Picture this

By Craig Dearden-Phillips | 21 May 2015

Picture the local government sector in 2020.   You’ll see a lot that is different.   Devolved powers not only to city-regions but also, later, to the Shires which are now consolidated with Districts under a single elected Mayor-style Leader.    

Funding for local government is now mostly generated and collected locally with the job of local government being, as Simon Parker described in the last MJ,  to create the conditions for local wealth creation, no longer, primarily an agent for redistribution.

One question embedded with this vision concerns the role of local government as an economic player.   Should town halls focus their best energies on being catalytic to the their wider economies or on becoming significant economic players themselves through new ventures, funds and, in Cambridgeshire’s case, a brand new bank?   

The answer to this question may already, in part, be made.   Councils everywhere are now seeking to commercialise themselves.   While this tends to mean different things in different places, there is a recognition that with uncontrollable social care spend taking ever more resource, there have to be new ways found to deliver other functions and, in areas where the economy is moribund, to provide future jobs and investment.

The real question, then, concerns the best way to approach commercialisation.    Some authorities have, quite simply, decided to go about this by using their powers to create new companies and then award contracts to them using the Teckal exemption.  

This is, I would argue, one of the lesser approaches to commercialisation as it fails to do the one thing that true commercialisation seeks to achieve – a need to fashion a product or service that meets the needs of customers at a competitive price.   Simply buying back from a company one owns isn’t proper commercialisation.   

Doing so and then setting that company against the rest of the market would, very quickly, provoke the changes to costs, quality and culture a Council was looking for.  But all too often this doesn’t happen, leaving councils with duff businesses that coast along knowing their owner will always keep signing the cheques.  As a councillor I sat one the Board of one such business and, all the time, I hear examples of this rather misguided form of commercialism being chosen by local authorities that don’t want to go the whole hog.

A more imaginative form of commercialisation is a joint-venture with a partner or a mutual in which the council participates as a shareholder, like Independence Matters in Norfolk.  

Here the council stays out of the direct management of the business but uses its capabilities and influence to encourage the strategic development of the venture.  In the case of Independence Matters, this is to play a key role in the development of a fit-for-purpose social care market in Norfolk.     Wisely, the council there has taken a back-seat in the running of the business, created a commercial board, led by a senior manager from an eminent regional business, and settled for an influential but never controlling role.    

It is this type of commercial role that councils in the future ought to be carving out for themselves.    Councils should be enablers and partners to the development of the economy and the local offer, not focusing on trying to morph themselves into self-contained businesses.   Contrary to what many people in local government believe, there is fierce competition in most markets. 

This is won by businesses with years of honed experience and expertise in building the right cost base and responding with dexterity to customer needs.   Very seldom do a I see a local authority that can compare with this and win – unless, of course, the table is tilted in their favour by special treatment.   This only leads to more problems and my believe, given the gravity of many local authorities financial problems, many of these council owned and controlled ventures will, unless subjected now to the full force of the market, run into trouble between now and 2020.    

So when thinking about commercialisation in your council, don’t let the conversation begin and end with how you might set up your own departments as cash-generative businesses.  This will burn not only time and energy but also your capacity to do your real job which is to create the right conditions for the growth of strong local businesses that can deliver the services your population needs at a price that is defensible.   

Craig Dearden-Phillips is managing director SteppingOut

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