The simple principles of planning, appraising, and scrutinising investments in new ventures are easy to state and difficult to do. In the last few editions of The MJ my colleagues at Local Partnerships have relayed some very practical and simple principles and guidelines for creating successful new commercial ventures.
This is particularly relevant at a time where it has been reported by the Ministry of Housing, Communities and Local Government (MHCLG) that spending by councils on trading services has ‘increased significantly', rising from £323m in 2014-15 to £2.9bn in 2017-18 (The MJ, 18 Oct).
Trading services and commercial ventures may increase the potential for returns. However, they may also add significantly to the levels of risk being carried by the councils, based on borrowing that has been secured on publicly-owned assets.
The MHCLG report also suggests councils' acquisition of land and buildings rose from £2.8bn in 2016-17 to £4bn in 2017-18. Total borrowing by councils rose from £4.4bn in 2013-14 to £10bn in 2017-18.
It is no wonder the Government is concerned. The Chartered Institute of Public Finance and Accountancy (CIPFA) is reportedly working on ‘fresh guidance over concerns councils in England are putting public funds at unnecessary or unquantified risk' (Public Finance, 18 Oct).
An understanding of a council's risk appetite and profile are essential components of the level of a council's ‘self-awareness'. This must be considered carefully before embarking on commercial ventures, particularly when borrowing puts public assets and delivery of future services at risk.
I look forward to seeing the CIPFA guidance. In the meantime, the commercial skills required to interpret the guidance and to govern, commission and manage commercial risk are at the forefront of Local Partnerships' activities.
We are running webinars and training sessions, providing toolkits, one-to-one advice and guidance based on our many years of advisory experience, which includes supporting councils where risks have crystallised and ventures have become distressed.
Councils do not have to operate on their own and there are many examples where guidance has been put into best practice. Local Partnerships is owned by the public sector and is dedicated to helping the public sector achieve excellence, including the effective management of risk.
Sean Hanson is chief executive of Local Partnerships
