Public sector organisations walk a tightrope with reliance on property and professional services revenues

Public sector organisations are increasingly vulnerable to market conditions, despite undertaking commercial activities with the best intentions, according to Zurich Municipal.

Public sector organisations’ increasing reliance on commercial activities in recent years is well documented. A recent Zurich Municipal study carried out among Association of Local Authority Risk Managers (ALARM) members found that more than half (59%) of public sector risk and financial professionals undertake commercial activities to ensure financial security. A further two thirds (68%) agreed that commercial activities help fund services which provide for the community.

However, heavy investment in areas like commercial and private property leaves public sector organisations open to market conditions.

Commercial property, for example, is the most popular commercial initiative undertaken by public sector organisations, with three quarters (76%) involved in the study invested in the sector and over a third (39%) involved in private property initiatives. Estimates suggest that there is up to £3.8 billion* of public funds  exposed to the sector.

Yet, a quarter (26%) of financial and risk professionals at public sector organisations admit that insufficient risk training is something they worry about, while one in ten (12%) believe that their colleagues are not adequately training to manage commercial risk at all.

Despite this trend, two thirds (66%) believe that local politicians are very supportive about an increasingly commercial agenda within public sector organisations.

Rod Penman, Head of Public Services, Zurich Municipal said: “Public sector organisations are now the UK’s largest property owner.  I’m sure it wasn’t the government’s intention  that there should be unlimited borrowing power on commercial properties, but it is worrying to think what will happen now if the property bubble bursts?

“Public sector organisations with increasingly commercial agendas should be commended for seeking greater financial independence, but training must be made available to ensure unacceptable risks are avoided.”