Councils’ commercial ambitions outstrip expertise

14 Jul 16

Four in 10 council bosses want to increase commercial revenue but just 4% say they have significant commercial expertise, a poll by CIPFA and Civica has found.

The survey of 45 local authority chief executives and chief finance officers found authorities were developing commercial plans to raise revenue by, for example, developing trading arms for shared services and through more effective use of property.

However, concerns were also highlighted about a lack of understanding of what the market needs (36% of respondents said this was a factor) and concerns about the risks involved (56%).

The Commercial Imperative report found that local authority strategies to generate income could boost council finances in light of tight funding deals for the sector. Such an approach can also give authorities more control over developments in the community, as well building closer relationships with the people they serve and supporting the creation of new jobs, the report stated.

CIPFA chief executive Rob Whiteman said commercialisation is going to be vital over the next decade amid tough funding settlements, and there was a need for councils to adopt a greater appetite to risk.

He acknowledged that it would be a culture shift for the sector. “I think where we’ve traditionally thought we spend money in order to provide a service, and we have assets in order to provide a service, what you’re seeing is people adopting the idea that we have resources and assets to provide services, but we wish to maximise revenue from those where we can and act in a commercial way to gain income that will further support services because of austerity.”

This would mean taking more risk, he stated. “In the corporate sector, you take organisational risk, you invest in things to order to gain income down stream,” he told Public Finance.

“It is quite hard for a public body to take risk, because what happens if that goes wrong? But what we’re going to see is councils, through better governance, good transparency and good decision making, have to move along the risk appetite curve, and taking some risk to invest in order to get a return from it – setting up trading arms and thinking about commercial income in a way that they haven’t before.”
This was the beginning of the journey, Whiteman said, and he expected all councils to have a commercial plan in five years.

“The 40% are just the early adopters of what is going to be a growing agenda. And as finance staff, we have to make sure that people have got the information they need to make a commercial decision, and that is different information from what you may need to make a public spending decision.”

Following a forum event held to discuss how to achieve a sustainable commercial model, the report concluded authorities must be passionate, committed and agile while battling against financial constraints, complex demands and rapidly innovating competitors, just like private businesses.

This is the only way to generate the results required to state their claim in the commercial race and improve the lives of the communities in which they operate.

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