Case Study

North East Music Co-operative Ltd

Background

When Newcastle City Council found themselves facing huge budget cuts in 1995, the peripatetic music service looked very vulnerable. Redundancy notices were issued to all the music teachers employed in this service, to take effect from Easter, 1996. The Musician s Union approached Economic Partnerships in the North East for assistance in April 1995, but the outlook seemed bleak.

The options

The teachers, as employees of a local authority, were all entitled to redundancy and were on good terms and conditions. A new company formed to take over the service would have been over-burdened by taking on these obligations. Accepting the redundancy payments and then re-forming as a group of self employed musicians to offer the service was the only way forward. A marketing co-operative, with Mutual Trading Status (MTS) provided a legal structure which combined the tax advantages of self employment for the teachers and corporation tax exemption for the company. MTS was negotiated with the Contributions Agency and the Inland Revenue before the company started trading.

The process

The service had previously been provided free at the point of delivery, by the local authority. The new co-operative would have to charge schools for the service in future. Detailed research into what other peripatetic music services around the country charged, together with questionnaires to all the schools in the Newcastle area formed the basis of the business plan. The local authority was persuaded to delay the redundancies until September, 1996 to give more time. Teachers needed to be kept informed and the conversion team worked closely with their business advisor to conduct the market research and develop a marketing, finance, personnel and organisational plan. The timescale for all these activities was five months and included negotiating with statutory bodies like the Inland Revenue and registering the company. Training days were also arranged for all the participating teachers on the operational practice of the Co-operative, its quality standards and customer care. Basic training for teachers on managing their tax affairs as self employed people was also arranged.

The raising of the finance

Newcastle City Council, which had previously funded the service 100%, paid 16% of the budget to the new Co-operative as a block grant. A grant from Tyneside Business Start up Support was accessed to fund capital costs and office equipment. Revenue was raised immediately, by invoicing schools at the start of each term.

After the conversion

The newly externalised service has been very successful - 40% more children are receiving music tuition than under the previous system. All 18 jobs threatened when the budget cuts were announced have been saved and ten new music teachers have joined the co-op, in addition to the office administration posts created, whilst the local authority has made a significant saving to its annual budget.