There is a ‘worrying’ skills gap amongst many officers and members making commercial decisions, and the problem is particularly acute on smaller councils, a seminar on commercialism in local government was told yesterday.
A Chartered Institute for Public Finance & Accountancy event heard that councils are taking on more risky commercial activities in an attempt to offset austerity cuts, but that some decision-makers lack the commercial expertise required for the task.
Melanie Dawes, the permanent secretary to the Ministry of Housing, Communities and Local Government, told the audience of council representatives that although the government “don’t want to restrict opportunities and stop local authorities from embarking on commercial ventures”, continually investing in skills is “essential” and is “where councils need to invest”.
But Meg Hillier, chair of the public accounts committee, criticised the government approach for being “too complacent” and said that there are “too many rank amateurs running things” when it comes to commercial endeavours.
“Local government has to make sure they have people who have career backgrounds in property investments and commercial activities,” she said. “If you are a big county council and you cast your net, you get a bigger pool to fish from. But smaller borough councils don’t have the skills and abilities to call things out. They have to buy people off the shelf, and where do they find the money for that?
“In the cold light of day, good intentions will provide no comfort if there is failure [in commercial activities]. All of us in this room would be ok, but vulnerable people would be hit the hardest.”
Ms Hillier pointed to a recent LGC survey in which 69% of respondents said they were concerned that councils lack skills to commercialise successfully.
She called on permanent council staff to make sure that elected members are given sufficient training, adding that it is “not reasonable” for councillors to be elected and then “not given the tools for the job”. “We need to make sure councillors meet a certain threshold of skill level” - ”this won’t be popular, though,” she warned.
Alix Bedford, public services segment manager for Zurich Municipal, said she finds it “astounding” how elected members don’t understand how their money is being invested, “because they have that democratic accountability”. “They need to have a full understanding of risk, and you need to spend time explaining that to them,” she told the audience.
Ms Bedford also admitted that recruiting staff with commercial expertise and a public sector ethos wasn’t “easy” for councils, but warned that relying on third parties doesn’t enable council staff to improve their own skill sets. She called on authorities to be braver about trying to do things themselves, pointing to online schemes that can train staff up.
Ms Bedford said that council chief executives she had spoken to were “shocked” to hear how the high street slump had led to one shopping centre owner taking a £300m hit to its property valuation.
“But if they have not looked at this, then who is?” she asked.
Evidence of the need for more training also came from the floor, with one borough councillor says the commercial acquisitions his council is making in private, with no notes or minutes available until after he purchase has been made, “frighten the life” out of him.
But Ms Bedford also said that despite the potential pitfalls, a healthy risk appetite was something to be encouraged, and piled blame on the media for making some councils too wary to take on properly risk-managed commercial ventures.
“It feels like vultures are circling and waiting for the next big failure, which is really unhelpful because there are a lot of successes that we should be celebrating,” she said.
“Nervousness about reputational risk is holding people back from embracing risk.”
The Public Accounts Committee has called on the ministry to improve its oversight of local government but recently said it was unconvinced by its assurances it would do so.
Ms Dawes told the seminar that she would like to keep a “looser system” but warned that the ministry and the sector “need to guard that together”. “Local decision making has to be done at a local level, but we do need as we refresh the codes to make sure decisions are long term and sustainable.”
Cipfa has recently consulted on a new financial management code which reflects the growing commercial activity undertaken by councils.
Ms Dawes described councils’ authority to borrow from the public works loan board without controls as “quite an important gift to the sector”, but one that shouldn’t be taken for granted. “As far as the treasury is concerned, they are taking a fiscal risk and to defend that, we need to make sure the overall framework is right to keep the sector as flexible as I’d like to keep it,” she added.