Thinktank says no sector off the table for local authority trading - and urges incentives to encourage entrepreneurialism
Local authorities should receive more incentives to set up trading businesses, including a "right to earn back" and a corporation tax break. This is the conclusion of a bullish report on "municipal entrepreneurialism" from local government thinktank Localis, which calls predicts that by 2020 "owning a trading company will be the default position for local authorities".
Over the next five years income from entrepreneurialism will treble to 18% of total council budgets, adding up to £27.4bn by the end of the next parliament, the report, Commercial Councils, predicts. Controversially, it says that "no sector is off the table".
Localis' vision suggests a return to a municipal age in which councils were the natural operators of paid-for services. Well within living memory, London's local government was popularly known as the "Gas, Light and Coke Co" rather than the Greater London Council. However, Localis suggests that in today's climate cultural and legislative change will be needed to make that happen.
The last government set the legislative ball rolling with the 2011 Localism Act, which conferred a "general power of competence" on English local authorities, giving them freedom to undertake any action that was not explicitly proscribed. This overturned the old "vires" restrictions which restricted the powers of statutory bodies to those granted by statute.
Localis says that while the new power has helped some authorities, scepticism remains. One problem is that fees or charges levied under the general power must be set only at a level which recovers costs. The power of competence also extends only to English local authorities, limiting the scope for initiatives across the Welsh border - or with the NHS and police. "As it stands there is little to none financial or fiscal incentive for authorities to deliver growth," the report says.
A survey by Localis suggests that nearly all authorities are engaging to some extent in entrepreneurialist activity. It found that:
- 94% of councils share a service with another council;
- 91% use assets such as land in an "entrepreneurial manner";
- 62% operate joint ventures with a neighbouring council;
- 57% operate joint ventures with the private and 54% with the voluntary sector;
- 38% invest money in private sector enterprises.
Encouragingly, it observes: "Externally traded services have largely ridden out the economic downturn successfully, and have proven a stable income stream in tough economic times."
While the future boom areas are legal services, facilities and waste "no sector is off the table". According to the report "There were no areas we surveyed where a majority of councils could not at least see the case for greater entrepreneurialism."
Challenges include a shortage of in-house skills and two harmful perceptions: that local government commissions ineffectively and that councils "remain on shaky ground when attempting anything entrepreneurial".
The report recommends that:
- councils and appropriate professional bodies increase the focus on commercial and financial skills as part of officers' professional development;
- municipal endeavours be assessed in an annual survey to highlight best practice;
- councils be given "earn back" powers to stimulate particular markets, and that the government consider the case for a broader "right to earn back";
- there should be a three year "corporation tax holiday" for new council owned trading companies, paid for out of Whitehall departmental underspend.
It concludes that entrepreneurial councils will become "ever more independent of central government in terms of financial support... With such autonomy, we'll be one step further down the road towards genuinely local government that can stand on its own two feet responding to local needs without requiring Whitehall's stamp of approval."