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'Legal powers exist for all the models councils need'

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Many authorities have adopted corporate models when looking to trade, deliver homes, acquire assets or regenerate areas.

While sometimes this is a legal requirement (pursuant to the Local Government Act 2003 or the Localism Act 2011), there are other occasions when this model is adopted for governance or political reasons.

For example, a local authority may feel the need to set up a separate legal entity to allow the company to be fleet of foot, responding to and engaging with the market. Setting up and operating through a company can ensure that the new activity is released from the bureaucracy associated with the sector.

When setting up a corporate entity, several key decisions need to be made and questions asked: what type of corporate entity is best suited to meet the objectives, who will own the company, who will act as a director of the company, how will the company report back to the authority on progress against the business plan (including approval of the annual budget, and monthly monitoring of performance) and how will it manage state aid considerations?

Many authorities are now well versed in dealing with these issues, having set up and operated companies for several years. Indeed many now have complex group companies to allow different companies to pursue different objectives.

Setting up a company is relatively straightforward.

The key is ensuring that the company has a sound business plan which supports a profitable and solvent operation. Depending on its purpose and objectives, the company may need employees, property, an initial cash injection, contracts with third parties and to provide services back to the authority.

Other authorities are more inclined to focus on collaborations with other public sector bodies. This can involve one authority providing services for reward on a commercial basis to another. The Local Authorities (Goods and Services) Act 1970 provides the necessary power to do this, and the arrangement is no different from one where the purchaser buys such services from a third party in the private sector. This is a simple and well-trodden path.

Finally, some authorities agree to delegate functions to another authority. Delegation involves one authority taking over almost entirely the provision of a function from another. Even when payment is involved, it is still a reorganisation of administrative responsibilities between different public bodies.

So while no one size fits all, we are confident the legal powers exist to support the various models that local authorities are adopting to deliver the sector’s commercialisation agenda.

Colin Murray, partner, head of local government, DWF

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

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