Blackpool’s Steve Thompson on LAMS, leisure and core cash

Steve Thompson is treasurer of Blackpool Council. He has held the position for 15 months and before that was chief financial officer. He has been with the council for 17 years over two periods since the mid-80s.

Room 151: You fixed your term deposits to no more than three months, why was that?

ST: It is just because of the uncertainty in the market. If we tied ourselves to a twelve month deposit there wouldn’t be anything we could do if something happened to the institution. In general terms our counterparty list is a fraction of what it was four years ago although we now do look at transactions with other local authorities.

Room 151: So it’s a worry over the stability of institutions, not the need to cash out quickly for other things?

ST: Yes, that’s right.

Room 151: What sort of investments do you have? You refer to gilts in the TMS.

ST: Well as I said the counterparty list is shorter now. We do have an investment portfolio that is separate to treasury management; it has property in it which we are looking at partially offloading. Our main investment asset is a caravan park which we have owned for 26 years. More recently we acquired the Blackpool Tower and Winter Gardens.

Room 151: How did that come about?

ST:  One of the last actions of the last government was to provide us with grants to enable us to acquire, along with some borrowing of our own, Blackpool Tower and the Winter Gardens. We also bought separately the Louis Tussaud waxworks and a number of outlets on the promenade. So there is quite a portfolio of what we call leisure assets. The rationale behind it was to use the profits within the public sector to rejuvenate and improve the standards of, primarily, the Winter Gardens but also the Tower, and we’ve done that over the last two to three years.

We’ve brought in Merlin to operate Blackpool Tower and Louis Tussauds became a Madame Tussauds, a more international brand name. Merlin have seven or eight outlets in town including the Sea Life Centre which they have had for a number of years.

The grants were from the ERDF and the North West Development Agency who contributed about £21-22m to a total cost of about £40m. The acquisitions wouldn’t have proceeded without that.

Room 151: What sort of revenue do they bring in to the council?

ST: Well the main thing to cover is the prudential borrowing costs. A lot of the investment was upfront, bringing in some of the branded features of the Tower. We’ve also been spending on the Winter Gardens but it is such a huge building that you can only do it in tranches and it takes time; it’s a lengthy programme to get through the whole of it.

Room 151: Does that mean they’re not showing any profit yet?

ST: They’re in a ringfenced account and that is showing an overspend, although it was planned to do so in the first four to five years. There’s a tipping point where it will start making contributions because of the frontloading of the investment. Blackpool Tower is never without scaffolding on it as we go repainting and replacing steel on it.

We would hope to be breaking even and then making positive contributions from about 2017 onwards.

Room 151: Do you have a core cash strategy in your treasury investments?

ST: We have some reserves earmarked to be spent over a reasonable period. Working balances currently stand at only about £5m, about £5.5m by year-end. So there’s not a huge sum there. You would hope to retain that sort of level.

It is there as a cushion and we have overspends from 12/13 on concessionary fares, children’s social care and car parking. Any repetition of that in the coming years and you would need those cash balances.

In terms of our earmarked balances the total value is around £30m and that sounds a lot of money but some of it is earmarked for equal pay, termination payments as we continue to downsize and PFI reserves. Having said that, our internal cash balances are always there to call upon for capital programme cash needs, for example. Obviously it is cheaper to use your own internal resources before you look externally.

So there is no particular earmarking of reserves for generating a greater return because they will be needed in the short to medium term.

Room 151: You undertook borrowing for the Lend a Hand (LAMS) mortgage scheme. Was that from the Public Works Loan Board?

ST: Yes. The original approval item set aside £5m. We have our second £1m tranche with Lloyds TSB (they’re limited to £2m) and we have got £0.5m in cashless underwriting with Leeds Building Society. So yes, £2m borrowed as and when needed has come from the PWLB over a five year period.

Room 151: How is the scheme going?

ST: We launched in July 2011 and we the first authority in the country to do so. Over that period of 22 months we’ve had 70 mortgages. It might not sound like a huge number but it has been life changing for those people who couldn’t get into the housing market otherwise.

For the council, it has let us use money that may well have been tied up on deposit and redirect it to get at least the same return. To date (touch wood) we have had no defaults, so the credit scoring and filtering process by Lloyds TSB has worked. It is just another tool really in our housing strategy armoury.

Room 151: Your TMS says you will use treasury management advisers on an ad hoc basis. Have you used any lately?

ST: No, we have one dedicated treasury management accountant, there’s myself and the chief accountant and that is our treasury management panel. I think between us we have reasonable networks. We read, attend treasury management network groups, that sort of thing. We haven’t used a specific adviser for years actually.