Sean Nolan, Advisor, Local Government, CIPFA
The funding constraints that have been piled on to local authorities over the last few years have caused a significant amount of difficulty for finance managers, but this pressure has also acted as a driver for creative solutions right across the country.
Striping away waste and ensuring services are delivered efficiently, with optimal value for money is, simply put, a good idea, but as funds continue to dwindle, councils must look for more enterprising approaches in order to balance their budgets. Many are looking beyond service efficiencies and actively seek new revenue streams.
As a concept for delivering public services, ‘commercialisation’ is by no means a new idea, but how it has been interpreted and adopted over the years has varied widely. In essence it comes down to income generation or, at least, a return on investment. This can take a number of forms, from establishing partnerships with commercial organisations, to council’s setting up independent, autonomous profit-making companies.
Of course, the commercialising public services can be a contentious issue, with some arguing that public services and businesses are inherently different entities, with different primary responsibilities and aims. It is true that innovation within the public sector does differ from that in the private sector, so while many lessons can be shared, these learnings need to be shaped and adapted.
But innovation must be allowed to bridge the increasing funding gap and, providing any corporate strategy is developed with due regard to existing Council policies and social inclusion minimums when delivering its services, commercialisation has its place in today's local government landscape.
It is true that using taxpayers’ money to set up profit-making services introduces a level of risk that may attract criticism should things go wrong, and it is exactly for this reason that councils must exercise the exact same discipline and due diligence as the private sector when researching its commercial options and building a business case for all such ventures.
So perhaps the key commercialisation question for local government is less about how appropriate or relevant it is to be more commercial, and more about the knowledge, skills and tools that a council has to deliver the agenda.
Because for many, commercialisation may be placing the council, its processes, members and staff in a very different place and there is no guarantee that everything will just come together and work as expected.
According to recruiter Penna, the word ‘commercialism’ has increased massively over the last two years for public sector recruitment, with a high demand for targeting growth and commercialisation for services. But simply adding the word or expanding past job descriptions to establishment posts, should they become vacant or emerge from a staff restructure is not enough in itself to generate genuine strategic change.
To create a strong commercial outlook, a council must look to its entire organisational structure, its policies, its vision, monitoring and reporting abilities and broader delivery infrastructure.
Thinking commercially requires generating insight by joining different parts of an organisation together. It means a strong case must be made for trading. And it requires a good understanding of commissioning and the consequences this brings.
The more an authority adopts a commercial mind-frame, the more it is likely to push beyond its comfort zone, increasing its appetite for risk. Income generation is subject to a complex set of statutes, regulation and economic limitations.
Staff confidence is essential. Are they being trained and are there the right institutional structures in place to support them? Having the right people in place would mean councils can become more adept at identifying the right commercial partners and negotiating contacts that have at their core value for the public sector.
How to support entrepreneurial behaviour across the public sector, is an active debate at CIPFA, one that will feature prominently at the CIPFA Conference in June. A prevailing argument is that Whitehall must do more to encourage and support commercialisation through tax support for council owned trading companies, earn-back powers to stimulate markets, and assurance that income can be retained without further loss of grant.