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