The effect of no grant funding

[Annex 3 of the Millennium Libraries Project Overview]

Section A of the proposal makes the case for Millennium Commission grant funding. Without it, what will happen?

If local authorities try to fund the programme, the capital funding they need to find will increase from £89m to £139m. Adding the extra capital charges takes the overall figure they need to £159m. At £37k per library, this is a steep figure for them to consider.

If the private sector try to fund it all, although their need for capital is less than for local authorities because they get net revenue earnings, the private financing requirement increases without grant funding from £43m to £113m. The profitability of local library operations is in principle unaffected, but the profit is soaked up repaying the higher capital charges and investors would lose their money.

So the private sector will not back the Millennium Libraries project as described without grant funding. But they would consider other options.

Taking the average local authority with 20 libraries (4 of them large, 7 medium, 8 small and 1 very small), what happens very much depends on the level of income. Consider three scenarios based on income realised by the average terminal:

• The first, £4 per terminal per hour, is the optimistic case suggested by market forecasts of what might happen. The private operator would aspire to this.
• The second, £2 per terminal per hour, is the low risk case proven by current experience which the operator would rely on as its baseline prediction.
• The third, £1 per terminal per hour, is approximately what libraries have achieved under their own management to date.

The attached chart shows what will happen for each size of library, aggregating across the local authority. At £4 the large and medium libraries are profitable. At £2 only the large libraries are profitable. None are profitable at £1.

These projections are based on the table that follows. The main costs are staffing and communications which are more efficiently used as size increases. Thus income varies according to size twice as much as cost. Provided there is sufficient profit, the loss making libraries would be subsidised by the profitable sites.

As a rule of thumb, libraries which can justify more than 10 terminals will probably be profitable. Those with less will probably not be.

We can therefore foresee that, without the Millennium grant, the private sector will only go for the larger libraries, say the top 30%.

© Information for All
For questions or comments, please contact informall@la-hq.org.uk
URL:http://www.ukoln.ac.uk/informall/bid/directors/dempsey-lorcan.html
Last revised 13th November 1996

Website by Sarah Ormes and Isobel Stark of UKOLN