Thoughts on the PAC report on council commercial activity

Posted on 14/07/2020 by Ed Hammond.

The Public Accounts Committee’s report on council commercial activity makes for uncomfortable reading – for Government as well as for councils.

The Committee is excoriating in its criticism of MHCLG. It thinks that Government should have a much better handling on the oversight of the prudential framework, and of local authorities’ exposure to risk. It recommends swift and urgent action by Government, in partnership with CIPFA, to address this.

Particularly at the moment, councils are exposed to risks associated with commercial activity. Commercial assets and properties which might have been assets a few months ago – shopping centres, for example – may now look more like liabilities. Some councils may have to shift their whole business model to take into account the changes brought about by the pandemic.

It seems certain that the report will lead to action. Even before the pandemic hit, this was a live issue – now, with income from commercial activity having in many cases collapsed during lockdown, things seem even more urgent.

It is ironic that Government is now being asked to oversee improvements relating to a systemic weakness which it holds responsibility for creating. Cuts in grant without a strategy for a sustainable financial settlement have driven the sector to attempt to innovate to secure its income – something which Government actively encouraged. There are however gaps, where some parts of the sector, failed to put in place the skills and governance necessary to manage these risks – our evidence to the inquiry highlighted the shortcomings in governance around commercial ventures.

In responding to the report’s criticisms, the key lies in strengthened local governance arrangements for such ventures – and we are pleased that the PAC picked up on our suggestion to this effect. Government will not be able oversee and monitor the plethora of commercial activities in which local authorities are engaged – the position nationwide is hugely complex. The issue is also political, with risk appetite and tolerance being set locally further to decisions made by councillors and informed by s151 officers’ understanding of the local financial landscape. While there is no question that individual councils will have to ask themselves hard questions about their exposure, the answers to those questions are unlikely to come from arbitrary Government dictats about what kinds of investment are, and are not, appropriate, divorced from the local context.

The only way to avoid the ever-more-attentive eye of Whitehall is for us to put in place the strong and effective local governance needed to provide this oversight. Government has to answer to Parliament on its control of the local governance framework, and rather than encouraging it to derive that assurance through direct monitoring and inspection, we have to lead on the front foot but putting in place effective arrangements ourselves – giving Government (and the NAO, and PAC) that strong local arrangements can bear the load.

We produced with APSE a guide for local scrutineers on “Commercialisation and risk” which deserves attention if you’ve not already seen it. We also plan to offer more to practically support councils facing some of these commercial challenges in the near future. If you have any insights relating to your own council’s approach to these issues, please contact our Director of Research and Campaigns Ed Hammond at ed.hammond@cfps.org.uk

 

 

About the Author: Ed Hammond

Ed leads CfPS's work on devolution, transformation and on support to councils and other public bodies on governance and accountability.