Arms Length External Organisation Saved Highland Council £9million

17th May 2018

A report published today by the local authority spending watchdog looks at how councils are using the estimated 130 ALEOs (arms-length external organisations) in Scotland, which have an annual spend of more than £1.3 billion, and the impact they are making.

ALEOs can take many forms - such as companies, community organisations or charities. Most run sports and leisure centres or cultural services like museums and theatres. Others provide social care services, property management, and commercial activities.

The Accounts Commission report says they have brought benefits, including reducing costs, increased uptake in sport and leisure and improved standards of care.

Councils have strengthened their oversight of ALEOs. They are showing improving practice in evaluating them as an option but could do more to involve the public and wider stakeholders in that process.

High Life Highland has realised a saving of £9.1 million in its first five years of operation; with rates and VAT savings making up around 56 per cent of the savings, and the remainder being achieved through income and efficiencies. Former Wick councillor Bill Fernie said,"As chairman of the Education, Culture and Sport committee it was a significant decision we took to grasp the opportunities for a more business like and efficient operation to make big savings and give a better long-lasting service for people in Highland."

The report also highlights issues in councils' use of ALEOs. It stresses the need to continue to follow the principles of the Following the Public Pound code agreed by the Commission and the Convention of Scottish Local Authorities. The Commission has since published updated guidance on governance, accountability and potential conflicts of interest such as councillors sitting on ALEO boards as well as carrying out their council role.

Councils see ALEOs a half-way house between providing services themselves and contracting out entirely to the private sector. They can operate flexibly to improve services for local people and bring in more income and benefit from tax breaks while allowing councils to retain some control and influence.

Around half of ALEOs are registered charities and this allows them relief from non-domestic rates. But the Scottish Government has indicated this would not be available to new ALEOs.

Graham Sharp, chair of the Accounts Commission, said: "ALEOs can and do provide significant benefits. But they are not without risk and changes in tax relief may make the creation of an ALEO a less attractive option for the future.

"This is highly complex area. Councils need to give it careful consideration to ensure they make the right decisions for their own communities."

130 ALEOs / £1.3bn turnover

Number of ALEOs estimated in Scotland

4 councils

Four councils have eight or more ALEOs

25 councils / £430m turnover

Number of councils with leisure and/or culture ALEOs

3 councils / £186m turnover

Number of councils with social care ALEOs. They employ over 5,300 FTE staff

65 ALEOs / £550m turnover

Number of charitable ALEOs. They receive an estimated relief of £45 million on non-domestic rates

The full report can be seen at

http://www.audit-scotland.gov.uk/report/councils-use-of-arms-length-organisations