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'Councils must keep a clear head on commercial activity'

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It would be wrong to suggest commercialisation is only happening because of austerity. Local authorities have always been open to new ideas to make their money work harder. But cuts are a significant factor.

It’s in this light we should consider chancellor Philip Hammond’s declaration that “austerity is over”. What could it mean for commercialisation within local government?

Many commentators remain sceptical that we have seen the back of austerity, not least due to lingering uncertainty over how a ‘no deal’ Brexit could affect public spending plans. Whatever the truth of the matter, commercialisation may be here to stay.

Zurich Municipal recently conducted a survey asking public sector bodies, including unitary, county and district councils, about their approach to commercialisation. Most respondents said their organisation was exploring commercial activities, either to shore up their finances, fund new or existing services, or both.

There’s nothing inherently wrong with this. Carefully planned and well-managed commercial activity can often generate significant revenue to reinvest in public services.

We work with some councils who have been successfully commercialising for many years. These authorities generally have a clear understanding of their risk appetite on commercial activity, and often have a wealth of in-house commercial expertise.

But this isn’t always the case, and we are concerned that local authorities may rush into the commercial arena without clear understanding of what they want to achieve beyond making money.

We’re seeing record levels of public sector investment in the high street, with councils spending more than £300m on shopping centres in the first half of 2018. This is happening at a precarious time for high street retailers. In November, it was reported that up to 200 UK shopping centres are in danger of falling into administration.

Local authorities have a responsibility to their communities, and understandably many are keen to support the high street. But the balance between the financial and social risks they are responding to must be carefully managed. Indeed, whatever type of commercial activity organisations are considering, they need to approach it with their eyes wide open.

Organisations should be asking whether they have the skills needed, how plans sit within their risk appetites, whether the goal is to make money or for social good, how it will affect vulnerable residents, and what the alternative options are.

Rod Penman, head of public services, Zurich Municipal

Column sponsored and supplied by Zurich Municpal

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Readers' comments (1)

  • In my experience there are not many local authorities who do not go through the process of considering all angles prior to making investments. They look at local market conditions, risk, legal powers, business planning and financial forecasting before making investments. They have well developed financial governance arrangements and democratic overview in place. One final point they have a lengthy track record of success in this area with many good case studies to look at. So long as they always remember it is public money they are dealing with then they will continue to take measures to ensure that the chances of things going wrong are minimised.

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