Agenda item

7.1.  The Chair welcomed to the meeting Cllr Geoff Taylor, Cabinet Member for Finance and Customer Services and Ian Williams, Group Director Finance and Corporate Resources from London Borough of Hackney.

 

7.2.  The Commission asked the Council to provide information about services that have the potential for income generation - beyond increasing fees and charges – and to provide an overview of the Council’s approach and work on income generation for services across the organisation and their potential for commercial activity.

 

7.3.  Group Director Finance and Corporate Resources presented information and the mains points from the presentation were:

 

7.3.1.  The core spending power and grants that currently exist are:

·  Council tax

·  New Homes Bonus

·  Revenue Support Grant

·  Business Rates

·  Public Health.

 

7.3.2.  Commercialisation is a mind-set not about adding a few extra charges to fees.

 

7.3.3.  The true meaning of commercialisation is to make a profit. 

 

7.3.4.  There are a number of services operated by the council that cannot be commercial.  It was noted that the majority of the markets that local authorities operates in they cannot make a profit due to legislation restrictions, although local authorities can cover costs.  The example was given of waste services being a service that can offer direct competition to commercial organisation whereas parking services is a municipal fee.

 

7.3.5.  It was highlighted that the council could think commercially for their contracts.  This would require managers in the organisation to think commercially when setting up and reviewing contracts.  For contracts like the Hackney marathon, there would be an expectation that these contracts when negotiated are generating a revenue. 

 

7.3.6.  The capital scheme is also an area the council could take a commercial approach.

 

7.3.7.  Commercial property portfolio is an area being developed by the council but the organisation is also mindful that they have a community that will ask the council to provide affordable rents.

 

7.3.8.  In terms of commercial thinking the council needs to look at its niche skills and develop those.

 

7.3.9.  If the council wanted to explore setting up a commercial entity, the commission was told the following should be taken into consideration:

 

A company needs to have directors and the directors of the company have a duty to ensure the company is profitable.  All decision made should be based on what is best for the company not the community.  This could pose a conflict politically for councillors especially if they are on the executive board of the company.  Directors of the Board have to act to preserve the company.

 

7.3.10.  There could be the opportunity to explore the prospect of a local energy company, but the council needs to consider who would manage the organisation and its role in the decision making of the organisation.

 

7.4.  Questions, Answers and Discussions

 

(i)  Members referred to setting up an organisation and enquired if the council should had considered employing professionals in that area of expertise.

 

The Group Director Finance and Corporate Resources confirmed the council could consider hiring professionals within the service area of expertise.  It was noted to obtain the right talent would require the organisation to offer a competitive package.  The question the council would need to ask is can they justify that expenditure.  The officer informed the Member the Council experienced a similar dilemma when it was recruiting for the Pensions Committee.

 

(ii)  Members suggested the Council could develop its own commercial model by taking all the aspects that have been identified as working well.  Members enquired if this was a possibility?

 

The Group Director Finance and Corporate Resources reminded Members the first priority for any company would be to make it a success.  Therefore their focus on profit and loss could put it at odds with political desires and this needs to be taken into consideration before travelling down this route.  Members were advised to setup a company would require upfront investment.  The Council’s ability to do this would depend on the health of its finances at the time.

 

Although service areas like Communications and Consultation can generate an income this income was in the thousands.  A higher level of income generation is required to bridge the funding gap.

 

In reference to commercial waste it was explained the council had increased its income by focusing on its unique selling point to local businesses.

 

(iii)  For commercialisation Members commented there are 2 areas the council could explore further.  The management of properties and innovation.  For housing - linked to its role as a housing provider - the council is well placed to take on work in relation to property maintenance and the management of a property like an estate agent.  This could help the council discharge its housing duty.  The second area of innovation would be to take on the opportunities that ‘Silicon roundabout’ provides by supporting entrepreneurial companies with affordable commercial space.

 

The Cabinet Member for Finance and Customer Services advised the council is doing the work the Commission described under innovation but this has not yielded revenue.  In regards to property management the council currently does this.  In regards to silicon roundabout it was pointed out these companies need to operate in an environment that is agile, has energy with flexibility to make things happen quick.  This is type of environment is not suited to the operations of local government.

 

(iv)  Members deliberated about the definition of commercialisation.  Members commented the desire is not to turn the council it into a commercial organisation.  The purpose of exploring commercialisation was to review the organisation’s thinking towards risk and its preparations to take on a different level of risk. 

 

Member’s discussion revolve around understanding the Council’s objectives and how it can utilise its assets in an effective way, whilst improving services.  There is a need for the organisation to be clear about the outcomes it wishes to achieve.  Members pointed out the council should understand what it could contribute to the development of the borough.  This would take into consideration, activities it could stop doing, wasted resources and the reputation of the organisation.

 

Members talk about exploring the Council’s role as a developer the advantages and opportunities.  Members suggested having a report that outlines the organisation’s thinking about property development and the range of services that would be required to support the activity e.g. property services.

 

Members commented their desire is not for the council to drive out competition locally but to compliment the current economic development.

 

Members considered the information they would like to receive at the next session on commercialisation.  This discussion covered:

·  Energy company

·  Housing and maintenance

·  Property

·  Fees

·  A report on criteria and initiatives.

 

(v)  Members suggested the criteria or first principle for commercialisation should be to cover costs not making a profit.  The council should think about where it has a competitive advantage.  Members referred to previous plans by the council to develop a letting agency for housing and enquired about the progress of this.

 

The Group Director Finance and Corporate Resources advised there is company structure the council could use.  Although the officer reiterated anyone appointed to the company would be required to act in the best interest of the company first priority.

 

(vi)  Members enquired if a company was setup could it operate outside of the boroughs boundaries?

 

The Group Director Finance and Corporate Resources informed Members he could summarise the trading powers of a local authority.  Hackney Learning Trust was cited as an example of a company trading with local authorities.

 

In regards to the council taking on property management, it was noted there has been no demand from landlords to use a council run letting agency.  The Members were informed to take on an operation like this would require economies of scale so that they do not incur additional costs.

 

(vii)  Members enquired about the council’s transport fleet its running costs, investment and development.  Members also enquired about the council’s investment in temporary accommodation in the borough.

 

The Cabinet Member for Finance and Customer Services explained there were concerns about where it should buy property, the ability to borrow funds and if the actions of the council were contributing to and driving out people from the borough.

 

The Group Director Finance and Corporate Resources advised the Council’s transport fleet, explores opportunities to provide services during the day when the assets are not being used by the service.  This is something Hackney’s health devolution pilot will be reviewing.

 

(viii)  The Chair summarised the information required for the next session

·  information on the council’s role as a developer for the borough

·  Trading rules for local authorities

·  Constraints and principles

·  Legislative framework

·  Examples of different service areas for commercialisation

·  Fees and charges – list of areas generating an income

·  Criteria

·  Competitive advantage.