Councillor Malcolm Pate said that ip&e's board of directors will begin the process of winding up the company – less than four years after it was set up to generate income for the council.
The decision to close the firm, in which Shropshire Council is the only shareholder, was taken at a confidential session of the authority's Conservative cabinet yesterday.
It follows a review of the company's performance. It is understood that ip&e cost about £600,000 a year to run – costs that would have been significantly less were its services operated by the council. The council says it expects the firm to be able to pay back £94,000 it has drawn down on an overdraft facilitated by Shropshire Council.
Councillor Pate said: "We have to admit that it has not worked as we had hoped. The market is not out there to justify it.
"As an aspiration it was a good thing to do, but I think the problem was not only us getting into the market but that there were very large companies like Capita out there and we found ourselves in a very competitive market. We will close ip&e down as a separate entity and move all the people back into Shirehall."
The company has about 300 staff and the council has confirmed that all those who work on commissioning, business design, regulatory services, and help to change – will transfer back to Shropshire Council employment. Councillor Pate said the council may consider setting up another "small company to sell the council's expertise".
Councillor Alan Mosley, leader of the council's Labour group, said ip&e had been a "foolhardy experiment".
Company set up with best intentions but struggled to compete for contracts
It was set up less than four years ago with hopes of answering Shropshire Council's cash-flow problems.
So what went wrong with ip&e?
The company, which will be closed by the end of March, was intended to generate income and profit by selling the council's services to other organisations. But in less than four years of trading the company has only returned a small profit on one occasion.
Its 2012/13 accounts for its partial first year of trading resulted in a £69,000 loss, before a £114,701 loss in 2013/14. The losses have been attributed to pension contributions.
The company appeared to be turning the corner when it released its 2014/15 accounts last year, announcing a £28,000 profit with revenue of £1.162 million.
But the devil was in the detail and the figures also revealed quite how reliant the firm's success was on business it had secured from Shropshire Council.
Out of the £1.162 million revenue, sales to Shropshire Council had been £1.145 million – meaning sales to non-council organisations had only amounted to £16,617.
Councillor Malcolm Pate, leader of Shropshire Council, said the business had been set up with the best of intentions, but had struggled to compete for contracts against more seasoned operators.
He said: "There is not the market there that was envisaged. The market is not there to sustain the business case. We also found that the efficiencies we have achieved within the council are the same if not better than the efficiencies we have found in ip&e."
The company had also found itself under fire from campaigners who saw it as a way of privatising council services and removing democratic accountability.
Neil Richardson was among about 50 campaigners with Ludlow Campaign for Fairness who gathered at Shirehall last year to raise questions over ip&e. He said: "We had grave misgivings about ip&e almost from the very start. We questioned the reasons for it, we questioned the way it had been operated, and we were not convinced it was in the best interests of Shropshire."
Ludow North councillor Andy Boddington said that the real damage caused by ip&e was that it had distracted the council from looking for other solutions to its budget problems.