Much like a private sector merger, Local Government Reorganisation (LGR) has its rationale in improved efficiency in outputs for “shareholders” (in this case individuals, communities, businesses and places), and an improved use of its combined balance sheet. However, much like a private sector merger, the way in which two or more previously separate organisations, with often different operating infrastructure, cultures and values come together can be a very long and challenging process.

LGR represents one of the most significant changes to England’s governance landscape in decades. The Government aims to replace County and District councils with Unitary councils for regions encompassing 35% of the English population. This objective is intended to streamline administrative structures, enhance service delivery, and facilitate more strategic, place-based decision-making.

There is little doubt that LGR is a good idea. Separating services between counties and local authorities has created inefficiencies in delivery, misalignment in prioritisation, and confusion over ownership (of outcomes, as well as infrastructure and assets). However, as with planning reform, there is a risk that the shorter-term effects will adversely impact the overall success of the project. Particularly for a national government which is facing challenges on a number of fronts.

Long-term Gain

The key here is to look through the short-term impact and focus on the longer-term prize. For too long some places have struggled to think holistically about their challenges and opportunities.

This is not for want of trying. Local government is full of great people working extremely hard for increasingly limited recognition.

However, the challenges faced by many, around how they fund an increasing demand for statutory public services, has meant that investment into delivering inclusive and sustainable growth has suffered. That’s investment in both capital and capacity terms.

The merging of services/outputs, asset portfolios, and operating platforms should, over time, bring with it a more efficient use of these resources, thus enabling more to be focused on those critical levers that drive economic growth and social improvement.

Linking responsibility for transport infrastructure, skills and the economy and planning policy in the same organisation in this context makes perfect sense. However, the real opportunity here is how LGR interacts with regional devolution and the establishment of Strategic Combined Authorities. Without this, larger unitary authorities may indeed achieve more operational and balance sheet efficiencies, but they are also likely to become heavily constrained by growing pressure on public services and challenging budgetary priorities. This is therefore part of a much broader piece of public governance reform and needs to be seen in that context.

If only it were that simple. Regional devolution and LGR are impacting different parts of the country in different ways and at different speeds. This is creating a confusing landscape for private sector investors and developers, whose capital will be critical in delivering the broader economic and social improvement which this country needs.

The actual financial and operational position of each pre-merger organisation is, of course, hugely important.

After over a decade of increasing austerity, a growing transfer of statutory responsibility, and increased demand for their services, many local authorities are in financial peril – either within intervention (under s114 of the Local Government Act) or close to it. If these local authorities are merging with ones in a stronger financial position, or indeed even if they aren’t, Government are pushing them to resolve their key financing challenges ahead of LGR taking effect.

This could, for example, force a local authority to sell a key property asset at a time and in a way which might not be optimal to the price achieved or the residual liabilities for the seller. Perhaps more importantly, it could also encourage reactive decision-making – selling public assets which have material social, economic and community value over those which have less.

A critical issue if organisations want to think in portfolios – understanding the interaction and leverage between assets and maximising the combined positive impact on communities and places. Although perhaps less common now, there are some local authorities with excess capital, and it’s possible that they might seek to invest that ahead of LGR rather than lose control of it.

In the same way that not all merging entities are in equivalent financial positions, some are also not in equivalent operational positions. One might have a much better understanding of its asset base, opportunities for improved operational efficiencies, and a greater resource in key areas. In such a situation, it’s not inconceivable that this part of the merged organisation takes a superior position to the other – treating its assets and operational platform in a different way. Or, from an asset perspective, it could lead to those assets being traded first, simply because the knowledge of their legal title, covenants, restrictions, and service provision allows for immediate liquidity.

Finally, there could also be unforeseen future capital demands. It is likely that some assets won’t have been properly maintained, and these will be harder to sell, therefore meaning that the combined authority could be selecting to hold assets with embedded liabilities, often without being able to properly quantify them.

Strong Leadership

As with all new policy programmes, and as with any effective merger in the private sector, a strong and aligned leadership is a key component to success. But leadership is not in the hands of a few individuals at the top, it runs through an organisation. Adopting new processes, governance or reporting arrangements, and IT systems amongst other day-to-day matters are all the responsibility of individuals well down organisational hierarchies. It’s often easy to challenge change, but a culture which embraces and drives it forward is possible in any organisation. It just requires ownership and responsibility at all levels, and that requires strong leadership at all levels.

Next Steps

In this context it is clear that one size most certainly won’t fit all in terms of how LGR plays-out in places across the country. However, places which are subject to these seismic changes should, if possible, allow themselves the time to fully appraise their balance sheets, their assets, and the social/economic landscape in which they operate. Without doing this, the bigger picture will be lost, and the opportunity to maximise the benefits of LGR with it. This could damage places for some considerable time, reducing their opportunities for investment and encouraging private partners to look elsewhere.

LGR could either stall or stimulate delivery in places. Certainly, over the near-term. Private funders know how important prioritisation is for their own businesses and portfolios, and they will be looking to invest in places that offer them certainty, commitment and focus. Genuinely deliverable investment strategies which cut through shorter-term political or organisational uncertainty. Not simply a list of investable opportunities, but a prioritised plan which gives investors confidence. Most investors will run 3 or 5 year investment cashflows, and if half that time is taken up with LGR uncertainty then they’ll simply look elsewhere.

This is why it’s important to have both a place and a people-based approach. Understanding the policies and politics, governance frameworks, key stakeholders and operational capacity as well as the actual asset portfolios, service propositions and delivery structures will be key in supporting places deliver the full potential of Local Government Reorganisation from an assets and balance sheet perspective.

However, as mentioned above, it will also take a combined approach to devolution and greater autonomy within strategic authorities, who can then support the operational and asset efficiencies delivered by LGR, to deliver the full positive potential of this national policy. Therefore, working with strategic and combined authorities in supporting LGR in the context of a strategic approach to regional economic growth and social improvement will also be key.

Metro Dynamics are uniquely situated to support places and those who are investing or developing in places that are undergoing LGR. We understand that places are shaped by people, we understand the delivery mechanisms as well as the financial landscape, and we know the key relationships which exist with and within devolved regional government.