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CIPFA: commercial focus vital to council service innovation

Neil Merrett Published 14 July 2016

A new report details opportunities to improve authority incomes by profiting from functions including back office expertise sharing; skill base and public perceptions among key challenges

 

The Chartered Institute of Public Finance and Accountancy (CIPFA) expects local authorities to come under growing pressure to provide commercialised services, such as back office support or leisure functions, in order to maximise incomes at a time of ongoing financial uncertainty.

In a new report entitled ‘The Commercial Imperative’ released today in partnership with Civica, CIPFA has set out a number of case studies where councils have looked at developing potential sustainable commercial models to fund more ambitious transformation of their operations. 

Citing Local Government Association (LGA) estimates that reduced social housing rent will create an additional council funding gap of £1bn up to 2020, the report claims finance chiefs are less confident over the long-term viability of providing higher quality universal services.

CIPFA chief executive Rob Whiteman said the challenges presented in the report come at a time where councils face an uncertain financial future that could be further exacerbated by the recent EU referendum vote in favour of the UK leaving the bloc.

He noted that while councils must protect key public services, such as looking after the vulnerable and child protection, there was a need to look at potential commercial offerings in order to generate revenues from the different capabilities developed by authorities that include back office IT functions or financial services.

Whiteman argued that leisure or cultural services, as well as shared operations or setting up trading funds were other possible opportunities for councils to consider around commercialisation.  However, he noted the focus would be limited by the public’s attitude to risk and possible commercial failure of projects that do not generate revenues to invest back in services.

The CIPFA chief executive said that in order to support the development and planning of more innovative public services and technology, culture change would be vital across local government to help maximise their revenues.

“Councils can only make incremental savings for so long, you have to invest to improve,” he said.

“Looking at demand management and behaviour change among residents will be a big part of this focus, as well as considering delivering or potentially selling on services that are commercially advantageous.”

According to Whiteman, the key questions for authorities would now be to look at how they can implement culture change that would allow for improved revenue streams.

He argued that some authorities were presently considering setting up trading companies, or shared service groups, while others may consider bringing back services in-house, or potentially expanding to offer companies or other councils support services.

Whiteman added that the joint research between Civica and CIFPA had not provided one specific pattern of how local authorities were presently looking at commercialisation to overcome funding gaps, with the report showing a number of different options that were available.

Examples of emerging commercial models in the report include Bristol City Council establishing the municipal company, Bristol Energy. The company was established to capitalise on the council’s green energy expertise, as part of an investment plan aiming to tackle an issue faced by low-income residents, who were paying higher energy costs than wealthier individuals due to pre-pay gas and electricity metres.

“The energy team from a big gour accountancy ?rm was brought in to perform due diligence on the project and provide knowledge experience and commercial skill to the council,” said the report.

Another example was the formation of the Anglia Revenues Partnership (ARP), which has established a council tax collection and housing benefits distribution service between seven councils in East Anglia as part of a strategy estimated to have led to combined savings of £2.5m for the involved authorities.

“Shared services strategies can prove pivotal in helping councils meet their ?nancial targets. Shared services work because they typically protect jobs, reduce costs to the individual council, and improve the actual service offering,” argued Gary Bell, business process outsourcing (BPO) managing director at Civica.

“If councils then decide to sell that service to other authorities, then they can secure a vital source of income.”

As part of the report’s research with CIPFA, 45 local authority figures with chief executive or chief financial officer (CFO) roles were quizzed over their views on commercialisation strategies.

Of this group, said to make up a tenth of total management positions across the sector, 40% of the local authority leaders surveyed said commercialisation played a role in their current strategies.  However, just 4% believed they had significant commercial expertise to undertake such transformation.

Progress in trying to roll out commercial strategies as a means to maximise authority incomes was believed by 36% of respondents to be held back by a limited understanding of market needs, while 56% expressed concerns over the risks involved and later public reaction.  The same percentage of individuals questioned expressed discomfort about adopting new commercial models.

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