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‘Cash-strapped’ Birmingham City Council paid Capita £1 billion in just six years

‘Cash-strapped’ Birmingham City Council paid Capita £1 billion in just six years

🕔03.Oct 2013

Private sector outsourcing firm Capita has pocketed £1 billion for running Birmingham City Council’s ICT services in the space of just six years, it has emerged.

The figure – £126 million a year – is bound to reignite a bitter internal debate in the controlling Labour group over the best use of taxpayers’ money at a time when local government faces its gravest spending crisis.

Between 2006 and 2012, Capita and 28 of its associated companies received net payments totalling £994 million from Service Birmingham, a joint venture company between Capita and the council.

The total is comfortably more than the £825 million the council says it must save by 2017 to meet Government grant cuts and address increased demand for social services.

Capita Business Services received £36 million in dividends from Service Birmingham during the period 2006-20012. Service Birmingham also made £21 million in charitable gifts.

The council, while owning 32 per cent of the A-share capital, does not receive any dividend money that could be used to deliver services.

Almost £20 million in corporation tax has been paid by the council in respect of Service Birmingham since 2006.

The future of Service Birmingham is under review by Labour council leaders who are negotiating to cut the cost of the contract.

As well as responsibility for all council ITC services, Service Birmingham runs the call centre, and pays the wages for local authority staff.

The joint venture company was set up by the council’s Tory-Liberal Democrat coalition in 2006 to spearhead a business transformation programme designed to save £1 billion over 10 years. Gradually over the years Service Birmingham has taken on more responsibilities.

Details of Service Birmingham’s accounts have been revealed by Labour councillor John Clancy, who earlier this year unsuccessfully challenged Sir Albert Bore for the council leadership. He used publicly available information stored at Companies House.

Cllr Clancy’s pledge to wind up Service Birmingham if costs cannot be cut substantially was rejected by Sir Albert because the legal implications of ending the contract would be too expensive.

However, Chamberlain Files understands that the contract with Capita allows the council to withdraw from the agreement “at will” by giving a notice period of less than two months.

Cllr Clancy, who is likely to challenge Sir Albert again in 2014, admitted that compensation would have to be paid to Capita for ending the contract, but added that the figure would be small in comparison to the annual £126 million payment.

He said Capita should receive no more than a quarter of the money it presently receives from the council.

He would prefer to award ICT work to local firms instead, or have it conducted in-house.

Cllr Clancy said: “We really now have crossed the Rubicon. After this year the city council will have paid Capita about £1.1 billion which is a ludicrous amount of money at a time when we are being told Birmingham city council can’t afford to run essential services.

“This is a Rolls Royce contract which is beyond our means. While the rest of us have been struggling, this contract has thrived to the benefit of Capita. We can’t pay £11million per month out for this service. This should have been the first cut we made.

“In times of austerity and massive service cutbacks, we are still paying out net invoices of £126milion a year to Service Birmingham. We have to bite the bullet and cancel the contract now.

“Get the work done by local businesses. We should have done it long ago. Any costs of exit rolled into a new contract could still save hundreds of millions of pounds in the future.”

A Service Birmingham spokesman said: “We are committed to working in partnership with the council to reduce costs and improve services for the people of Birmingham.”

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