£2.6 Million Funding Gap Linked to Former Scarborough Council Building Purchases

North Yorkshire Council has had to reallocate £2.6m of funding to manage a shortfall related to property acquisitions made by the former Scarborough Borough Council.

The issue centres on the purchase of Pavilion House and the former Comet building in Scarborough.

The two buildings were acquired by the former council back in 2021 with the expectation that they would be redeveloped using government cash from the levelling up fund as part of a fuller development of the station gateway area. However, this additional funding "has not transpired".

North Yorkshire Council's Director of Finance - Gary Fielding - says the cost of the £2.6 million acquisition has been charged to the Scarborough gateway towns deal fund when in reality the buildings are not part of that project.

"Scarborough Borough Council purchased Pavilion House and the then Comet building, both of those buildings were acquired with a view to them being used for further development.

As it now transpires the cost of Pavilion House and the Comet Building have been charged to the Scarborough Station Gateway Towns deal fund. Now that can't really happen because they're not an integral part of this particular project.

The thinking from Scarborough, as I understand it, was always that it could be funded through the levelling up fund if it was secured, if not borrowing could be deployed."

Gary Fielding says the buildings were purchased with a view to future opportunities rather than as a core part of the Station Gateway scheme.

"So Scarborough Council took the decision opportunistically to purchase those buildings with a view to them being a useful part of development at a later stage. 

It was part of the bid for levelling up. To try and have a single public sector hub in Pavilion house and the Comet building, I think was part of the fab lab and the diagnostic centre for the NHS.

So that was what it was bought for. So in a sense it's never been part of that towns deal that was agreed. 

So it, I think a better way to think of it is just been incorrectly coded against that scheme."

The decision to charge the cost to the Station Gateway fund has significant implications. The budget for this Gateway scheme is stated as only £6.68 million and the £2.6 million acquisition costs represents a "big chunk" of this budget. 

Gary Fielding says that the Scarborough Station Gateway project won't be able to fulfil its objectives if it's having to carry the £2.6m building costs. Council officers have recommended using existing council funds to plug the gap.

"It's a bit confusing, but essentially, Scarborough Station Gateway will not be able to fulfill anything like its objectives if it's having to fund 2.6 million pounds for the acquisition of these two buildings.

So this resolves the issue and free's the money back up from Scarborough Station Gateway to give it its gross budget back of just under 6.7 million pounds."

Questions have been raised about how the situation arose. Councillor Mark Crane questioned the value of the buildings.

"It seems to me that we own a building we are now being asked to pay 2.6 million pound for, and frankly, if you came to me and said, you want those two buildings for 2.6 million pound, I'm pretty sure I know what my answer would be, and it wouldn't be yes. 

But in essence, somewhere either the Towns Deal Board or Scarborough Council, or somebody's paid for these buildings, we now own them and been asked for 2.6 million pounds to pay for them.

I'm frankly lost about the whole thing. 

And now we've got into a position where we need to find 2.6 million pounds to pay for a building we already own."

Councillor Simon Myers suggested that the value of the buildings wasn't currently as important an issue as the potential damage to the Station gateway project if the funding issue was not resolved.

"It's easy for us to get slightly distracted by the question of what was the point of buying these buildings? Are they any good? 

The bottom line is they've been bought, it's been posted to the wrong account and doing nothing about them jeopardizes the station Gateway project which we mustn't do."

Councillor Greg White explained that the proposed solution to resolve the issue involves making the required £2.6 million available from the Council's "Capital Receipts Unapplied Reserve" to allow the gateway scheme to continue as originally planned.

"I was wondering whether there was an option to leave them in the Gateway project, and basically that isn't an option. They were parked there temporarily. There was an expectation of getting more money from the government and a belief that if we didn't get the more money from the government, Scarborough, we then just borrow the money in order to pay for them.

We now say that Borrow the money isn't the best thing to do. We'd rather take it from reserves."

Officers had stated that using reserves is seen as preferable to borrowing. 

Gary Fielding said that despite the proposed solution, there is reluctance to deploy funds from reserves, as they would ideally be used for other purposes. 

"I don't wish to have to do this because this is deploying funding that we would want to use for other purposes. 

So this is a making sure that we are clear enough around all of those legacy projects and we have enough transparency around it. 

That's what we need to do because I think there's been a presumption that this will get cleared out at some point, but without anybody making that clear, then it needs to be cleared out.

So there's some fundamentals in that. Otherwise we could find that there are other ones of these."

The Scarborough Station Gateway Project itself has already faced challenges, with the original scheme split into two phases due to budget constraints. Delays in decision-making and obtaining necessary consents from Network Rail and Trans Pennine Express are highlighted as risks. 

Phase 2 of the project is currently on hold pending proposal consideration and funding availability.

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