Although still a nascent phrase in the public sector vernacular, the term ‘casino council’ is increasingly bandied about by those sceptical of the commercial ventures pursued by local authorities. However, with central government pushing an agenda of selfreliance and devolved powers, local authorities are under mounting pressure to pursue more expansive investment strategies in order to meet the demands on their frontline services.
The current cocktail of council tax – poised for a sharp rise across almost all of England – and business rate income is leaving the majority of local authorities starved of the funding they need to meet the mounting pressures on adult social care, children’s services and homeless support. It’s no wonder then that a recent joint Local Government Information Unit and The MJ report found more than three-quarters of local authorities have taken out loans to invest in commercial property.
While commercial investment might be an attractive proposition for any local authority looking to put an end to its financial woes, it’s not without its perils. Increasing scrutiny on overspending and providing value for money, as well as calls for a parliamentary inquiry into local government finances ahead of the summer Spending Review, means both the public and central government spotlight is firmly centred on these projects.
Getting commercial investment right has therefore never been more important and its success for any local authority will often hinge on the expertise of those involved. Local government leaders are now required to develop annual investment strategies, borrowing strategies and capital investment plans explaining how ‘non-core’ investments contribute towards core service delivery. It not only requires a ‘money-making’ mind-set, but also means enhancing senior leadership teams with commercially astute individuals.
Any foray into the commercial arena will involve negotiating loans, generating ‘business’ roadmaps that offer genuine insights into return on investments and need to take into account economic risk factors. The latter is an increasingly important aspect of commercial ventures. Depending on the investment, a local authority may require expertise in anything from high-street retail trends to knowledge of the energy sector, property market or financial trading.
With a steadily decreasing support grant provided by central government over the past few years, local authorities have been rising to the challenge of sourcing their own funds. However, with the need to pursue ever more aggressive financial tactics the demand for individuals with a cross-section of skills is growing and public sector talent acquisition is becoming increasingly sector agnostic.
Local authorities need to be looking for senior leaders who can navigate political agendas at the same time as developing viable commercial roadmaps. It requires a unique blend of commercial acumen and political awareness to ensure both the economic and social impact of any given investment upon a local area is considered. ‘Investment for investment’s sake’ is a mantra to be avoided, while individuals who can deliver commercial investments within the context of what local authorities want their local areas to look like should be sought after.
The idea of commercial skills on-tap might seem unrealistic. However, alongside the public sector’s home grown talent, there is a growing pool of fund managers and investment bankers who have a public sector spirit and are keen to offer their skills. These are the individuals who can put together investment rationale alongside advisory boards to assess projects, manage investment portfolios and develop scoring matrices to ensure councils are not wasting their time on unsuitable investments. What’s more, they are often highly experienced in securing the right price on property and can ensure contingency funds are used as efficiently as possible.
As the need to make money to protect frontline services grows, the number of joint ventures will increase and more local authorities will develop into large structural organisations that incorporate investment arms and business units – it’s a future increasingly fraught with risk. However, while the financial sustainability of local government is far from certain, there is a cohort of commercially talented individuals on hand to meet the challenges ahead.
Jes Ladva is partner and head of Odgers Interim’s Government Practice