Agenda item - Member Involvement

To consider the following matters raised by councillors:

(a)          Petitions: to receive any petitions submitted to the full Council or at the meeting itself;

(b)         Written Questions: to consider any written questions;

(c)          Letters: to consider any letters;

(d)       Notices of Motion: to consider any Notices of Motion referred from Council or submitted directly to the Committee.

33.1    Councillor Sykes read the following question:

“The i360 ceased operating as a visitor attraction in December 2024 when the company filed to enter administration. Financial details concerning options and liabilities are kept hidden from public and member scrutiny, ostensibly because they immediately concern a private company. Does this committee consider that it needs better sight of options and potential future additional liabilities associated with the i360, exercising the Council’s rights as a creditor, as these options and liabilities are likely to impact on our council, and in terms of scale may exceed our external auditors’ reporting threshold concerning ‘triviliality’?”

33.2    The Chair provided the following reply:

“As a UK company, the i360’s accounts are lodged with Companies House as for all companies. Its external auditor is Kreston Reeves LLP. Please see the .gov.uk website: BRIGHTON I-360 LIMITED filing history - Find and update company information - GOV.UK. The council has no ability to publish unaudited information from a private company. The last audited accounts are to June 2023. The council understands that it is unlikely that accounts to June 2024 or later will be posted as the company insolvency process (Administration) has now taken precedence.

I am informed that the council has provided information about the impact on its finances through numerous press releases, freedom of information requests and publicly available budget setting and budget monitoring reports to Committees, Cabinet and Full Council. Some information about the debt and ongoing financial impact has therefore seems to have been provided.

In summary, the i360 company owes the council £51 million under the terms of its financing agreement. However, this includes commercial terms and a Coast to Capital loan. The underlying loss to the council is actually £32 million, being the sum owed to the government for the underlying loans.

The cost of servicing the government loans is £2.2 million per annum until maturity in 2041. Due to the i360’s inability to make full repayments and to allow it to remodel its business, the council reduced their repayment requirement to £1 million per annum until further notice as approved by Full Council in February 2023. Further budget provision of £1 million per annum is therefore required from 2024/25 to fully service the government loan repayments (Minimum Revenue Provision).

In terms of options, I’m informed the council’s only direct option would have been to exercise its ‘step in’ rights allowing it to either:

i)        Find an alternative operator. However, I’m told no operator would have taken the business on with the debt. This scenario would therefore have resulted in the same loss with the added risk that the council would have taken over liability for redundancy costs, payments to other creditors and legal costs to exit the business if an alternative operator were not found.

ii)      Take over the direct running of the attraction. However, the Council’s administration saw that there are many reasons why this was not a viable option including:

-          The council would have had to commission commercial expertise and appoint a commercially experienced management team to remodel the business. This would be at significant expense with no guarantee of success given that the i360 company had commercial expertise on its board of directors and had engaged commercial consultants over the last few years.

-          The venue needs significant investment to change the business model and remodel the venue but again, with no guarantee of success. The i360 company was not able to raise further commercial finance and the council is felt to not be in a financial position to take such a risk given its severe financial challenges. Regarding the latter point, the council has had to make savings of £175 million since 2014 when the i360 decision was made. The i360 debt is not therefore the substantial driver of the council’s financial challenges which have been caused by reducing government grant funding and significant growth in social care and homelessness demands. The main advantage of sale in administration is the hope that a new operator will purchase the business unencumbered by the debt and therefore willing and able to invest directly or raise finance for investment to make the site a success for the area and city.

-          Very significantly, the administration saw that the council would have had to take over the staff, running costs and other liabilities of the business. Staff would be entitled to local government pay, conditions and pensions, immediately increasing costs significantly and leaving the council liable for any redundancy costs for the restructuring of the staffing. Other creditors including HMRC, business suppliers and the landlord of the site would have had claims on the council which, as a large public authority, could not be waived or disregarded. It would also be paying the full business rates and would lose 50% of these to government.

-          There would also be substantial legal costs in effecting the transfer of the business.

These options were discussed in previous committee reports as the i360’s financial performance deteriorated, particularly the Special Policy & Resources Committee on 27 February 2023. They were dismissed for the same reasons with restructuring of the i360’s financing arrangement the only potentially workable option while it remained cash solvent but recent events meant this was no longer a viable option.

The accounting treatment of the government debt repayable in respect of i360 loans has been tested with the external auditor in previous years and is in line with the council’s approved repayment plan (known as MRP) and is not expected to change significantly

On a final note, I would like to remind us that as a visitor economy, it has always been vital for the city to continually reinvent and up its offer. The Victorians built two Piers, Madeira terraces, the Volks Railway and even the fabulous Daddy Longlegs. The i360 was conceived as an attraction, but also unlocked significant investment in the redevelopment of the Sea Front area.

I feel it is a great shame that the i360 has faced the challenges that it has, but who could have predicted the calamity of Brexit and the way COVID would alter behaviour across the whole of the hospitality and visitor sector? So, it is heartening that a new operator now sees a future for the attraction and is willing to give it a go.

I think that we all need to now get behind the i360 and help it succeed for the city.

Thank you again for your question, Councillor Sykes.”