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Birmingham city council on course to ‘terminate’ Capita contract

Birmingham city council on course to ‘terminate’ Capita contract

🕔11.Oct 2016

Outsourcing giants Capita could be stripped of a lucrative contract to collect council tax and business rates income for Birmingham city council.

The council cabinet is expected to agree next week to begin negotiations to consider options for terminating the revenues element of the Capita-Service Birmingham joint venture agreement.

Service Birmingham took over responsibility for the Revenues Service, collecting about £750 million a year in council and business taxes, on top of its main role as the local authority’s ICT provider five years ago.

If the contract is terminated, the council could take back in-house responsibility for revenues collection, or find an alternative provider.

An internal review of the Revenues Service performance was conducted by the council in June.

The review recommended further work to be undertaken with Service Birmingham “to ensure that the Revenues Service was delivering a service that both met the priorities of the council and achieved the contractual requirements”.

Service Birmingham put forward alternative proposals during July and August these were considered and it was concluded that they did not meet the current requirements of the council, according to a written report to be presented to next week’s cabinet.

The report continues:

Having now concluded this work it is recommended that the Strategic Director of Change and Support Services negotiate with Service Birmingham in order to evaluate the council’s contractual options for the termination of the revenues element of the Service Birmingham contract.

It is, therefore, recommended that the council should negotiate with Service Birmingham to identify the best option for the council in the termination of the revenues element of the Service Birmingham contract.

The report to the public session of the cabinet does not go into detail about exactly why the council wants to end its revenues collection agreement with Service Birmingham.

It does state, however, that by taking greater control, the council will be able to apply “flexibility and discretion” to the collection of debt owed by low-income customers and to prevent these customers becoming burdened with unmanageable debt.

The use of bailiffs by Service Birmingham to chase debts is understood to have caused widespread concern among Labour city councillors. There is also unease at what is seen to be the failure to chase firms owing payments on business rates.

The report continues:

Approximately £750 million of council tax and business rates per annum is collected within the scope of this contract and the maximisation of the taxable base together with the realisation of the collection of these taxes is vital to the ongoing viability of the city council’s budget.

In addition to this, how the council applies its policies in relation to the collection of business rates and council tax has a direct impact upon of the livelihood of both citizens and businesses within Birmingham.

Council leader John Clancy promised to cut the estimated £85 million a year the city pays to Service Birmingham and to deliver a more efficient service when campaigning to become Labour group leader a year ago. He has told colleagues that Capita is “on warning” to cut costs significantly.

While the potential loss of Birmingham council’s revenues collection service is relatively small fry to Capita, the prospect comes at a difficult time for the company. Capita shares crashed at the end of September following a surprise profit warning for 2016.

Andy Parker, Capita’s chief executive, blamed Brexit for “a significant downturn in our expectations”.

Capita, which employs 75,000 people and collects the London congestion charge and the BBC licence fee, said underlying profit before tax for the full year to December was expected to be in the range of £535 million to £555 million. Previously it was forecasting about £614 million.

Capita has also warned there is a high risk it will end up in a protracted legal dispute with the Co-op Bank, with whom it has a contract to process mortgages. Capita says it is owed money by the bank. The bank refutes the claim.

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