Local authorities’ moral dilemma

  • In conjunction with SOLACE we interviewed 22 English and Scottish local authority chief executives to find out views on the present and future role of local authorities
  • Local authority chief executives have new commercial choices in how to run their organisations and develop their communities
  • The report, Why are we here? asks how ethical and commercial priorities fit together

In recent years most local authority chief executives have concentrated on reducing expenditure, given decreasing budgets and expected an end to government funding (2020). Many have been exploring alternative income streams to plug the funding gap.

In the 2016 report World’s apart, chief executives explained how they were experimenting with shared services and commercial ventures to curb spending and stimulate income. Now in the 2017 report Why are we here? they explain how local government is increasingly commercialising to secure the future of councils and their communities.

Chief executives have to plug the gap between what they have to spend and what they need to spend. Some are stretching the public sector service provider model to breaking point, pushing boundaries into risky territory. How does this business first motivation square with the public service purpose of putting people before profit?

As the report notes, chief executives are asking: “why are we here, and which path do we choose? The choices are complex:

  • Is it a council’s role to catch the most vulnerable in society when they fall?
  • Is it to improve the lot of the people?
  • Is it to improve the place in which they live?
  • Is it to create income streams to develop sustainable economic communities?
  • Is it to create commercial, profit generating organisations that can grow into formidable businesses?”

Chief executives may now be facing a moral dilemma: how do they create sustainable communities and ensure future income for councils without crossing the ethical line between being public sector and private sector organisations?

Many councils are moving towards becoming hybrid organisations. Public services and community development remain the core purpose of what they do but the traditional activity of local government is fuelled by a range of commercial enterprises to bring in the funds to make it a reality.

Some chief executives interviewed for the report Why are we here? are comfortable with that model. Some are happy with the model so long as the commercial projects and income generated remain in the locality.

Others are happy to take it further, aiming for councils to become profitable businesses with investments and companies spread across the country, so long as the result is local value.

The ultimate new commercial identity for some councils is the money-making venture based on traditional private sector lines, where councils make profits and use it to pay their way and to reinvest.

Some cite fundamental ethical reasons for not wanting to take their councils to the commercial extreme: “In the drive to commercialise we have to remember our moral purpose.” Many are still feeling their way: “There is a commercial spectrum: I don’t know where we fit.”

The financial stakes are high as councils move into areas previously unknown to them. Some admit there isn’t yet the knowledge, experience and resource available to support new ventures.

With local government as one of the largest property owners in the country, property investment and development is a favourite for councils. But what happens if the property bubble bursts? “Putting all your eggs in one basket is risky”, as one chief executive points out.

Councils cannot afford to fail and as one chief executive says: “return of your money is more important than the return on your money.” However financial risk is not their only concern.

With local government’s reputation tarnished by austerity cuts and the response and relations following the tragic Grenfell Tower fire, councils’ actions and attitudes are under scrutiny. Trust and reputation are at risk as well as council funds.

Citizens are noticing that services are being cut, rationed and charged for. Chief executives explain there has to be more reliance on families and communities to provide support where once the council would have stepped in. There is more focus on keeping people in their own homes with attendant services rather than pulling them into a ‘looked after’ system.

The people that councils’ commercial projects are making money for want a say in how much is spent and who and what it goes to. Chief executives are responding with renewed vigour, engaging and consulting citizens. What will be the reaction to bullish commercial endeavors?

Rod Penman, Head of Public Services, Zurich Municipal concludes: “Last year we talked about how austerity was breeding creativity and how business was getting riskier as a consequence.

Now we are told how risks are more than financial, as trust and confidence is being questioned in reaction to service cuts, increasing commercialisation and perceived lack of engagement.”

What chief executives do and how they do it is being defined by the ultimate question for local government: why are we here?