The proposals, benefits, drawbacks etc.

A place to discuss the issues relating to the proposed change in the national CTC’s structure.
John Catt
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Re: The proposals, benefits, drawbacks etc.

Post by John Catt »

Hi Jonty,
Jonty wrote: Can I ask if the loan from the Club to the Trust is at a commercial rate of interest why did the Trust not obtain a loan from a bank also at a commercial rate of interest?

Quite simply Banks borrow at low rates and lend at high. If the Trust borrowed at Commercial Rates, say 5%, the Club would have cash to lend back to the Bank at say0.5%. The Bank would love it, but I don't think it would make sense if you regard the Trust as being part of the CTC.

Jonty wrote:Why is the Club acting as a banker and providing a service which could be obtained from a bank? Surely in the present low-interest environment it would be sensible for the Club to hold on to its assets (cash in this case) and for the Trust to take out a commercial loan from a commercial institution - a bank - at a commercial rate of interest by mortgaging the National Office.


See answer above. In the present uncertain times holding any asset is to some degree risky. We could put the money in to shares but that would be quite risky IMHO and since we control the Trust I don't think we would avoid liability in any case.

Jonty wrote:Surely to make financial sense the rate of interest charged by the Club must be a subsidised rate rather than a fully commercial rate? In other words it's a "soft loan" provided by one body to another related body at a lower rate of interest than a true market rate. In effect it's basically a cross-subsidy the value of which is the difference between the interest rate charged by the Club and a fully commercial rate.


We can go for whatever rates we would like to negotiate between the bodies. it won't make a blind bit of difference when you get to the consolidated accounts.

Did you pick this up in my blog? http://witherthectc.blogspot.com/2010/02/question-re-message.html
"the cost of management and membership services supplied to the Club by the Trust was £1,290K. Basically this was for all of the activities that were carried out that would have been within the traditional remit of the CTC before formation of the Trust. All but 4 of the staff are employed by the Trust and the Offices are owned by the Trust, so you can see that very little happens under the auspices of the original CTC. The services provided by the Trust include administration, I.T., the website, campaigning, information, volunteer support, media relations, marketing and fund raising.

These cost are covered by a direct charge to the "Club" of £407K, which is the figure for services which are not covered by the current charitable objectives of the Trust. Any costs that can be deemed within the charitable objects of the Trust are left with it. The balance of £883K is met by the subvention (some refer to it as a donation) from the Club to the Trust of £453K together with the funds generated by the Trust of £430K
".


Regards,

John
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gaz
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Re: The proposals, benefits, drawbacks etc.

Post by gaz »

John Catt wrote:We can go for whatever rates we would like to negotiate between the bodies. it won't make a blind bit of difference when you get to the consolidated accounts.


The agreed rate is Bank of England Base Rate (currently 0.5%) but in the consolidated accounts it would make no difference if it was 10%, 20% or 0%. However telling the membership it was a commercial rate was disgraceful, even though it made no difference.

See my post above for links.
High on a cocktail of flossy teacakes and marmalade
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Simon L6
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Re: The proposals, benefits, drawbacks etc.

Post by Simon L6 »

John Catt wrote:
As I tried to explain in my blog during the earlier debate ........ the Club and the Trust are managed as one body so the financial flows are for practical purposes irrelevant.


John - thankyou. I think you've set out the case for keeping the Trust at arms length in one handy sentence. And your dismissing the Trust coming to the members for a quarter of a million quid as a thing of no importance is going to play brilliantly on the savethectc website. I can hear Greg sharpening his quill pen as we speak....

So - to recap. The Trust has been given a building that was worth £1.4million after Councillors were given all of fifteen minutes for consideration. A further amount, close on £400,000 was loaned. The Club then pays £30,000 a year to the Trust to rent part of the building that it gave the Trust. I suggested that the Trust is now after another loan of £250,000 because its income is going to fall off a cliff following the end of the Cycle Champions income stream - and you, John, appear to have confirmed this. So we're looking at about two million quid - although the National Office building is now worth a lot less than when we gave it away. Nice work if you can get it.

Here's how I see it. The Trust is going to get squeezed. It's in a declining market with only one major customer, and it faces increased and sharper competition from transport consultancies who are a) quicker and b) brighter. It's acting as a (not entirely honourable) middleman in the training business which again is going to be squeezed and in which, in any case, it has no special expertise. None of this looks good. Wouldn't it be quicker to just burn the money?
John Catt
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Joined: 21 Dec 2009, 6:08pm

Re: The proposals, benefits, drawbacks etc.

Post by John Catt »

Simon L6 wrote: John - thankyou. I think you've set out the case for keeping the Trust at arms length in one handy sentence. And your dismissing the Trust coming to the members for a quarter of a million quid as a thing of no importance....


I'm not saying the a quarter of a million is of no importance, but I regard the Club and the Trust as being the CTC - and this is what we show the outside world in our consolidated account. So that "within the family" it does not matter. It would appear that you would like to divide the bodies and have two separate organisations. I want one combined charity able to promote non competitive cycling in the UK to maximum effect. I think we already have enough separate cycling organisations.

Simon L6 wrote:So - to recap. The Trust has been given a building that was worth £1.4million after Councillors were given all of fifteen minutes for consideration. A further amount, close on £400,000 was loaned. The Club then pays £30,000 a year to the Trust to rent part of the building that it gave the Trust. I suggested that the Trust is now after another loan of £250,000 because its income is going to fall off a cliff following the end of the Cycle Champions income stream - and you, John, appear to have confirmed this. So we're looking at about two million quid - although the National Office building is now worth a lot less than when we gave it away. Nice work if you can get it.


I can't comment on what happened in the past. I only became a Councillor w.e.f. 1/1/10. I take things as I find them and try and work our the optimum solution. From what I have seen so far it would seem that it has always been acknowledged that contracts could end, so that people have been employed on that basis. I believe it should be possible to "down size" without a financial disaster if necessary. The main problem will be the lack of contribution to overhead from contract income that may reduce what we have available for the more traditional services. I think we would have been worse off (as a combined organisation) if we had not taken the contracts and we would have missed the opportunity to promote cycling.

If you want to get the Trust assets back within the direct control of Council (elected by the members as now) then we need to merge as proposed.

Simon L6 wrote:Here's how I see it. The Trust is going to get squeezed. It's in a declining market with only one major customer, and it faces increased and sharper competition from transport consultancies who are a) quicker and b) brighter. It's acting as a (not entirely honourable) middleman in the training business which again is going to be squeezed and in which, in any case, it has no special expertise. None of this looks good. Wouldn't it be quicker to just burn the money?

In which case we contract services so as to keep our costs within our income. We have already had to do some of this. It doesn't mean that we are facing a disaster. just problems, as I am afraid always apply though out life.

Regards,

John
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Simon L6
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Re: The proposals, benefits, drawbacks etc.

Post by Simon L6 »

John - you betray a fundamental misunderstanding of the position. The Trust's 'assets' are a building whose present value is probably under a million. The Trust owes the Club £388,000 and that's likely to increase to well over £600,000. Effectively the Club can lay claim to three fifths of the building, and not trouble itself with the liabilities of the Trust. If the Club sends the Trust a bill for Campaigning every year for the next two years the Club can regain the rest of the building. Control, but, again, no liabilities. The Trust can then thrive or fail (and you know which I think is the more likely) without inconveniencing the Members. End of misadventure.

If the Trust continues to prevail on the Club for money the service to members will be put at risk (it's not great now) and people will simply up sticks if an alternative comes along. Consider this...

third party insurance costs about £3.50 a member
the legal advice line can be had for free
the rides leaders insurance costs next to nothing
the mag costs just over £2 a member
campaigning costs about £3.50 a member
the administration of the membership service costs about £4.50 a member
RtR support and support for DAs is a tricky thing - skilled staff spend a lot of time shuffling paper, but I would say that the value of it is about £2 a member

So, correct me if I'm wrong, but a competitor could come in, do the membership thing efficiently, (spurning paper membership), do an electronic mag rather than a paper one, and provide a decent service for.......about twelve quid???
howradmichello
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Joined: 29 Nov 2010, 11:27pm

Re: The proposals, benefits, drawbacks etc.

Post by howradmichello »

I've been a CTC member for less than two years. I've voted no. I'm not convinced by the arguments made in favour of conversion. I'm concerned by the concerns raised here and elsewhere.

The heritage/purpose/meaning of the "Cyclists' Touring Club" seems a little at odds with the case for and implication of converting to a charity.

"It was established in 1878, originally as the 'Bicycle Touring Club', making it the oldest national tourism organisation of any description in the World, and was renamed the Cyclists' Touring Club in 1883."

(http://en.wikipedia.org/wiki/Cyclists'_Touring_Club)

I am a member for CTC as I might go on rides/sportives, am interested in cycling and related issues.

I support Sustrans (a charity) for very different reasons.
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Simon L6
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Re: The proposals, benefits, drawbacks etc.

Post by Simon L6 »

John Catt wrote:In which case we contract services so as to keep our costs within our income. We have already had to do some of this. It doesn't mean that we are facing a disaster. just problems, as I am afraid always apply though out life.

Regards,

John
I have no confidence that this will happen - see bridging loan above. And look what happened when the income from the Cycle Training Helpline dried up.
Jonty

Re: The proposals, benefits, drawbacks etc.

Post by Jonty »

Hi John
It seems to me that although the "loan" to the Trust may technically be a "loan" it is actually more like a grant. The rate of interest charged is not a commercial rate but more akin to a "peppercorn". As far as I'm aware the repayments don't include capital repayments and there is no term specified as to when the loan should be repayed.
So, in effect, calling it a loan may be technically correct but it is misleading and it certainly has not been provided at a commercial rate of interest.
As you have said the reason for doing this was that the Club "choose to put it in the accounts as a loan so that if there was ever a need the Club could get the money back out of the Trust..."
Where or not the strategym of dressing up what is essentially a grant as a loan would offer this possibility is another matter. How could the Club get its money back when the Trust has no money?
I take your point that from a financial point of view the issue is largely irrelevant as for financial purposes the Club and the Trust are treated as one entity in the consolidated accounts.
But surely you can see how misunderstandings and mistrust can arise if something which is more like a grant is described as a loan and if an interest rate of 0.5% is described as a commercial rate of interest which it clearly is not?
Basically what happens is that the Club provides grants to the Trust to undertake services on its behalf but for perceived financial reasons dresses them up as loans.
I think I now understand this issue and thanks for your help.
jonty
John Catt
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Joined: 21 Dec 2009, 6:08pm

Re: The proposals, benefits, drawbacks etc.

Post by John Catt »

Hi Jonty,

Thanks for responding, think I need to try and make sure that we understand the position (and that said I can be wrong so I hope other contributors will point out where this is so).

Jonty wrote:Basically what happens is that the Club provides grants to the Trust to undertake services on its behalf but for perceived financial reasons dresses them up as loans. I think I now understand this issue and thanks for your help.

I must apologise as it is clear that I haven't managed to set out the situation clearly enough.

Jonty wrote:It seems to me that although the "loan" to the Trust may technically be a "loan" it is actually more like a grant. The rate of interest charged is not a commercial rate but more akin to a "peppercorn". As far as I'm aware the repayments don't include capital repayments and there is no term specified as to when the loan should be repaid.
So, in effect, calling it a loan may be technically correct but it is misleading and it certainly has not been provided at a commercial rate of interest.
As you have said the reason for doing this was that the Club "choose to put it in the accounts as a loan so that if there was ever a need the Club could get the money back out of the Trust..."
Where or not the strategm of dressing up what is essentially a grant as a loan would offer this possibility is another matter. How could the Club get its money back when the Trust has no money?


The "Club" does lend the "Trust" funds which show in the accounts as loans and are in fact loans. You are quite right that there is no formal repayment date and the interest rate is nominal. Whilst the "Trust" many not have cash, it has assets that could be turned into cash - National Office. It could raise a mortgage on the offices of do a leaseback deal where it sells the freehold for cash and takes out a lease on agreed terms so that it can continue to use the building.

Probably the best way to think of this is as a family. If you were rich and had a son who wanted to buy a house who could afford the mortgage but did not have the finances to furnish it, you might well choose to lend him sufficient money to do the furnishing at a nominal rate of interest and without formal agreement as to repayment. You would want to leave it as a loan so that the funds would be available for your wife who you think might outlive you and to save complications with gift/inheritance tax. It would still be a loan and in extremis you could demand repayment from your son and expect him to take out a second mortgage to do this.

As an alternative you could keep your money in the Bank and your son could borrow more from the Bank on an unsecured Personal Loan. You would get a peanut rate of interest on your money and the Bank would charge your son quite a high rate of interest. By trusting each other and keeping it in the family you save a lot of money.

The "Club" does make grants/subventions/donations - however you want to describe it which cannot be reclaimed from the "Trust" once made.

I attempted to explain it with this "the cost of management and membership services supplied to the Club by the Trust was £1,290K. Basically this was for all of the activities that were carried out that would have been within the traditional remit of the CTC before formation of the Trust. All but 4 of the staff are employed by the Trust and the Offices are owned by the Trust, so you can see that very little happens under the auspices of the original CTC. The services provided by the Trust include administration, I.T., the website, campaigning, information, volunteer support, media relations, marketing and fund raising.

These cost are covered by a direct charge to the "Club" of £407K, which is the figure for services which are not covered by the current charitable objectives of the Trust. Any costs that can be deemed within the charitable objects of the Trust are left with it. The balance of £883K is met by the subvention (some refer to it as a donation) from the Club to the Trust of £453K together with the funds generated by the Trust of £430K".

Whilst with the present governance arrangement I don't believe that the "Club" could avoid responsibility for the "Trust" it would be possible over time and acting in what the law would regard as a "reasonable" way to separate the two entities. As commented in the "My Opinion" topic by Simon L6, it would be possible to have an alternative strategy.
Simon L6 wrote:..... In fact, wouldn't we be better off retrieving all the money that we've lent the Trust (setting aside the £1.4M building we gave them) and sending them on their way to enter in to as cosy a relationship as they like with government while we do the stuff we do best.....


Bearing in mind that the "Club" has a fiduciary responsibility for the "Trust" this would take several years and great care would have to be taken to ensure that the "Trust" was not disadvantaged. However by then all the "contracts" Simon L6 is so concerned about will probably be history and we will still want IMHO to carry on all the other activities of the "Trust".

I believe we can do all the things that are set out in our objectives in the M&AA as a charity and that it is simply perverse not to do so. We are effectively already running as a charity to all intents and purposes without taking all the benefits.

Jonty wrote:I take your point that from a financial point of view the issue is largely irrelevant as for financial purposes the Club and the Trust are treated as one entity in the consolidated accounts. But surely you can see how misunderstandings and mistrust can arise if something which is more like a grant is described as a loan and if an interest rate of 0.5% is described as a commercial rate of interest which it clearly is not?


Re. the commercial rate, I must apologise, I did not have correct information.

Regards,

John
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Simon L6
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Re: The proposals, benefits, drawbacks etc.

Post by Simon L6 »

John - there is no way that any of us are going to think of the Trust as family in any sense other than it being a wastrel son - it has been given the Club's principal asset, and is now in to it for £388,000, soon to be over £600,000 (you haven't denied the bridging loan thing, and I'd be interested to know where the Trust will gain the income to pay it back). And the Club does not have any kind of duty to the Trust whatsoever - it has a duty to its members that the Directors, you included, are failing to fulfill. If the Club reclaimed the money it is owed from the Trust it would simply be acting in the interest of members.
Jonty

Re: The proposals, benefits, drawbacks etc.

Post by Jonty »

John - thank you very much for that. I think my understanting was broadly correct: the Club provides "soft loans" to the Trust to undertake a range of activities. Although classes as loans in legal or financial terms these loans are so soft they can be likened to a grant but the advantage of them being classed as "loans" is presumably that the Club has a call against the assets of the Trust if it went "belly-up".
In addition a range of grants - as opposed to soft loans - is also provided to the Trust by the Club in order for the former to undertake activities. Furthermore under the present governance arrangements some consider that the Club and Trust are effectively one charitable body although not officially classed as such. If they offically became one combined charity, the argument goes, then the new body could benefit from more benign taxation arrangements.
Do you think this is a fair summary?
jonty
Jonty

Re: The proposals, benefits, drawbacks etc.

Post by Jonty »

Hi John - can you help and throw some light on the 25% issue?
There seems to be at least two opposing points of view and they can't both be right. First Barry Flood, a CTC Councillor and a tax expert, considers in a previous post above that the suggestion that only 25% of fees could be spent on member benefits if the CTC became a unified charity is "erroneous" and "shows a fundamental misinterpretation of tax law as it affects charities". He continues "this is purely a tax calculation and therefore imposes no limit on their suscriptions that can be spent on members."
On the other hand, Greg Price also a CTC Councillor, considers in a previous post above, that "the 25% rule means that, if the CTC becomes a unified charity, the CTC will be able to provide you with member benefits totalling only 25% of your membership fee if it wants to reap the tax benefits of charitable status. Any more than that and it won't be able to claim Gift Aid".
On the face of it these seem like two contradictory statements.
This may not be your field but are you in a position to offer any comment which may help to clarify this issue?
Also have you any idea what proportion of members' fees are currently spent on members' benefits, however defined?
I can understand this being an important issue for many members. I suspect many thought they were paying to join a Club - not least because it's called the Cyclists' Touring Club - rather than making a contribution to a charitable institution. From what I've read elsewhere a significant proportion of members may be on low incomes and may therefore be primarily but not exclusively interested in what the Club has to offer by way of member benefits. Also those who regularly give to charities may wish to have the option to choose which charity they support and do so explicitly and separately from their cycling interests.
I suggest that on such an important issue, which is clearly of concern to many members, clearer guidance is required. Two apparently opposing views can't both be correct.
jonty
johnsie
Posts: 85
Joined: 28 Oct 2009, 1:15pm

Re: The proposals, benefits, drawbacks etc.

Post by johnsie »

Si wrote:
Yorkshireman wrote:
Jonty wrote:I'm confused because I'm receiving contrary opinions on this matter.
Surely whether or not the CTC is restricted to only allocating 25% of members contributions towards member benefits if it were to become a charity, and whether or not it could increase the amount of money spent on member benefits to 125% of total member contributions if it were to become a charity, are matters of FACT not OPINION.

Members need clear advice on this and other matters from an independent professional expert before we can possible make an intelligent decision on this matter.
jonty


Now there's a 'Good Idea' (as long as members get an unedited report from the independant expert) :wink:


<removed comment - probably a misunderstanding>

2/ in answer to Jonty, the problem is that the issue is so complex that even finding an expert opinion is going to be difficult, let alone a truly independent one. For instance Regulator is an expert in aspects of charities and Barry is an expert in aspects of tax - yet they disagree strongly on what the best course of action is to follow. Indeed, as soon as an independent voice puts their support behind one side or an other, the other side will claim them to be no longer independent. So, what are we, the humble rank and file membership to do? there are only two things that I can suggest: 1/ read through all of the literature on the whole of the debate and, assume the vote isn't over by the time that you have finished, try to make your own mind up as best you can. 2/ because the proposition can be resubmitted if not passed, the safe way to vote for those that can't make up their minds is against the charity merger, because then they have the option of changing their minds in the future, unlike if the merger resolution is passed.


The last two lines here are key: I'm not convinced by either side. Can we take a raincheck? I'm voting No
Screech like a Sirrus!
Jonty

Re: The proposals, benefits, drawbacks etc.

Post by Jonty »

Si wrote:
Yorkshireman wrote:
Jonty wrote:I'm confused because I'm receiving contrary opinions on this matter.
Surely whether or not the CTC is restricted to only allocating 25% of members contributions towards member benefits if it were to become a charity, and whether or not it could increase the amount of money spent on member benefits to 125% of total member contributions if it were to become a charity, are matters of FACT not OPINION.

Members need clear advice on this and other matters from an independent professional expert before we can possible make an intelligent decision on this matter.
jonty


Now there's a 'Good Idea' (as long as members get an unedited report from the independant expert) :wink:


<removed comment - probably a misunderstanding>

2/ in answer to Jonty, the problem is that the issue is so complex that even finding an expert opinion is going to be difficult, let alone a truly independent one. For instance Regulator is an expert in aspects of charities and Barry is an expert in aspects of tax - yet they disagree strongly on what the best course of action is to follow. Indeed, as soon as an independent voice puts their support behind one side or an other, the other side will claim them to be no longer independent. So, what are we, the humble rank and file membership to do? there are only two things that I can suggest: 1/ read through all of the literature on the whole of the debate and, assume the vote isn't over by the time that you have finished, try to make your own mind up as best you can. 2/ because the proposition can be resubmitted if not passed, the safe way to vote for those that can't make up their minds is against the charity merger, because then they have the option of changing their minds in the future, unlike if the merger resolution is passed.


I don't think the issue can be all that complex. Whether or not member benefits would have to be limited to 25% of fees if the CTC became a unified charity should be a matter on which members should expect and obtain clear guidance. In my view "heads should be knocked together" so that clear and accurate information on this important matter is made available to members.
If clear guidance on this matter can't be offered then I can't see how anyone could reasonably expect members to vote for the proposal.
jonty
Barry Flood
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Joined: 26 Nov 2010, 9:28pm

Re: The proposals, benefits, drawbacks etc.

Post by Barry Flood »

Jonty wrote:Jonty wrote:
I'm confused because I'm receiving contrary opinions on this matter.
Surely whether or not the CTC is restricted to only allocating 25% of members contributions towards member benefits if it were to become a charity, and whether or not it could increase the amount of money spent on member benefits to 125% of total member contributions if it were to become a charity, are matters of FACT not OPINION.


Firstly may I say that all of the information given either here or in the CTC website is based on specialist tax advice taken by Council. That advice indicates that any non qualifying member benefits will fall easily within the 25% allowable, (the magazine for example will not be counted a member benefit), thus leaving the whole of the member subscription qualifying for Gift Aid. But....even if the 25% limit is exceeded we could still qualify for Gift Aid on the vast majority of the membership subscription, which would bring massive extra funding to the club.

This is a complex area, but one where all the professionals involved anticipate a favourable outcome. If you would like to go into further detail here is a link to the matter on our website, http://www.ctc.org.uk/DesktopDefault.aspx?TabID=5364. Alternatively I invite you, or anyone else with specific points to contact me direct at Barry.Flood@CTC.org.uk

Jonty wrote:Now there's a 'Good Idea' (as long as members get an unedited report from the independant expert)


An answer to this point was posted yesterday by our Financial Advisor;
"The report on the tax position was originally commissioned for the use of Council, and thus contained one section relating to engagement with the Inland Revenue to optimise the outcome for the CTC. As I'm sure you can imagine, publishing that section might be counterproductive in such discussions, so it was redacted from the publicly available copy. No conspiracy theory, no smoking gun, and indeed for that matter nothing to do with the current club / charity vote either.

For the purposes of transparency, I think it was originally me who noted the section had been included in the report circulated to Council and therefore suggested it be removed.

Simon Connell
Financial Advisor to Council"

The independent experts Sayers Vincent tax report is available on the CTC website.

Regards

Barry Flood CTC Councillor (and ex HM Inspector of Taxes)
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