Questions asked over £500,000 loan used to set up South Kesteven District Council 'environment' company

Councillors examining the potential end of an authority-owned company have asked what will happen to a loan of more than £500,000.

South Kesteven District Council’s joint meeting of the environment, and rural and communities, overview and scrutiny committees on Monday saw them vote to move forward with three options for grounds maintenance in the district.

They include keeping things under the council’s current arms-length company EnvironmentSK, or wrapping it up and either moving all services in-house or putting them out to tender.

During the meeting, councillors were told a new mapping tool would make it easier to see what would need to be included in any future contracts and how they could be modified to make savings if contracts proved too far past the current £1m contract.

They also called for more detail to be brought back to the committee and requested other council committees were brought on board.

Independent councillor Ashley Baxter, who voted against the options along with Coun Phil Dilks, asked when the council would know more about EnvironmentSK’s finances.

He said previous Companies House returns showed losses in the first two years but did not know how much it had made in its third year.

“I do know that we we made a loan of about half a million pounds to set up EnvironmentSK, and we haven’t had anything like that back.

“I think maybe we’ve had £50,000 of a half a million, so I do wonder, if we go to a different provider, what happens to that company if EnvironmentSK Ltd was rejected or replaced?”

Councillors were told by officers that it was sensible to “test the market” alongside EnvironmentSK because larger companies could bring “economies of scale and service efficiencies” due to their “grander scale”.

Richard Wyles, South Kesteven District Council’s chief finance officer, said that the loan was used to buy the assets the company needed to operate including mowers and other vehicles.

He said the loan was one of the companies’ costs and not paid from holiday, however, EnvironmentSK had taken a loan holiday to allow its cash flow to “re-stabilise”.

He said that if EnvironmentSK was in-sourced the assets would be taken in by the council and losses would only apply to any interest on the loan. If it went out to tender, they would be sold on to any new provider.

“So there’ll be an offset between the costs of that loan against the income that would be received from the sale,” he said.

However, he added the councillors were “two, three steps ahead of myself”.

Councillors responded by pointing out some of those assets may be worth less after three years.

EnvironmentSK began operation in March 2019. Before this, former South Kesteven District Council leader Coun Matthew Lee had said the plan was to bring grounds maintenance – at the time contracted out in the region of £1m – back under authority control.

Although money would not necessarily be saved, he hoped it would generate an income by selling its services elsewhere.

However, the report on Monday said the business’ external contracting “only accounts for nine per cent of the overall turnout”.

The total cost to the council for maintenance for 2022/23 is £1.016m. This is split between £428,000 Housing Revenue Account (HRA) and £588,000 General Fund.