Briefing note for councils – the impact of rising energy costs on the leisure sector

This briefing note includes options and examples of practical support councils could offer to providers to help ensure the viability of facilities. It builds on the LGA advice note “Options for councils in supporting leisure providers through COVID-19”.

We are working with ukactive to monitor and understand the impact of rising energy costs to the leisure sector and feeding this into our discussions with the Department for Culture, Media and Sport (DCMS) and Sport England.

If you would like to share how this issue is impacting on your service and communities, please email [email protected]. We are particularly keen to receive projected increased costs for rising energy bills.

Please note that this is not guidance or legal advice. Each council will need to consider its own options, including taking legal advice where appropriate.

The sustainability of public sport and leisure facilities and services is key to levelling up the health of the nation, tackling health inequalities and driving both local economic and social value to communities.

The COVID-19 pandemic has had a devastating impact on public sport and leisure services and the economic, health and social value they generate. The loss of income from long periods of closure, combined with high monthly maintenance costs and systemic issues has significantly affected the viability of the sector. Whilst the Job Retention Scheme (JRS) and the National Leisure Recovery Fund (NLRF) provided a lifeline during the pandemic leisure providers were unable to secure government support beyond this and both support schemes have now ended.

Throughout the pandemic the support from councils and leisure providers has been fantastic, with both working in partnership to stabilise the service. This was achieved through a range of measures provided by councils to their leisure provider (both in-house and externally commissioned) and from leisure providers making full use of any financial reserves. NLRF evaluation puts this subsidy at around £125 million from councils, and a similar figure from provider reserves. These resources are now exhausted, leaving a shortfall between the earned income that used to cover provision of the service and extra income which could be reinvested in other public services.

Local government itself continues to face substantial inflationary, COVID-19 related, and demand led pressures making 2022/23 significantly more challenging for councils than initially estimated when council core spending was increased in the Spending Review. These rising costs cannot be met by increases to council tax alone, especially as councils try to balance their own financial pressures with the steep increase of living costs to households.

Although the picture across the country varies, operators are now beginning to see a positive return to leisure centres with some reporting 70 per cent recovery rates compared to 2019/20 participation levels. In many cases the strength of recovery is enabling providers to resume the payment of management fees (where they apply) and to repay loans and other COVID-19 related funding support to councils. However, at a time when recovery is beginning to gain momentum, leisure providers are being hit hard by rising utility costs and the recent cost of living pressures on households which will adversely impact consumer confidence, throughput and participation rates. This makes it a pressing issue for councils and leisure operators to address and review existing arrangements and options to ensure the viability of the sector.

Leisure providers (both inhouse and externally commissioned) are being adversely and disproportionately affected because leisure centres have high energy demands, especially for those facilities with swimming pools. Energy costs are typically a leisure operator’s second highest cost after staffing costs. This is further exacerbated because the leisure estate is ageing and energy inefficient, with research showing two-thirds of public swimming pools and sports halls are in need of replacing or refurbishment, and ageing assets are contributing up to 40 per cent of some councils’ direct carbon emissions.

Leisure providers are trying to mitigate the costs, but they are unable to budget forecast for gas and electricity costs because the price is fluctuating erratically. This is particularly impacting providers who buy electricity and gas supplies on a day ahead rate. For those contracts that contain inbuilt energy benchmarking, the figures are insufficient when compared to the cost in real terms. Providers on a fixed price contract have some short term protection, but the risks to providers and councils are being stored up for when the fixed element ends, reportedly to be in the autumn for many. Prices could stabilise by then, but they would need to drop significantly to reduce the risk. Anecdotally, some suppliers in other sectors are not honouring fixed rate contracts, with wholesale gas providers currently reluctant to offer contracts due to the volatile situation.

Mothballing sites was a viable option during the pandemic because providers had access to the JRS to cover the costs of furloughing staff, but the scheme has now ended. While mothballing sites can help to reduce the costs of utilities they still require gas and electricity to keep the site operational for when they are brought back into use. In addition, without the JRS to cover furlough costs, it could result in redundancy costs for staff who cannot be redeployed. Mothballing sites also risks displacing people living in more deprived areas, widening the inequality and health gap further.

Leisure providers face eligibility issues in accessing funding to improve the take up of energy efficient measures, such as the public sector decarbonisation scheme, and the financial return of these measures are longer term and does not address the immediate issue. Councils may be able to include leisure centres in their own decarbonisation and energy efficiency proposals, where that is not already happening.

Example: Gas and electricity fluctuating prices

In April 2021 electricity was 14.2p kw. In mid-March it peaked at around 50p kw; currently it’s 30p kw. At the current level it is 211 per cent above April 2021 levels.

In April 2021 gas was 2.32p kw. In mid-March it peaked at 21p kw; currently it’s 11p kw. At the current level it is 474 per cent above April 2021 levels.

For one local authority contract with four sites, this could result in between £70,000 and £130,000 in unforeseen additional energy costs being incurred per month, based on figures cited in the above example.

Many leisure operators are already operating on a budget deficit because of COVID-19.

Leisure services run on low margins in order to ensure inclusivity, accessibility and cater for wider local need. However, we have received significant anecdotal information from councils and providers that the energy issue is now reaching a point where it is driving decisions about facility closures or reduced opening hours. This will negatively impact on the health and wellbeing of communities, the recovery and future viability of the sector and a loss of income for councils, making this issue more than a cost saving exercise.

Leisure providers may be private operators or trusts (registered charities, societies or community interest companies) or in house services. They operate a range of services and facilities on behalf of councils. Many of the sites they operate are leisure centres and swimming pools, but in some localities they also operate libraries, theatres, museums, pitches, golf courses, ice arenas, beach fronts, parks and heritage buildings. Therefore, the impact of provider failure could be felt across a range of council services, including statutory services like libraries and across the arts and heritage, which contribute to local economies and are a source of income for councils.

Leisure services make a vital contribution to the mental and physical wellbeing and social connectedness of communities. Public sport and leisure services are integral to COVID-19 recovery, supporting communities to recover from the pandemic, relieve pressures on NHS and social care services, and helping to level up the country across multiple policy areas.

Leisure operator fails

When a leisure operator running services on behalf of a council begin to fail, the council faces a difficult choice. It can either allow the operator to fail, potentially bringing any facilities owned by the council back in-house as a means of keeping them open, or it can choose to support the operator.

Either approach will involve costs to the council. The cost of supporting a trust with energy costs will vary according to the particular local circumstances and the approach of the council. Bringing a facility back in-house is likely to involve a far wider range of costs, including direct responsibility for utility costs. An example of these costs include:

• project management, legal, IT, marketing and other costs related to bringing the service in house
• utility costs
• maintaining facilities
• TUPEing* staff,
• pension liabilities
• potential redundancy costs
• potential recruitment costs to secure expertise
• re-tendering the services at a later date if applicable
• potentially replacing the facility in the long term since recent research shows that nearly two thirds of leisure centres are outdated and in need of urgent new investment.

*Transfer of undertakings (protection of employment)

There is also a significant cost to the community, as the services are likely to remain closed until arrangements can be put in place to reopen. This would also result in a loss of income during this period. More information on this can be found in the LGA guide to emergency insourcing of leisure services.

Impact on wider council priorities

There are a number of wider council-led priorities and statutory duties that are reliant on leisure facilities. For example, upper tier and unitary councils have a statutory duty for public health. This includes the improvement of the local population’s health by contributing to healthier lifestyles and mental wellbeing, and reducing health inequalities, obesity rates and physical inactivity. Leisure services play a key role in this agenda through direct initiatives such as exercise referral schemes, social prescribing and through their broader contribution to the health of the community. Furthermore, schools cannot deliver the statutory learn to swim and water safety curriculum without public swimming pools, with 72 per cent of primary schools relying on publicly provided pools.

Although not statutory, councils play a strategic role in determining and driving local economic priorities to increase economic growth, job creation and make local areas better connected, attractive places to live and work. Repurposing town centres to bring a better balance between housing, leisure, public services and cultural hubs, active travel routes and retail is one example of how councils are doing this. Thus, in the longer term the absence of a leisure infrastructure will have an adverse effect on the council’s progress for its public health and local economic priorities.

Leisure centres, especially those with pools, represent a very large percentage of the council's typical carbon footprint, making these facilities a priority for decarbonisation programmes. However, progress by leisure providers on green initiatives may need to be deprioritised in response to rising energy costs, which will affect councils targets to reduce carbon emissions.

Site closures

Cost saving measures that could be implemented to help mitigate the risks of provider failure and protect public leisure and sport services throughout the pandemic have been implemented in most cases. This includes the closure of sites that were old, in need of major repair works and not fit for purpose. Any further site closures that are implemented in response to rising utility costs could potentially result in sites that are in operable condition and financially sound closing, which would affect both communities and income levels.

We recognise that there are many calls on council resources. The following list is provided to help councils identify their options to support their leisure provider. Not all options will be appropriate in all council areas and will depend on local circumstances and contracts. We encourage you to build on the relationship developed with your leisure provider during the pandemic. This will help to identify what will work best for them and, in the long-term, your communities in support of your council’s public health, decarbonisation, and levelling up and economic strategies.

The following actions will help to support a partnership and solution focused approach across councils and providers:

• Holding regular review meetings with the operator to monitor and jointly manage the issue: Due to the unpredictability and instability of utility costs it may prove more fruitful to look at the issue on a monthly or quarterly basis.
  
   
• Transparency: Leisure operators to be fully transparent about the true cost of utilities with their council partners.
  
   
• Work with providers to agree operational and contractual flexibility to help reduce and control utility costs. This could include for example:
  • operating parameters: i.e. pool temperature / building temperature. Guidance from the Pool Water Treatment Advisory Group contains useful advice on how to help reduce swimming pool energy costs may help to support these discussions.
  • consider and support reduced opening hours where required
  • consider reviewing pricing
  • reduce costly programmes and services if not a key priority
  • operational freedoms in terms of some non-viable/low priority contractual requirements
  • mothballing facilities: may help to reduce costs but will still have associated costs involved.
    
     
• Review current arrangements around payment of the management fee to the council (where applicable): Consider using the management fee to stabilise utilities and stabilise providers to ensure service continuity.
  
   
• Consider renegotiating the repayment terms of loans to enable providers to defer COVID repayments to later years when they are more stable.
  
   
• Consideration to be given to adopting a similar approach as recommended in PPN 02/20 issued in response to the COVID-19 pandemic.
  
   
• Work with the operator to include leisure projects as part of decarbonisation projects and/or council investment in energy saving projects.

Briefing for local government: Securing the future of Public Sport and Leisure Services: Key messages on the contribution public sport and leisure services make to multiple policy areas and the challenges and opportunities.

A guide to the emergency insourcing of leisure services: This is not intended to instruct or encourage councils to bring leisure services back in-house but instead provides appropriate tools and considerations to support the process.

Key facts:

• Councils are the biggest provider of swimming pools in the country. In England they are responsible for over 1,000 leisure facilities with publicly accessible pools.
• 85 per cent of young people learn essential swimming and water safety skills in a public swimming pool.
• Swim England research predicts that 1.88 million children are estimated to have missed out on school swimming lessons due to COVID-19. Of this an estimated 532,000 of these children come from ethnically diverse communities and 411,000 live in the most deprived areas in England.
• Exercise referral, social prescribing and 66 per cent of cancer pre/post rehabilitation services are delivered in public leisure facilities.
• Young people’s participation in sport improves their numeracy scores by 8 per cent on average above non-participants. Underachieving young people who take part in sport see a 29 per cent increase in numeracy skills and a 12 to 16 per cent rise in other transferable skills.
• Over two-thirds of public swimming pools and sports halls are in need of replacing or refurbishment. Ageing public leisure assets contributes up to 40 per cent of some councils’ direct carbon emissions.