Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

Joanne Pitt: Property mustn't eclipse other commercial successes

  • Comment

Local government has seen a decade of austerity, with falling funding and rising demand.

When faced with that landscape it is natural any organisation would seek new ways to improve delivery and efficiency. This often presents itself as becoming more ‘commercial’, but it is important to consider what that means for local government.

Local authorities will be unsurprised that the government is increasingly concerned that some council strategies risk over-dependence on property investments to fund statutory services. In the summer we saw guidance published that was intended to make authorities more cautious when investing, and the policy comments from Whitehall have repeated this line for some months.

But there are two sides to every story, and the other side to this one is that local authorities are trying to balance their budgets and need ways to do this. Options are limited.

Local authorities have reduced the money spent on services and back office support. Where possible, they are raising income through fees and charges. Using reserves is not a long-term strategy, so a rise in more commercial activity seems a natural progression.

This was made possible through the ‘general power of competence’ introduced in the Localism Act 2011, allowing local authorities to take a more commercial approach to providing services. Through this legislation, authorities can set up trading companies to generate a profit through external trading, and charge for in-house discretionary service.

These companies became popular by offering similar benefits to outsourcing – which local authorities have become disillusioned by – and through their utility in providing shared services. While not all these companies or shared services have been successful, the sector has benefited from the collaborations and co-operation introduced through these trading arrangements, which brought in new skills and experience.

Another form of this activity is found in ‘mutual to provide’ services. This is where organisations, often under employee control, provide services under contract to the local authority. It can be successful where organisations are looking to generate social gain and improve commercial activity. Although not huge income generators, these arrangements can often find favour with a sector that values local knowledge.

The rise in commercialisation has not been restricted to the creation of trading companies, as local authorities have explored new ways of working with the private sector, which has often developed into business partnering. Examples of this type of commercialisation include joint ventures or local asset-backed vehicles.

While this activity has been challenged, recent case law such as Peters v LB Haringey and Lendlease strengthened the position of local authorities that wish to take a joint venture approach to development. In the High Court case in March 2018, the judge agreed that Haringey LBC’s involvement in the development plans was primarily to obtain outcomes in the public good and was consistent with its role as local authority.

Staying with development, we could use the example of ‘earn back’ as another commercial approach, perhaps best shown by the Greater Manchester CA in the 2012 city deal, under which it could keep £300m worth of additional annual tax receipts after investing £1.2bn in improving infrastructure. This allowed the council to establish certainty for developers, and form a new funding stream, aiding long-term planning and leading to a better financial position.

All of these are examples of commercialisation within the local government sector, and it is a continuing trend that builds and gains momentum on the experience of those involved. Local authorities are taking seriously the skills needed to develop commercially, and staff are now being trained to support this agenda, including by improving their understanding of governance and accounting practice.

It would be a huge loss to the sector, both culturally and financially, if the growth in commercial property investment throws a shadow across these other areas of commercial activity. Entrepreneurial local government, once seen as a paradox, should be open to thrive. But we must find the right balance for local government in this new wave of commercialisation.

Joanne Pitt, policy manager, local government, Chartered Institute of Public Finance & Accountancy

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

  • Comment

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions.

Links may be included in your comments but HTML is not permitted.