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Managing in uncertain times
Trowers Public Insight

Managing in uncertain times

As local authorities count the cost of this year's financial settlement, it is clear that a significant number will face real challenges as they consider how to maintain vital public services whilst balancing the books.

More local authorities will need to consider new partnerships – with other local authorities or private and third sector partners to make ends meet.  A number of local authorities are exploring ways of sharing back office services but preserving local political sovereignty.  Such arrangements have often faced challenges where partners interests are not aligned but the funding climate is driving unlikely partners to look more closely at what they have in common, rather than what divides them.  New structures are emerging to allow local authorities to maintain effective strategic control whilst transforming service delivery through jointly owned companies - avoiding procurement costs and simplifying the implementation process.

Outsourcing has had limited appeal for many authorities – and everyone has stories of contracts that failed to deliver what was promised.  There does appear to be a new interest in making such contracts work better rather than dismissing the option out of hand.  The private sector has also learnt that it can deliver more effectively by developing innovative supply chains – including supporting third sector and charities to provide specialist services that can make a real difference to people's lives.

Payment by results contracts have received a lot of bad press coverage but the basic premise that payment is, in part, based on achieving better outcomes must be a goal which many can agree with.  The challenge is how to make such contracts more flexible so the contractor remains incentivised to deliver the intended outcomes rather than exploiting weaknesses in the contract to claim payments without addressing the wider contract objectives.

Economic development is also at the top of many authorities' list of priorities.  If Government is not going to provide the cash, plans will need to be developed to generate extra income – by sweating assets or expanding the local tax base.

Some authorities are in the fortunate position of owning land and buildings which can be used to pump prime investment – perhaps coupled with prudential borrowing, but the challenge is to deliver solutions which provide much needed revenue rather than just one-off capital receipts.  Authorities are currently delivering a diverse range of initiatives including mixed use commercial developments, science and innovation parks, private rented vehicles and custom build (self-build) schemes - all of which promise a longer term financial return than more traditional arrangements.  The range of initiatives is also sparking interest from the pensions market looking to invest in authority backed schemes – either as a co-investor or as an exit strategy – freeing up public sector capital and prudential borrowing headroom to invest in other initiatives.

Other areas of public infrastructure investment remain less rosy.  There is some money for roads and schools, which is to be welcomed, but little to stimulate the wider local economy.  Those authorities that have managed to find the cash to improve their public realm and deliver renewed confidence to investors have seen significant returns in terms of private sector investment.

As an election year, we can expect more uncertainty than usual!  It does seem likely that those authorities with a clear view of their strategic role, supported by a diverse range of strong partnerships will be in better shape to weather the potential storms ahead.