business

Capita paid £23m dividend from taxpayer-funded Service Birmingham contract

A total of £23 million was paid to the private firm last year from the controversial deal with Birmingham City Council, up from £8 million in 2012

Service Birmingham

Taxpayers funded a £63,000-a-day dividend for Capita last year through the Service Birmingham contract – despite the city council’s dire finances.

A total of £23 million was paid to the private firm last year from the controversial deal with Birmingham City Council, up from £8 million in 2012.

Service Birmingham said the rise in dividends was down to previous years’ profits but city MP Roger Godsiff said the contract for IT, call centre and pay roll services is an “egregious misuse of Birmingham citizens’ public funds”.

The rise in dividends for 2013 was revealed just days after the city council announced it would be cutting 6,000 further jobs in the next four years, making the workforce about a third of the size it was in 2010.

Coun Ian Ward, deputy leader of the city council, who stepped down from the Service Birmingham board last year to renegotiate a £20 million reduction in the agreement, accepted the dividends were too high.

He said: “I agree that figure is too high and that is why we have renegotiated the contract with Service Birmingham.

“We have to remember that the existing contract was negotiated by the previous Tory-Liberal Democrat council and we are renegotiating because we agree that the mark-up that they are charging us is too much.

“We have negotiated a different way in which profits will be distributed in the future.”

Service Birmingham accounts filed with Companies House for 2013 show an interim dividend of £12 million and a final dividend of £11 million were paid to Capita, representing an 187 per cent rise.

Coun Ward (Lab Shard End) said the sudden spike may be down to some of the previous year’s dividend being included in the 2013 accounts, but accepted the cost to the city was too high.

The accounts showed that turnover fell by 13 per cent, or £16 million, to £107.4 million as a result of the end of some projects like business transformation and the Library of Birmingham.

However, pre-tax profits only fell by 7.7 per cent, to £19.7 million, which equates to more than £54,000 a day.

Coun Ward said the council had negotiated hard to secure £20 million savings to the contract, which runs for another seven years, and they will show in future accounts. That will see call centre operations brought in-house, which currently account for about £12 million of Service Birmingham income, Coun Ward said.

The accounts also reveal that £36 million worth of goods were purchased by Service Birmingham from fellow Capita firm Capital Business Services. Coun Ward said this was something he had clamped down on in negotiations with the company.

He said: “They will have to demonstrate to us that that is competitive. In the negotiations there is more flexibility for the council to purchase certain services elsewhere.

“The contract renegotiation that we have now done represents significantly better value for the people of Birmingham.”

The accounts show that, despite cutting back on services, the total number of employees remained at about 800, while net assets dropped from £10.7 million to £2.8 million across the year. This comes amid a time of unparalleled gloom for the city council’s finances.

Earlier this month, council leader Sir Albert Bore said forecasts suggested there would be just 7,000 full-time staff by 2018, accepting whole services would have to be discontinued.

Post columnist David Bailey, professor of industrial strategy at Aston Business School, called for the contract to be market-tested, and said be believed it should already have been cancelled.

He said: “If the contract had been cancelled in 2012, at my estimated cancellation cost of £25 million, then there would actually have been a net in-year financial benefit for the council given the £28 million saved.”

Meanwhile, city MP Roger Godsiff has hit out at the Service Birmingham contract for its “outrageous” cost to taxpayers.

Mr Godsiff (Lab Sparkbrook and Small Heath) has written to the Service Birmingham chief executive Stewart Wren to express his outrage.

He said: “I can see absolutely no justification for this. It is utterly outrageous that money from the pockets of Birmingham taxpayers – who are facing a massive cut in council staff and services – goes to subsidise the running costs and profits of Capita.

"This seems to me to be an egregious misuse of Birmingham citizens’ public funds, which should be spent on public services for the city and not on further fattening Capita’s shareholders.

“It is particularly unfair given the amount of correspondence I have received from distraught and seriously ill constituents who have been waiting months for Capita to bother to carry out an assessment for their claim for disability benefits, many of whom are now facing serious financial problems because of these delays.”

In his directors’ report, Mr Wren said the renegotiation of the contact would deliver “significant savings” from April 2014, including when its call centre transfers into council hands on November 1.

A spokesman for Service Birmingham said: “The joint venture has been a success, delivering value and saving money. For example, in supporting Birmingham City Council’s business transformation project, circa £600 million of cashable savings will be made by March 2017.

“As a joint venture, Birmingham City Council and its citizens share the benefits resulting from the partnership with Service Birmingham.

“Capita is working with the council to ensure that Service Birmingham continues to deliver valued services in the most cost effective manner.

“The dividend paid in 2013 is not fully representative of the in-year profits. It represents the actual dividend payments made within the 2013 calendar year but represents profits not only generated in 2013 but also prior years. This dividend has been paid as required after all taxation has been accounted for, and after any benefits generated for the council.”

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