Sharpening the commercial edge

By Jonathan Werran | 16 June 2021
  • Jonathan Werran

In recent years there have been negative examples that can’t be safely hidden from view, some instances of council commercial activity that have plainly gone awry. Not citing the litany of recent well publicised debacles, it is fair to say that commercialism in the local government context has become, by dint of media exposure, an activity to be handled with the utmost of care.

But only six years ago it was order of the day. Localis itself issued a report (Commercial Councils) and you couldn’t move for industry events and seminars setting out how finance directors could seize the opportunity and unpick the impact of austerity. Now all sectors can be rather ‘bandwagonesque’ when given explicit encouragement from Government to act in a certain way. The link of causation from the coalition years is only a keystroke internet search away, if it’s been conveniently consigned to oblivion.

But in the current context of responding to COVID-19, an element of moral hazard has crept into the Marsham Street attitude. In short, Government doesn’t want to be seen to be bailing out councils which have been caught bathing without trunks when the tide came in. Of course, the pandemic was a perfect storm for councils in that it simultaneously led to an increase in spending and a reduction in revenue-raising capacity – with predicted services fees and charges (SFCs) hitting transport and commercial rent.

The financial drawbridge has been pulled on the use of Public Works Loan Board for borrowing purely for yields as well as out of town investments, and the Chartered Institute of Public Finance and Accountancy will be publishing fresh guidance in the autumn for the sector to draw down from. But is there a case for continued council commercialism? To ascertain if this remains defensible, Localis and management consultancy Human Engine have researched the contemporary case – and found it still stacks up.

Our report on the findings, Commercial Edge: renewing the case for the local investment state, suggests that although we may have reached a low watermark in political support for this agenda, the strong prevailing wind demanding all inherent risk be avoided rather than managed is short-sighted and wrong. Undertaken with diligence, professionalism and conviction, commercialism can unlock place potential and deliver visible, tangible and unseen benefits to councils and the communities they serve. Ultimately if we continue down this path of further infantilising councils, opportunities will be lost, and much needed revenue will evaporate.

Commercial activity brings with it risks but these are there to be managed if we are to live without fear. And here’s how we think a cohort of pioneering councils can lead for others to follow in the wake of their confident trail.

Recommendations for local government leadership

1. Set out your definition and communicate widely. Be clear how this aligns to the purpose and values of the organisation, adopt a simple statement of policy and communicate with staff, partners and customers.

2. Likewise, agree risk appetite and communicate this early. There is no sense in imbuing staff with the spirits and skills of entrepreneurs then tying their hands with process and rejecting every idea that entails risk.

3. Invest in the skills needed to deliver this. Give your teams the tools and techniques needed to deliver the council’s commercial approach and use these skills to add value to public services.

4. Work with partners and drive greater value out of contracts. Social value can be a means to delivering public value. Don’t underestimate the value that can be harnessed from supply chains and rigorous contract management.

5. Undertake a self-assessment of your commercial maturity using the commercial maturity model.

Recommendations for elected members in scrutiny roles

1. Understand the drivers, risks and legislative limitations of commercial decisions in your locality. This includes the reasons behind commercial activity, extent of council powers to do so and how this is applicable to your given locality. This also relates to aligning commercial activity to the council’s corporate objectives.

2. Have a clear framework for evaluating commercial decisions, including financial and social considerations.

Recommendations for central government partners

1. Recommit to the principles of the general power of competence to enable councils the autonomy to act in the interests of their locality.

2. Develop a broader understanding of commercialism. Government has made great strides in sharpening the commercial capabilities of those involved in public procurement. But, for local authorities, commercial activity is much broader than procurement and contract management. At present, there is a risk that local and central government use the same terms to describe different things. A common language will enable better understanding.

3. Deepen understanding of why councils are taking commercial decisions by creating a commercial network. Councils have routinely delivered successful commercial initiatives. There is an opportunity for cross-sector learning to promote and entrench good commercial practice and join the gaps between policy and practice.

4. Consider what support could be offered on capability uplift. Support local government to introduce a sector-led commercial skills programme that matches the ambition of central government training initiatives to position the sector to continue to manage its own commercial activity without the need for intervention.

Jonathan Werran is chief executive of Localis


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