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					    Report To Cabinet                                            28 October 2008

 Portfolio Holder Presenting: Community

 Subject:               Establishment of a Local Credit Union
 Status:                Open
 Report Ref:
 Ward(s):               All
 Key Decision:
 Key Decision Ref:
 Report Of:             Head of Strategy and Innovation
                        Lesley Murphy, Strategy and Policy Manager.
 Contact:               Tel: 01256 845236 or email

                              1. Details on the benefits of credit unions, Hampshire
 Appendices:                     Credit Union and requirements for a Basingstoke

                        Report to Economic and Community Development Overview
 Papers relied on       9 September 2008
 to produce this
 report                 Supporting information provided by Hampshire Credit


1         This Report

    1.1     The report considers options to support the establishment of a local credit
            union branch in partnership with stakeholder organisations through
            subsidised premises.

2         Recommendation

2.1       It is recommended that Cabinet approves:

2.1.1     That the provision of subsidised premises is explored with Hampshire Credit
          Union, subject to a detailed financial plan being provided by Hampshire Credit
          Union to the satisfaction of the Head of Finance, Tax and Procurement
          including confirmation of its ability to meet any necessary fit out costs without
          further support from this Council.

2.1.2     Subject to the satisfactory outcome of 2.1.1, responsibility for implementing
          the provision of subsidised premises is delegated to the Portfolio Holder for

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        Community Support in consultation with the Head of Finance, Local Tax &
        Procurement and Head of Property and Facilities Management.

2.1.3   That Hampshire Credit Union is advised that the provision of subsidised
        premises would preclude application to this council for revenue funding.

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Contribution To Council Priorities
This report accords with the Council’s Budget and Policy Framework
Council Plan Ref 2008-11:           Priorities 1, 3 and 4. A2 - Secure sustainable
                                    economic growth and overall community prosperity
                                    for both town and rural areas of the Borough.
3-Year Action Plan:                 SI 2.9
Other References:
Contribution To Community Strategy
Community Strategy 2006-16:         Everyone has the opportunity to lead their lives the
                                    way they want, feel they belong to the Borough's
                                    communities and can influence decision-making
                                    that affects their lives.
                                                                  Some         Significant
             Type                                  significant
                                                                 impacts        impacts
Impacts      Financial                                            ( 4, 7)
for          Personnel                                  
             Legal                                                 (4)
Impacts   Equality and Diversity                        
on        Rural/Urban                                   
          Crime and Disorder                            
             Health                                     
             Environment and Climate Change             
             Economic                                                              
Involving Communication/Consultation                                 
Others    Partners                                                                 
Risk Assessment
Number of risks identified:                                              2
Number of risks considered HIGH or Medium:                               0
Strategic:       Already identified on Corporate Risk Register?
                                                                          No        
Operational:     Already identified in Service Plans?
                                                                          No        

Term                                 Definition
HCU                                  Hampshire Credit Union

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SIP     Single Issue Panel
ABCUL   Association of British Credit Unions Limited
FSA     Financial Services Authority
FSCS    Financial Services Compensation Scheme
AGM     Annual General Meeting

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3         Background

    3.1     Following a motion at Full Council a Single Issue Panel was formed in
            November 2007 to consider the feasibility of establishing a local credit
            union. In February 2008 a stakeholder meeting was organised by the
            Panel to establish a better understanding of local need and the level of
            support from other agencies for a local credit union. The meeting was
            attended by representatives of the main housing associations and
            Hampshire Credit Union. Information on governance arrangements, budget
            projections and requirements to establish a local savers branch were

    3.2     The meeting demonstrated that Hampshire Credit Union offered an existing
            vehicle for the provision of a local branch with relevant financial expertise
            and savings and loan ‘products’. The credit unions chief executive officer
            also confirmed that HCU was keen to establish a Basingstoke branch.

    3.3     A stakeholder development group has subsequently been formed, led
            primarily by Sentinel, Kingfisher, Downland, Sovereign and Swaithling
            Housing Associations with representation from BVS and Basingstoke CAB.
            The Panel liaised with this group to explore local need and potential take up
            in conjunction with HCU.

    3.4     Details of the benefits offered by a credit union and on the related
            stakeholder activity to establish a local branch are provided in Appendix 1
            of this report.

4         Current Position

    4.1     Hampshire Credit Union aims to be self supporting, but does not have the
            capital to open new branches without the support of the local community
            and agencies

    4.2     The Housing Associations have committed initial start up funds of £42,500;
            this sum includes a £10,000 contractor contribution and a contribution of
            £5,000 specifically for promotional literature and IT equipment.

    4.3     Funds have enabled the recruitment of a staff member to spearhead the
            formation of a local branch of Basingstoke Savers, raising awareness and
            moving forward on location of suitable premises. The development group
            are keen to ensure some level of provision is being made from January
            2009 and have asked HCU to work up an outline project plan to enable this.

    4.4     Both Kingfisher and Sentinel Housing Associations have indicated a
            commitment to continue funding support for at least a further two years,
            Sentinel are confident that continued contractor contribution will also be
            achievable .It is anticipated that the other housing associations will also

    4.5     As outlined in appendix 1 there are strategies in place to further promote
            the benefits of the credit union and expand financial support. HCU has also

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         demonstrated previous success in seeking grant support for its branches
         through other sources such as the Esmee Fairbairn Foundation.

4.6      Establishing a suitable town centre shop base however will be critical to the
         long term success and sustainability of a local credit union. Finding
         suitable premises at affordable costs is essential; HCU and the
         development group have enquired whether the Council could offer support.

4.7      The following options to support the establishment of a local branch have
         been considered by the Panel and subsequently by Economic and
         Community Development Overview:-

       Option 1

       Provision of a teller position at the council offices:

4.8      Winchester Savers has been facilitated by Winchester City Council through
         provision of a teller’s position. It is anticipated however that the credit union
         will take over sole use of the prefabricated facility, currently shared with the
         Parking office, providing opportunities to build on its developing identity.

4.9      With regard to BDBC, the Parklands payment hall currently has two teller
         positions situated immediately adjacent to revenues and benefit reception,
         generally operating at full capacity.

4.10     In response to customer usage patterns, the payment hall opening hours
         have recently been reduced, there is limited secure back office space that
         could be made available and it is considered that associations with other
         council usage may not be attractive to potential clients of a credit union.
         Ideally premises would have independent identity.

4.11     The effects of changes to operating times and future use of the payments
         hall are subject to a separate report scheduled for Economic and
         Community Development Overview in January. Whilst there may be scope
         for considering accommodating the credit union in the payments hall in the
         future, timescales and outcomes are uncertain.

       Option 2

       Town Centre Retail Premises:

4.12     The Council currently has retail units available in the town with one unit
         available in the Top of Town area; the former Thai restaurant at 4 Church
         Street. This unit or similar and town location would offer the level of access
         required by HCU providing sufficient space to meet longer term needs.

4.13     Properties in the industrial and commercial portfolio are usually let at full
         market value as these are the investment properties which contribute
         significantly to the Councils income. 4 Church Street for example would
         incur a rent requirement of £32,000 per annum and rates in the order of

4.14     This level of rent and rates however would not be achievable within the
         outline financial plan put forward by HCU, which has been based on costs

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         incurred elsewhere. In addition a service charge and insurance would also
         be payable on this property. To be sustainable a significantly subsidised
         rent is likely to be required by HCU to allow sufficient time to establish its
         business. This would be subject to appropriate lease arrangements.

4.15     Rent subsidies are regularly applied by the Council to accommodation used
         by charitable organisations, for example, community halls, arts facilities etc.
         It is normal however with units in the industrial and commercial portfolio to
         create a lease at market rent and if the Council so chooses, to provide up
         to 100% subsidy of that rent reflecting the ongoing opportunity cost/
         potential rent income not achieved.

4.16     Registered charities currently receive 80% mandatory rate relief with a
         further discretionary 20% applied by this authority. As the HCU is not a
         registered charity, but operates on a not for profit basis, rate relief would
         need to be negotiated.

4.17     4 Church Street has been considered for other potential Council projects
         including a town centre Youth Café and/or incorporation into Cultural Hub
         provision. Neither project is now either likely to require or is in a position to
         progress use of the facility. The premises have not been externally
         marketed whist these potential projects were being reviewed.

4.18     Depending on which retail unit might be most suitable this option would
         result in opportunity costs. Any rates subsidy would also represent a cost.

4.19     This option benefits by its current availability. The Council’s commitment
         would be limited and reviewable subject to lease arrangements.

       Option 3

       Revenue funding:

4.20     Provision of a pump priming funds might be provided. Funds would need to
         be subject to the provision of a more robust business plan, confirmation of
         partnership support and suitable premises being located.

4.21     This option would allow HCU to identify alternative premises. The level and
         term of the council’s funding commitment could be clearly identified.

4.22     Initial consideration would suggest that HCU could be eligible to apply to
         the Voluntary Sector Support Scheme under the revised criteria.
         Applications to the scheme were being invited during the summer. The lead
         officer has advised that several enquiries have been made of the scheme.

4.23     The success of any grant application would depend on other applications,
         the level of funds likely to be available in 2009/10 and the organisations
         ability to respond to council timescales. If successful, funds would not be
         available until 2009/10 following decision in February.

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5         Consultation

    5.1     At its September meeting, Economic and Community Development
            Overview Committee Members were supportive of the credit union initiative
            and confirmed its support in principle of :-

               The development in partnership of a local Basingstoke Savers Branch;

               Promotion by Hampshire Credit Union of the benefits of a local credit
                union to council staff including opportunities for employee savings

    5.2     The committee recommended that subject to a detailed financial plan being
            provided by HCU the provision of subsidised premises is explored with
            HCU as the preferred option. Hampshire Credit Union to also confirm its
            ability to meet any necessary fit out costs without further support from this

    5.3     Concern was expressed however and further detail requested on the credit
            unions interest rate policy. The following information explains the basis for
            interest rates applied and has subsequently been circulated to the overview
            committee members.

    5.4     The credit union advises that the maximum rate charged is 26.8%APR; this
            is for loans up to £1000. The rate applied to individual loans is determined
            by the amount of loan and repayment history on previous loans. Interest
            charged by the credit union is calculated on the reducing balance and not
            front loaded.

    5.5     The maximum interest rate a credit union can charge is set by law at
            26.8%. Government also requires this rate to be applied on central funds
            provided for the financially excluded.

    5.6     Whilst the interest rates may appear high, when considered against
            headline rates of 8.9% APR advertised by high street banks, this rate
            usually relates to loans over £7K. Loans through mainstream banks of
            £2000 are likely to result in interest rate changes to 18-19% APR as a
            starting rate rising to 28-29%APR depending on your credit rating. Loans
            less than £1000 are not easily available.

    5.7     For those unable to access loans from a high street lender, for example,
            because of a low credit rating interest rates significantly rise. As identified
            within this report doorstep lenders are currently advertising rates in excess
            of 180%.

    5.8     HCU has endeavoured to be a competitive place for savings also and has
            kept its dividend rate on saving accounts at, at least 4% for the last 6 years
            and paid 5% on the Mini Cash ISA in 2007.

    5.9     Hampshire Credit Union is satisfied that it is therefore offering appropriate
            and competitive rates necessary to support the sustainability of its service.

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6         Way Forward

    6.1     The establishment of a credit union contributes to the council priorities of
            economic prosperity, social inclusion and partnerships focused on
            community inclusion.

    6.2     A local branch would offer ethical, low cost and accessible services to a
            wide, cross section of the community, whilst addressing issues affecting
            those potentially excluded from main stream financial services. There are
            opportunities for volunteering and local membership contributing to social

    6.3     A strong local agency partnership approach has been developed and has
            already levered in significant seed funding and links with the LSP are being
            explored to communicate the local benefits and develop support further.

    6.4     Identifying local premises remains a key requirement and will be essential
            to future success. Council owned retail premises are available in the town
            centre. Offering a subsidised rent would significantly assist the
            sustainability of the project and accelerate ground level provision and
            benefit to the community.

    6.5     It is recommended therefore that Option 2 as outlined in section 4 of this
            report is progressed with HCU, subject to provision of a more detailed and
            robust business plan that identifies timescales and approach for promoting
            the branch, achieving realistic membership levels and an associated
            financial plan.

7         Financial Implications

    7.1     If the Council wishes to support Option 2 there will be an opportunity cost
            equal to the loss of potential rental income. This will depend on the level of
            rent subsidy provided, but the maximum cost of 100% subsidy would be
            £32,000 per annum. This cost would be increased by any subsidy that the
            council gives towards the cost of business rates and service charges.

    7.2     These costs would need to be met within existing budgets. Budget
            estimates assume that one unit at the Top of Town area will remain unlet
            for the next five years to reflect the worsening economic climate. Therefore
            provided that all the remaining units at the Top of Town are let, the “lost
            rent” income and business rates could be accommodated within the
            budget. The cost of service charges would need to be met by the tenant
            (approximately £2000 per annum)

8         Risks Identified

    8.1     The risks identified in supporting this proposal are:-

8.1.1     The credit union may take longer than anticipated to develop its
          membership/business and therefore to become self sufficient. This may result
          in the council being requested to provide an additional period of subsidised
          accommodation. A satisfactory business plan is therefore required before
          implementing any provision of subsidised premises to mitigate against this
          potential risk. Lease arrangements would make provision that after a bedding

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        in period, officers would review progress against the business plan and
        consider the appropriate level of subsidy, this would be reviewed annually

8.1.2   In the current economic climate there is a risk that there will be other vacant
        council owned units in the Top of Town area resulting in further lost rental
        income. The income position will be considered as part of the ongoing budget
        monitoring process and as appropriate as part of the budget estimate process
        next year.

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