Councils do have right to give cash backing for venues – government

LOCAL authorities are permitted to assist in the development of new leisure venues without falling foul of state aid rules, according to the Scottish government.

It emerged this week that a second complaint against Mareel, the proposed cinema and music venue which is due to begin construction at Lerwick’s North Ness this autumn, arrived with the European Commission on 22nd July, five days after the first complaint was received.

In response, a Scottish government spokesman told The Shetland Times: “Measures to promote regeneration or provide leisure services do not always constitute state aid. EC communications and case law recognise this and can offer scope for public authorities to intervene directly in development of premises. We understand that there will be no operational subsidy to the café/bar facilities.”

The council has committed £5.2m in grants towards the cost of building Mareel, with the remaining funding coming from a £2.1m lottery grant and other outside sources, some of which are still to be confirmed. Shetland Charitable Trust has agreed to underwrite any funding deficit in running costs, but only for the first year the venue is operational.

The Commission again saidit was unable to reveal who had made the complaints or the nature of their grievance as the complainants had chosen to remain anonymous. The Commission’s representative in Scotland, Neil Mitchison, said the EU was duty-bound to investigate any complaint unless it was “manifest nonsense” and that it would typically take two or three months to do so, but that the council was under no obligation to halt the project while the complaint was being examined.

Meanwhile, debate over the project was ratcheted up another notch as two anti-Mareel councillors, Jonathan Wills and Gary Robinson, said that whoever complained to the Commission over the cinema and music venue ought to identify themselves “not least so that the majority of councillors, and the majority of the public whom we represent, may publicly congratulate them”.

In a statement issued this week, Shetland Arts said it had still to receive any formal notification of the state aid complaints but it pointed out that if the two complaints (it has been suggested there may be as many as five in all) were of the same nature they would be dealt with as one.

Shetland Arts stated: “In the interests of clarity and perspective it should be noted that if the nature of the complaints received are regard[ing] the café bar area within Mareel, then these complaints refer to less than nine per cent of the floor area of the building. This represents less than an estimated eight per cent of the project costs given the café bar is a relatively cheap area to equip compared to the high tech music hall, recording studio and cinema spaces.”

The trust said that some of Mareel’s funders and potential funders were not “state” and that no funds from a state body would support the running costs of the café bar. “In the unlikely event of a ‘state aid’ complaint being upheld funds that may be requested to be returned only relate to the proportion of state funds that contribute to that eight per cent of the building costs.”

A Commission source said that the SIC appears to have accumulated a thorough knowledge of the workings of state aid following a spate of complaints in recent years and it would have been “surprising” if the council had proceeded without being very confident that their support for Mareel did not contravene state aid: “They know the rules well.”

The source also suggested that although the rules could be interpreted in a number of different ways, the cinema and music venue is likely to be exempt from state aid under the terms of article 87 of the European Community treaty because Mareel would have no impact on other member states.

But Dr Wills said that while he “deplores” the anonymity of the complaint, it is “quite clear that it’s against the law”. Mr Robinson told The Shetland Times he feels there are “many grounds under which Mareel could fall foul of state aid” and that it was “very late in the game” to now consider whether state aid was a problem, adding it was regrettable that the licensed trade had been “ignored” for so long.

He said: “If you think the local licensed trade have been voicing concerns for two, maybe three years, not to have investigated at least whether the business plan met UK, let alone EU, competition law, is a massive oversight on behalf of Shetland Arts.”

The letter from Mr Robinson and Dr Wills described the business plan for Mareel as “weak and wobbly” and claimed that the revenue budget has an “addiction to alcohol sales”. The plan to balance the budget for the venue envisages selling £378,000-worth of alcohol, snacks and other drinks across the bar, 44 per cent of its total revenue.

Fears over the viability of such projected sales and concerns that the project could become a drain on the public purse could be heightened by figures leaked to the media this week showing losses made by existing public cafés and bars, totalling an estimated £147,000 in the last financial year.

Despite much higher turnover than originally forecast, figures for the Hay’s Dock café and restaurant at the museum, based on the first 11 months of the year, indicate an anticipated loss – not including overheads – of £45,000.

During 2007/8, Shetland Recreational Trust’s bar operations broken even on sales of £39,000, while the trust made a loss of £23,000 on catering sales of £310,000, with the loss met by a subsidy from the charitable trust.

Direct costs and income saw the Blue Rock Café within Islesburgh Community Centre record a loss of around £65,000 in 2007/8, on sales of £224,000. The café within Islesburgh House was recently closed due mainly to difficulties in recruiting staff. The Bonhoga Gallery café in Weisdale lost £14,000 on sales of £40,000.

Lerwick North councillor Allan Wishart said he was keen to see the situation with Mareel and state aid resolved before the development committee meets later this month to decide whether to approve a further £965,000 in council money towards the estimated £9.3m project, but that he was also worried about the consequences of serial state aid complaints in a range of spheres which the Commission must consider, even if they turn out to be vexatious.

He said: “If this comes to the development committee and hasn’t been resolved, can we approve something that might be ultra vires, outwith the law? I wouldn’t like to be doing something that turns out to be unlawful in some way or another.”

The council reaffirmed its commitment to the venue – of which it has already spent over £750,000 – in June after a casting vote by convener Sandy Cluness but the letter from Mr Robinson and Dr Wills stated that “Mareel is not a wonderful project and it’s by no means a done deal”. They argued that extending and modifying the Garrison Theatre is the most cost effective way of providing a cinema and the best way to get a large, 1,000-seater auditorium (as opposed to the 600-750 seat music hall proposed for Mareel) is to share it and its cost between Shetland Arts, Shetland College and the new AHS. “This basic appraisal of the options wasn’t done properly and that has caused much of the trouble and confusion,” they wrote.

Mr Robinson and Dr Wills again called into question the convener’s “democratic” use of his casting vote in favour of “this overblown and overgrown project” which has “caused outrage throughout Shetland”. They wrote: “We are sorry that he and a minority of eight of our 21 other colleagues voted in June to ignore financial reality. We deplored the Convener’s comment in that debate, to the effect that business plans didn’t mean much anyway.”

Mr Cluness said he did not want to be drawn into the latest war of words over Mareel and that the state aid complaints should have no bearing on the development committee’s upcoming decision. “I just have no interest in that aspect of it at all,” he said. “As far as I’m concerned the building is going ahead. I took a stand when the matter was discussed and the result was as it was. That’s the way democracy works in this country, if people are not happy then so be it.”

When asked whether he was worried that the state aid complaint could lead other councillors to vote against approving further funding for Mareel, Mr Cluness said: “If they are so easily led then that’s a pity but I think most councillors are strong enough to see that once you’ve made a decision then you’ve got to stick with it.”

Mr Robinson, however, said he wanted to correct a “myth” which had grown up that he was publicly threatening to overturn the council’s decision of 25th June, delivered by Mr Cluness’ casting vote. He said: “It’s a myth that I said there should be another vote on it, that’s something that I’ve never said.

There were four councillors away, four members of the licensing board, and it would seem to me that the convener ran the risk of being seen as taking political advantage of that. I still believe, and indeed it has been borne out, that there wouldn’t be closure without the convener winning the argument convincingly.”


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