ECONOMIC GROWTH

What is the future of commercialism?

Commercialism in local government has had its ups and downs. A Local Partnerships and The MJ round table considers the risks, rewards and future of working commercially in councils.

Is there a future for commercialism in local government? The question posed for this round table, sponsored by Local Partnerships, throws out an answer fairly rapidly.

As one lunchtime diner at the event on the fringes of The MJ's Future Forum put it: ‘Commercialism is not going away.'

So, there we go, job done. Everyone can sit back and enjoy the beauty of the Hertfordshire countryside at the lovely Pendley Manor…Well, not quite.

While commercialism for councils may be here to stay, this gathering of senior council officers has plenty to say on the rights and wrongs, as well as the risks and rewards, of the sector stepping into this world. A world that, frankly, is unfamiliar for local authorities.

The first worry for many is the skills and capability of staff and members to manage often complex investments.

‘There is a risk that you've not got the governance, skills and capability and you need to monitor within an inch of your life,' says one.

Another concurs, pointing out there is a real problem of councils lacking the core skills around what it takes to run businesses like these.

In the words of a further participant: ‘I'm OK with the governance. I'm less confident that everyone knows what there are doing.

‘We are often dealing with people who are profoundly out of their depth. The greater the complexity of the project the greater the risk.'

‘Risk' is a word that regularly crops up during the discussion and for one officer there is often a failure to assess risk when councils are launching into commercial investment opportunities.

‘There's a need for more of a private equity approach,' they say. ‘We need to assess the risk and there is a need for different mechanisms so we can assess those risks.'

When it comes to what councils are investing in, the comments around the table suggest the thinking has come a long way from the early days of local authorities buying up anything, anywhere, as long as it would pay out.

‘We are now investing in ethical investment,' says one officer. ‘All investments are aimed at getting a return for the area. It's commercialism with a conscience.'

Another agrees the key test is whether it helps the local area, while a further participant adds: ‘There has to be a tangible link to the local area. We are looking for benefits around things such as employment and education, not just financial return. There needs to be a long-term benefit.'

But while some senior officers are particularly keen on investments that stay within their area boundaries, others are more relaxed about going further afield if the venture is set to prove beneficial.

As one points out, it depends greatly on the council's geography. They are clear there are not the same opportunities in their local area to generate the necessary returns.

Another word, ‘profit', appears difficult for some around the table. It doesn't sit well with the ethos that attracted many into local government in the first place. Indeed, it is also often unpopular with councillors.

But one accepts a certain realism is inevitable in a world of disappearing funding and growing demands and service costs.

‘Investments need to generate a profit in order to generate income with cuts to funding.

‘Councillors don't want to do it for profit and the investment is often out of the area, but they need to do it to get the return.

‘Ethics is important, but the priority is the return.'

This new realism, however, has not dimmed this group of senior officers' commitment to plumping only for commercial opportunities that have meaning to their communities.

For many around the table, commercial investments are focused on the affordable housing and regeneration space as these are clear areas for providing a tangible benefit for their local areas. But for all, there is always a clear eye on what it offers to local people.

However, there is an understanding that benefit can come in many different guises. Commercial projects that offer new affordable homes and worthy regeneration projects are obvious wins.

Nonetheless, some participants are comfortable with investments that are more weighted to generating financial returns that can be pumped into service benefits.

‘We should not be ashamed of doing it,' says one officer. ‘Councils have been doing it for donkey's years. If we have done the due diligence and you can get the return, what's the problem?'

Ultimately, local realities are the driver for determining how councils view the importance of investing primarily within their own boundaries or venturing further afield.

For those short of opportunities within their area there is a greater willingness to travel and seek out prospects. Those lucky enough to have the opportunities on their doorstep are more than willing to focus on them.

The same is true in terms of the balance between ethical investment and maximising a financial return.

As one voice around the table said, unfortunately only partially in jest: ‘I'm skint. I'll consider anything.'

If a council is in rosy financial health, it is in the enviable position to be choosy. Those closer to the budget breadline have to look for maximum return.

Yet there is no suggestion that councils have any appetite to venture towards anything unethical. Not only would this be a non-starter for officers signing on the dotted line, but it sits increasingly uncomfortably with communities.

‘It is looking like capitalism isn't working for us all,' says one officer. ‘There is obviously a lot of focus on climate when it comes to investment, but also rampant commercialism is not popular with people anymore.'

While local circumstances determine the type and location of opportunities in which councils choose to invest, there is absolute harmony when the gathering reiterates the desperate need for appropriate skills within the workforce.

A commercial way of operating – not something council staff have had to worry about previously – is becoming increasingly important for officers at all levels in the structure.

‘I'm constantly looking at the markets,' admits one participant.

‘That's where the skills need to be. Every officer needs to know when to buy and sell.'

The financial consequence of a decision by the waste team to sell the likes of aluminium at the right or wrong time can be crucial.

Equally, the timing of signing deals on housing projects or energy deals can make all the difference to whether a commercial venture looks good or very bad.

With so many councils placing great focus on climate and net zero, commercial know-how is becoming the difference between success or failure.

‘When it comes to net zero, a commercial skillset is the thing that is going to get us there,' admits one diner.

And, with clear nervousness about navigating this often-unfamiliar environment, as well as the paucity of skills within teams, there is also a keenness to come together and share knowledge and expertise.

Commercialisation and local government

Commercialism means different things to different people in local government. For some, the word signifies risky, opaque, complex financial engineering. For others, it just means doing their best for residents with safe, tried-and tested investment and investing vehicles.

To try and unpick some of those polarised views further, it was a pleasure to sponsor The MJ round table on commercialism in local government.

In a fiscally constrained landscape, with inflation showing no sign of abating, councils will have to make increasingly tough decisions about their medium and long-term financial strategies.

Changes to the Public Works Loan Board borrowing criteria, coupled with the expectation of ongoing interest rate hikes, to divest from or retain assets, and/or investment strategies is going to cause a headache around many a cabinet, scrutiny and overview committee and main council meetings. Public scrutiny of those decisions will likely be at an all-time high. Those holding public office at both officer and political levels increasingly need to be fully versed in, and accountable for, the history of long-term commercial decisions that may even predate their tenure.

It was clear from our round table that there is a shortage of skills in the commercial space within the average senior leadership team at officer level. The s151 officer remit is already broad. Having commercial acumen, business and investment literacy (and associated risk awareness) is not something a public sector financier, however skilled or experienced, necessarily acquires in the course of their career.

The financial landscape is both increasingly volatile and still globally inter-dependent. Therefore, bringing in technical, sectoral and risk experts to support robust and evidence-based commercial decision-making was identified as key. Clear rationales for investment decision-making must also be front and centre, including answers for why riskier or outside of geography investments have (historically) been made.

A certainty: a forensic spotlight on commercialism isn't going away from local government – far from it, not least as Oflog opens its doors.

Adele Gritten is chief executive of Local Partnerships

@LP_AdeleG

Round table participants

Adele Gritten, chief executive, Local Partnerships (sponsor)

Ian Doyle, joint strategic director, Guildford BC

Anna Earnshaw, chief executive, West Northampton Council

Stephen Evans, chief executive, formerly Norwich City Council

Graham Farrant, chief executive, Bournemouth, Poole & Christchurch Council

Catherine Howe, chief executive, Adur & Worthing councils

Ian Miller, chief executive, Wyre Forest DC

Kathy O'Leary, chief executive Stroud DC

Daniel Omisore, director of finance, Camden LBC

Andrew Pritchard, chief executive, Somerset West and Taunton Council

Cath Shaw, deputy chief executive, Barnet LBC

Tim Johnson, chief executive, Wolverhampton City Council

Leigh Whitehouse, deputy chief executive & executive director of resources, Surrey CC

Heather Jameson, editor, The MJ (chair)

This article is sponsored content for The MJ

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