The commercialisation of (rural) services?

What do changing government finances mean for rural communities? Jessica Sellick investigates.

Money that Government spends on public goods and services can be broken down and understood in different ways: from total managed expenditure (TME) to departmental expenditure limits (DEL); and from annually managed expenditure (AME) to resource spending and capital spending. Collectively, total spending, at all levels of Government in the UK is estimated to be £784 billion in 2017.

Local Authorities are expected to spend about £173 billion– with the largest expenditure on welfare (£55 billion) followed by education (£47 billion), community protection (£15 billion) and transport (£9 billion). While this sounds a lot of money, the Local Government Association (LGA) estimates that by 2020 Local Authorities will have lost 75p out of every £1.00 of core central Government funding that they had to spend in 2015; leading to an overall funding gap of £5.8 billion.

What lies within these figures, then, is the reduction of state funding for local and central Government services and changes to how we think about ‘investing’ in local communities (including calls for local areas to be given control over their own finances and growing their local economies).

Back in July 2011, Government published its Open Public Services White Paper. This was concerned with giving people more control over the public services they received and opening up the delivery of those services to new providers. The centralised model of public service delivery was seen as costly and no longer capable of meeting the challenge of delivering personalised, joined up services that the public expected and needed.

Here Government was seeking to create “a more innovative, diverse and dynamic landscape of public services.” Competition was seen as a means of delivering higher quality services and improving efficiency while maintaining equity. Subsequently, private companies, charities and voluntary and community sector (VCS) organisations started managing huge swathes of public services – from schools and health centres, to train lines and prisons.

As part of attempts to respond to the pressures of funding reductions (doing more with less) and/or to radically transform service delivery (find alternative income streams); the concept of ‘commercialisation’ is re-emerging within public policy. What commercial models and practices are being taken up and what might they mean for rural service delivery?

As a concept for delivering public services, commercialisation within central and local Government is not new. It can be traced back to the privatisation of state entities such as British Aerospace in the 1970s, water and sewerage systems in the 1980s, the creation of private finance initiative (PFI) in 1992, the railways from the 1990s, parts of the probation service and all of Royal Mail in 2015.

While successive Governments have remained committed to and reaffirmed principles such as privatisation and commerciality across public services; the emphasis now is on building commercial capability within the civil service (and this is accompanied by an array of terms such as resilience, entrepreneurship and risk appetite).

The Crown Commercial Service (CCS) is an executive agency of the Cabinet Office. Set up in April 2014, CCS has five strategic objectives: (1) to deliver savings for central Government departments, (2) to undertake services in an efficient manner which meet the needs of customers and lead to increased spend through central deals, (3) to deliver the Government’s objectives on procurement policy, (4) to continue to improve commercial capability and organisational efficiency, and (5) to strengthen operational controls and deliver the financial plan.

The CCS is responsible for buying around £2.5 billion of goods and services for central Government departments. The agency also manages buying frameworks that help the wider public sector purchase £12.8 billion of goods and services. In December 2016, the National Audit Office (NAO) reviewed the value that CCS has provided since it was established.

While the Cabinet Office wanted to increase the CCS’s management of direct buying from £0.5 billion in 2013 to £13.4 billion in 2017-2018 (generating net savings of £3.3 billion), the NAO found there was no consistent information on what departments spend and no agreement about what should be centralised and what should be bought locally.

Auditor general Amyas Morse described how “because of this, it is not possible to show that CCS has achieved more than departments would otherwise have achieved by buying common goods and services themselves.”

Alongside the CCS, in 2016 the Government Commercial Function (GCF) was established. Coordinated by Gareth Rhys Williams, then newly appointed as the Government’s Chief Commercial Officer, GCF is part of the Civil Service and Cabinet office. It offers support to Government departments in four main areas: (i) complex transactions, (ii) markets and suppliers intelligence, (iii) commercial assurance, and (iv) developing commercial capability.

In his first public interview Rhys Williams said: "the principle driver is value for money, of course, but we are also about performance, better results...what we’re less good at is the bit on either side, and unfortunately they’re important bits. So we are not very good in deciding what we want and involving potential vendors in discussing that, and we’re not very good at managing contracts once we’ve procured what we’ve bought…

"There’s a number of different versions of best and we need to build some dashboards and then see who is improving the fastest and what can everyone else learn from them to improve our rate of improvements. It is like the bicycle team – hundreds of small improvements and we’re going to keep on going.

"That is the mentality we have here: how many failed procurements do we ever have? How long does that take? How many contracts are delivering all of their key performance indicators? With these sorts of metrics we can start to collect and share good practice."

In February 2017, the Institute for Government published its analysis of the Government’s commercial reforms. The reforms focus on recruiting commercial specialists, retaining and developing talented staff, sharing information on what works and which suppliers are performing, and deploying the best professionals to areas of high need within departments.

The Institute for Government concludes Government is focussing on the right issues, with the potential to succeed, and that most Government commercial activity should be managed by departments to deliver their objectives rather than through a centralised system.

Whether commercialisation is a central function or sits within individual departments, these reforms (and the activities of the CCS and GCF) are intended to put the ‘commercial DNA’ into Government and the wider public sector.

Within Local Authorities, much of the discussion around commercialisation has focused on the buying of offices/buildings for their income yielding capacity and/or making larger economic regeneration investments to grow the business rates base. Councils were given a ‘general power of competence’ (GPC) in the Localism Act 2011.

This gives Local Authorities “the power to do anything that individuals generally may do” as long as they don’t break other laws. The Government intended the GPC to encourage Local Authorities to work with others in providing cost-effective services and facilities in innovative ways to meet the needs of local people. In practice, it means Councils can lend or invest money and/or trade.

In 2016, Civica considered how reductions in central Government funding had driven Local Authorities to adopt commercial strategies and alternative income streams as part of attempts to become financially self-sufficient and sustainable.

According to the research, commercialisation now plays a significant part in 40% of Local Authorities current strategies. While generating income is not a new concept for Councils, the need to find new commercial avenues at the same time as closing the budget gap and redesigning services is challenging.

Civica identified four critical factors for success: (1) having an appetite for risk and attitude to change, (2) having a clear vision and leadership to move towards a more commercialised model, (3) finding the resources and ability to finance and drive forward new initiatives, and (4) that location and customers affect a Council’s ability to generate income i.e., a view that in more remote parts of the country, where big businesses are less inclined to locate, it is harder to boost the local economy.

In June 2017, the New Local Government Network (NLGN) developed the term: “changemaking”. This describes how Councils have no choice but to find new ways to deliver services and impact rather than scaling back existing ways of working. “The reinvention required is not the redesign of rigid structures or institutional remodelling of organisations.

Instead, it must be a change which considers function over form and focuses on raising social impact above all else… [this involves] nothing less than a major cultural shift towards three core values: creativity, collaboration and self-determination.”

The report contains examples of ‘changemaking in practice’: from US special forces in Iraq to clearing rubbish in Lima; and from the growth of Dutch home nursing organisation ‘Buurtzorg’ to Etsy, an online marketplace for arts and crafts products. One of the elements of this new transformational agenda is commercialisation: how can Local Authorities generate new revenue streams to fund public services?

There are a plethora of examples of how Local Authorities have interpreted and adopted commercialisation. The LGA, for example, has a commercialisation best practice map which shows how and where Councils in England are engaged in commercial activities.

The Association for Public Service Excellence (APSE) Municipal Entrepreneurship report includes a set of case studies which highlight how some Local Authorities have embedded commercial skills and business acumen in their delivery.

The Leadership Centre has examined a range of future scenarios for local government finance (from status quo through to financial collapse) as part of attempts to help Councils generate additional revenue to compensate for the shortfall in traditional funding streams.

The Heritage Lottery Funds (HLF) State of UK Public Parks 2016 illuminates commercial activities already being undertaken by park services within Local Authorities (e.g. establishing trading companies, adding a retail outlet, business sponsorship, corporate volunteering). In 2016, Councils spent more than £1 billion on real estate in their hunt for income generating property assets: Spelthorne borough council in Surrey, for example, spent more than £350 million on the BP Business Park in Sunbury, and Guildford Borough Council purchased the Wey House office block in Guildford for £22.7 million. Local Authorities are now seeking to fund public services through their property investments, providing professional/technical consultancy and/or opening retail outlets.

For me, against this backdrop of commercialising central and local Government, there is renewed need for discussions around: (a) where commercialisation fits with the strategic aims of Local Authorities and their delivery of services, (b) whether the public/‘customers’ are willing for some or all public services to be commercialised, and (c) where rural fits in the commercial approaches that are emerging.

Firstly, the role of Local Authorities. The Local Government Act 1989 set out the functions of Councils around decision-making on matters affecting their local communities, delegating some decisions to committees of officers and monitoring how these are exercised, and overseeing the performance of the administration and delivery of services and programmes.

Today there are some 375 Councils in England and Wales with almost 19,400 elected Councillors. Local Authorities determine local priorities and provide a wide range of services. Where does commercialisation fit between the strategic aims of Local Authorities and the delivery of services (i.e., in juggling income generation, savings, selling or acquiring assets etc.)? It is clear that there is no one model of how/where/when commercialisation fits– many

Councils now have ‘commercialisation’ and/or ‘income generation’ strategies. For some authorities these strategies come from their vision for their local area, or to respond to a changing funding climate, and/or as part of attempts to seek more innovative approaches to service delivery.

In November 2016 the House of Commons Committee of Public Accounts published its report on the financial sustainability of Local Authorities. This describes how Local Authorities have maintained capital spending while decreasing revenue spending. Many Local Authorities have done this by investing less in physical assets such as libraries and parks, and spending more on commercial investments often involving property.

The report raised a number of concerns around Officers and Members having the necessary commercial skills and experience, as well as the need to anticipate risks to financial and service sustainability.

If we want Local Authorities to become ‘entrepreneurial’ and ‘self-financing’, how can we ensure commercialisation doesn’t damage the very things Local Authorities have been set up to do (‘services’, ‘programmes’) and the public services communities want? How can we reconcile the social aims of Local Authorities alongside their commercial interests?

And at what level should commercialisation happen – at organisational/whole Council level, in procurement and commissioning teams, in/across individual service areas and/or according to other factors (e.g. budget, place)?

Secondly, are the public (‘customers’) up for some or all public services being commercialised? The Local Government Service List is a collection of services that a council (or other public sector body) in the UK provides to or on behalf of those who live, work and pass through the area for which they are responsible.

The Department for Environment, Food & Rural Affairs (Defra) publishes statistical indicators covering the accessibility of services in rural areas. Here, service availability is framed around distance to cashpoints, banks and building societies, supermarkets, NHS dentists, pubs, petrol stations, libraries, jobcentres, post offices, convenience stores and pharmacies.

For me, this opens up a dialogue around finding out what ‘services’ are important to rural communities, which ones are deemed ‘public services’ and what role commercialisation might play in their delivery.

On the one hand, there is a view that the public aren’t too concerned with who is providing them with a service as long as that service is delivered to them.

On the other hand, public services are very different to businesses – and it is not simply a case of turning one into the other. In December 2016, the Department for Education (DfE) published its report for developing the capacity and diversity of children’s social care services.

While the report considered how to promote the marketisation and commercialisation of statutory children’s social services, [interestingly England was then the only country looking at contracting out assessments and decision-making to do with the safety and protection of children] Government subsequently sought to distance itself from the report.

The Government response concluded: “we therefore reject those options which would either centralise the delivery of children’s social care services, such as the option to establish a National Children’s Social Care Commissioning Board, or allow profit-making organisations to deliver them.”

This opens up discussion around what is meant by marketisation and commercialisation. Research for Defra on alterative service delivery models in 2013 identified 11 models of delivery (from Councils sharing services, through to co-production and private companies).

This includes case studies which highlight the role of rural residents in taking on responsibility for the delivery of services ‘on their own account’ as well as the role of Local Authorities, Parish Councils and VCS organisations in supporting them.

Is this commercialisation and/or are rural communities ‘filling the gap’ where public providers can no longer afford to deliver services and where commercial providers cannot generate a profit from them?

Thirdly, where does rural fit then in the commercial approaches that are emerging? Rural Services Network (RSN) members inherently understand and grapple with the ‘premium’ involved in delivering services in rural areas.

Similarly, rural residents and businesses often have to travel some distance to access services. How are commercial approaches able to respond to the challenges of cost, speed and practicality in adoption in rural places? How is ‘geographical take up’ (reaching rural places) and ‘service take up’ being tackled?

What data and evidence exists to tell us what works and why in a rural context? The risk here is that without care and attention the most ‘profitable’ bits of public services will be picked up leaving rural areas underserved.

There are also examples of where ‘gap filling’ has been happening i.e., where community minded individuals spot the gaps (or potential gaps) and devise projects to fill them. What happens in rural places where communities do not have the capacity, interest and/or know-how to do this?

If putting people first is to remain the mantra of public service delivery, now more than ever in with commercialisation, we need to focus on how services can be even better from the perspective of rural residents.

Finally, what outcomes are we looking to achieve and what difference do we want to see through commercialisation?

Are commercial approaches leading to higher quality and more sustainable service provision (in rural areas)? Are they building resilience within Local Authorities and helping them to generate a surplus? Are they delivering value-for-money for taxpayers?

Are they enabling central Government and Local Authorities to work together on a shared agenda of making public services (commercially) viable? Going forward, if we want ‘new commercial DNA in the public sector’, how are rural Local Authorities going to continue to play a meaningful role in local communities?

Or will we see a return of approaches to public services inspired by budget airlines and national retailers? Watch this space...

Jessica is a researcher/project manager at Rose Regeneration; an economic development business working with communities, Government and business to help them achieve their full potential. Her current work includes supporting a Lottery programme to help people into paid work; research for the NHS on rural workforce recruitment and retention issues and evaluating a financial capability project. Jessica can be contacted by email or telephone 01522 521211. Website: Twitter: @RoseRegen


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