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'Diverse commercial approaches will demand diverse skills'

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LGC’s Confidence Survey 2018 showed a sector in financial distress, with 34% of respondents expecting to issue a section 114 notice within four years.

In our survey many were expecting to rely on increasing revenues from commercial activities, with two-thirds of survey respondents expecting their revenues from commercial activity to rise by up to 25% in the next three years.

It appears that part of the answer to generating more income relies on selling more services to third parties. Some 61% of respondents were looking to rely on this activity. Trading with third and private sector parties requires compliance with the provisions of the Local Government Act 2003 or the Localism Act 2011 and the statutory guidance.

This requires each local authority looking to trade to form a company, and ensure that trading only commences following approval of a business case and a business plan.

Other key revenue streams are: property sales, as indicated by 59% of respondents; rental income, as indicated by 53% of respondents; and income from commercial development. Local authorities have the powers to be able to dispose, acquire, set up joint ventures, pursue commercial objectives and develop land for commercial returns.

The key to getting this right is obtaining the best commercial advice to inform decision making and internal governance approvals. The spotlight is clearly growing on this activity, particularly as this has seen some authorities undertake substantial commercial investments.

As we all know, the value of these investments may go up as well as down.

It is clear there are various approaches to commercialising activities, and it might be this diversity means not all authorities will be wholly confident in their own internal skills, resources and capacity to deliver what is expected. This is surprising given the talent that we encounter when working with in-house colleagues at local authorities.

At DWF, we believe it is vital that external advisers transfer knowledge to local authority clients to leave a legacy of self-reliance. We also see many of our public sector clients increasingly benefitting from speaking to colleagues from other authorities to share knowledge around commercial strategies.

James Lupton, partner, DWF

Read LGC and DWF’s full report: Commercialisation: Safeguarding the future of local public service delivery

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