The Commercial Edge

Renewing the case for the local investment state

Author: Tom Mills & Callin McLinden, with Jonathon Noble & Jonathan Werran   |   17/06/2021

As far back as the twelfth century, we have evidence that local authorities have engaged in commercial activity effectively – benefitting residents, improving public services and generating much-needed revenue independent of central government. Jo Chamberlain’s fabled ‘gas and water’ municipalism in the 19^th century showed how commercial interventions of the muscular variety could engender transformative localist ends. However, in recent years, council commercialism has become a hot button issue for the sector and the practice is under fire by newspapers and central government alike. And despite high profile instances of individual ‘bad apple’ failures, it remains true that local authorities are increasingly looking at and engaging in commercial activity as a means of generating income – and all of the management and risks that come with it.

In the context of a growing local government funding gap, one which isn’t likely to close this decade, and amid a continued lack of long-term financial assurance and stability for the sector, the onus on councils to remain commercially savvy will if anything become ever more pressing.

But there is a positive case to make.  Undertaken with diligence, professionalism and conviction, commercialism can unlock latent place potential and deliver conspicuous and inconspicuous benefits to councils and the communities they serve.  With this in mind, Human Engine and Localis have partnered up to produce ‘The Commercial Edge’ – an attempt to reframe the debate and steer the sector towards consistently strong commercial practice.

Download the executive summary

Key points

In addition to austere budget cuts, social care pressures and a global pandemic, local authorities are subject to a commercial environment that is made especially difficult by a challenging media narrative, one bought into by central organisations,  and one which increasingly upholds the idea of council commercialism as inherently risky and morally suspect.

Local authorities have developed their 2021-22 budgets in the context of great uncertainty about how much to expect from central government and where other means of income generation are going to lie going forward. Moreover, the government has so far been adamant that money lost due to commercial investments will not be covered by their income compensation scheme.  We await the 2021 Spending Review to inform longer-term local public finance settlements.

Aside from this immediate context and set of fiscal policy drivers, our report has highlighted four distinct challenges facing commercialism in local government.

These are as follows;

• defining commercialism;
• aligning commercial activity to public value;
• commercial governance and risk management; and;
• facilitating a commercial culture within the local authority.

This presents a pressing need for commercial activity to be pursued strategically with accountability, caution, meticulousness and strong risk management embedded into respective agendas – as well as making effective commercial use of all potential assets at a council’s disposal.

This report argues that when carried out professionally and with risks properly managed, council commercialism can unlock immense latent place potential, deliver many benefits and, ultimately, galvanise local economic and social recovery and renewal.

Local authorities are advised to apply and demonstrate five commonly identified themes of commercial maturity when engaging with such practice;

• strategy and alignment;
• supply;
• demand;
• market intelligence;
• and organisational culture.

The report concludes with a full-throated advocacy for well-managed, place-based commercialism as well as a defence of a council’s right to do so when appropriate, regardless of the prevailing political headwinds.

Recommendations

Recommendations for Local Government Leadership

1. Set out your definition and communicate widely. Be clear how this aligns to the purpose and values of the organisation, adopt a simple statement of policy and communicate with staff, partners and customers.
2. Likewise, agree risk appetite and communicate this early. There is no sense in imbuing staff with the spirits and skills of entrepreneurs then tying their hands with process and rejecting every idea that entrails risk.
3. Invest in the skills needed to deliver this. Give your teams the tools and techniques needed to deliver the councils commercial approach and use these skills to add value to public services. This can include softer skills like creativity, adaptability and influencing as well as more traditional commercial acumen such as market analysis, sales and finance.
4. Work with partners and drive greater value out of contracts. Social value can be a means to delivering public value. Don’t underestimate the value that can be harnessed from supply chains and rigorous contract management.
5. Undertake a self-assessment of your commercial maturity using the commercial maturity model. Be sure to check and challenge your own organisation and focus on how commercial activity will deliver the council’s public value objectives.

Recommendations for Elected Members in Scrutiny Roles

1. Understand the drivers, risks and legislative limitations of commercial decisions in your locality. This includes the reasons behind commercial activity, extent of council powers to do so and how this is applicable to your given locality. This also relates to aligning commercial activity to aligning commercial activity to the council’s corporate objectives.
2. Have a clear framework for evaluating commercial decisions, including financial and social considerations. Situations and priorities change and with them so can the impact of commercial activity. But using a consistent framework for evaluation can ensure the council maximising the social return on investment, as well as financial.

Recommendations for Central Government Partners

1. Recommit to the principles of the general power of competence. This will enable councils the autonomy to act in the interests of their locality.
2. Develop a broader understanding of commercialism. Government has made great strides in sharpening the commercial capabilities of those involved in public procurement. But, for local authorities, commercial activity is much broader than procurement and contract management. At present, there is a risk that local and central government use the same terms to describe different things. A common language will enable better understanding.
3. Deepen understanding of why councils are taking commercial decisions by creating a commercial network. Councils have routinely delivered successful commercial initiatives. There is an opportunity for cross-sector learning to promote and entrench good commercial practice and join the gaps between policy and practice.
4. Consider what support could be offered on capability uplift. Support local government to introduce a sector-led commercial skills programme that matches the ambition of central government training initiatives to position the sector to continue to manage its own commercial activity without the need for intervention.

Research carried out in collaboration with: