The pandemic and changes to official guidance are leading some councils to review their commercial investments.
Prudent commercial investments can help local authorities create sustainable income streams that can support the running of valuable services.
As a result of the COVID-19 pandemic and changes to investment guidance by the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Ministry of Housing, Communities and Local Government, many councils are now refocusing their commercial activity.
When doing this, councils need to consider the importance of purpose, governance and risk.
In the LGA’s ‘Profit with a purpose’ guidance (available at www.local.gov.uk/profit-purpose-delivering-social-value-through-commercial-activity), we set out how the key purpose of many councils’ commercial activity is to achieve social value for the local community.
Over time, projects can evolve. It is important to ensure the purpose defined in the commercial strategy is still relevant and that all activity within the business plan is working to achieve that purpose. The purpose should be to achieve social impacts – for example, place shaping.
“Councils need to consider the importance of purpose, governance and risk”
Governance is the structure that will support and empower decision-makers, while holding to account the performance of investments against an agreed plan. Build robust governance into every stage of the process – this can be agile, but should be clear in remit, responsibility and accountability.
Regularly review the governance of commercial activities to integrate best practice and ensure the mechanism is appropriate for the activity. It is important to have clear and structured governance, providing parameters for risk.
There is risk in all commercial activity. Ensure governance is updated to support decision-makers to act according to the council’s risk appetite and tolerance.
Piloting innovations, strong contract management, and planned exit strategies are examples of how new approaches can be trialled and risks can be reduced.
Other key considerations when refocusing commercial activity include:
- the role of the councillor – this is important to set the vision, take decisions and hold commercial activities to account
- ensuring commercial projects are still relevant and have appropriate exit strategies built in
- encouraging a culture of innovation, to help councillors and officers approach problems creatively and from a different perspective
- ensuring you have the skills to make appropriate commercial decisions.
After consultation with councillors, the LGA has created two, free, two-hour Zoom masterclasses to support elected members to develop commercial skills: ‘Commercial mindset’ and ‘Commercial leadership and decision-making’ – see below.