The Essential Guide to financial sustainability

ContentsContext 2

Approaches councils are taking 3

Stimulating local economic growth 6

Policies to maximise revenues - charging 12

Policies to maximise revenues – trading 14

Policies to maximise revenues – other 19

Sharing and partnerships 19

Invest to save 21

Reconfiguring and joining up services 22

Appendix 1 – Nottingham’s Commercial Toolkit 23

Appendix 2 – Benchmarking 24

Appendix 3 – Charging 25

Appendix 4 – Trading 26

Local Authority Trading Companies (LATCs) 27

Useful links 29

LGiU briefings 29

Reports and collections of case studies 29

Individual case studies 31

Author: Tom LawrenceTom is a public policy consultant. He specialises mostly in local government finance, but also has interests in community empowerment, social investment, local infrastructure, housing and service transformation. Prior to turning freelance, he spent 12 years in local government policy and governance posts. This included five years working at London Councils on local government finance - taking part in meetings with government departments, contributing to consultation responses, carrying out analysis and working with council finance officers. He holds a doctorate in mathematical physics, which he continues to research in his spare time.

With thanks to Alan Weaver: part of this guide is based on LGiU policy briefings written by Alan Weaver and Tom Lawrence.

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ContextOver recent years, local government has been under unprecedented pressure to achieve more with less. Changing demographics are increasing demand for services. At the same time, external funding is falling, so councils are relying more on locally-generated funding. This is a mix of local taxation and service-level income, such as charges, fees and trading income.

The UK’s ageing population has for several decades been placing increasing strain on adult social care budgets. Other issues also frequently cause budget pressures in certain service areas, sometimes particularly affecting certain regions of the country. These include children’s care packages and safeguarding, population growth in urban areas and retirement destinations, growing waiting lists for social housing and a range of regulatory requirements.

When the effects of the credit crunch hit the public finances, councils which had been used to steadily rising funding from central government suddenly found it slashed back. For England, the nature of this funding also changed dramatically over the course of the last Parliament. Ring-fenced funding, in particular, was almost done away with. Needs-based funding was largely replaced with incentive mechanisms, such as New Homes Bonus and Council Tax Freeze Grant. Formula Grant was replaced with Business Rate Retention and Settlement Funding Assessments. Public health was devolved to local government while school education and the funding for it was increasingly taken out of the hands of councils.

Following the Spending Review 2015, the 2016-17 Local Government Finance Settlement and the Budget 2016, we know that many of the trends and policies of recent years will be continued in this Parliament. The reductions in total grant funding will continue until at least 2019-20. On the other hand, in England yields from local taxation are expected to rise substantially over this period, especially with the advent of new social care precepts. Before the changes to business rate retention (see below) are taken into account, these two trends are projected to balance out approximately at the England level. That is to say, total local authority income (excluding that from sales, fees and charges and other service-level income) is projected to be roughly flat in cash terms across the Parliament. However, the distribution will be very uneven, with some councils hit hard – especially shire districts – even after the additional funding in the final settlement is taken into account.

The overall picture is one of continued reduction in government funding for local authorities, increasing demand for services and greater reliance on locally raised funding. The balance between these three will vary widely from authority to authority – each council will face its own unique circumstances. In two-tier areas, the pressures faced by the upper-tier authority will differ from those faced by the lower-tier authority. In many cases, greater collaboration between them may be required to ensure the continuing viability and financial sustainability of both.

In particular, the growing need for expenditure on social care will put huge pressure on other services, such as fixing roads, cleaning streets and keeping libraries open. The oft-quoted historic approach of “salami slicing” will no longer do the trick. Far more comprehensive and innovative service transformation will be required.

At the same time, the UK government seems to be starting to view councils as key players in solving the country’s problems. The City Deals programme has been expanded into Devolution Deals and Combined Authorities are flavour of the month. Local authorities will

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be moving towards 100 per cent business rate retention (some of them sooner than others) and will gain some extra flexibility over reliefs and supplements. However, many questions remain unanswered (see our November briefing).

Authorities that are able to seize and exploit these new opportunities could thrive in this new landscape of increased financial autonomy. Indeed, some authorities, particularly district councils, have now drawn up strategies to achieve some form of “self-sufficiency” or “financial autonomy” in the near future, including West Lindsey and East Hampshire. Sevenoaks has actually achieved a budget this year (2016/17) which does not rely on either Revenue Support Grant or New Homes Bonus – any income from these will be put into their “Financial Plan Reserve” (see below).

The main section of this guide, “Approaches councils are taking”, outlines different approaches that can be employed to put services on a sustainable footing. These can be implemented individually, but are most powerful if they are combined. The narrative for each approach contains numerous case studies. This is intended to inspire readers with ideas as to what could be possible in their area. Some basic practical guidance and assistance is given in the appendices, describing some existing structures that councils can utilise in applying these approaches. The guide ends with some useful links which provide additional resources for those wishing to explore these issues further. These include LGiU briefings, reports by a range of organisations and links for the case studies in this guide.

Approaches councils are takingAs explained in the previous section, local government is now embroiled in a period of fundamental change. There are severe challenges but there are also new opportunities. The policies a council adopts are now more crucial to its success than at any time in the last few generations. Local authorities are having to rethink what they stand for and then turn their fundamental aims into strategies for financial sustainability. A council’s ability to develop a viable financial strategy based on a clear vision can make the difference between thriving and getting into real distress.

Many authorities across the UK are rising to this challenge. Where they are succeeding, it is often because the approaches they have adopted to reform are based on a clear vision. The vision agreed by the leadership of the council has then been permeated throughout the organisation, creating a distinctive corporate ethos and culture. As we will see in the following subsections, individual policy decisions will then be determined largely by this ethos.

Given the diversity of the UK’s communities and the councils representing them, it is unsurprising that a wide variety of approaches have been taken. Nonetheless, councils reassessing their service provision or trying to optimise their reforms need not reinvent the wheel. It is often possible to draw inspiration from what another authority has done, and adapt it to suit local circumstances.

In the following subsections, we outline a number of common approaches taken and provide examples of their implementation:

• Adopting policies which will stimulate economic growth;

• Overhauling charging policies;

• Generating income through trading;

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• Working in partnership with other councils, organisations and sectors, including sharing staff, assets and financing;

• “Invest to save” approaches, including capital investment to reduce running costs, and investing in early intervention and preventative services;

• Joining up services and reconfiguring them around the needs of service users.

However, this is not an exhaustive list. Greater efficiency and financial sustainability can be achieved through other approaches too. For example, Oldham has managed to generate substantial savings by improving procurement and contract negotiation (this is touched on in a case study below). It is also worth examining how systems and procedures can be streamlined and governance strengthened. This whole collection of approaches should be viewed as a “toolkit” to draw on. In general, the overall vision or ethos adopted by a council will suggest a combination of these approaches, tailored to local circumstances. Indeed, as we will see, they are often most powerful if they are combined.

The detailed implementation will often be constrained by regulatory requirements and/or political considerations. It may also be the case that there are already existing structures or frameworks that can be made use of to make implementation more straightforward. These matters are considered in the appendices to this guide. Councils undertaking service transformation should also ensure they make the greatest possible use of their own resources and expertise. Crucially, this includes both service users and elected members. Community organisations may have built up a substantial body of knowledge on how particular services could be improved. But it is also worth remembering that councillors and council staff may have relevant life experience from outside their own policy area or portfolio.

The first crucial step is to adopt a distinctive vision for the council, taking into consideration the image that will be projected. This may involve a comprehensive programme for transformation or a number of interlinking strands. Well-known examples include the “One Barnet” programme (which became widely-known as the “EasyCouncil model”) and Lambeth’s “Cooperative Council” model (sometimes known as the “John Lewis” model).

Other examples, explored below, include:

• “Opportunity Sutton”, parts of which are explored further in the following subsections;

• West Lindsey’s “Entrepreneurial Council’ model, described in the case study below;

• Nottingham’s “Commercialism Programme”, described in the case study below;

• Oldham’s “Cooperative Borough”.

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West Lindsey

In 2010, West Lindsey developed a corporate model called ‘The Entrepreneurial Council’ designed to promote commercially-focused income-generating services and the involvement of the local community in service delivery. Significant levels of finance were invested as part of a commitment to value and develop the workforce. This multi-skilling has involved: increasing the commercial and financial skills of managers; enhancing the community development skills of all officers and encouraging them to identify opportunities to generate income; developing an agreed set of values to which all staff and elected members work. These developments have been consolidated by improvements to the efficiency, productivity and effectiveness of services. For example, the refuse and street cleansing service has been re-engineered, labour requirements re-assigned at different points in the collection process and recycling points rationalised, resulting in a net reduction in the cost of the service.

Application of the model resulted in efficiency savings of almost £3 million between 2009/10 and 2012/13 and these developments have provided a platform for West Lindsey to go further. In February 2015, West Lindsey Council approved a new commercial plan designed to enable the council to become financially self-sufficient by 2020. The plan set out a framework to help guide the council’s income generation activities from 2015-2020 closing a projected £2.45 million gap by generating additional monies. The Plan focuses on increasing income from services, and capital and revenue income from supporting housing and economic growth, and from external funding. It seeks to strengthen further the Council’s commercial culture and capability and is supported by an annual delivery plan that will progress specific projects each year. An ‘Invest to Earn Fund’ of £1 million is to be used to finance research and development activity such as market analysis, sales opportunities and the development of project business cases.

Nottingham

For several years, Nottingham Council has been actively pursuing ways to commercialise its assets and expertise. It sees commercialism as part of a survival strategy – a way to cross-subsidise essential services.

In 2014, Nottingham won a Municipal Journal Local Government Workforce Achievement Award for its Commercialism Programme – Transforming Nottingham’s Workforce. Two of its commercial projects are described in the subsection on trading below.

It has a Commercialism Toolkit and resources which provide a step by step guide and a range of tools to enable officers to better understand their service area and take forward their commercial ideas. There is further information in Appendix 1.

Nottingham recommends going through the same planning stages as any new business, starting with an honest competitor analysis, making sure that products or services provide a genuine unique selling proposition and doing proper marketing.

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As described above, adopting a corporate ethos will tend to entail selecting certain approaches to ensuring the council remains financially sustainable. It is also very helpful to have a clear idea of the council’s strengths and weaknesses, relative to similar authorities. This can be achieved through benchmarking, which is covered in Appendix 2. Once the council has decided how it will transform its services, the benchmarking tools and processes can be used to measure success.

The following subsections explore some common approaches. These, as the examples will demonstrate, are often interlinked. They may draw also on structures that are described in the appendices and resources we provide links to at the end of this report.

Stimulating local economic growthIncome from Business Rate Retention (BRR), Council Tax and New Homes Bonus (NHB) accounted for around a third of total council income in England in 2013-14 (from Revenue Outturn data – includes sales, fees and charges and other service-level income but excludes Dedicated Schools Grant and Pupil Premium). This proportion is likely to grow year-on-year until at least the end of this Parliament. By adopting policies which stimulate business growth (increasing rateable value) and housing growth, authorities can significantly increase their income. In addition, helping citizens from welfare back in to work can create savings on an authority’s welfare budget.

There are many ways to promote local business and housing growth. Simply making clear the council’s openness to business can be a good start to get the ball rolling. This was the case with Sutton, as described below.

Sutton

In June 2012 Sutton Council launched the Opportunity Sutton Economic Growth Programme. This stated that:

“Our vision is for Sutton to be an enterprising, enabling borough that is a magnet for business investment; that welcomes new entrepreneurs and social enterprises; nurtures its business base and removed barriers to enterprise. We want Sutton to have a competitive edge over our neighbours”

Simply by publicising the council’s openness to business, they have attracted a lot of inward investment. An investment conference, which generated a lot of interest, was followed with an examination of the range of businesses already present in the borough. Some of these decided to expand their operations; for example, a marine engineering company decided to locate its international headquarters there, and a major cancer research centre participated in plans for a new life sciences cluster. Both are engaging with local schools.

£1m was put aside to progress this new approach. However, the Council has seen a substantial return on this outlay. The Opportunity Sutton Review states that over 1,700 jobs have been created and the percentage of the working age population who are economically active has risen from 78.8% (2012) to 85.2% (2014). The increased investment in the borough has meant that new houses are being built alongside new employment opportunities, stimulating stuck sites and bringing in new development.

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One basic way of encouraging local growth is providing support and advice to local businesses. Business startups, established small-scale independent businesses and larger firms will all require different types of support. Business people and their staff with physical disabilities, learning difficulties or conditions such as dyslexia may require additional support.

Lambeth supports the “Tree Shepherd”, a social enterprise which is referred to as its “Social Entrepreneur in Residence”. This organisation provides support and guidance to residents starting up a new enterprise, mentoring them through their first year.

Councils can also use their own purchases and supply contracts to support local businesses. Councils in England and Wales now have a duty to consider the economic,

In the first two years, without spending even half of the £1m, the programme has brought in £330m of new investment. Most of this is private investment, but it also includes £1.7m from Business Improvement Districts, £3.7m from the Greater London Authority’s Outer London Fund and £0.9m from New Homes Bonus.

The programme is backed by a Special Purpose Vehicle called “Opportunity Sutton Limited”.

Sutton has supplemented this with two other approaches to stimulate housebuilding. The reform of the Housing Revenue Account (HRA) has provided them with some borrowing “headroom” and they successfully applied for more. Utilising this borrowing and their right-to-buy receipts, they are progressing with plans to build around 140 new council homes across three main sites. (Two of these are defunct council buildings and one is the replacement of structurally defective purportedly sheltered housing.)

The other approach is to set up a council-owned housing development company (DevCo), as a subsidiary of Opportunity Sutton Ltd. It is funded by council borrowing at PWLB rates, which is then lent to the DevCo at a commercial rate that satisfies state aid rules. It allows the council to build on its own sites, buy sites or existing properties and rent them out, or guarantee to purchase the affordable element of private developments.

This will deliver new housing across all tenures:

• longer term private rented properties at a ‘subsidised’ rent, for those that cannot afford the local market rates;

• longer term private rented properties at market rates, for those that can afford it;

• properties for sale, with restrictions that they are offered to Sutton residents first;

• traditional social rented property, cross-subsidised by the properties for sale and private rent.

The initial business plan models the delivery of 273 dwellings of which 33 will be market sales, 137 market rent, 45 affordable rent and 58 shared ownership.

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social and environmental well-being of their area in their commissioning and procurement processes, under the Public Services (Social Value) Act 2012. Links to resources relating to this are provided at the end of this guide.

If contracts are placed with local businesses, this can really help to grow the local economy. A 2005 study by the new economics foundation and Northumberland CC found that every £1 spent with a local supplier in Northumberland is worth £1.76 to the local economy. In contrast, if it is spent with a supplier from outside Northumberland, it is only worth 36p. Stockport, Trafford and Oldham (see below) among others, have both held events where local companies meet purchasers from the council. Attendees at the Stockport events have included building suppliers, cleaning services, printers and photographers.

Thirdly, councils are major investors. They invest in-year balances, reserves and pension funds. These can be invested in local credit unions, building societies, small businesses and local infrastructure, as in the case study on the next page.

Oldham

Oldham has focused a lot of attention on procurement in recent years. It has applied its vision of being a “Co-operative Borough” to this area, to develop a “Co-perative Procurement” model. This is about getting the greatest possible economic and social return on every pound spent from the public purse in Oldham.

The authority has adopted a “Social Value Procurement Framework”. This assesses potential suppliers not just on price but also on what social, economic and /or environmental benefits they can deliver. The additional criteria include whether the suppliers create new jobs or training for local people, support local charities, or invest in the local communities.

Oldham Council works with around 5,700 suppliers each year. In 2011/12, the Council spent £138m with local suppliers, equating to 48% of the authority’s overall spend for the year. Procurement is therefore a vital area for finding savings, but Oldham is determined to do this while generating benefits to the local economy. The approach has already generated substantial savings but they also have targets for getting residents into work and the procurement framework is designed to support this.

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Nineteen councils have invested in small businesses through the peer-to-peer lender Funding Circle, including counties, metropolitan and shire districts and London boroughs.

Councils should also consider the needs of local business when setting policy on business rates relief. There is a range of discounts available at the national level on business rate bills, under certain circumstances – these are known as “mandatory reliefs”. Reliefs are available for such things as small businesses, charities, empty properties, rural amenities and properties whose RV sees a large change during revaluation.

Local authorities may also grant additional “discretionary reliefs”, at their own cost. According to its Explanatory Notes, the Localism Act 2011 gives councils the power to grant relief in any circumstances, subject to two qualifications, as follows. Firstly, in doing so, they must have regard to any relevant guidance issued by the Secretary of State. Secondly, under most circumstances, they may only grant relief if it would be reasonable to do so having regard to the interests of council tax payers in their area.

In general, few authorities are trying out particularly radical uses of this freedom. However, there are a few exceptions. For example, LB Croydon offers 100% business rate relief to businesses moving into Croydon or expanding, for one year.

As described at the start of this section, policies should be based on the overall ethos of the council and be informed by widespread consultation. There may be subtle effects of the wording of relief policies that may not be immediately apparent. For example, there are a number of business structures which have social objectives, such as social enterprises, co-operatives and industrial and provident societies. These do not currently receive mandatory relief. Some of these are finding themselves forced to set up ventures as a new charity to get business rate relief and ensure their viability. This may not be the most appropriate structure for them and it can place a considerable administrative burden on them. Appropriate use of discretionary relief could get round this problem.

Cambridgeshire Local Government Pension Fund

Cambridge and Counties Bank is a partnership between Cambridgeshire Local Government Pension Fund and Trinity Hall, a College of the University of Cambridge. It emerged out of the Leicester-based Pensions Bank, after its sole shareholder exited the business. It provides banking services, including deposit accounts and loans, to small to medium sized enterprises (SMEs). It develops personalised relationships with its customers, initially concentrating on Cambridgeshire, Northamptonshire, and Leicestershire.

It launched in June 2012 and within 18 months it had lent more than £100 million, comprising more than 250 loans. It had also launched a one year fixed rate bond and was looking after more than 1800 SME deposit accounts. Its headquarters remains in Leicester, but it has expanded rapidly. In 2014 it appointed business development managers for the West Midlands and the North of England. It now has offices in Cambridge, Leicester, Sheffield, Bristol and Birmingham.

The bank won both the Great Green Star and Best Green Champion awards in the national Investors in the Environment (iiE) Awards ceremony in March 2016.

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Income from business rates and council tax can also be increased through administrative means, such as investing in

• debt collection;

• registering businesses for business rates;

• ensuring improvements in business properties are reported to the Valuation Office Agency rapidly.

Finally, it is worth remembering that the infrastructure costs associated with development can be covered using the Community Infrastructure Levy (CIL). Authorities can even set CIL at a single rate across their whole area, as Redbridge has done.

It is worth noting that a project on just one or two sites can bring in substantial sums from business rates and rents, as demonstrated in the case study below.

Colchester

Colchester is currently involved in projects which will see increased business rates and rental income for the council, and improve transport in their area.

One such project is focused around a site on the A12. This site had been lying vacant – businesses simply weren’t interested in it. The council realised that putting in a new junction could open up development on the site. And indeed, this is what happened. The council’s development of the junction, together with government investment in an expansion of the A12, brought three car showrooms into the area.

The council then received numerous bids to develop on the other side of the junction. All of these included a cinema. The application which has now been agreed includes a 16 screen IMAX cinema as well as restaurants. It is projected that this will attract people from a 45 minute travel area – this would include Lowestoft and possibly parts of the London outskirts.

This land is owned by the council so it will receive rental income. However, the increase in retained business rates that the development will generate is projected to outstrip the rental income. In total, it should generate more than £1m. The development is expected to create around 600 permanent jobs, which could potentially create a saving on benefits bills, including council tax benefit.

A further site on this junction is owned by Colchester Borough Council, and this is leased to Essex County Council for their Park and Ride service. The development will therefore bring in additional parking income, as well as additional bus fares for Essex County Council.

The introduction of the Park and Ride service has freed up car parking in Colchester town centre. Colchester Borough Council have assessed one car park that they own as being surplus to requirements. They are therefore investing in the construction of offices on this site which will become the head office for a regional firm of solicitors. They will continue to own the offices and will receive both rent and business rates from the solicitors.

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Councils can take similar steps to boost the number of utilised dwellings in their area. As Council Tax income and NHB will both increase as the number of properties in the local authority area rises, this can generate substantial income.

One approach is to invest in bringing empty properties back into use, as in the case study below.

Again, in-year balances, reserves and pension funds may be invested, as demonstrated by the case study on the next page.

There may be some additional pressure on council services from the increased visitor numbers resulting from these projects, but this likely to be very small in comparison to the income generated.

Norwich

LGSS provides Norwich City Council’s council tax collection services. Norwich works with them and Liberata to identify and monitor vacant properties. This involves LGSS officers visiting properties and identifying homes which have been brought back into use, and further investigations by Liberata to corroborate homes which are long-term vacant.

The Council’s private sector housing team then works with owners of long-term empty properties to bring them back into use. This includes basic external surveys of the physical condition of homes, providing the owners with information about the financial benefits of bringing the properties back into use, referring them to sources of support and, where necessary, using enforcement and compulsory purchase powers. In the past, vacant properties have also been renovated and brought back into use under the Council’s private sector leasing scheme, which lets and manages properties on behalf of owners.

In 2014/15, the Council brought 150 homes back into use, significantly exceeding its target of 20 homes a year, set out in the Council’s corporate plan. This increases the supply of housing for local residents. It also improves local areas which can be blighted by properties which have been neglected and left empty, often for several years. Finally, as referred to above, each empty home brought back into use attracts New Homes Bonus equal to the national average council tax for that band, for six years.

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Policies to maximise revenues - chargingCouncils spend money on services, but they also receive income from them. Most of this income arises from one of the following sources: fees and charges paid by local service users, sales, rental payments relating to council buildings and other assets, and payments from other organisations. Fees and charges, in particular, provide a significant proportion of local authority income.

Councils apply charges across a wide range of services and charges serve a variety of purposes. As well as bringing in vital income to deliver services, they can be used to support policy aims and influence behaviour. (For example, low gym charges can be used to encourage exercise, while car park charges can be introduced to discourage the use of cars in city centres.)

Councils must provide some services free of charge but with others they have complete discretion. For example:

• Free of charge - Children’s education, collecting and disposing of household waste, library book loans, street cleaning and lighting;

• Statutory guidelines (for example, to recover costs) – Planning and building control, commercial waste, licensing, pest control;

• Local discretion – Sports and leisure, car parking, bulky waste uplifts, burials and cremations, public toilets.

They may also offer price concessions to certain groups of service users based on, for example, their age, employment or financial circumstances. Legislation and guidance sets out how councils can apply charges but its application can vary between councils. See Appendix 3 for more on this.

Besides statutory constraints, there are a number of considerations that councils should be aware of when setting charging policies. Charges should be based on corporate objectives and take into account the views of users and other stakeholders, and the likely impact of charges on new service uptake and income.

Manchester

Matrix Homes is a joint venture for between Manchester City Council and the Greater Manchester Pension Fund (GMPF) to build more than 240 new homes on five sites across the city, with a roughly equal mix of sale and rental properties. This mix has been developed to ensure each location meets the property requirement for the local area. It is funded through the “Housing Investment Fund” (HIF), with GMPF investing £25 million, Manchester City Council investing £5 million of land and the Homes and Communities Agency (HCA) also investing a site.

Wates Living Space are building the homes, with GVA providing technical advice and project management. Pozzoni are the architects, Plumlife handle sales enquiries and homes for rent are available through TouchStone Residential. The properties are a mix of two, three and four bed homes. They are designed to meet the demands of modern buyers and tenants and include energy-efficient features such as solar roof panels.

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Councils will benefit from having a systematic approach to setting charges - corporate policies setting out council-wide principles for charging, and also departmental policies setting out objectives for individual services and how and when charges are to be set.

With a more structured approach, councils are better able to set charges that are consistent with their policy aims, and less likely to make hurried, flawed, charging decisions in response to urgent budget setting pressures.

It is important to monitor and review the impact of charging decisions – to check whether policy and service aims have been achieved and whether there have been any unintended consequences, such as a decline in usage. Councils should periodically review their overall approach to charging and concessions to assess the impact of charging arrangements and ensure that service charges comply with corporate guidelines.

Councils can help to make their services more financially sustainable by finding imaginative ways to increase charging income. For example, some social care packages may be means tested against income, including benefits. Some recipients of these packages may be eligible for benefits, but may not be registered for them. Helping service users register for benefits that they are entitled to can yield a win-win situation: the service user receives additional benefits income and the council receives additional income from these charges.

This may be achieved most efficiently by working in partnership with local charities and community groups.

Some councils have developed registers setting out current charges, the annual adjustments to the charge, and their charging basis, for example to recover costs. These help councils to monitor their overall approach to charging, take a consistent approach across services, and to be transparent in their use of charges. A report by the Accounts Commission (published by Audit Scotland) in 2013 described the situation in Scotland. Highland Council applies its charging principles across all services. The policy helps to ensure charging reviews as part of the council’s budget setting proves reflect common corporate principles. East Renfrewshire has a rolling programme of service charge reviews. This requires major charging areas to fully cost the services they provide at least once in each three-year period.

Elected members should provide strong leadership and direction, as charges are important to sustain services and to meet policy aims. They should be aware of the impact of charges on the services they are responsible for, and be actively involved in charging decisions. They have an important role in representing their constituents and should be consulted over charges along with users and other stakeholders. North Lanarkshire involved councillors in an option appraisal and challenge process with senior officers. This was used to assess charging proposals, including their impact on service, client groups, savings targets and strategic priorities.

Consultation is also vital to making effective charging decisions. This includes talking to service users and other stakeholders such as residents and taxpayers. Voluntary sector organisations provide a useful sounding board and it is also important that councils take into account the perspective of local businesses. East Renfrewshire consulted a theatre users’ group over its charges for theatre lets. This group was not able to pay in advance so the council agreed to take payment once the theatre group had received its ticket sales income.

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Councils should understand the full costs involved in delivering the service, including overhead costs and the costs of related services. Only then can they understand the contribution that charges are likely to make in recovering costs. This is important if councils are to demonstrate that charges are reasonable and reflect the actual costs of delivery. It also allows them to understand the extent to which public money is used to subsidise services. However, recovery of costs is not the only basis for setting the level of fees or charges. The level may be set to promote or to control or limit the uptake of the service (demand-based pricing) or to reflect market rates (competition-based pricing).

As explained above, each council should set its charges in the context of its wider corporate and service objectives. However, councils should be aware of practice elsewhere and would be well-advised to compare their charges with other providers and make use of national and other benchmarking approaches. This does not mean mirroring charges elsewhere, because local circumstances may vary. However, councils should be aware of any unexplained inconsistencies and be able to explain why their charging policy differs. Further information on this is provided in Appendix 3.

Policies to maximise revenues – tradingAs councils have come under financial pressure, many have developed commercial approaches to their services to reduce costs, generate income and improve efficiency. In most cases, these commercial approaches have been implemented for individual services. Just a few councils have gone further and implemented a commercial ethos across the organisation, as in the Nottingham case study above.

Whether implementing a commercial approach for an individual service or corporately, local authorities face several significant challenges, as it will involve learning both a new mindset and new skills. Reports by Localis and the Association for Public Service Excellence (APSE) from 2015 and 2012 describe these challenges and identify key lessons and factors in facilitating this change of ethos. These are summarised in Appendix 4.

Stirling

Stirling used activity-based costing to identify the full costs of its burial service. Activity-based costing involves identifying all the key steps involved and their associated costs. The council identified direct costs, such as staff time, and indirect costs, such as property costs, management costs, and support functions such as IT. The council used time-recording information, transactions and uptake data, and meetings with staff to gather cost information.

The exercise highlighted activities not previously recognised as part of the service such as permit costs for stone masons. It showed that the council was subsidising the service more than it had anticipated. It gave councillors clear information on the service costs, charges, and how these compared to other providers. It allowed them to understand fully the financial implications of charging options and as a result, the council decided to move to full cost recovery for most aspects of the service. The new charges were phased to manage the impact on residents.

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However, such challenges can be intimidating. Such challenges can be intimidating. Nottingham’s Head of Commercial Services has cautioned that developing commercial revenue streams is far from an easy option. “It’s not a kind place, the market. It’s very unforgiving so we’ve got to be very honest about the way we can run services. It’s a different mindset”.

These changes require preparation and time to deal with. Joint ventures may enable local authorities to short circuit this by tapping into private sector expertise but not all local authorities are comfortable with such close relationships with the private sector.

Nonetheless, many councils have been both successful and innovative in running services on a commercial basis. As described above, Nottingham has applied this ethos across a variety of services. One of Nottingham’s early successes was to spot the potential in its fleet service workshop. It won a commercial contract to maintain Nottinghamshire’s fire and rescue service fleet beating eight other private sector competitors. Then it put in more capacity, including night shifts which enabled it to win many more contracts. The city has gone on to develop bigger and bolder commercial ventures, including Robin Hood Energy, a wholly owned energy company that aims to turn a profit while also helping to tackle fuel poverty in the city.

Below are a series of further examples. Some of these are taken from a set of income generation case studies by the Local Government Association (LGA).

Barnet and ‘Re’

‘Re’ Regional Enterprise is Barnet’s Joint Venture with Capita to provide the council’s planning, regeneration and regulatory services. This combines public and private sector expertise to enhance Barnet’s built environment. The arrangement is designed to deliver £39m in guaranteed savings and income over 10 years, and has invested over £8m in new technology, improving facilities and training staff. As a partner, the council receives a share of all income generated. ‘Re’ expects its workforce to grow from 260 employees to more than 500 over five to 10 years and has a commercial development plan targeting £260m net new income over 10 years. There are at least 60 business cases in the commercial development plan which will introduce new income-generating services over the term of the contract.

Shire Services

Shire Services is a commercially-focused, income-generating, trading service operating within Shropshire County Council. The organisation provides catering and cleaning services to over 160 schools across Shropshire and over 50 schools across neighbouring counties, including Worcestershire, Herefordshire, and Cheshire. Shire Services retains a not-for-profit ethos. The income generated from the more profitable parts of the business supports the more expensive elements of the service such as providing primary school meals. Surpluses are shared with schools. On an annual basis, Shire Services generates £10.2m of turnover, whilst the total turnover of its external services is £3m.

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Eastleigh

Eastleigh’s main area of commercialisation has been in respect of property. They have actively been pursuing a range of property assets which generate a high investment yield. This includes a range of assets such as shops, banks, pubs and offices - one of which, following refurbishment, is now their headquarters. The most ambitious acquisition has been the Ageas Bowl, the home of Hampshire County Cricket Club. The council has invested £40m in this, including the construction of a four star Hilton Hotel. Even in 2012, the properties were generate over £2m a year in income, over and above borrowing costs.

Tayside Contracts

Tayside Contracts is the commercial trading arm of Angus Council, Dundee City Council and Perth & Kinross Council. The organisation employs 2500 staff who provide catering, cleaning, roads maintenance and winter maintenance throughout the Tayside area of Scotland. Between 1996 and 2012, Tayside Contracts returned £14.5m to the three local authorities.

Luton

Luton has adopted a commercial approach to managing its property assets - ‘a step change from the past’. This involved selling off properties that provided a low return on the capital tied up, and investing instead in buildings likely to provide a more substantial rental income. Luton Council now owns office buildings in neighbourhood Milton Keynes as well as in Chatham – around 70 miles away in Kent. The change in strategy required the involvement and approval of elected members. Luton BC considers that the key is to enable things to be done quickly. Compared to the private sector, Luton’s approach is to look for ‘relatively low risk purchases’, and then to move with aggression and speed to match commercial rivals. The net impact on the bottom line is about £620,000 per year, as of July 2015. The next stage in its planned development is a ‘quantum leap’ into property development.

Wolverhampton

Wolverhampton City Council (WCC) was spending on average £7.5m a year on temporary and interim workers. It was suggested that rather than paying private companies to do this it should be done through a council owned company. YOO Recruit was established as a Wholly Owned Company in February 2014 and started trading in April 2014. Up to the end of the calendar year 2014 YOO Recruit had a turnover of £1.2m and a gross profit of £141,000.

YOO is currently providing 10 per cent of all temporary workers into the council and the forecast for the next two years are £365 thousand for 2015/16 and £500 thousand for 2016/17 in gross profits. WCC plans for YOO Recruit to be supplying 75 per cent of all temporary workers into the council and to provide the permanent recruitment for the council. There are also plans for YOO Recruit to be providing services to other public sector and private sector bodies.

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It is always worth bearing in mind that “one man’s muck is another man’s brass”. Waste streams can sometimes be sold to create an income stream. Some materials are now recycled on such a widespread basis that they now command too low a price to make such a trade profitable, while the market for others has yet to become established. Nonetheless, there are many opportunities for selling waste for reuse or recycling. This could be “dry” (non-organic) waste, collected from residential, business and/or public sector premises or brought to recycling points. Alternatively, food waste, garden waste or even waste heat could be turned into revenue. WRAP provides detailed guides on this and related matters – see the links at the end of this guide.

A trial partnership in Conwy found that approximately one per cent of waste brought to a Household Waste and Recycling Centre could be set aside for reuse. Over a two month period, these items had a value of nearly £16,000. The partnership estimates that over a year, 66 tonnes of waste could be diverted for reuse, with a potential value of £160,000. The annual running costs of such a venture would be around £30,000.

The London Borough of Sutton is currently setting up a subsidiary of Opportunity Sutton Ltd (see above) to carry out a trade in waste heat, and this is described below.

Many of the case studies cited above involve local authority trading companies (LATCs). The legislative position on trading, including LATCs with or without the Teckal exemption, is summarised in Appendix 4. Further details are provided in our December briefing.

This year, many local authorities have taken decisions to adopt LATCs. For example, Newcastle has established ‘Newco’ a new trading body to help the council expand its current trading ventures. East Cambridgeshire District Council is currently recruiting a Chairman of the Board to provide independent leadership and a strategic vision to its LATC.

LACTS have been around for over many years in the form of large, standalone bodies such as airports, and also organisations like Commercial Services (formerly Kent Commercial Services) described below. LATCs have developed more recently into areas such as highways, housing and social care. Some further examples are given below.

Sutton

Sutton has agreed an Outline Business Case for a “Decentralised Energy Network”. This will utilise waste heat from existing landfill gas turbines and a proposed Energy Recovery Facility. Initially, it will deliver it to customers in a new industrial estate, but further destinations or “loads” will be considered as the scheme expands. The capital outlay is £4.5m; this should be covered by the sales of the heat within 11 years. After 25 years, the cash surplus is projected to be £1.5m, with an Internal Rate of Return of 9.04%. It is to be delivered by a subsidiary of their Special Purpose Vehicle, Opportunity Sutton Ltd (see above).

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Social Care LATCS have become prevalent in the last six or seven years as demographic changes, continuing funding cuts, constraints on in-house service provision, and new Care Act responsibilities have increased pressures on local authorities. A key issue has been the barrier on service provision to those receiving direct payments – the principal customers for care and support and upon which the viability of community-based provider services are based. It has been estimated that about 20 social care LATCs are now trading in England and Scotland with many more in the pipeline. Examples of the more prominent social care LATCs are Buckinghamshire Care, ECL (formerly Essex Cares), Optalis (Wokingham), Olympus Care Services (Northampton), Your Choice (Barnet) and Tricuro (Dorset).

Kent Commercial Services

Kent County Council has operated an independent market-facing commercial services arm, Kent Commercial Services, since the 1960s. As of 2014, its market penetration extended to most of the South East of England and is now reaching out further. Its services, including procurement, facilities, staff care and bulk buying energy, are sold to over 20,000 customers in public and private sectors. It has a turnover currently in excess of £600 million per year with over 800 employees.

Norfolk

Norse Group is by far the largest LATC in the country and has an annual turnover in excess of £250 million. It is a holding company owned by Norfolk County Council (NCC). Its three operating companies are: Norse Commercial Services Ltd providing facilities management; NPS Group Ltd providing property design and management consultancy; and Norse Care Ltd providing 26 residential care homes and 13 ‘housing with care’ schemes across Norfolk. Norse Group expects the pay-back to NCC to grow to £5-6million in the five years leading up to 2017. It is a major employer in the region. Collectively, the group employs over 10,000 people nationwide and has good relations with staff and unions. UNISON has signed a recognition agreement with them and praised them for their staff training and development programme, apprenticeship schemes, staff morale and low turnover rates.

Cornwall

CORMAC is a Teckal company wholly owned by Cornwall Council. It was formed in 2012 from two companies which have been trading since 1982 and using the CORMAC brand since 1992. The vast majority of the work is in highways maintenance and construction. Since 2012, CORMAC has increased its turnover by an additional £35m per year, increased staffing numbers by 16% and returned benefits to Cornwall Council to the tune of £20m over three years, through productivity improvements and from profit on external work. From April 2016, it will manage a 10 year joint venture company responsible for highways and fleet management services for Nottinghamshire County Council. CORMAC is a living wage employer and the majority of the 690 highways staff currently employed by Nottinghamshire CC will transfer to the new company with existing terms and conditions.

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The sector has developed rapidly but it has not been without problems. These problems, as well as examples of successful social care LATCs, are given in our December briefing.

There has also been a proliferation of housing LATCs. These have been particularly attractive for those authorities who do not have sufficient borrowing headroom within their Housing Revenue Account (HRA) or who want to explore other funding opportunities to develop housing outside the HRA. There are also LATCs set up to provide Direct Labour Organisation (DLO) housing maintenance work or to include it within their proposed work. The example of Kingstown Works Limited is given below. Again, further examples are given in our December briefing.

Policies to maximise revenues – otherThere are many ways of generating income which relates to particular services. Other mechanisms that local authorities could investigate include the following.

Providing staff to other councils and partner organisations. As well as generating income for your council, this will also provide training and development for your staff. More on this is provided in the next subsection.

Capital investment in cultural and recreational assets. This includes sports centres, leisure centres, community centres and theatres. This can raise income by increasing footfall; it can also reduce management and maintenance costs.

Working with partners to build for private rental. This could be residential and/or commercial. (Some examples of the latter from Colchester are given above.) This is often done as part of the redevelopment of a town centre or a major regeneration scheme. It can be carried out through a Joint Venture, such as in Croydon (see below for more).

This guide focuses on bringing money in for revenue services, but it is also worth looking into treasury management – seeing whether your council can get a better return on its investments. For example, seven councils in North East England have invested in Newcastle Airport – together owning a 51% share in the airport company - and have so far found this provides a good rate of return.

Sharing and partnershipsThere are many partners the council can work with: other local authorities, other public sector bodies, community and voluntary sector organisations and local and national businesses. There are also many ways they can work with them: time-limited projects, running services on an ongoing basis and sharing assets.

Hull

Kingstown Works Limited (KWL) is a LATC delivering building maintenance and repairs work to Hull City Council, but they also trade with other local councils and housing associations. Created in 2006, by 2012 it had returned over £3 million to Hull City Council in the form of surpluses. It employs 390 local people and has recruited 107 apprentices in the period 2007 to 2015.

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The greatest scope for sharing staff with other local authorities probably lies in back office functions. Perhaps the best known example of this is the tri-borough arrangement (Westminster, Hammersmith and Fulham, Kensington and Chelsea). This kind of arrangement is has started to become quite common in recent years. However, most authorities have some form of long-standing joint arrangement with neighbouring authorities (not to mention authorities of other tiers in the same geographic area). These range from waste, and reuse and recycling partnerships to joint commissioning of social care packages. There are also partnerships relating to invest to save measures, such as energy efficiency, as described in the next subsection.

There is also a lot of scope to improve local government’s financial sustainability by extending joint working with other parts of the public sector. For example, councils could share transport with schools, or use school classrooms, libraries or sports facilities outside school hours. Similarly, JobCentre Plus has relocated its services in Daventry into the district council’s offices and in Malvern into a library run by Worcestershire CC. This provides savings for the taxpayer and helps join up services.

The ways in which local authorities can work with charities, social enterprises, community groups and so on are almost limitless. The interests of certain community groups, such as tenants and residents associations and park users groups, in specific council services are obvious. However, there are also many are less obvious potential areas for partnership. In Lewisham, three libraries are now run by Eco-computers, a social enterprise which was set up to refurbish and reuse computers, one is run by Age Exchange, a charity working in the field of reminiscence and one is run by New Cross Learning, a community organization backed by local charity Bold Vision. Another example is “Bulky Bob’s”. In 2000, FRC group, a social enterprise and commercial business which reuses and recycles furniture, entered a partnership with Liverpool to deliver Bulky Bob’s, a bulky goods collection service. They have since expanded this to neighbouring areas and currently also operate in Oldham and Warrington. As well as providing this service for citizens, they also provide training and jobs in these areas.

When carrying out asset management planning, it is also worth thinking about where community groups may wish to use rooms for meetings or activities at times when they are not otherwise used. This could generate rental income or provide payments in kind. In some cases, community and voluntary sector groups may wish to work with councils on developing or refurbishing assets and may even wish to take ownership of the assets.

BAC and Wandsworth

The Battersea Arts Centre (BAC) was formerly Battersea Town Hall. It became part of Wandsworth’s estate when the council was formed in 1965. The building became a community arts centre managed by the council in 1974. In 1979 it became an independent arts centre.

Since 2007, the building has been undergoing refurbishment, to create a building that is truly responsive to the people who will use it. This has been the result of an innovative arrangement between BAC and Wandsworth: BAC is carrying out the refurbishment, in exchange for the council waiving its rent. This makes economic sense for BAC as it means they can access funding from the Big Lottery Fund and other sources.

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All councils have contracts with businesses of all sizes. By being assertive when negotiating these contracts, councils can drive down their costs. However, many businesses will be interested in working with councils on social or environmental aims, on more of a partnership basis. For example, Sutton ran an energy efficiency scheme in partnership with B&Q in 2010-11, as described in the next subsection. For construction projects, partnership working may allow upfront funding and financial risks to be shared more appropriately.

Finally, it is also worth remembering that some structures for engaging with partners have already been set up, such as community budgets, LEPs and Health and Wellbeing Boards

Invest to saveInvest to save measures can involve either capital spending or revenue spending, or indeed both. Capital spending is defined as spending which increases the value of assets on the council’s balance sheet. Conversely, revenue spending does not – it is essentially on-going expenditure on services. When capital spending will create savings over time, this can be carried out using the council’s prudential borrowing powers. For example, a Best Value review for Lewisham in 2004 concluded a reduction in insurance claims could contribute to the cost of maintaining highways: a £36.5m investment programme in highways over ten years would reduce insurance claims by £1.4m by the end of the first eight years. Often, savings can be found by replacing older items rather than maintaining them. Councils should be considering in their asset management plans whether it is most cost effective to maintain or replace the assets they hold.

Another way of generating savings from capital spending is through energy efficiency measures, as in the case studies below. Councils may wish to consider generating their own electricity, by installing solar panels or wind turbines on buildings and street furniture.

The refurbishment started with an extended research and development period, primarily funded by Arts Council England, Big Lottery Fund and Heritage Lottery Fund. The next stage of major works started in late 2014. The building unfortunately suffered a major fire in March 2015, which destroyed about 30% of the first and second floors, including the Grand Hall and Lower Hall. However, it has remained open and in the wake of the fire, BAC reviewed its mission. The new mission includes ambitious plans for the future, including “to create a large off-site theatre from mid-2016 to end of 2017 for the presentation of visionary and exciting new theatre while we rebuild the Grand Hall”.

Sutton

Sutton entered a partnership with B&Q and Bioregional around the start of the last Parliament to implement energy efficiency measures in residential properties. The Pay As You Save Scheme allowed 67 participating households to benefit from energy efficiency measures in their homes, with the capital cost covered by a 40% grant and an interest-free loan repayable over 10 or 25 years. A tailored basket of measures was carried out for each household, including replacement boilers, double glazing, loft insulation, cavity wall insulation, solid wall insulation, solar hot water panels, tank & pipe lagging and heating controls.

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There are many ways revenue spending can generate savings. Usually, these involve preventative measures or early intervention to reduce future demands for expensive services. They can also involve joining up services, simplifying administration and filling in gaps in provision. A report by PwC for London Councils in January 2010 suggested that these kinds of reforms could annually save London around £880m on the costs of treating chronic care conditions and £65m on dealing with anti-social behaviour and consequential youth offending.

Councils could compile a multi-year invest to save programme with a dedicated reserve, where returns from investments with short payback periods are ploughed back into investments with longer payback periods. Sevenoaks has set up a “Financial Plan Reserve” to support its 10-year budget by funding invest to save initiatives and to support its property investment strategy. As described above, its financial strategy for the period assumes no Revenue Support Grant or New Homes Bonus from 2016/17; any such funding that it does receive will be transferred into this reserve.

Reconfiguring and joining up servicesAs stated in Delivering public services transformation 2010 (LGA 2010):

An evaluation survey by Bioregional in 2013 found that energy used for heating had decreased between 11 and 36 per cent. In terms of comfort, 95 per cent of respondents said their homes were now easy to keep warm – which previously only 29 per cent had said. Three-quarters thought the value of their home had increased as a result of the work.

Simultaneously, Sutton ran projects to deliver energy efficiency measures in council buildings and other non-residential buildings across the borough, including participating in the RE:FIT programme described below.

Greater London Authority (GLA)

RE:FIT is described on the programme’s website as “the Mayor of London’s innovative scheme to reduce carbon emissions in Greater London. It is an award-winning programme designed to help public sector organisations achieve substantial financial savings, improve the energy performance of their buildings and reduce their CO2 footprint.”

As of Spring 2015, 187 organisations have signed up to the programme. Twenty-nine London Boroughs and three GLA functional bodies have benefitted. A capital investment of £62.9m has resulted in the retrofit of 400 buildings (including those currently being retrofitted) and a saving of 30,300 tonnes of carbon dioxide.

Eight London Boroughs are involved through the West London Alliance (WLA) project. This launched in November 2013. The WLA plans to invest £2 million to install energy conservation measures, such as boiler upgrades and voltage optimisation, to a variety of buildings including schools, youth centres, libraries and halls, over an area of more than 130 square miles.

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“Work on mapping customer journeys continues to suggest that a citizen or business trying to resolve an issue of any complexity typically has to negotiate a maze of different organisations, contact points and assessment procedures”.

Many of the citizens who access council services most frequently suffer from a range of interconnected problems. Staff time and a council’s resources can be saved by joining up these services in a way that is tailored to the needs of service users. As stated in Closer to people and places: a new vision for local government (LGA 2006):

“People rightly expect high quality public services that are easy to access, meet their personal needs, provide choice and personalisation, and achieve the highest value for money for the taxpayer… Local people should be provided with the opportunity to shape requirements and the service, including where services are outsourced, whether to the private or voluntary sector. This will drive greater joining-up across service providers, rather than solely between each Department and its agencies. The user will not care who ‘owns’ the service but will look for high quality services with no disconnection in provision”.

While an individual authority can achieve some savings and a significant degree of personalisation working on its own, this approach is much more powerful when the council works in partnership with other organisations (as recognized in the above quotation). Many such projects involve co-location, such as the partnerships with JobCentre Plus mentioned above. Some also involve sharing front office services. One such Front Office Shared Services (FOSS) project is located in Greenwich. This involves establishing a series of integrated local service centres, designed to be shared with partner organisations, in key locations in the borough. This is supported by a new Customer Relationship Management (CRM) system. It is also an example of an invest-to-save project: council properties have been sold and the receipts reinvested, and the costs of the initial investments have been met from the efficiency savings that have resulted from integrating the front offices. Similarly, the “Gateway – Kent” and “Kent Public Service Network” projects have seen Kent local authorities and other public sector agencies moving into shared buildings and developing a shared IT infrastructure. This has released considerable savings, as well as improving the coherence and efficiency of customer service.

When redesigning services, it is wise to involve citizens and service users in determining the new form of these services. This approach can, indeed, be applied to a large proportion of the council’s budget in a process known as Participatory Budgeting – links to information on this are provided at the end of this guide.

It is also worth remembering that many citizens now access a range of services online – from the home and/or using mobile devices. Service reconfiguration should reflect this. However, the technologies used very widely from citizen to citizen, and all means of communication should be catered for.

Appendix 1 – Nottingham’s Commercial ToolkitAs explained in the main part of this guide, Nottingham has a Commercialism Toolkit and resources which provide a step by step guide and a range of tools to enable officers to understand their service area better and helps them take forward their commercial ideas. The Commercialism Toolkit is a four stage process designed to consider and address ‘commercial alternatives and their impacts’. The analyses stage also provide further

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guidance on specific techniques – benchmarking costs, investment appraisal, performance comparison, sales – volume and trend analysis, and standard costing, etc. There is also a separate Commercialism Marketing Tool – all available on the council’s website together with a range of case studies.

Appendix 2 – BenchmarkingBenchmarking can look at a wide variety of data types, including purely financial data (such as projected and actual income and expenditure), performance data and value-for-money indicators. For a more sophisticated understanding of the current situation, quantitative data can be supplemented with qualitative information such as service users’ view and staff feedback.

When reconfiguring services, having robust challenge can help to identify potential snags and pitfalls. It is therefore worthwhile for a council leadership to engage with its scrutiny bodies. This could include a dialogue on which performance and benchmarking data would be most appropriate. Similarly, if the transformation programme involves other local authorities and/or other partner organisations, they should be engaged in this discussion. If a council is involved in a regional or special interest group of authorities, it could consider forming a “benchmarking club” – either one provided as part of a benchmarking service (see below) or a bespoke one.

Benchmarking and evaluation can be carried out in-house, by using a subscription service or by commissioning ad hoc research.

If it is carried out in-house, some data is freely available. This includes that published by the Department of Communities and Local Government (DCLG). DCLG annually publish a range of budget and expenditure data (for example, that relating to general revenue services) and other data such as revenue collection statistics. However, since the ending of the Comprehensive Area Assessment (CAA) in May 2010, the scope of data freely available in this way has been very limited. The Government’s collection of data from local authorities for publication is essentially restricted to that on the Single Data List.

A large number of organisations provide benchmarking services at a cost or as a feature of a wider subscription. These vary from access to datasets, through involvement in benchmarking clubs to bespoke research and analysis. Some examples are:

• APSE performance networks

• LG Futures Financial Intelligence Toolkit

• Chartered Institute of Public Finance & Accountancy (CIPFA) benchmarking clubs

• CIPFA VfM indicators

• CIPFA Stats

• LG Inform (LGA)

• The Local Government Benchmarking Framework (LGBF – for Scottish councils)

• PwC/Saratoga

• CFO Insights (Grant Thornton & CIPFA)

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Some organisations provide services relating to specific services, such as:

• Socitm (IT – Information Technology)

• National Computing Centre (NCC – IT)

• Institute of Customer Service (ICS – Customer Service)

• Mystery Shoppers Ltd (Customer Service)

A number of organisations provide advice on benchmarking or support in improving services, including:

• Society of Local Authority Chief Executives (SOLACE)

• Chartered Institute of Personnel and Development (CIPD)

• Institute of Revenues Rating and Valuation (IRRV)

Appendix 3 – ChargingSetting charges for new or existing services does not pose the same scale of challenges to local government traditional culture as some of the wider commercial approaches considered elsewhere in this guide. Nevertheless, it does present particular challenges that need to be approached carefully.

Several pieces of guidance on charging within local authorities have been published over the last twenty years by the LGA, Localis, APSE, the Audit Commission, and its Scottish sister body, the Accounts Commission. Extracts of the Accounts Commission’s most recent guidance in 2012 are summarised here.

Legislation and guidance sets out how councils can apply charges but its application can vary between councils.

Local Government Acts of 2000 and 2003 gave local authorities a general power to charge for services. This power only applies to discretionary services – ones which the council has the power to provide but not a duty to do so. It cannot be used where charging is specifically prohibited by other legislation or where another specific charging regime applies. Also, it is limited to cost recovery.

Councils’ charging policies differ widely. They may differ in the way they determine what constitutes a reasonable charge. Variation can also be due to local differences such as the nature of the services provided and the actual costs involved in providing them.

For example, individual music tuition in Scotland varies from being provided free to hundreds of pounds per annum. The number of lessons can range from 28 to 40, duration varying from 25 minutes to an hour and some councils provide free use of equipment while others charge a hire fee.

Criteria for setting charges for public services are not simply about generating income, although this is often a major consideration. Common principles specify that charges should be reasonable, take account of the service user’s ability to pay, and should not exceed the cost of providing the service. When charges generated a profit or surplus, this is normally reinvested in the service. Parking is an example of this, where any surplus income from charges and fines is reinvested in related services. Much of this is prescribed

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by specific legislation and statutory guidance.

The following points, taken from our October briefing pose questions to help gather information and to take decisions to set charges for individual services.

• Who uses the service/who is the service targeted at?

• What charges and concessions apply?

• What is the financial position, including subsidy?

• What are the unit costs?

• What is the uptake, and service standards?

• When is the service used – peaks and troughs?

• How satisfied are service users?

• Is there scope to generate further income?

• What is the alternative to charging?

• What has been the impact of previous charging decisions?

• Examine options for different levels of charging and concessions, referring to corporate guidelines, including:

– Assessing the impact on service users and uptake, considering the sustainability of the proposals.

– Forecasting demand and income

– Assessing the impact around equalities and accessibility.

Appendix 4 – TradingAs described in the main part of this guide, councils face significant challenges in implementing a commercial approach. Localis considers these to be:

• upskilling council staff to manage commercial opportunities,

• changing the way local government works to make such enterprise possible,

• understanding the risks involved;

• winning the cultural battle that these can fundamentally be positive developments.

A report by APSE involving multiple case studies of municipal entrepreneurship identified the following key lessons for local authorities:

• Entrepreneurial managers can drive a commercial culture amongst staff.

• Taking a pro-active attitude to expansion and diversification drives forward innovation;

• A commitment to valuing and developing the workforce goes hand in hand with public entrepreneurship;

• Focus on income generation as a means of generating investment in local services;

• Assume democratic accountability and oversight of new public organisations;

• Pre-empt and address risk with the business model for new activities;

• Explore existing legal powers as a means of catalysing entrepreneurial activities;

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Take full advantage of entrepreneurial opportunities to act as stewards of local economies and communities.

The report concluded that a number of considerations were vital in facilitating fully the spread of commercialism and public entrepreneurship across local authorities. The key advice for local authorities was:

• Think collaboratively;

• Make the most of your window of opportunity – moments of organisational crises can be ‘windows of opportunity’ for introducing new programmes and solutions;

• Tap into strategically placed policy entrepreneurs or champions – identify individuals who might fulfil the roles of catalysts, stewards, mediators;

• Embed innovation and change – where entrepreneurship and innovation developed over time, staff were commercially focused, working within an overall framework of income generation which was combined with a not-for-profit ethos delivering improved local services;

• Ensure democratic accountability to local elected members.

For any council is considering trading waste streams to raise revenue, a sensible starting point would be WRAP. This organisation provides a number of detailed technical guides for local authorities on various aspects of reuse and recycling, including one on turning recyclate into revenue.

Local Authority Trading Companies (LATCs)LATCs are bodies that are free to operate as commercial companies but remain wholly owned by the parent local authority. As trading bodies, they can provide their services to a much wider market than a council department. Part of the reason for the growing interest in LATCs is local government’s desire to generate income to protect other services. But there are also secondary drivers including:

• the need for certain services to compete in a wider geographical area to be sustainable;

• a view that greater commercialisation will drive efficiency;

• a view that non-essential services would be better managed separately;

• a view that a different statutory and service environment will provide more flexibility and impact, eg housing development, social care.

Local authorities are also attracted to the fact that less bureaucratic organisations like LATCs may be able to react more quickly and sensitively to changes in markets. Also, unlike with outsourcing, the scope to retain control of the company and reverse their decision if things go wrong appeals to some local authorities.

The Local Government Act 2003 enables local authorities to establish LATCs to trade in a wide market. The General Power of Competence under The Localism Act 2011 allows local authorities to expand their trading activities into areas not related to existing functions. It also removes geographical boundaries to local authority activity so that they can set up a trading company that can trade anywhere in the UK or elsewhere.

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If trading is to be done in the wider commercial market with a view to generating a profit (rather than just on a broad cost recovery basis) the council must establish a company. This can be a company limited by shares, a company limited by guarantee or an industrial and provident society. The 2009 Trading Order requires that a business case (‘a comprehensive statement’) be prepared and approved before exercising trading powers. Local authorities cannot trade in services they are already statutorily required to provide.

When councils want to sell goods or services to other councils or public bodies, they will only be dealing with each other and not operating in a wider market. These are ‘shared services’ or public-public partnerships. They do not have to put the work out to competitive tender, are still able to generate a profit and are not restricted to cost recovery – as long as they only trade with each other. This avoids the downside of a company status, including the need to pay VAT and corporation tax. If a local authority wishes to set up a company, the EU procurement regulations will usually require them to undertake a prescribed competitive tendering process before they can award work to the company. This poses a problem as there is no guarantee that the trading company will win the tender. However, local authorities can set up a company without competitive tendering provided they undertake not to trade significantly with external organisations. This is known as the ‘Teckal’ exemption from procurement rules.

The tests for whether a local authority owned company qualifies for the Teckal exemption are:

• The council(s) must control the company and its activities in the same way as their own departments and activities (control test);

• The company must predominantly undertake work for its controlling council(s) – any activity undertaken for external bodies is minimal (function test).

The council must have decisive influence and control over all decision making. A Teckal company cannot focus on trading commercially in the wider market. If councils are seeking to do this, they must put any work out to tender. A limit of 20% of turnover from external trading activity is now applied. In practice, an early decision the council should make is whether it wishes to use the company for commercial trading, or as a vehicle primarily for delivering the council’s own services.

When it comes to housing LATCs, the most common approach is the creation of a 100% council-owned subsidiary or council owned company, usually constituted as a company limited by shares with council officers acting as directors and company secretaries. Purposes include:

• the provision of new build private sale, mixed tenure and affordable homes;

• the purchase and repair of affordable homes;

• the provision of affordable rented property, such as by leasing empty property.

However, not all local authorities are attracted to the idea. A common reason is that the expected revenue is not high enough to make a business case for such a company. This is often the case where house prices are very low. Uncertainty also arises from a lack of clarity over the government’s position and the threat to take measures against council owned housing companies that circumvent Right to Buy legislation.

Grant Thornton has put together useful guidance on establishing LATCs. Our December briefing summarises the model, including its three stage process.

LGiU | Essential guide to financial sustainability 29

Useful links

LGiU briefings • Business Rates Devolution (November 2015) - http://www.lgiu.org.uk/briefing/

business-rates-devolution/

• Income generation – general: a policy in practice briefing (October 2015) -http://www.lgiu.org.uk/briefing/income-generation-general-a-policy-in-practice-briefing/

• Income generation – Charging & Trading: policy in practice briefing (October 2015) - http://www.lgiu.org.uk/briefing/income-generation-charging-trading-policy-in-practice-briefing/

• Local Authority Trading Companies (December 2015) - http://www.lgiu.org.uk/briefing/local-authority-trading-companies-a-policy-in-practice-briefing/

• Public Services (Social Value) Act 2012 (August 2012) - http://www.lgiu.org.uk/briefing/public-services-social-value-act-2012/

• The Public Services (Social Value) Act 2012: one year on (February 2014) - http://www.lgiu.org.uk/briefing/the-public-services-social-value-act-2012-one-year-on/

• Local government procurement – DCLG Select Committee (May 2014) - http://www.lgiu.org.uk/briefing/local-government-procurement-dclg-select-committee/

• Challenges faced by the voluntary and community sector in supporting local services and developing resilient communities (March 2014) - http://www.lgiu.org.uk/briefing/challenges-faced-by-the-voluntary-and-community-sector-in-supporting-local-services-and-developing-resilient-communities/

• Creative Commissioning: scope for the voluntary and community sector to respond to the new commissioning agenda (May 2014) - http://www.lgiu.org.uk/briefing/creative-commissioning-scope-for-the-voluntary-and-community-sector-to-respond-to-the-new-commissioning-agenda-2/

Reports and collections of case studiesGeneral

District Councils’ Network:

• Case studies - http://districtcouncils.info/publications/case-studies/?view=all

Local Government Association (LGA):

• Delivering public service transformation (FOSS report) 2010 - http://www.local.gov.uk/c/document_library/get_file?uuid=73216d65-c9d7-43ff-a5ce-d29d9b276b81&groupId=10180

• Enterprising Councils - http://www.local.gov.uk/publications/-/journal_content/56/10180/3584042/PUBLICATION

• Income generation case studies: http://www.local.gov.uk/productivity/-/journal_content/56/10180/5785720/ARTICLE

LGiU | Essential guide to financial sustainability 30

Shared Intelligence and Grant Thornton UK LLP (commissioned by the Department for Communities and Local Government):

• Good practice in local government savings - https://www.gov.uk/government/publications/good-practice-in-local-government-savings

Charging and trading

Accounts Commission:

• Charging for services: are you getting it right? (includes Highland Council, East Renfrewshire, North Lanarkshire, Stirling) - http://www.audit-scotland.gov.uk/report/how-councils-work-an-improvement-series-for-councillors-and-officers-charging-for-services

Audit Commission:

• The price is right? Charges for council services - http://webarchive.nationalarchives.gov.uk/20150421134146/http:/archive.audit-commission.gov.uk/auditcommission/subwebs/publications/studies/studyPDF/1344.pdf

Localis:

• Commercial Councils: The rise of entrepreneurialism in local government - http://www.localis.org.uk/research/commercial-councils-the-rise-of-entrepreneurialism-in-local-government/

APSE:

• Municipal entrepreneurship - http://www.apse.org.uk/apse/index.cfm/research/current-research-programme/municipal-entrepreneurship/

LGA:

• Income generation case studies: http://www.local.gov.uk/productivity/-/journal_content/56/10180/5785720/ARTICLE

WRAP:

• Turning recyclate into revenue - http://www.wrap.org.uk/content/turning-recyclate-revenue-0

Grant Thornton:

• Spreading Their Wings (LATCs) - http://www.grantthornton.co.uk/en/insights/spreading-their-wings-building-a-successful-local-authority-trading-company/

Investment and Social Value

Move Your Money:

• A Local Authority Guide to Banking for Social Good - http://communityreinvest.org.uk/wp-content/uploads/2014/12/A-Local-Authority-Guide-to-Banking-for-Social-Good.pdf

Cabinet Office:

• Public Services (Social Value) Act 2012: 1 year on - https://www.gov.uk/government/publications/public-services-social-value-act-2012-1-year-on

Community Reinvest:

• Reinvesting pensions: from fossil fuel divestment to reinvestment in the new

LGiU | Essential guide to financial sustainability 31

economy - http://communityreinvest.org.uk/reinvestingpensions/

SOLACE & BDO:

• New Finance for a New World - http://www.bdo.co.uk/news/new-finance-for-a-new-world

Individual case studiesBarnet:

• the “One Barnet” programme - https://www.barnet.gov.uk/citizen-home/council-and-democracy/one-barnet-transformation-programme.html;

• CIPS article on savings from outsourcing - http://www.cips.org/en-GB/Supply-Management/News/2014/May/Barnets-easyCouncil-outsourcing-deals-will-save-165-million/

Bulky Bob’s (FRC, Liverpool, Oldham and Warrington):

• http://www.bulkybobs.co.uk/699.html

• http://www.frcgroup.co.uk/

Cambridge & Counties Bank:

• http://www.ccbank.co.uk/

Daventry:

• JCP office relocation - http://www.daventryexpress.co.uk/news/local/a-new-home-for-daventry-s-jobcentre-plus-1-5737289

East Hampshire:

• Financial strategy for self-sufficiency: http://easthants.moderngov.co.uk/mgAi.aspx?ID=4714

Funding Circle:

• Investment by councils: https://www.fundingcircle.com/blog/press/ ; https://www.fundingcircle.com/blog/?s=council&posttype=press&widget=advanced-search-widget-2

Greater London Authority (GLA):

• RE:FIT- http://refit.org.uk/

Greenwich:

• Greenwich FOSS report - see LGA FOSS report above

Kent:

• Kent Public Sector Network - http://kpsn.net/

• Gateway – Kent: see LGA FOSS report above

Lambeth:

• “Cooperative Council model” - https://www.lambeth.gov.uk/sites/default/files/ec-lambeth-behaviours-cooperative-council.pdf

LGiU | Essential guide to financial sustainability 32

• Tree Shepherd Social Entrepreneur in Residence - http://treeshepherd.org.uk/

Lewisham:

• Community libraries - https://www.lewisham.gov.uk/myservices/libraries/branches/Pages/Community-library-service.aspx

• Road repairs - http://councilmeetings.lewisham.gov.uk/documents/s22630/Highway%20Infrastructure%20Programme%20of%20Investment%202013-14.pdf

Northumberland and nef:

• Buying local worth 400 per cent more - http://www.neweconomics.org/press/entry/buying-local-worth-400-per-cent-more

Oldham:

• Co-operative borough - http://www.oldham.gov.uk/info/200572/co-operative_oldham/1189/our_co-operative_approach?acceptCookieContinue=Continue

• Co-operative procurement and social value - http://www.oldham.gov.uk/press/article/434/oldham_council_puts_social_value_at_heart_of_procurement

Redbridge:

• Community Infrastructure Levy (CIL) - http://www2.redbridge.gov.uk/cms/planning_and_the_environment/planning_policy__regeneration/community_infrastructure_levy.aspx

Sevenoaks:

• Budget 2016/17 - http://cds.sevenoaks.gov.uk/ieListDocuments.aspx?CId=121&MId=1873&Ver=4

Sutton:

• Energy Efficiency Scheme - http://www.suttonguardian.co.uk/li/pays_scheme/; http://www.bioregional.com/what-people-really-want-from-a-home-retrofit/

• Opportunity Sutton Review - https://moderngov.sutton.gov.uk/ieListDocuments.aspx?CId=450&MId=3632&Ver=4

Stockport:

• Meet the Buyer - http://www.stockport.gov.uk/services/business/businessnetworking/businessnews/meetthebuyer

Trafford:

• Meet the Buyer - http://www.trafford.gov.uk/business/business-support-advice-and-funding/meet-the-buyer.aspx

Wandsworth:

• Battersea Arts Centre (BAC) - https://www.bac.org.uk/; http://batterseaartscentreblog.com/2015/05/25/a-new-mission-for-battersea-arts-centre-and-our-next-steps/

Worcestershire:

• JCP office relocation - http://www.malverngazette.co.uk/news/malvern/10800829.JobCentre_set_for_move_into_town_s_library/

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© LGiU April 2016

The LGiU is an award winning think-tank and local authority membership organisation. Our mission is to strengthen local democracy to put citizens in control of their own lives, communities and local services. We work with local councils and other public services providers, along with a wider network of public, private and third sector organisations.