PAPER B
Purpose: For Decision

Committee

EXTRA-ORDINARY EMPLOYMENT COMMITTEE

Date

11 JULY 2016

Title

REVISED OPERATING MODEL: PART ONE – SENIOR
MANAGEMENT STRUCTURE

Report of

CHIEF EXECUTIVE

EXECUTIVE SUMMARY
1. The Employment Committee is asked to consider proposals for maintaining and
building the organisation’s senior management capacity to deliver regeneration and
transformational change, including any necessary support for the preparation,
evaluation and implementation of schemes in response to its budget challenges and
to ensure the organisation remains sustainable.
BACKGROUND
2. When it met in April the Committee considered proposals for changes to the chief
officer structure. This was the first stage in amending the operating model of the
council in response to its budget challenges and to ensure the organisation remains
sustainable. It raised a number of issues with the proposals which have been taken
into account in the further consideration of the chief officer structure which has
informed this report.
3. The postponement in agreeing to then proposed chief officer structure has also
allowed officers further time to reflect on how the council can best respond to the
financial challenges facing the organisation. This has included taking account of the
conversations held with the Secretary of State for Communities and Local
Government and his officials about the council’s financial challenges. Officers have
also been able to draw on some of the early findings of the forensic analysis
(referenced in the previous paper) of its services in order to better understand what it
must provide and the degree to which it must provide and fund it.
4. It is increasingly apparent that over many years, and at least from the date of its
formation, the council has been extremely effective at taking costs out of the
organisation to successfully meet its financial challenges. This has allowed the
council to set lawful and balanced budgets but has required significant reductions in
services over time. These reductions have been achieved in the context of the ‘island
factors’ which add costs to the delivery of services on the Island arising from its
segregation from the mainland and include costs due to:
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 •
•
•

Premium pricing
Self sufficiency
Dislocation

Consequently it can be soundly argued that the council has cut further and deeper
than its comparators in almost every area of service.
5. Over this same time frame, it is clear that the council has been much less effective in
growing its income from either the council tax base or business rate base. Given the
control that central government has held and continues to hold, over the setting of tax
levels, this growth would need to have come from an increase in the number (and/or
size) of homes and businesses. This would be achieved from active and effective
regeneration activity at scale.
6. One of the consequences of cutting further and deeper than other local authorities is
that the council has also denied itself the capacity, skills and knowledge, necessary to
address the other side of the funding equation. It has also been unable to develop
the schemes and bids which the council could promote in order to bring financial
growth to it and the Island.
7. In his meetings with the council’s political groups and officers in June the Secretary of
State for Communities and Local Government, was ‘sympathetic’ to the case
presented to him in respect of the costs associated with the ‘island factor’. He was
keen to see this case made as part of the review he has commissioned to secure a
fair funding formula for local authorities. The council is working with Portsmouth
University to present an objective case to government as part of the review process,
but the impact of any changes as a result of the review is unlikely to be felt until
2019/20 at the earliest. The government’s intention is that a revised funding formula is
introduced at the same time as its proposals for local authorities to retain 100 percent
of business rates to fund local public services.
8. The Secretary of State was unable to offer any additional revenue support to the
council to help mitigate its financial challenges. Even transitional funds to help until
the outcome of the fair funding review is known, and implemented alongside the
business rate retention proposals were not available. Therefore, as a minimum, the
council must still consider how best it can meet its financial challenges for the next
two financial years and prepare for the possible impact of the changes that will follow.
9. The Secretary of State was keen to point to the capital funds being made available by
the government for economic growth. In his view the council could access these
funds to stimulate and grow the Island’s economy and generate additional revenue to
it, from an increase in the overall tax base, or reduce its revenue costs by introducing
facilities and activities which make the delivery of its services more efficient and
effective. Whist the council has bid to many such grant programmes over a number
of years, on reflection, it is clear that it needs to make big, bold and ambitious bids, of
sufficient scale to deliver a ‘step change’ in the council’s and the Island’s economic
position. The development of bids of this nature will always entail a degree of
managed risk but could provide the necessary rewards to help to balance the budget.
10. The capital funds referred to by the Secretary of State broadly fall into three
categories:
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 10.1. Devolution growth funds: Most devolution deals have been underpinned by
the offer of additional funds from government to invest in economic growth,
housing delivery and create jobs. The previously reported, proposed Solent
devolution deal came with an offer of £30 million per annum of investment
funds over thirty years.
10.2. Local growth deal funds: The government’s 2016 budget included provision
for £1.8 billion in funds to build strong local economies. The funding will be
allocated across the England’s 39 local enterprise partnerships by a
competitive process (£460 million per LEP on average).
10.3. Other ‘targeted schemes’: For example the £90 million coastal communities
fund (grants of £50k to £4m); or the starter homes fund.
11. It is clear that these funds offer a route to securing capital funds which can be used to
develop the Island’s economy and generate revenues for the council, thereby allowing
it to be self-sustaining in the long term. What is also clear is that the development of
proposals for capital schemes, to deliver the degree of step change required by the
Island and the council, requires a commitment of time and resources so that the
council (and the Island) can secure real benefits of successful bids for these funds.
Before any potential scheme can be developed the council will need to be clear about
a wide range of parameters that will impact on the scheme, for example:
•

The extent of a scheme and its deliverability – including how it can be funded
using the best mix of public and private sector resources.

•

The outputs expected from it (jobs, housing, employment assets, and income
to the economy).

•

The costs/benefits to the council that will be delivered by the project.

•

The timescales and key risks associated with its delivery.

12. One option to the council therefore, is to look to invest in sufficient capacity, to
properly identify and develop regeneration schemes and seek the necessary
resources to ensure their delivery, with consequent benefit to the council’s financial
position and the Isle of Wight’s economy. The alternative being a further cycle of
budget cuts and service reductions, which will ultimately see the council with
insufficient resources to meet its legal duties and responsibilities.
13. The proposals set out in this paper are intended to help the council be more proactive
in seeking its own solutions and to make the most of any and every opportunity it has
to make itself financially sustainable.
THE SENIOR MANAGEMENT STRUCTURE
14. The recruitment to a new position of Director of Regeneration will be central to a new
and proactive focus on regeneration activity and economic development, to stimulate
growth in the council’s income and the Island’s economy. The post will be supported
by two dedicated regeneration officers at senior level and a property management
specialist to align the council’s asset base in support of the regeneration activities.
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 The focus of all of these roles must be identifying, developing and implementing
regeneration schemes so it is not envisaged that they will have wider corporate
responsibilities. All the posts will be offered for an initial fixed term of two years to tie
in with the resources that can be made available to fund them.
15. One of the first tasks of the Director of Regeneration will be to make a high level
assessment of the benefits to the council of the potential schemes it could pursue.
This will make a significant contribution to the council’s business planning processes
over the medium term, and allow it to get to a position where it can understand the
benefits of the fair funding review and the devolution agenda. The Director will have a
central role to play in developing and making proposals to the council’s devolution
partners for an allocation of the devolution investment fund to the Island and for
working closely with the Solent Local Enterprise Partnership for funds to deliver the
Island’s key regeneration schemes.
16. The role of Director of Adult Social Services (DASS), is the subject of statutory
guidance headed “Guidance on the Statutory Chief Officer Post of the Director of
Adult Social Services” issued by the Secretary of State pursuant to s.7(1) Local
Authority Social Services Act 1970. This is guidance that a Local Authority is required
to follow; effectively it is law emanating from the executive rather than the legislature.
One of the requirements of the guidance is that local authorities shall ensure that the
DASS is directly accountable to the Chief Executive of the local authority and
comparable, in terms of seniority, with the Director of Children’s Services. Any
appointment at Head of Service level rather than Director will not achieve
comparability in terms of seniority.
17. Recruiting to the DASS role will strengthen the council’s drive towards health and
social care integration securing the capacity and skill base to move this agenda
forward, and secure the council’s statutory obligations in respect of adult social care.
The DASS will be supported by the two new roles for the commissioning and
provision of adult social care services as discussed at the previous meeting. Both
posts will be jointly funded; one by the Health Trust and the other by the Isle of Wight
Clinical Commissioning Group (CCG) and consequently they will be subject to matrix
management by the council and its partners. Ultimately these posts could be
absorbed into whatever organisational forms the My Life a Full Life programme
recommends is best for the delivery health and adult social care services in the future.
18. In the current management structure senior management accountability for ‘place
based’ activities (for example, planning, waste, highways, grounds maintenance) sits
with the position of Deputy Managing Director and Head of Place. This position can
be extinguished and replaced with a Head of Place to be drawn from the three Heads
of Service in this area. The Head of Place will effectively be the lead specialist for
one of these three areas but the corporate strategic lead for all three. There may be a
need for some additional resources to provide the capacity to undertake the dual role
but this will depend on the final appointments.
19. In a revised approach to the council’s financial challenges, which looks to invest in it
capacity to generate growth, it would also seem sensible to sustain its existing
capacity until at least there is some clearer view about what advantages the council
may be able to secure from its regeneration activities.

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 OTHER ASPECTS OF THE OPERATING MODEL
20. Savings from the operating model were assumed to come from three principal
sources:
•
•
•

Senior Management Structure
The way the council does business
Staff terms and conditions

The position taken in this paper is that the council should seek to fund its existing
senior management capacity and add to that capacity for at least the next two years,
in order to give itself the opportunity to introduce regeneration activities that will make
it financially sustainable and, to take advantage of any funding that may be available
from other sources (devolution deals, local enterprise partnership).
21. The same approach may also be taken to the other two elements of the proposed
operating model saving; on the basis that further reductions to staff terms and
conditions may actually take further capacity out of the organisation. Such changes
would certainly be demotivating at a time when investment in growth and regeneration
would be expected to energise the organisation.
22. Work should still be able to progress for both of these elements for implementation if
necessary and is considered in part 2 of the paper.
FINANCIAL / BUDGET IMPLICATIONS
23. The budget approved by the council in February 2016 for the financial year 2016/17
required the withdrawal from general reserves of £4.0m in order to balance spending
with funding and left the council with just £1m of general reserves over and above the
minimum level required for an organisation of this size and risk profile. The use of the
remaining £1m was intended to support the 2017/18 budget in order to reduce the
savings requirement for that year from £13.5m to £12.5m. This means that the
council only retains a "buffer" of £1.0m for any unforeseen budget overspendings.
24. Since the budget was approved, the draft accounts for 2015/16 have been prepared
and indicate an overall underspend against the budget of £1.8m which has accrued to
general reserves, therefore increasing the level of general reserves over the minimum
amount to £2.8m.
25. The approved budget for the financial year 2016/17 also included a saving of £3.0m
relating to the "Development of a new operating model for the Council".
This
necessarily reduces the capacity of the organisation to deliver "business as usual
services", the transformation required by the council to meet its overall savings
requirement of £35m between 2016/17 and 2019/20 and the capacity of officers to
support members in their duties. At present, this £3.0m saving is being reported as
an overspend against the current year's budget alongside a further £1.4m of net
overspendings resulting in an overall forecast overspend for the council at this early
stage of 2016/17 of £4.4m. Clearly, the council does not have sufficient available
general reserves (£2.8m) to offset the forecast overspend of £4.4m and neither would
it be advisable to do so.

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 26. The council therefore needs a comprehensive strategy for dealing with both the
current £4.4m forecast overspend in 2016/17 as well addressing the currently
unidentified savings requirement for the future years 2017/18 to 2019/20 to £22.4m
(i.e. total unidentified savings of £26.8m).
27. The council is continuing to pursue its current medium term financial strategy which
includes forensically evaluating all areas of its activity, the extent to which that activity
is statutory or discretionary and determining where that activity is at variance from its
comparators, all of which is intended to inform where future savings can be made. In
parallel, the council is also seeking financial relief from Central Government over the
short term whilst it makes the case for an improved funding settlement from
Government in 2019/20 as part of the Fairer Funding review.
28. From the meeting with the Secretary of State for Communities and Local Government
held on the 14 June it is clear that short term transitional funding from the government
is not available and the council now needs to revisit its medium term financial strategy
in the context of the latest engagements with government, with renewed vigour and
ambition and with sufficient organisational capacity and talent to be able to deliver its
savings requirements.
29. The council has long been aware that direct transitional revenue funding may not be
available and Officers have been started to work on a new medium term financial
strategy. Whilst the new strategy must continue to have a relentless drive towards
making the council more cost effective in its activities, if it is to avoid drastic cuts to
public services, it must have a much stronger focus on increasing income and the
council's funding base through both council tax and business rates.
30. Key features of a new Medium Term Financial Strategy will include the following:
•
•
•
•
•
•

Island Regeneration - Improving the Island Economy (Increasing Council Tax
and Business Rates)
Increasing Income
Reducing the Demand for Council Services (Prevention Activities to protect the
cost base and also reduce costs)
Improving the Cost-effectiveness of the Council
Reductions in Council Services with the least impact on residents
Financial Policy changes to support Financial Resilience, Responsible
Spending and Longer Term Financial Planning

31. To provide some assurance of the delivery of such a strategy with the organisational
capacity to deliver will require that the necessary level of savings are "smoothed out"
over a longer period of time so that both longer term initiatives and the impact of the
Fairer Funding review in 2019/20 can take effect.
32. Officers are still exploring options to release funding to support the delivery of a
comprehensive plan to meet the remaining unidentified savings of £28.8m, phased
more evenly (i.e. not front loaded as at present) and potentially over a longer period.
This is likely to involve re-phasing the council's debt repayment obligations but some
considerable work and negotiation with the external auditor is still required.

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 33. In the meantime and as discussed with government officials, officers have already
identified the opportunity to use up to £9m of the £17.5m ASDA capital receipt in
2016/17 to support the revenue budget, with the balance of £8.5m available for
2017/18. Whilst not ideal, and there is the opportunity cost of this receipt then not
being available to fund schemes that improve the council's longer term financial
position, it does provide both temporary funding to delay further reductions in the
council's capacity plus funding to enhance capacity in those areas that will support the
transformation of public services as well as the regeneration of the Island.
34. Pending the outcome of discussions regarding the re-phasing of the council's debt
obligations and a comprehensive revision of the council's medium term financial
strategy, it is an option that the council reassigns but still retains its objectives for the
approved earmarked use of the ASDA capital receipt, amounting to £17.5m as set out
in the report to council in February 2016 as follows:
•

£6.0m across the financial years 2016/17 and 2017/18 to defer any changes
that would have the effect of diminishing the council's capacity to transform or
regenerate the Island economy - these being the driving influences of any
revised medium term financial plan

•

£2.0m to be used across the financial years 2016/17 and 2017/18 to support
the creation of additional capacity for regeneration and transformational
change, including any necessary support for the preparation, evaluation and
implementation of transformation / regeneration schemes

•

£9.5m to be held to support the forthcoming revision to the medium term
financial strategy aimed at "smoothing out" the necessary savings over a
longer period of time so that both longer term initiatives and the impact of the
fairer funding review in 2019/20 can take effect.

35. Whilst the council has yet to receive and consider a comprehensively revised medium
term financial strategy, the financial position of the council is such that it needs to act
early on what will be the key features in that strategy in order to accelerate the path to
financial sustainability and exploit opportunities that currently exist.
36. Equally, it is vital that the council uses the limited resources and flexibility it has
available to make the largest contribution it can towards financial sustainability. This
necessarily means reviewing all resources available, including the ASDA capital
receipt, and ensuring that any investment that it does make delivers the maximum
impact with the context of comprehensive and joined up strategy.
LEGAL IMPLICATIONS
37. Section 2.5 of the terms of reference for Employment Committee affords the authority
to consider the senior management structure and to make recommendations to Full
Council of any proposed changes. Full Council is the authorised body to determine
the overall structure but in doing so will take account of comments from the Head of
Paid Service (who is currently the Chief Executive).
38. Section 2.14 of the terms of reference for Employment Committee also affords the
authority to agree to the recruitment to all posts at chief officer level and in the event
of such agreement being given the committee can establish a politically proportionate
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 sub-committee of five members, quorum of three to make appointments to all such
posts. The membership of this sub-committee may be taken from outside the
membership of the Employment Committee.
39. All proposed staffing changes to the senior management structure will need to be
undertaken in accordance with the council’s organisational change policy and other
related employment policy and procedures.
OPTIONS
40. The options for the Committee are as follows:
(a) Support the authorisation to recruit for the appointment of a Director of
Regeneration and related support staff, and recommend its recruitment to Full
Council and that this increase in transformational capacity should be funded by
allocating £2.0m from the ASDA capital receipt across the financial years
2016/17 and 2017/18.
(b) Support the authorisation to recruit for the replacement of the post of Deputy
Managing Director and Head of Place with a Head of Place and recommend to
Full Council that it is ring fenced to the service managers in that area.
(c) Agree to provide authorisation to recruit for the appointment of a Director of
Adult Social Services.
(d) Agree and recommend to Full Council that it delays any changes to the
operating model at this time in order to sustain the organisation’s capacity to
change and that the cost of this action is funded by £6.0m from the ASDA
capital receipt across the financial years 2016/17 and 2017/18 to defer any
changes that would have the effect of diminishing the council's capacity to
transform or regenerate the Island Economy.
(e) Not to support any changes to the chief officer structure as set out in this
report.
RISKS
41. Continuing to focus on cost reduction may allow the council to set a lawful and
balanced budget in the next two years, but there is a risk in further hollowing out the
core of the organisation that it may miss opportunities to grow its tax base and
contribute to, and hopefully benefit from, the fair funding review.
42. There is a risk the regeneration schemes that are under consideration may not be
deliverable in a time that best suits the council’s needs. Nevertheless a clear plan of
what may be deliverable, when and what the impact would be for the council and the
Island would add value to, and support conversations with government and other local
authority partners about securing the financial sustainability of the council.
43. The ASDA receipt can only be used once and Full Council has agreed to the capital
schemes to be undertaken with it in order to either reduce costs or raise income for
the council. Utilising these funds to provide the council with much needed short term
capacity to undertake transformational and regeneration activities does not
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 necessarily mean that these schemes will not proceed. The risk is that they might not
proceed as quickly as had been hoped. A new Director of Regeneration may
however, be able to speed up the process of developing the business cases,
completing the feasibility studies and identifying sources of funds to complete the
schemes.
44. There is a risk to the council in terms of claims for negligence arising from a failure to
follow statutory guidance. The mitigation would be to demonstrate absolutely in
conjunction with the relevant bodies that any planned actions would accord with the
statutory guidance before the action was taken. Although it is unlikely that many
government agencies would want to give such an assurance given the existence of
the guidance.
EVALUATION
45. The meeting with the Secretary of State for Communities and Local Government, on
14 June, made it absolutely clear that the government will not be able to provide any
transitional funding to help the council in meeting its financial challenges. The
expectation being that the council will have to do all that it can to overcome the
financial challenges it is facing using every available financial resource at its disposal
(including its capital funds, land and assets).
46. Work undertaken to prepare for the Secretary of State’s visit has confirmed that the
council has over many years been very effective at taking costs out of the
organisation but less good at generating new tax based income streams that would
derive from a growth in homes and businesses.
47. The approach taken in this paper seeks to create a senior staff structure that can
focus on generating new income streams over the next two years and ensure that the
council is best placed to respond to the opportunities that may come from a
devolution deal and/or the review of the fair funding formula. The approach seeks to
retain the existing organisational capacity and strengthen its regeneration activities
with a team that will only focus on developing the schemes that can be of the greatest
benefit. Schemes such as:
•
•
•
•
•
•

East Cowes Regeneration
Newport Harbour
Ryde Regeneration
Sandown Regeneration
Newport Transport Model
Developing Extra Care capacity

can all be taken forward with a dedicated team working with public, private and
voluntary sector partners, the harbour authority and, at worst, can be designed to a
point, where they can be used to support funding bids to government for the impact
they can bring the Island and the council.
48. The proactive approach to regeneration activity proposed in this paper is not
guaranteed of success, but it does allow the council the capacity and drive to take an
alternative view to resolving its financial challenges, making use over a two year
period, of the funds it has available to it. The intention would be that the overall return
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 on these funds in terms of the levels of investment secured would be far greater than
simply investing the funds on their own as planned.
RECOMMENDATIONS
49. It is recommended that the Employment Committee agrees to:
(a) Support the appointment of a Director of Regeneration and related support
staff and recommend its recruitment to Full Council and that this increase in
transformational capacity should be funded by allocating £2.0m from the ASDA
capital receipt across the financial years 2016/17 and 2017/18.
(b) Support the replacement of the post of Deputy Managing Director and Head of
Place with a Head of Place and recommend to Full Council that it is ring fenced
to the service managers in that area.
(c) Agree the recruitment of a Director of Adult Social Services.
(d) Agree and recommend to Full Council that it delays any changes to the
operating model at this time in order to sustain the organisation’s capacity to
change and that the cost of this action is funded by £6.0m from the ASDA
capital receipt across the financial years 2016/17 and 2017/18 to defer any
changes that would have the effect of diminishing the council's capacity to
transform or regenerate the Island Economy.
APPENDICES ATTACHED
50. Appendix 1 – Current Chief Officer Structure
51. Appendix 2 – Proposed Chief Officer Structure

Contact Point: John Metcalfe, Chief Executive.
 01983 821000 ext. 6225; e-mail john.metcalfe@iow.gov.uk

JOHN METCALFE
Chief Executive

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