PAPER B
Purpose: For Decision

Committee

EXECUTIVE

Date

18 MAY 2017

Title

COUNCIL SUPPORT TO SECURE A NEW ISLE OF
WIGHT INVESTMENT
AND
JOB CREATION
OPPORTUNITY

Report of

DIRECTOR OF REGENERATION

EXECUTIVE SUMMARY
1.

Following a long period of negotiation the Council is in a position to facilitate the
creation of 400 new jobs (rising to 600 in time) with a contact centre provider which
specialises in working with blue chip clients. In order to secure this opportunity for
the Isle of Wight; the Council will need to lease and invest in identified commercial
office premises at an estimated capital cost to the Council of £2.1 million, and it is
estimated that this will leverage an overall investment of at least £35million over the
next five years from the operator. This investment will also help the Council to
rationalise its own accommodation by transferring operation from two other leased
buildings into the same commercial office premises.

2.

Time is of the essence in securing this opportunity as the operator has secured
some new contracts and requires its new facility to be operational in September
2017.

3.

This report seeks approval for the Director of Regeneration, in liaison with the
relevant Executive member(s), subject to the satisfaction of the Director of Finance,
to conclude property and funding agreements to secure the provision of the
identified commercial office space in order to provide accommodation for and
secure this large scale inward investment to the Isle of Wight.

CONFIDENTIAL / EXEMPT ITEMS
4.

The identity of the inward investing organisation is to be treated as confidential until
a final agreement is reached, subject to approval of the project by the Executive.
Appendices 1, 2, and 3 attached, to be treated as confidential, sets out the main
details connected to the proposed support.

BACKGROUND
5.

On 15 December 2016, the Isle of Wight Council Executive approved the adoption
of the Isle of Wight regeneration programme as a basis for securing the future
prosperity and sustainability of the Isle of Wight, built on the pillars of regeneration,
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 growth and productivity. In order to achieve this aspiration, the report highlighted
the need to establish a regeneration programme that could build confidence in
investors and employers, demonstrating that the Isle of Wight is serious about its
regeneration aspirations and prepared to work with them to deliver solutions that
meet the Island’s needs.
6.

One such opportunity to attract private sector inward investment has been identified
through discussions with an outsource provider of telephone and web-based
customer contact services with several blue-chip clients. The development of the
contact centre sector has seen significant growth across the UK in the last 20 years.
As the provision of services and the opportunity to purchase goods online has
increased so has the need to provide enhanced capacity to service customer care
for this market. The concept of ‘offshoring’ this capacity gained popularity due
primarily to the lower costs involved along with the concept of outsourcing these
services to specialist contact centre providers.

7.

In recent years the outsource companies have increasingly ‘on-shored’, bringing
jobs back to the UK due to expressed customer preference in dealing with English
first language speakers.

8.

The sector has become increasingly attractive to a younger workforce, providing a
strong team building/working ethos and flexible working conditions to allow full or
part time study. The ‘next generation’ of contact centres will be focusing more on
digital interactions with customers through ‘web chat’ more than telephone,
requiring a more skilled workforce offering a more sophisticated customer service
offer.

9.

The volumes of customer interactions, particularly at peak times during the
shopping year requires large scale resourcing linked closely to the customer service
expectations of the outsourcer’s clients. Given the projected growth in the ‘next
generation’ contact centre market, bringing the sector to Island which offers
excellent IT connectivity and a locally based loyal workforce can significantly
enhance the profile of Island’s local economy in attracting further investment of this
type.

10.

A provider of telephone and web-based customer contact services to several blue
chip clients has identified the Island as providing a potential location to set up a
contact centre providing initially up to 400 jobs rising to up to 600 if their business
continues to grow. The projected overall value of their investment is £35million.
Their decision to invest follows their recent success in securing a major new
contract for providing customer support services to a major online and high street
retailer. It follows consideration of other sites on the mainland, lengthy discussions
with the Council over the last two years and the recent development of a support
package designed to support their set up and operation on the Isle of Wight.

11.

The resulting establishment of the first major customer service contact centre on the
Island will help further diversify the Island’s economy and bring further opportunity
for year round employment. The potential for this operator growing its workforce
and other contact centre providers being attracted to the Island is significant given
the Isle of Wight’s excellent broadband links, skilled workforce and the wider
confidence an investment of this size can bring.
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 STRATEGIC CONTEXT
12.

The proposed recommendation in this report would support two of the four priorities
of the current corporate plan:
•
•

Supporting growth in the economy, making the Island a better place and
keeping it safe.
Ensuring that all the resources available to the Island are used in the most
effective way in achieving the Island’s priorities.

13.

By creating new year round employment, supporting growth in the economy, the
project helps to significantly increase the presence of the telephone and online
customer service sector on the Island. This is a sector that has seen significant
growth on the mainland and is not affected in terms of physical connectivity, taking
advantage of the Island’s position as the UK’s only fully superfast broadband
enabled area. The sector is particularly popular as source of employment for
students and graduates and also seeks to attract older workers able to advise and
support those unfamiliar with online commerce.

14.

The current Isle of Wight Economic Development (2015-17) Plan prioritises
employment of the digital economy as key sector to develop on the Island and the
evolving regeneration programme has identified the need for increased provision of
high quality commercial space to attract these types of businesses.
PROJECTED BENEFITS OF PROJECT SUPPORT

15.

By bringing an existing building back into use, updating its capacity to offer more
environmentally efficient, attractive office accommodation, the project will supporting
best use of the Island’s existing resources to achieve our priorities.
The creation of up to 600 jobs on the Isle of Wight in a growing part of the regional
and national economy clearly brings significant benefits to Island residents. In
addition to salaries and career prospects involved the additional spending in the
local economy on local goods and services and the supply chain to the investment
represents an annual cash injection of over £7m. This can be assumed for at least 5
years given the proposed terms of the lease.
Even more significant in the context of the wider regeneration programme will be
the message the project conveys regarding the Isle of Wight as a place to invest,
particularly in terms of the digital economy. This is difficult to quantify for the
purposes of this report but research regarding the impact of similar investments
indicate a multiplier ratio of 2.5 :1 in terms of increased confidence amongst existing
businesses to grow and new business to consider locating.
More difficult to value will be the psychological impact of seeing this size of
investment and scale of opportunity coming to the Isle of Wight in terms of
influencing the location choices of young people and families. The opportunity to
study and work on the Island and to consider a new career path has the potential to
signicantly impact motivation and aspiration amongst young people.

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 Taking account of these benefits an overall estimated cost/benefit ratio of 1: 14
results
CONSULTATION
16.

Due to the commercial in confidence nature of the proposals, consultation regarding
the project has been limited to the leader, relevant Executive members, recruitment
and training support partners and council staff.

SCRUTINY COMMITTEE OR PANEL VIEW
17.

Due to the timescales involved, driven by the investors urgent need to service their
new contracts leading to its decision to pursue an Island location for their
investment the proposal has not been able to be included for the required timescale
in the Council’s Forward Plan. The subject of the report has been discussed with
chair of the Scrutiny Committee and all members have been advised of the
proposal given its significance and its timescale, requiring decision during the
transition period between the outgoing and new administrations.

FINANCIAL / BUDGET IMPLICATIONS
18.

There are two potential options connected to this project set out below A and B to E.

19.

A financial appraisal is being undertaken which considers the financial implications
on the Council of Options B to E. This can only be completed once the final
commercial property negotiations have been concluded.

20.

The financial evaluation considers the total capital and revenue costs associated
with the proposals as well as the potential incremental business rates that might be
achieved over the period to 2020 1. The financial appraisal does not consider the
potential positive effect that the additional 400 to 600 jobs may have on the Council
Tax base in the longer term through either additional home occupation or a
reduction in the Local Council Tax Support Scheme cost.

21.

The financial appraisal is being prepared to cover a ten year period to coincide with
the expected lease period and therefore the period over which the Council would
expect to consider the return (savings) for its Capital Investment. The appraisal is
being undertaken on a Net Present Value basis which is a technique that considers
all of the cashflows (capital and revenue) associated with each option on a "like for
like" basis.

22.

It is possible that the evaluation will demonstrate that over ten years, that the
recommended Option B to E will result in an overall additional cost compared to
Option A. This however, will need to be considered alongside the following positive
impacts which are also embedded within the Council's approved Medium Term
Financial Strategy:

1 A business rate "reset" is expected in 2020 which will have the effect of removing any incremental
business rate uplift

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 •

The wider impact of the inward investment and creation of 400 to 600 jobs for
the Island economy and the potential for this to be a catalyst for future
investment and jobs.

•

The potential for the annual savings to accrue for a period longer than the
appraisal period of ten years and therefore improve the overall financial position
of Option B to E compared with Option A.

•

The likely longer term positive impact on the Council's Council Tax Base.

23.

The financial appraisal will also consider the annual revenue budget impact of each
option over the next ten years in order to establish affordability.

24.

In addition, the appraisal will consider the key financial risks by undertaking a
"Sensitivity Analysis" of the key financial variables in order to establish the range of
likely financial outcomes.

25.

So long as the financial appraisal can demonstrate (considering the Sensitivity
Analysis also) that Option B to E is either more favourable than Option A or that is
not significantly less favourable and will generate revenue savings for the Council in
the short to medium term, then Option B will be a satisfactory option.

26.

In the event that the financial appraisal is concluded to the satisfaction of the
Director of Finance and relevant Executive members, it is recommended that the
necessary Capital Investment required be funded from the approved Capital
Programme and should any additional short term revenue funding be required, that
this be funded from the Council's Transformation Reserve.

OPTIONS
(a)

Not to enter into any lease agreement nor commit any capital expenditure to
the refurbishment of the buildings in question.

(b)

To approve the capital investment (set out below) in the commercial office
space identified to secure a minimum 400 new call centre jobs for the Isle of
Wight, subject to the conclusion of the property and funding agreements to
the satisfaction of the Director of Finance and the relevant Executive
members.

(c)

Enter into a ten year head lease (as set out in the draft heads of terms
provided in confidential Appendices 2 and 3) and commit to capital
investment of circa £2.1m to include the costs of relocating Council
operations from two existing leased buildings and agree grant terms to
undertake capital refurbishment works to facilitate the establishment of the
new contact centre on the Island by the end of August 2017.

(d)

The necessary Capital Investment required be funded from the approved
Capital Programme relating to equipment costs associated with property
rationalisation and the capital resources held back for contingent items and
match funding opportunities to be released under the delegated authority of
the Director of Finance in consultation with the Leader of the Council.
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 (e)

Should any additional short term revenue funding be required, that this be
funded from the Council's Transformation Reserve.

CARBON EMISSIONS
27.

The designs for the refurbished heating and electrical systems proposed to bring
the building back into use will result in a significantly more efficient and carbon
friendly solution being implemented. The site is located on a main bus route and is
in close proximity to the Island’s cycle network. As a result the site will be the
subject of a sustainable travel plan resulting in minimum necessary increases in
carbon emissions as a result of reopening the building.

LEGAL IMPLICATIONS
28.

Section 1 of the Localism Act 2011, the General Power of Competence -makes
provision for powers for primary authorities to “do anything individuals generally
may do”. Concluding an agreement to bring new jobs and investment by investing
in the refurbishment of an office building bringing benefits to Island residents is an
appropriate use of this power.

29.

The provision of aid to enable the project can be made under the General Block
Exemption Regulations (Commission Regulation EU No. 651 / 2014 declaring
certain categories of aid compatible with the internal market in application of Articles
107 and 108 of the Treaty (general block exemption regulation, GBER).

30.

The area within which the project takes place is a designated Assisted Area for EU
Regional Aid funding purposes. This allows public bodies to contribute up to at
least ten per cent aid intensity of a projects cost from public funds. Given the
proposed support represents less than five per cent of the total investment the
GBER applies in this case.

EQUALITY AND DIVERSITY
31.

Provision of the support proposed in this report represents a positive impact on
equality and diversity on the Isle of Wight. By attracting investment which brings up
to 600 jobs for Island residents in a sector which is noted for providing flexible
working hours and conditions peoples life choices and personal development
opportunities will be greatly enhanced.

32.

The inward investing company operates an up to date equal opportunities policy
and takes an active part in supporting local charitable and community causes.

PROPERTY IMPLICATIONS
33.

The property implications of this report centre on the Council entering into a ten
year lease agreement with current Head Leasee for the building with a potential
break clause being enacted by them in 2024. This would then result in the Council
agreeing a shadow ten year sub lease with the contact centre organisation on
similar terms as detailed in the confidential appendix.

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 34.

The building also presents opportunities for the relocation of Council services
currently based in other rent bearing properties with resulting savings to council
property budgets.

35.

The building in question has been empty for up to four years and as a result
requires investment in mechanical and electrical systems to make it operational
again for large scale office use. It is proposed the Council takes a ten year head
lease on the building in question and initially leases 50 per cent of the space to the
contact centre provider.

36.

In the very near future, the Council will require additional office capacity, as its
leases on two office buildings are due to end. This opportunity would allow the
Council to transfer its functions to the remainder of this building proposed for
acquisition, and in the short term it would be used as a decamp base for other
Council departments as part of the accommodation strategy. It also has the
potential for a shared service space with other public sector organisations.

37.

There is also the potential to develop a business innovation centre in another
building on the same site, which would be the subject of separate future report.

RISK MANAGEMENT
38.

The main risks associated with project are summarised below. The most significant
risk connected with this proposal is the ability to achieve the necessary capital
improvements to the building within the timescales required by the investor.
Risk
Not to agree
support in a
timely way
Failure
to
conclude
lease
agreements
with
third
parties

Impact
Loss of c.400 jobs

Score
Medium

Failure to conclude Low
agreement
with
head
leasee/contact
centre will prevent
the project from
proceeding
Failure
to Investor
seeks Medium
complete
compensation for
capital
resulting business
improvements impact
with in the
timescales
and
budget
required
Failure
by Investor will limit Low
investor
to recruitment to first
recruit
phase and not
sufficiently
achieve project job
qualified staff targets

Mitigation
This report

Active negotiations
continuing

Investor assumes
risk via grant/loan
arrangement
to
undertake
necessary works

Support from Isle of
Wight College and
Department
for
Work and Pensions

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 Failure
to
secure rental
income
savings from
relocated
services
or
partner
organisations
39.

Rent and rates Medium
costs beyond any
agreed rent free
period

Updated
accommodation
strategy includes
project as default
decamp option

A detailed project risk register will be developed and a designated project manager
will be allocated to ensure Council objectives connected with the project are
achieved.

EVALUATION
40.

Subject to a final detailed appraisal of the relative costs and benefits associated
with this project, the recommended option which sees the Council enabling
£35million of private sector investment on the Island, creating up to 600 new jobs
resulting in increased business rates, a potential catalyst for further inward
investment and a likely longer term improvement to the Council Tax base provides
indicative value for money for the capital investment involved.

41.

The Council’s overall approach to supporting regeneration is grounded in attracting
private sector investment and support for this project of this scale reinforces the
message that we are “ open for business”.

42.

The investment needs to be considered in terms of the wider impact and achieve
the right balance of risk and reward.

RECOMMENDATION
43.

In the event that the financial appraisal is concluded to the satisfaction of the
Director of Finance and relevant Executive members, that option (b) to (e) be
approved
(b) To approve capital investment of £2.1m in the commercial office space identified
to secure a minimum 400 new call centre jobs for the Isle of Wight, subject to the
conclusion of the property and funding agreements and full financial appraisal to the
satisfaction of the Director of Finance and the relevant Executive members which
considers the overall capital and revenue affordability to the Council.
(c) Enter into a ten year head lease (as set out in the draft heads of terms provided
in confidential Appendices 2 and 3) and commit to agree grant terms to undertake
capital refurbishment works to facilitate the establishment of the new contact centre
on the Island by the end of August 2017.
(d) The necessary Capital Investment required be funded from the approved
Capital Programme relating to equipment costs associated with property
rationalisation and the capital resources held back for contingent items and match
funding opportunities to be released under the delegated authority of the Director of
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 Finance in consultation with the Leader of the Council.
(e) Should any additional short term revenue funding be required, that this be
funded from the Council's Transformation Reserve.

APPENDICES ATTACHED
The following appendices (1,2 and 3) are exempt from publication s defined in paragraph 3
of Part 1 of Schedule 12A of the Act, because it “relates to financial or business affairs of
any particular person” (including the authority holding that information) and the public
interest in maintaining the exemption outweighs the public interest in disclosing the
information.
Appendix 1 - Property details
Appendix 2 – confidential summary Heads of terms
Appendix 3 – confidential summary Heads of terms
Appendix 4 – financial appraisal (to follow on completion of negotiations)

Contact Point: Chris Ashman, Director of Regeneration,
 01983 821000 e-mail christopher.ashman@iow.gov.uk

CHRIS ASHMAN
Director of Regeneration

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