Summary: Mr X complains about the Council’s refusal to award his business a grant, causing financial difficulty and distress. We find no fault in the Council’s decision making process.

The complaint

1. Mr X complains the Council wrongly refused his business a discretionary grant, applying its own policy incorrectly. He says this has caused financial difficulties and distress.

Back to top

The Ombudsman’s role and powers

2. We investigate complaints about ‘maladministration’ and ‘service failure’. In this statement, I have used the word fault to refer to these. We must also consider whether any fault has had an adverse impact on the person making the complaint. I refer to this as ‘injustice’. If there has been fault which has caused an injustice, we may suggest a remedy. (Local Government Act 1974, sections 26(1) and 26A(1), as amended)
3. We cannot question whether a council’s decision is right or wrong simply because the complainant disagrees with it. We must consider whether there was fault in the way the decision was reached. (Local Government Act 1974, section 34(3), as amended)
4. If we are satisfied with a council’s actions or proposed actions, we can complete our investigation and issue a decision statement. (Local Government Act 1974, section 30(1B) and 34H(i), as amended)

Back to top

How I considered this complaint

5. I spoke to Mr X and I reviewed documents provided by Mr X and the Council.
6. I gave Mr X and the Council the chance to comment on a draft of this decision. I considered any comments provided before finalising my decision.

Back to top

What I found

Discretionary grants

7. In response to the COVID-19 pandemic the Government introduced support for businesses, including a discretionary grant fund. In May 2020 it published “Local Authorities Discretionary Grants Fund- guidance for local authorities”.
8. Councils could give a discretionary grant of £25,000, £10,000 or any sum under £10,000 to businesses which could not access other grant funding (other than the Job Retention Scheme and Self-employed Income Support Scheme). The value of the payment was at the council’s discretion.
9. In making payments under £10,000, councils could adapt the approach to local circumstances, such as providing support for micro-businesses with fixed costs or support for businesses crucial to their local economies.
10. The funding was aimed at:
• small and micro businesses
• businesses with relatively high fixed property costs
• businesses that have suffered a significant fall in income due to COVID-19
• businesses which occupy a property, or part of a property, with a rateable value or mortgage payments of under £51,000.
11. The Government wanted councils to exercise their local knowledge and discretion and recognised economic need would vary across the country. It therefore set some national criteria for the funds but allowed councils to decide which cases to support within those criteria.
12. It considered the following types of business should be a priority for funding but this was a guide only. Councils should decide themselves if a business is similar and, if so, whether it should be eligible for grants. These businesses were:
• small businesses in shared offices or other flexible workspaces, who did not have their own business rates assessment.
• regular market traders with fixed building costs, such as rent, who did not have their own business rates assessment.
• bed and breakfasts which paid Council Tax instead of business rates.
• charity properties in receipt of charitable rates relief.
13. Where limits to funding required councils to prioritise which types of businesses received funding, it was at their discretion as to which types of business were most relevant to their local economy. There was no penalty for councils using their discretion to prioritise some business types.
14. In taking decisions on the appropriate level of grant, councils had to take into account:
• the level of fixed costs faced by the business
• the number of employees
• whether businesses had to close completely and could not trade online and
• the consequent scale of impact of COVID-19 losses.
15. Councils had to set out their discretionary grant scheme on their website, providing clear guidance on which types of business are prioritised, and how they would decide on the level of grant.

Council decision making

16. The Council has provided a copy of a report on its proposed discretionary grant fund policy, dated 22 May 2020. This sets out the Government guidance and confirms the Council discussed how to identify those businesses that best met the criteria within.
17. The Council has commented on each of the four Government priority categories. Of relevance to this case, the Council considered small businesses in shared offices or other flexible workspaces excluded those hot desking, such as hairdressers that rented a chair.
18. In addition to the four Government priority areas the Council added two further local priority areas. Its reasoning was that this supported both the Government intentions and local knowledge to recognise the challenges faced by smaller businesses this time.
19. The Council has also provided a record of its decision, taken on 22 May 2020, to implement its proposal.
20. The Council has provided a copy of a report on a proposed phase two of its discretionary grant fund policy, dated 30 July 2020. This explained it had funds remaining after phase one and so the Council was able to support further businesses. The Council identified those businesses it wanted to support. Its reasoning was that this supported both the Government intentions and local knowledge to recognise the challenges faced by smaller businesses this time.
21. The Council has also provided a record of its decision, taken on 30 July 2020, to implement the policy proposed.

Council discretionary grant policy

22. The Council provided information about its policy on its website.
23. This explained it aimed funding at small businesses with ongoing fixed property-related costs. Businesses had to be small, have under 50 employees and be able to demonstrate they had suffered a significant drop in income due to the Coronavirus restriction measures.
24. The Council would support the four priority areas identified by Government and additionally two local priority areas.
25. Of relevance to this case was the application of the policy to small businesses in shared spaces. Businesses under this category must have had: 
• No individual business rates assessment, intended for businesses occupying area in a larger single assessment.
• A contractual interest in the relevant area of the master property for a minimum of 6 months with a minimum termination notice of at least 1 month.
• Fixed property costs not exceeding £51,000 per year, with a minimum rent of £500 per year.
26. Grants of £5,000 were payable. This phase closed on 19 June 2020.
27. The Council had remaining funds and so ran a second phase of funding.
28. Under phase two, businesses had to:
• be a Small or Micro business
• have been active and trading on 11 March 2020.
• have fixed costs, not exceeding £51,000 per year.
• be able to show they had suffered a significant loss of income due to the COVID-19 crisis.
• not be eligible to, or have received cash grants from any central government COVID-19 related scheme (apart from Self Employed Income Support Scheme - SEISS).
29. The Council would support:
• those businesses that missed out on a business grant as they were not yet on the rating list on 11 March,
• local businesses with a single business premises and a rateable value between £15,000 and £51,000, and;
• parish and town councils not eligible for the business grants.
30. This phase closed on 28 August 2020.

What happened

31. On 28 May Mr X applied for a business grant. The Council has since explained it also considered whether the business was eligible for a discretionary grant.
32. Mr X provided the Council with a copy of his business contract in support of the application. I note this was a five year contract for catering services. Mr X’s business was to provide the catering service on the premises of a club. Mr X had to pay a “franchise fee” for the use of the premises and statutory services costs. This fee started at £50 per month and increased to £300 per month over time.
33. On 14 July the Council refused a discretionary grant. It said the business operated as a franchise within another business premises and had no property related costs as required.
34. On the same date Mr X asked how to appeal as the business did pay rent and other costs.
35. The Council responded in September and apologised for the delay. It said an example of a qualifying shared business space was one that would not be held liable to pay for business rates and would not have a separate business rate bill. It would have a clearly distinguishable unit within the main premises, have fixed property costs of its own and have a contractual obligation to the main business rate payer to pay rent. For example, units in industrial parks may come under this category. Mr X had provided a copy of the Franchise agreement, the monthly costs for this and costs of supplies.
36. The Council explained the Franchise agreement allowed the business to carry out a service from within the club premises and use the main trademark. It did not consider these to be fixed property costs within the meaning of the discretionary scheme. Nor was there any contractual agreement to pay rent or rates. Therefore, the business did not fall qualify for a discretionary payment. Mr X could provide further evidence for it to consider or go to the Ombudsman.
37. The Council does not have a record of further communication from Mr X. However, in November the Council provided a further response in light of the further information Mr X had provided.
38. The Council explained Mr X had a contract to carry out a service within the club. The documents supplied did not support the existence of a formalised lease for use of part of the premises, that would satisfy the condition of the existence of a contract allowing rights of occupation. He could use the premises to prepare food. That was different to having sole rights of occupation which come with that of rights of a tenant paying a rental charge. It was for councils to decide if an applicant met the requirements of the local scheme and it was not satisfied he did.
39. In response to enquiries the Council further explained that the contract said the amount payable was a ‘franchise fee’ for use of the premises and statutory services. It was the duty of the club (not the caterer) to provide and maintain a fully equipped kitchen, cold cabinets, crockery, storage, dining room and equipment necessary to enable the caterer’s responsible to be carried out. The agreement was a catering ‘franchise or service agreement’ to provide catering services within the club premises. It did not set out any contractual interest in the property. It therefore considered Mr X’s business did not meet the following scheme criteria of:
• A contractual interest in the relevant area of the master property for a minimum of 6 months with a minimum termination notice of at least 1 month.
• Fixed property costs not exceeding £51,000 per annum with minimum rent of £500 per annum.
40. The Council also confirmed Mr X’s business was not eligible under any of the additional categories at phase two of the scheme.

Findings

41. Councils could create their own discretionary grant scheme having regard to the Government guidance. However, we expect councils to follow a proper decision making process in doing so.
42. The Council’s records show it considered the Government guidance and decided to adopt a policy mirroring the guidance. At phase one it decided to support the four priority areas identified by the Government in addition to two local priorities. It recorded its decision and reasons at the time. At phase two the Council extended its scheme to cover three additional categories of business. Again, it recorded its decision and reasons at the time. On the evidence I have seen, I am satisfied the Council followed a proper decision making process.
43. Government guidance was for councils to support businesses with relatively high fixed property costs and the Council’s policy at phase one reflected this. I consider it was for the Council to decide how applicants could best evidence this. The Council required applicants to evidence these costs by demonstrating a contractual interest in the property, annual rent payments and any other fixed property costs.
44. The Council refused Mr X a discretionary grant under phase one of its scheme as it considered he did not have high fixed property costs within the meaning of its scheme. The Council has explained its view that Mr X had a contract to provide services rather than a contractual interest in the property itself. Further, its view that Mr X paid a franchise fee rather than rent. I acknowledge Mr X disagrees with the Council’s judgement however, I find it followed a proper decision making process. It took account of all the information provided, relevant law and policy before reaching its decision. I am therefore unable to find the Council at fault.

Back to top

Final decision

45. I have completed my investigation. This is because I find no evidence of fault in how the Council decided on Mr X’s request for a discretionary grant.

Back to top

Investigator's decision on behalf of the Ombudsman