D.1 Decisions on the classification of the JV to the public or private sector will be based on control of general governance policy.88 Some of the common controls that ONS take into account when determining classification include:
● appointment rights. If the public sector has the power to appoint a majority of the board/trustees then the JV will be classified to the public sector. Where the public sector appoints a minority ONS will also consider if the minority has a majority of control; e.g. control within the JV is devolved to specific committees and the public sector appointees have a controlling interest on those committees.
● ownership. Even where the public sector body owns 50% of the JV's shares or fewer, the use of different classes of share with different rights may still give the public sector body effective control.
● multiple sponsorship. Where a body is owned or controlled by a number of public sector bodies it is the overall weight of the public sector that counts. Hence, if five public sector bodies each have a right each to appoint one director, and the board comprises nine or fewer directors, the body will be classified in the public sector.
● special shares. The existence of very narrowly defined Government powers, directed primarily at preventing undesirable changes of ownership, or the disposal of material assets, need not amount to control. Please note however that any "golden share" rights reserved by public bodies to maintain control and prevent a JV from take-over may now be deemed a breach of a member state's obligations under Article 56 EC (free movement of capital).
● special terms in the JV's constitution. The JV's Memorandum and Articles or Partnership Deed or JV Agreement may have terms that require the public sector founder's consent for certain actions, or before the memorandum and articles may be changed. Where such restrictions are time limited and are intended to give an initial period of stability to a new body, they need not amount to control. Permanent restrictions over important parts of the JV's work would normally amount to control. The distinction depends on whether such controls are active or passive. Setting out the purpose and operational guidelines for the JV when it is set up would be passive control; defining circumstances in which the public sector body could intervene and make decisions affecting how the organisation is run is active control. Active control would amount to actual control; passive control need not do so.
● special regulation. Regulation over external actions - such as price regulation, and regulation of markets - is unlikely to amount to control. Where regulation extends to internal management - e.g. pay levels or borrowing - then it could be seen as taking control.
D.2 In determining who controls a body, ONS considers the overall reasonableness of the decision. So a classification decision is often not as simple as looking for a single clause that controls the body instead the ONS look at the body as a whole and the total influence government holds over the actions of that body. Therefore a weight of minor controls may lead to a public sector classification.
D.3 The constitutional documents of the JV will set out the control rights of each partner. The rights given to a public sector partner in a JV can appear to be significant in terms of control. However, such rights should not necessarily mean that the JV has to be classified to the public sector, provided that the rights are similar to those enjoyed by the private sector participant and exist solely to protect the public sector founder's financial stake in JV.
D.4 Nonetheless, Government rights giving control over the JV in order to further Government policies (such as locating an operation in a particular part of the country) or to avoid political problems (such as big pay increases for directors) could be enough to tip the balance in favour of classification to the public sector.
___________________________________________________________________________________________________
88 Treasury guidance paper on Sector Classification is available from: www.hm-treasury.gov.uk/d/classification_pack.pdf under the heading of public spending and reporting (budgeting and classification).