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commercialising the public sector

31 May 2011

Capita Symonds' Neil McLocklin and John Bandler on the benefits of a commercial approach...

A lot of Capita Symonds’ success has been built around taking on public sector services and commercialising them. So why can’t the public sector take more of a commercial approach itself? This would certainly appear to be a major plank in coalition policy and philosophy. Property and infrastructure is perhaps the most obvious quick win in this area – whether it is looking at services provided by local authorities or investment plans for regeneration and economic growth. The entire public sector appears to be focused on cost reduction but savings are not the whole answer - the government must put more pressure on the public sector to raise money too.

Let’s just explore some of the opportunities:

• Commercial approach to infrastructure development and regeneration
The public sector’s role in regeneration or economic development has been at best place shaping and at worst passive regulation. But 2011 is the year when stimulation of growth is critical at regional and local level. This means being really proactive and commercial. Now is the time when the public sector needs to embrace the localism agenda and partner with developers rather than fear them, and start to consider how it can help to make mothballed schemes viable. Planning tools such as increased allowances for permitted development, bulk permissions (e.g. zoning concepts) and Local Development Orders, to help save developers time and reduce risk need to be applied within a commercial understanding of what is viable in the market. Knowledge and confidence is growing around the new ‘toolbox’ of regeneration levers and funding mechanisms including:

  • Central government policy mandatory instruments including the New Homes Bonus; opportunities arising from HRA Reform and the new Affordable Housing model; and discretionary instruments such as Enterprise Zones and Tax Incremental Finance.
  • Introduction of the mandatory Community Infrastructure Levy at local authority level and the opportunities presented by the HRA Asset/Investment Model.
    Partnership based e.g. departmental ‘Pooling’, Business Improvement Districts, traditional JVs, asset backed vehicles and the introduction of Mayoral Development Corporation(s).

Commercialisation of services to sell to other public sector agencies as well as private sector organisations
Some local authorities excel in some areas, whilst others excel in others. The commercial opportunity is for those who excel in property and/or infrastructure management to sell their services to other local authorities as well as other public bodies and even the private sector – and make a profit? Yes that dirty word – but why not? If a service has invested in the staff, systems, and processes to excel why should it not make a return on this investment. The economies of scale developed through development of the business should also flow back through to the host body in terms of more effective service.

▪ Asset Portfolio Management
With Local Authorities focussing on efficiencies of scale, shared services protocols and selective departmental outsourcing of services, the opportunities to rationalise the LA surplus built assets are enormous. As operational assets become under or non-utilised, internal pressure may be to simply dispose of assets to generate cash.  This may be the right move, but a more strategic asset management approach is to ask fundamental questions as the to medium and long term value of assets.  Within a more balanced portfolio management approach, asset disposals will be balanced with medium and long term asset retention and investment strategies. This thinking is rooted in the LA adopting some of the commercial characteristics of intelligent developers, rather than immediately putting all eggs into the ‘disposal’ basket.

▪ Income maximisation
The lifeblood of the private property industry is cash flow and making money, but there is little pressure on the public sector to generate income. At the end of last year, environment secretary Chris Huhne gave local authorities the option to sell energy through feed-in tariffs. It was a good move, but this was just one possible area to address. The government should send a stronger message to the public sector that it is OK to be commercial.

The diversity of assets within local authorities is immense, and this is part of the problem. Town halls and civic chambers are being rented out by some authorities for weddings and events, but the commercial promotion and marketing of these venues is often poor, so these fantastic assets are under-used.

Car parks and park-and-ride schemes may be operationally well managed, but there should also be kiosks to sell customers newspapers and coffee. Any good private sector property manager would be thinking along these lines.

Towns and cities attract events such as festivals, exhibitions and shows. But there is no proactive asset management that maximises revenue opportunities that surround these events. In the south, authorities should be considering the potential value for photo-voltaic cells on school roofs and landfill sites. Markets in streets and squares are often administered by local authorities, but in a passive way.

Of course, income generation has to be balanced with political and economic desires to stimulate the local economy – that and the all-too-common letter to the leader of the council from a local business, complaining about its audacity in increasing rent after five years.

We live in a new world. And politicians need to support their officers in taking a more commercial approach. If not, they miss opportunities to mitigate the pressure on public services.

Neil McLocklin (neil.mclocklin@capita.co.uk) is Director of Consulting and Advisory Services at Capita Symonds

John Bandler (john.bandler@capita.co.uk) is Director of Regeneration at Capita Symonds