How far will commercialisation go in Scotland?

  • Budget cuts are starting to have a significant impact on Scottish local government
  • While the majority of councils in England have responded to funding cuts by seeking out new revenue streams, many Scottish authorities still have reservations about commercialisation
  • We discuss whether this situation could be about to change

Less than two years ago, a News and Views report on the state of public services in Scotland described how Scottish local authorities were only just beginning to feel the effects of budget cuts.

Today, it is clear that financial constraints are having a considerable impact. The Scottish local government sector has faced cuts averaging 5.2% over the past year, and three authorities are reportedly close to exhausting their reserves. Ronnie Hinds, Deputy Chairman of the Accounts Commission, says Scottish councils are “finding the financial pressures increasingly difficult to manage”.

Could these challenges lead more Scottish authorities to consider commercial ventures as a way of finding additional revenue – as many local authorities in England have done?

Commercialisation: the Scottish local authority viewpoint

This question was the subject of keen debate at a recent Zurich Municipal customer forum in Glasgow, where local authorities and other public and voluntary sector bodies gathered to discuss some of the most pressing challenges they face.

Some local authority representatives who attended the Glasgow event were clear that they would not consider taking a more commercial path.

“I’m very much of the old school way of thinking,” said one. “The public pay our wages and our job is to protect the public – it’s not to make money.”

Others held equally strong, opposing viewpoints. “Things have changed, and when there is no money, we have no choice but to make it,” said one.

There was, however, a consensus that local government needs to modernise.

One attendee said: “There are lots of people within our authority who have been with us their entire working lives, but that concept of a job for life is starting to disappear. We have to modernise, because we need new skillsets and new ideas.”

Could schools also take a more commercial path?

There was also discussion about the Scottish Government’s move to give head teachers greater control over school budgets, a situation highlighted in our 2017 Scotland Local Authority CEO Report.

“The funding is going to bypass us and go straight to schools,” said one local authority representative.

“What if you have one head teacher in an area who decides to go down a commercial route, and another who takes a more traditional route? You could end up with two very different approaches, and potentially very different outcomes in terms of learning and attainment.”

The discussion around commercialisation echoed some of the views shared by local authorities in our 2017 CEO report, which highlighted how some local authorities have already taken the first steps towards commercialisation. One authority, for example, has set up arm’s-length companies to run services including buses and leisure centres, while another has plans to set up a company to sell electricity.

Risk and insurance considerations when commercialising

Commercial ventures come with no guarantee of success, so local authorities need to develop a clear understanding of their risk appetite – the level of risk they are prepared to accept as a reasonable side effect of opportunity.

They should also be aware that commercialisation could lead to new exposures and new liabilities.

As an example, a local authority that decides to sell legal or property advice would need professional indemnity (PI) insurance to protect itself against any potential claims for financial loss arising from negligent advice.

However, because it is trading commercially, it might also need a PI policy that meets minimum levels of cover stipulated by any associated professional body, and which can respond to changes in legislation.

Traditionally, PI insurance within the public sector has not been able to provide this – it has only been able to cover claims relating to alleged negligence.

At Zurich Municipal, we are constantly looking to adapt our products and services to reflect the changing nature of the risks our customers face. As an example, we were recently able to provide Norse Property Services – a property design and management company wholly owned by Norfolk County Council –with PI cover on a civil liability basis, to meet the requirements of professional bodies and any legislative changes.

If you are considering new activities or operations, we would encourage you to speak to us so we can better understand the potential risk exposures you could face.

Anne Norrie, Regional Manager – Scotland, Zurich Municipal, says: “More and more of our customers are becoming involved in activities outside the normal scope of their organisation.

“This is leading, potentially, to a change in risk management requirements. We need to understand the extent and nature of the activities you are involved in, so we can establish what you are liable for and not liable for.”