Leeds: Leading the way with external trading

Leeds City Council has taken a lead in developing commercial services. Alan Gay reveals the thinking behind the decision.

In 2012 Leeds City Council led a national commission of inquiry looking at the future of local government. One of the conclusions of the commission addressed whether local authorities should reposition themselves in the market for services, and whether this would improve the resilience and agility of the authority in responding to financial austerity?

Part of the council’s response was to establish Civic Enterprise Leeds (CEL). CEL has a £70m turnover and 3,500 staff: it delivers a £4.7m return.  CEL largely includes all of the multi-client direct services within the authority – catering, cleaning, transportation of vulnerable children and adults, vehicle maintenance and management, etc. Around 25% of CEL’s turnover is in a completely open market,  which predominantly covers a range of facilities management and catering services, with the main clients being schools.

Within the CEL group the council has also established a trading company, CEL Ltd, as a vehicle for external trading.  Few vehicles are more tax efficient, though, than a local authority: a cautionary tale for the aficionados of ‘spinning out’.  Local authorities have power to provide a range of services, including on a commercial basis, to public bodies defined under the Local Authorities (Good and Services Act )1970.  In addition authorities have the power to do anything which is incidental to the discharge of their functions, and that can include trading spare capacity.  The Localism Act 2011 includes a new general power which allows local authorities to do anything that individuals generally may do.  This is extends to doing things for commercial purposes: such activities need to fully recover costs (to avoid state aid) and be premised on a business plan.

Costings
Costing systems are key to the probity of much commercial activity, and we have invested heavily over the past 10 years in industry standard software systems that can allocate activity costs. Activity can be costed and charged commercially but staff don’t sit within the company, nor have any been transferred under TUPE.

There is some political pressure locally, and rightly so, that CEL doesn’t compete with SMEs or third sector providers in the city.  Clearly, CEL’s service fully recovers costs and aren’t vulnerable to charges of state aid, but the group doesn’t set out to construct conservatories for individuals or cater for luncheon clubs. Indeed, third sector providers themselves contract to CEL to deliver community meals and passenger transport.

In reality most of the group’s competitors are large multinationals.  We are sensitive to the drift to monopolies in some external provision – the council’s five external gas suppliers merged into two over a five year period as a result of acquisitions. We think plural markets foster competition and we think we have a key role in some of these markets. We also think the scale of our provision provides us with the resilience and agility to source emergency plan requirements, or host major sporting activity (as we did with the Grand Depart of the Tour de France last year.)

Key market
One key market CEL is developing is in care for older people, independently of local authority provision. CEL run a 365-day hot community meals services. 60% of its growth over the past two years has come from private individuals or their carers. Without this turnover, we wouldn’t have the economies of scale to run a city-wide service for Adult Social Care’s (ASC)  own client base.  Efficiencies in commercialising the services have taken the net cost of it to ASC from £0.9m to zero over a six-year period.

This month CEL will launch Presto, a wrap-round package of support at home for older people who buy services independently in the open market.  It will include cooking, companionship, transport, cleaning and handy person services.  It will also signpost third sector provision requests around social and recreational activities.

Neither the community meals service nor Presto already existed in the market place in Leeds. We think they are commercial services which are well in tune with one of our broader council and city objectives which is to make Leeds a great city to grow old in.

Risks
So what are the risks of operating such a large scale direct services operation in the city? Internal markets are very secure but maintaining a good price/quality offer is essential to retaining contracts with schools and other external partners.

Clearly it’s also a risk assessing demand in a market place not yet established, as in the case of Presto. Agility in staff deployment mitigates a great deal of this. We are able to reassign staff to other fee earning work should a market prove slow or volatile. Catering staff act as a bank of staff for passenger assistants, and companions can cover the community meals service.

It is early days for Presto and, mindful of the risks, at this stage it has only been launched in two wards of the city. Further extension of the service will be dependent on a thorough review of the pilot. We have also had to quickly become experts on the implications of the Care Act and VAT liability relating to these new services.

Whilst the income we generate from CEL is unlikely to be anything more than marginal in the greater scheme of things, it certainly makes a contribution to the financial challenge, and  it is an approach that gets a great deal of support from staff representatives. The creation of 400 jobs over the past two years, growth in turnover, and the provision of services which tackle isolation and care needs of older people are morale boosting tales which, in the current climate, we are pleased to be able to tell.

Alan Gay is deputy chief executive at Leeds City Council.

Photo (cropped): Stephen Bowler, Flickr