SHEFFIELD Council’s biggest contractors made £9 million profits in one year for the services they provide to the city, The Star can reveal.
The eight biggest firms providing ‘outsourced’ services made the £9 million between them last year, with an average margin of seven per cent.
It comes as 7,429 council staff have been told they face a pay freeze for the third year.
In one case, the profit margin was 11 per cent, more than double the profit margin of supermarket giant Tesco, which has just revealed its profits were 5.1 per cent for the six months to the end of August.
The scale of profits made on council contracts, some of which goes to shareholders outside the UK, has angered trade unions.
The £9 million figure is equivalent to almost a fifth of the £55 million cuts to council spending being made this financial year.
Sheffield Council said the profit figures had come from eight of its 12 largest contractors, including waste management firm Veolia and housing benefit contractor Capita and building firm Kier.
Coun Bryan Lodge, cabinet member for finance, said: “We have a number of reasons for outsourcing, sometimes it may be for obtaining extra investment for services such as through private finance initiative contracts.
“There is no obligation on us to keep services outsourced when contracts come up for renewal.”
He added the seven per cent margin was an average and some contractors are only making margins of ‘two to three per cent’. The Local Government Association and Audit Commission said there is no guidance given to councils on what levels of profit margin are acceptable for companies providing outsourced services. Jon Mordecai, chairman of the Sheffield branch of Unison, said: “If the council’s money wasn’t going into the coffers of private shareholders, our members could have a pay rise and the council could make savings on its budget without cutting jobs.
“I’m staggered by the figures. The scale of profits on oursourced contracts is always something we have warned the council about.
“When doing deals with these private companies, councillors should remember that they have shareholders who expect a return.
“With the large firms, the profits are not helping the city’s economy but going elsewhere. Some of the big contractors are not owned by UK shareholders, such as Veolia, which is French.
“The other issue is that contracts with private firms are difficult to renegotiate when the council is looking to make savings – meaning a greater share of cuts end up being made to in-house services instead.”
The information showing profit levels for the eight biggest contractors was obtained by Nigel Slack, aged 51, a chef from Highfield, using the Freedom of Information Act.
Mr Slack said: “The council should undertake a root and branch review of outsourcing to see if it delivers value for money.”
But tenants’ representatives have spoken in support of one of the housing maintenance contract held by Kier, which expires in 2014. Winnie Smith, of Arbourthorne Tenants’ and Residents’ Association, said: “Before they took over, housing maintenance was £11 million in debt, which the company agreed to write off, and they are more professional.”