Trust project of this nature.

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43

Key tasks Lead Target date

Programme of meetings for shadow Board including briefing on duties and responsibilities

Prepare schedules for project documents

Provision of information to pension team to calculate employer’s contribution for pension scheme

Consider any “special funds”, “restricted funds”, permanent endowment fund issues

Incorporate company/company secretarial requirements

Prepare project documents

Prepare Sub-Lease and/or Licences

Prepare business plans and services delivery plan

Consider performance monitoring regime / KPIs

Legal review meeting

Approve project documents

Approve business plan and service delivery plan

Prepare application to Charity Commission

Approve admissions agreement

Set up financial management systems

Appoint new staff (if required)

Appoint auditors

Registration for VAT/Data Protection

Appointment of bankers/opening bank account

Set up support services

Prepare financial procedures/adopt relevant operational policies

Confirm member final approval to project documentation and resolution of all outstanding issues

Legal review meeting

Formal approval of transfer by Council

Formal appointment of shadow Board

Formal approval of transfer by Board

Legal review meeting

Execution of documents by both parties

Business transfer

Application for rate relief by Trust

Secure Charitable Status for Trust

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44

Document Parties Key provisions

Memorandum & Articles of Association

Transfer Agreement

Funding and ManagementAgreement

Equipment Agreement

Support Services Agreement

Leases

Admission Agreement

Collections Agreement

(1) Council(2) Trust

(1) Council (2) Trust

(1) Council (2) Trust

(1) Council (2) Trust

(1) Council (2) Trust

(1) Council (2) Trust

(1) PensionFund Trustees(2) Council (3) Trust

(1) Council (2) Trust

The Trust's governing document setting out the objects, powers,liability, and dissolution provisions, and the provisions for the callingand conduct of board and member meetings, the appointment,removal and disqualification of directors.

This agreement will identify the components of the service to betransferred from the Council to Trust and then, in relation to eachaspect of the service, the agreement will set out the terms of thetransfer arrangements. The components of the service likely to betransferred are:

n employeesn stockn supply contracts

The agreement will also set out which aspects of the service whichwill not transfer to the new Trust eg debts and liabilities.

The agreement will also set out mutual indemnities – protectingeach party from liabilities arising from an act or omission of theother party.

This agreement will set out the terms and conditions of the fundingarrangements between the parties. It will identify the key performanceoutputs required by the Council (by reference to an output specifi-cation to be scheduled to the agreement) and the funding to beprovided by the Council to assist the Trust to deliver the required outputs.

The agreement will set out in detail the monitoring and review arrange-ments, an escalation procedure for managing poor performance,termination and, importantly, exit and handover arrangements.

It is proposed that the loose equipment associated with thefacilities be 'loaned' to Trust for the duration of the service period.This means that the Council will not transfer the legal title to theequipment to Trust. This means that the Council can recover theseassets in the event of Trust's insolvency.

It is anticipated that the Trust may contract back certain supportservices from the Council. This agreement will formalise thesearrangements. It will set out the terms on which the services will beprovided and the payment arrangements. It will also set out thetermination arrangements. The services to be provided will be set outin detail in the schedules with a service specification for each service.

The parties will enter into a lease in relation to each of the museumfacilities. The lease will set out the lease term, the user clause,repair and maintenance and any early termination provisions ega break clause for redevelopment.

The Trust will be eligible to be admitted to the SuperannuationScheme. Thus all existing employees pension position will beprotected. New employees will be eligible to join subject to theterms of the Scheme.

The museum collections themselves will be loaned to the Trust (nottransferred) and the terms of such loan will be set out in thisAgreement. The collections would be managed in accordance withan agreed Acquisition and Disposal Policy.

Appendix E

Schedule of legal documents

We set out below a summary of the likely key documentation which will be required for a museums transfer.

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45

Summary of key steps:

n Agree Trustee recruitment campaign

n Prepare Trustee recruitment pack

n Prepare draft advert to be placed in local,national and specialist press

n Contact local press to get some editorialalongside advert

n Place advert and send advert direct toknown potential candidates

n Fix deadline for expressions of interest

n Fix date for an open evening

n Hold open evening

n Fix deadline for submission of CVs andformal application to be a Trustee

n Confirm make up of Trustee selection panel

n Fix date for Trustee interviews (ideallyon one day)

n Prepare interview questions

n Selection panel to conduct interviewsand shortlist shadow board members

n Inform short-listed candidates

n Fix date for first Trustee meeting.

n Second phase recruitmentcampaign/interviews if required

Appendix F

Trustee recruitment

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46

Appendix G

Person specification for trustees

When establishing a new Trust, one of the most important things will be selecting Trusteesof the highest calibre. The Trust will need the correct skills and experience at board level toensure that the Trust is successful and competently run.

The Charity Commission issues best practice guidance on recruiting Trustees which we wouldrecommend is followed. Amongst other things, the Commission recommends a “personspecification” is prepared setting out the skills and experience sought in a Trustee and alsothat the recruitment process follows an open advert procedure.

We set out below ‘person specification’ together with proposed wording for a draft advert torecruit Trustees (Appendix L).

Category Criteria

Experience n Proven track record in business or a relevant profession

n Involvement in community service (paid or voluntary)

Skills and abilities n Specialist skill, eg financial, legal, corporate, or Trust management

n Commitment to objectives of new organisation and a particular interest inmuseums and culture

n Ability to involve other board members in discussion/debate

n Communication skills – ability to express balanced opinions and listen tothe opinions of others; ability to challenge and debate

n Analytical skills – ability to read and understand complex subject matterand comment

Other requirements n Must be prepared to give up time to attend evening meetings and possiblysome daytime meetings

n Awareness of local issues and/or awareness and interest in the principalcause of the organisation

n Appreciation of status and functioning of charitable organisation

n Not disqualified from acting as a board member/Trustee

Additional skills for chair n Ambassador for the initiative

n Leadership skills

n Experience of board meetings

n Planning and conducting board meetings effectively

n Ability to involve other board members in discussions/working groups

n Providing focus

n Keeping an overview of organisation’s performance

n Establishing a constructive working relation with and providing support forChief executive

n Ensuring the Board monitors use of delegated powers

n Impartiality, fairness and ability to respect confidences

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47

Future Development of Council’s ArtGallery(ies) and Museum(s)

Trustees Required!

[Name of Council] is currently consideringoptions for the future management of [listfacilities]. Information about all thesefacilities and the Council can be foundat www.[ ]

The Council has a preference for promotingthe establishment of a charitable Trust tomanage the facilities and is currently seekingTrustees to form the board of this excitingnew organisation.

This will be a tremendous opportunity forindividuals who live or work in [area] andhave an interest in arts and culture tobecome involved at a strategic level in thecontinued development of these first classfacilities and the Council’s fantastic [artsand museum collections].

This is a voluntary position althoughreasonable expenses will be paid.Meetings will take place in [area].

[We are proposing to hold an open eveningfor all those interested in learning moreabout this initiative on [ ].For details of the open evening andany other information, please contact: [ ] ].

Please note you must be over 18 to beconsidered for this role.

Appendix H

Draft advert forprospective trustees

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48

One of the key clauses in the new NPDO’sgoverning document will be its objects clause.

The objects clauses should be drafted toensure that the proposed activities of theNPDO are covered by the scope of theobjects and, indeed, cover any activitieswhich may be planned in the short tomedium term.

Whilst it is possible to amend objectsclauses, this does take considerable timeand effort (particularly for a charitableorganisation where the consent of the CharityCommission will be required). As such, we dorecommend building in sufficient flexibility atthe outset so as to ensure that the objectsare wide enough to allow the organisation todo what it is likely to want to do.

Of course, if the NPDO is a charity, it will beimperative that the objects are drafted in sucha way as to be eligible for charitable status.

Objects must be drafted to meet a charitablepurpose. In the case of museums, this tendsto be either or both “the advancement ofeducation” and/or “promotion of museums”specifically.

Proposed wording is as follows:

1. The objects of the Charity shall be:

1.1 to advance the education of the publicand/or to promote arts and culture through,amongst other means, the operation ofmuseum(s) and art galleries); and/or

1.2 such other charitable purposes beneficialto the public consistent with the object aboveas the Trustees shall in their absolutediscretion, determine.

Appendix I

Model object clause

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49

Powers base

Local authorities have both specific andgeneral powers to provide cultural services.Such provision is made pursuant to itsgeneral and specific powers set out underlocal government legislation. It is necessaryto consider the extent of those powers and,in particular, ascertain whether they permitthe local authority to arrange for the provisionof the services by others eg on NPDO.

Specific powers of local authorities toprovide cultural facilities

Local authority functions in relation to theprovision of entertainment, arts and crafts,theatres, concerts and other such activitiesare contained in Section 145 of the LocalGovernment Act 1972 (‘the 1972 Act’). ThisSection empowers a local authority to providethese services itself or arrange for the provisionof the services by a third party and thencontribute towards the expenses of a thirdparty or do anything necessary or expedientfor the delivery of entertainment or the arts.

Museums are governed by the PublicLibraries and Museums Act 1964.

Local authority powers in respect of museumsare contained in Section 12 of the 1964 Actand are far wider: They may “do all such thingsas may be necessary or expedient for or inconnection with the provision or maintenancethereof”. Local authorities “may make contri-butions towards the expenses incurred by anyperson … providing a museum or art gallery”.

General powers of local authorities toestablish an NPDO

Section 2 Local Government Act 2000(‘the 2000 Act’)

The promotion or improvement of well-beingpower contained in Section 2 of the 2000Act provides sufficient powers to eachCouncil to establish an NPDO, includingincurring costs associated with itsestablishment. The 2000 Act provides:

“Every local authority are to have power to doanything which they consider is likely to achieveany one or more of the following objects:

n the promotion or improvement of theeconomic well-being of their area;

n the promotion or improvement of thesocial well-being of their area; and

n the promotion or improvement of theenvironmental well-being of their area.”(s. 2(4))

“The power under Sub-Section (1) includesthe power for a local authority to:

n incur expenditure;

n give financial assistance to any person;

n enter into arrangements or agreementswith any person;

n co-operate with, or facilitate or co-ordinatethe activities of any person;

n exercise on behalf of any person thefunctions of that person; and

n provide staff, goods, services oraccommodation to any person” (s.2(4)).

Section 3 of the 2000 Act prohibits theCouncil from doing anything which it isunable to do by virtue of any prohibitionor limitation on powers contained in anyenactment and also places a restriction onthe raising of money by use of the power.

Section 2(3) provides that when determiningwhether or how to exercise the power orwell-being, a local authority must have regardto the community strategy prepared underSection 4 and clearly the Councils’ strategiesenvisage the developments outlined in thisstudy. Further, Section 3(5) requires thatbefore exercising the well-being power, alocal authority must have regard to anyguidance issued by the Secretary of State.

Appendix J

Local authority powers

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50

Guidance was issued by the Secretary of Statein March 2001. Section 6 of the Guidancesets out the Government’s purpose in intro-ducing the well-being power as “to reversethe traditionally cautious approach, and toencourage innovation and closer joint workingbetween local authorities and their partnersto improve communities’ quality of life.”

Section 10 provides that “the breadth of thepower is such that councils can regard it asa power of first resort. Rather than searchingfor a specific power elsewhere in statute inorder to take a particular action, councils caninstead look at the well-being power in thefirst instance and ask themselves:

n is the proposed action likely to promote orimprove the wellbeing in our area?

n is the primary purpose of the action toraise money?

n is it explicitly prohibited on the face ofother legislation?

n are there any explicit limitations andrestrictions on the face of other legislation?”

If the answer to the first question is yes, andthe next two questions no, then the Councilcould proceed with the proposed action,subject to the answer to the third and fourthquestions (ie any restrictions or limitationthat may apply by virtue of being spelt out onthe face of other legislation).

There is no explicit limitation or restriction onthe face of any particular enactment whichprevents a Council from proceeding with theestablishment and assistance in respect ofcosts for the NPDO. Provided, therefore, thatthe Council can answer positively that theestablishment of the NPDO and the transferof the services to it is likely to promote orimprove the well-being in its area and thatthe primary purpose of the action is not toraise money then the well-being powerprovides all the authority necessary for theCouncils to proceed. Each Council needs,

therefore, to consider the communitystrategy it has prepared to ensure that theexercise of the well-being power in establishingand funding the NPDO does not run counterto the aims and objectives of the strategy.

Section 111 Local Government Act 1972

Even if the well-being power was insufficientto enable the Council to pay the preparationand set up costs of the NPDO, the power inSection 111 of the Local Government Act1972 would provide authority for the Councilto do so. What the Council is engaging in isa restructuring of the way the museumservices are provided. The underlying premiseof this is to provide services to the communityin order to best promote the area’s museums.This is calculated to facilitate the authority’sproposals to discharge their functions, iethe provision of leisure services which isa well-established local authority functionby fostering the formation of a voluntaryorganisation and the payment to set up thevoluntary organisation and thereafter tocontinue to make payment to it would bepermissible under Section 111 of the LocalGovernment Act 1972.

Provision of services to the new entity

Section 1 of the Local Authorities (Goods andServices) Act 1970 provides that a localauthority may enter into an agreement withanother local authority or ‘public body’ for thesupply of goods and materials, the provisionof professional or technical services or for theuse of vehicles or plant. We suggest that anyNPDO established to take transfer could bedesignated as public body for the purposes ofthis Act on application to the Department ofCommunities and Local Government (DCLG).

Alternatively, the Council can rely on the well-being powers in the 2000 Act referred toabove and the trading powers in the 2003 Act.

Property issues

Section 123 of the Local Government Act1972 governs the disposal of land by localauthorities and provides that a “council shallnot dispose of land [including a lease of morethan seven years] for a consideration less thanthe best that can reasonably be offered.”

There is a general consent under Section 19of the 1976 Act and the General DisposalConsent 2003 in respect of the transfer ofcultural facilities allowing authorities to let atany consideration if the value involved is lessthan £2 million.

In our view, leases of at least 25 years shouldbe granted as this would assist the Trust withany private finance and provide an importantdegree of security for the new entity. The leasewould need to contain provisions dealingwith repair and maintenance obligations,alteration, use of facilities and insurance.

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51

Local authority VAT regime

Local authorities are able to recover inputVAT relating to non-business activities undera special refund scheme established undersection 33 of the VAT Act 1994.

For example, the provision and maintenanceof cemeteries by a local authority is a non-business activity, whereas for all other entities,the charges for burial rites etc are exempt.Thus a local authority may recover the VATon purchases in relation to the upkeep ofcemeteries, whereas others operatingcemeteries may not recover the VAT. For thereasons set out below, the grant of a leasecan be a “non-business” activity, providedthat certain formalities are adhered to.

Local authorities also have a special set ofrules for the operation of partial exemption,which is more generous than the rulesapplied to other traders. In general, youcannot reclaim VAT on purchases wherethese relate to exempt supplies. So if theincome to an activity is exempt, then the VATon related purchases cannot be reclaimed.However, there is a de minimis limit wherethe amount of exempt activity is small inrelation to the whole of the entity’s activities.For local authorities the de minimis limit isset as 5% of the total input VAT. In otherwords, a local authority may incur exemptinput VAT up to a limit of 5% of its total inputVAT before it loses the VAT incurred onpurchases for exempt activity. If the localauthority does breach the 5% limit, then itloses all exempt input VAT.

Because of the structure of these rules, it isin the Council’s interest to plan its activitiessuch that it stays below the 5% threshold inorder that it can recover all VAT on purchase.This can be difficult to achieve, due to thefollowing:

n the calculation of the threshold dependson variable factors – the level of purchasesand the amount of VAT on them;

n changes in the activities will have animpact on the proportions, such asexternalising services;

n significant capital expenditure may have adistorting effect in a particular financial year.

If the leisure activities of the Council areexternalised, then this should improve theCouncil’s partial exemption position, sincecertain exempt activities (for example,swimming lessons) will not be carried on bythe Council. Instead, any expenditure incurredby the Council in relation to a non-businesslease can be recovered in accordance withsection 33 as discussed above (see sectionbelow under ‘Peppercorn rents’).

Cultural exemption

Following a Government consultation paper,regulations have been introduced for VATexemption for certain cultural services. Thebasis of the Government consultation paperis Article 13A(1) of the EC Sixth Directive;subsection (n) which states that “certaincultural services and goods closely linkedthereto supplied by bodies governed by publiclaw or by other cultural bodies recognised bythe member state concerned” should beexempt from VAT in the public interest.

In the public sector VAT exemption may applyto admissions to museums, art galleries ortheatrical and musical performances providedthere is no ‘distortion of competition’ to placecommercial enterprises at a disadvantage.

There is no such proviso for not-for-profitbodies or those managed on a voluntarybasis by persons having no direct or indirectfinancial interest.

Appendix K

Background to VAT position of NPDO

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52

The recent HMRC Brief 27/07 has helpfullyclarified the definition of ‘direct or indirectfinancial interest’ which makes it clear that theinvolvement of staff on the board of Trustees ofan arts of cultural Trust will not affect theTrust’s eligibility for this VAT relief provided that:

n their involvement at board level ispermitted in the governing document;

n the employee board member is excludedfrom any decisions relating to remuneration;

n the payments are not above market rates;and

n the payments are not linked to profits.

Peppercorn rents

HMRC accept that it is the norm for localauthorities to charge a peppercorn rent tocharities and NPDOs occupying theirpremises to undertake related activities.

Renting out the properties at a peppercornconverts the externalised activities into anon-business supply for the local authority.As a consequence, the local authority canrecover VAT on purchases, including majorworks and capital, as these will fall within thescope of claims under section 33 of the VATAct 1994. This is then compatible with thearrangement whereby the landlord undertakessignificant works, retaining ownership of them.

There is a risk that the Government will seekto change the section 33 rules, such that theVAT would no longer be recoverable, howeverthere is no such change in the pipeline atpresent.

It is important that the lease is genuinely forno consideration (other than a peppercorn).However, we understand that HMRC willusually accept that indemnities containedin a lease will not be consideration for asupport for VAT purposes to cover suchmatters as reimbursements for insurancepremiums. This arrangement has beenachieved successfully in the NPDO transferswe have undertaken.

Zero-rating of certain supplies

There is quite a long list of items which canbe supplied at the zero rate of VAT whensupplied to a charity. In most situations, thecharity should provide a certified declarationto the supplier to enable the supplier tocharge VAT at zero rate. In addition, thesupplier must be registered for VAT. There area few situations where a charity can save VATbecause a lower rate of VAT may apply, suchas fuel and power. These situations are alsocovered below.

Charities can buy advertising and closelyrelated services at zero rate VAT. In order tozero rate the invoice, the supplier must besatisfied that it is a supply of advertising to acharity. Where the charity is claiming the zero-rating for goods that are closely related tothe design or production of an advertisement,then the charity must give the supplier adeclaration that the advertisement is for arelevant purpose. The supplier may need tocheck their action with their local VAT office,because if they make a mistake, they willhave to account for the VAT. The zero-ratingapplies to all types of advertising by charities,including recruitment advertisements, attractingnew members, pupils or students, advertisingevents, raising awareness or fundraising.

All media are allowed, including badges,balloons, banners, carrier bags, cinema,TV and radio advertisements, clothing, flags,internet advertising (except for adverts on thecharity’s own website), all types of printedmatter including business cards, calendars,car parking tickets, diaries, greetings cards,lottery tickets, posters, stationery.

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Zero-rating is not available in the followingcases:

n personally addressed letters and othertargeted fundraising activities. Directmarketing and telesales cannot therefore bezero-rated. It may be possible for individualitems of the promotional material used tobe zero-rated (see also direct mail);

n advertising on the charity’s own website,not the creation of the charity’s ownwebsite, even if the website is beingused to raise funds;

n where the charity prepares its ownadvertisements in house;

n where the supply is not directly to a charity,for example where the supply is to atrading subsidiary; and

n where the advertisement appears in acharity’s own magazine, notice board,calendar or other publication.

Charities can pay the reduced rate of 5% onfuel and power supplies used for residentialor non-business charitable purposes. If thebuilding has mixed use, then the lower ratecan apply to the whole providing at least60% of the building is used for a qualifyingpurpose. If the proportion is lower, then therehas to be an apportionment and the lowerrate will only apply to the non-businesselement. This also generally entitles thecharities to exemption from the ClimateChange Levy.

Other VAT issues

Any VAT which the NPDO incurs will lead to aVAT cost since it will make predominantlyexempt supplies (this is to be contrasted withthe current position, since the Council will makemainly taxable supplies and will be able torecover the majority of its VAT costs). However,we estimate that the VAT costs incurred bythe NPDO may be reduced if the NPDO isable to take advantage of the following:

n reduced rate of 5% VAT on fuel and powersupplies;

n zero-rating for charities on all advertisingand closely related services; and

n exemption of charities from the climatechange levy.

The NPDO and Council may also wish toconsider entering into a managementarrangement in relation to the museumsservices supplied by the NPDO. If theNPDO was making chargeable supplies ofmanagement services to the Council, then itwould be able to recover its associated VATcosts. This would mean that the proportionof irrecoverable VAT incurred by the NPDOwould be reduced. This contrasts with theusual position, where the Council simplyprovides grant funding to the NPDO whichis outside the scope of VAT.

However, there is a strong argument that theso-called ‘management fee’ arrangementdoes not ‘work’ in England because theCouncil does not have an obligation toprovide museums activities. This can becontrasted with the position in Scotland,as per the Edinburgh Leisure VAT & DutiesTribunal 18784 case. The ‘management fee’arrangement may also impact on the directtax position of the NPDO. However we wouldrecommend that all the tax aspects of thisproposal are fully considered beforeproceeding with this route.

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Mandatory rate relief

Section 43 of the Local Government FinanceAct 1988 provides that charities pay onlyone-fifth of the rates that would otherwise bedue, if the rate payer in occupation:

n is a charity or Trustee for a charity; and

n the property liable to be rated is wholly ormainly used for charitable purposes.

Where the rate payer is a registered charityunder the Charities Act 1960 (as amended)it will be entitled to mandatory rate reliefautomatically. However, non-registrationunder the Act is not conclusive as to thenon-charitable status of the rate payer andthe charging authority has to determinewhether the rate payer qualifies for the relief,applying appropriate case law and statutes.

If the new NPDO is a registered charity, itwould therefore be entitled to 80% relief fromthe business rates levied on the premises.

Discretionary rate relief

A charitable NPDO would also be entitled tofurther relief from rates if the Council decidesto exercise its discretion under Section 47of the Local Government Finance Act 1988.There are three instances where discretionaryrate relief is available:

n where the rate payer is a charity orTrustee for a charity and the hereditament(the property liable to be rated) is whollyor mainly used for charitable purposes.If granted, relief may be given beyondthe mandatory 80% rate relief;

n where the rateable property is occupied forthe purposes of one or more institutions ororganisations, none of which is conductedfor profit and each of whose main objectsare charitable or otherwise philanthropic,religious, or concerned with education, socialwelfare, science, literature or the fine arts;

n where the rateable property is wholly ormainly used for purposes of recreation andall or part is occupied for the purposes ofa club, society or other organisation, notestablished or conducted for profit.

This will be determined by reference to theCouncil’s discretionary policy.

The crucial issue, however, is whether ornot the property can be regarded as being“occupied” by the NPDO for the purposes ofthe rate relief. The issue of occupation appliesto both mandatory and discretionary rate relief.

Occupation

There is no statutory definition for the word“occupied” in connection with rating law.Whether the property is occupied for ratingpurposes needs to be determined by refer-ence to the body of established case law.Case law has established what are known asthe “four ingredients of rateable occupation”:

n there must be actual occupation orpossession;

n it must be exclusive occupation;

n the possession must be of some value orbenefit to the possessor; and

n the possession must not be for atransient period.

All four ingredients must be satisfied.

In respect of “actual occupation or possession”,there must be some act of user in respect ofthe land with a mere intention to use theland not being sufficient. If the ratepayer canexclude all other persons from using the landin question then actual occupation is madeout. In respect of “exclusive occupation”, thiswill arise if there is no overriding control ordirection on the property exercised bysomeone other than the ratepayer. The thirdingredient is that the occupation must be“beneficial”, ie not that there must be a formof profit but that the occupation must be ofvalue to the occupier. Finally, the occupationmust be sufficiently “permanent” with theperiod of tenure being irrelevant.

A lease is a presumption of occupation forthese purposes. Hence we recommend if alease is guaranteed wherever possible, alicence can be sufficient for rate relief incertain circumstances.

A summary of reliefs is set out below:

Appendix L

NNDR briefing

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Property eligible for raterelief

1 Property wholly or mainlyused for charitable purposeswhich is occupied by aregistered charity.

2 Property, all or part ofwhich is occupied for thepurposes of a non-profitmaking:

a) institution or otherorganisation whose mainobjects are philanthropic orreligious or concerned withsocial welfare, science,literature or the fine arts;or

b) club, society or otherorganisation and is usedfor the purposes ofrecreation.

Type of relief

Mandatory

Discretionary

Discretionary

Amount of relief

80%

Up to a further 20%

Up to 100%

Financial implications

Proportion offset Proportion borne against payments locally by commu- into NNDR Pool nity taxpayers

100% –

25% 75%

75% 25%

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Appendix M

Staffing issues

Effect of Transfer of Undertakings (Protection of Employment) Regulations2006

As a general rule the lease of any facilitiesto an NPDO would trigger Transfer ofUndertakings (Protection of Employment)Regulations 2006 (TUPE). In such a case allstaff working at the facilities would transferon existing terms and conditions and therewould be no break in their continuity ofservice. The position for other staff involvedwith the facilities, but working with otherdepartments, would depend on theirindividual circumstances.

Pensions

As far as pensions are concerned case lawrequires that the transferring employees beoffered a “comparable pension”. In practicethe staff who transfer could be an “admittedgroup” under the Local Government PensionScheme and thus the NPDO group as awhole will need to seek admission from theArea Pension Fund. This arises because acharitable or non-profit making body comeswithin the category of bodies which can beso admitted. If there is any under-funding ofthe pension scheme arrangements will needto be made on transfer for some indemnityin favour of the NPDO.

The Best Value Authorities Staff Transfers(Pensions) Direction 2007 (the Direction)came into force on 1 October 2007.The Direction was introduced pursuantto sections 101 and 102 of the LocalGovernment Act 2003 (the Act) and appliesto ‘best value authorities’ as defined in

section 1 of the Local Government Act 1999,ie local authorities in England. Sections 101and 102 confer power on the Secretary ofState to require local authorities to deal withmatters affecting staff according todirections. The requirements of the Directionset out what has previously been set out inCodes of Practice and guidance. Theintention behind the introduction of theDirection is to formalise and give statutoryforce to the previous Codes of Practice andguidance. It has been introduced by theSecretary of State and must be complied with.

The Direction provides that where a localauthority is contracting out servicespreviously provided by the local authority,the contract for those services must securepension protection for all transferringemployees and provide that the pensionprotection is enforceable by the employee.Pension protection is defined as the right toacquire pension benefits which are the sameas or broadly comparable to or better thanthose rights she had or had a right to acquireas an employee of the authority.

The Direction also provides for subsequentcontracting-out situations so that wherea local authority is contracting with a sub-sequent contractor for the provision ofservices originally provided by the authority,the contract must secure the same levelof pension protection for those employees.

Influence of staff on NPDO management

Staff employed by the respective NPDO couldbe represented on the Board of that NPDOalthough, if the transfer is to a registeredcharity, then staff representation would needto be at a nominal level and restricted todecision-making having no influence uponstaffing matters. This is because Trusteescannot generally be remunerated and as staffwould be deemed to be a beneficiary of theTrust, there would be a prima facie conflict ofinterest. There can be a much greater levelof staff representation in the non-charitableNPDO model (ie, the non-charitable IPS).This option does, however, raise issues ofconflicts of interest and often requiresextensive training for those staff membersnot familiar with corporate management.

Summary

Any organisational change will, of course, beof concern to staff. It is imperative that anyfuture management options prioritise staffconcerns. A transfer of the facilities to anNPDO would have considerable benefits tostaff as the new organisation would be afocused entity which would enhancemanagement stability and staff security.

LG surveyEffect on staff of Trust statusn Staff are energised and motivated.

n Ability to attract a wider range of staff and skills.

n Pay levels increased and terms and conditions improved.

n Increased staff training.

n More entrepreneurial opportunities.

n New sense of purpose with better customer focus.

© Lawrence Graham LLP

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Appendix N

Definitions

CCLG Charitable Company Limited by GuaranteeCIC Community Interest CompanyCIPS Charitable Industrial and Provident SocietyCouncil Relevant local authorityCLG Company Limited by GuaranteeDCLG Department of Communities and Local GovernmentFSA Financial Services AuthorityHLF Heritage Lottery FundHMRC HM Revenue and Customs IPS Industrial and Provident SocietyLGPS Local Government Pension Scheme MLA The Museums, Libraries and Archives CouncilNCCLG Non-charitable Company Limited by GuaranteeNNDR National Non-Domestic Rates (business rates)NPDO Non-Profit Distributing OrganisationSLA Service Level Agreementsocial enterprise

Business trading in the market with a social purpose with three key characteristics:enterprise orientation, social aims and social ownership

status quoIn-house provision

the 1964 ActPublic Libraries and Museums Act 1964

the 1965 ActIndustrial & Provident Societies Act 1965

the 1976 ActLocal Government (Miscellaneous Provisions) Act 1976

the 1989 ActLocal Government and Housing Act 1989

the 1999 ActLocal Government Act 1999

the 2000 ActLocal Government Act 2000

the 2003 ActLocal Government Act 2003

TUPETransfer of Undertakings (Protection of Employment) Regulations 1981 (as amended by the 2006 Regulations)

VATValue Added Tax

The MLA ReportMuseums, Libraries and Archives “Moving to Museum Trust: Learning from Experience” (2006)

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