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Council commercial initiatives held back by fear and lack of CEO experience

Commercialisation of local government services in order to meet financial pressures is being held back by council leaders’ lack of experience, a new report warns.

The joint report from the Chartered Institute of Public Finance and Accountancy (CIPFA) and Civica said that commercial initiatives such as Bristol Energy, an energy company owned by Bristol City Council which was founded last year, will be increasingly important as councils gain full control of business rates income and face cuts of up to £1bn.

However, the report said that just 4% of council chief executives and chief financial officers had significant commercial experience – despite 40% saying commercialisation plays some part in their current strategy.

Furthermore, 56% said they thought commercial initiatives were being held back by discomfort about the new models and concerns about the risks involved, while 40% said they thought they were being discouraged by a restrictive organisational culture.

In addition, almost a quarter said they were confused about what commercialisation involved and 36% didn’t think they understood what the market needs.

Rob Whiteman, chief executive of CIPFA, said: “Commercialisation is going to be one of the most important priorities for local authorities over the next decade. If they haven’t already, council leaders and CFOs must start thinking about short, medium and long term strategies for generating their own income.

“Reappraising their appetite for risk is vital to making these endeavours successful. Not every attempt will make money and as public bodies using the public purse, it’s a difficult position to be in. But a thorough review of risk management, cost and modelling systems, together with open conversation at a board level can make it easier.”

Despite their concerns, 65% of surveyed council CEOs and CFOs said they wanted to implement bigger, more radical and more ambitious commercial projects, whereas 35% said they wanted to implement smaller and less risky projects.

But Brendan Arnold, director of finance, infrastructure and transformation at Hull City Council, which has saved £165m through commercial initiatives, said a mixture of small and big initiatives was important.

“I think organisations make the mistake thinking that the small stuff doesn’t matter,” he said. “It matters immensely and stacks up to numbers that really make a difference. If you ignore small opportunities and don’t exploit them, that is a missed opportunity.”

At a recent Leadership Forum hosted by Civica, council CEOs and CFOs discussed the four profitable opportunities that they argued should be considered to address funding gaps in local government. These includes trading directly with communities; making the most of existing assets and boosting the local economy; sharing and selling services amongst peers; and ‘driving digital’ to create efficiencies and new cash streams.

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