CEOs on Commercialisation
Fifteen councils could join Northamptonshire in declaring bankruptcy. This is according to the National Audit Office, which laid out the grim state of local government finance in a report this month, after years of austerity.
The Local Government Association (LGA) estimates that between 2018/19 and 2019/20, councils will see 54% of their central government funding cut; this is on top of the significant cuts of previous years. It is doubtful, to say the least, that business rates retention or council tax increases will make up for these losses. Indeed, on 1st March 2018 the Institute for Fiscal Studies announced that it has found no link between business rates retention and economic improvement. So as big questions remain over the future of local government funding, many councils are looking to commercialisation to raise income. This was the chosen focus of the Senior Manager’s Risk report published by Solace Group and Zurich Municipal towards the end of 2017. Although commercialisation is not a new phenomenon, the report suggests that 2018 could be a year of acceleration.
Local authorities face stark choices: ‘cut services to the bone or invest in the future by doing anything lawful to fill council coffers’. For many councils, this is a reality that they have come to terms with and, by necessity, are increasingly comfortable making money via commercial routes. This will bring opportunities and risks for them and their private sector partners.
Property is by far the biggest revenue generator at local government’s disposal. Some authorities are competing with one another to build or buy commercial property such as hotels, piers, cinemas, science and research parks, and universities. Meanwhile, increasing numbers of councils have (or plan to) set up their own housing companies to try and bridge the supply/demand gap in a commercially viable way. And although CEOs broadly agree that there are opportunities to be seized, the extent to which local authorities have embraced the commercial varies. Where some councils operate almost like FTSE 250 companies, with one county council bringing in a turnover of £1.5bn, other CEOs are keen to stress that they are not businesses. They have complex political, legal and ethical responsibilities and are accountable to the communities they serve. This tension is borne out in different approaches to commercialisation: some councils are keen to explore commercial opportunities for income, whereas others only feel comfortable in investment in local infrastructure or regeneration projects.
How an individual authority works depends on the style of the leader, the chief executive and the politics. Making sense of this is critical for businesses to understand where and how to support public services and contribute to a council’s activities. The recent difficulties faced by the construction industry drives home the importance of appropriate and meaningful engagement between business and the authorities with which they work. Cratus has built an unrivalled local government network since its establishment in 2009. Our understanding of the political landscape, nuanced relationships and evolving local council ambitions set us apart. Talk to Cratus today to make Our World is Local your tomorrow.
