When Running the Council Was No Longer Ambitious Enough

Chapter 1 examined the promise: one council, lower costs, clearer accountability and millions saved. It also found the transition costs, inherited balances and highly paid departures that the banner neglected to mention.

Chapter 2 begins when the easy savings had been taken and the hard question remained.

How would Shropshire fund the future?

The Council’s answer was to put on a business suit.

The savings could only be made once

A district council can be abolished only once.

Its payroll department cannot be removed again the following April, however attractively the saving might look in the next financial strategy. The first unitary efficiencies had been recorded, but government funding was reducing and demand for expensive statutory services was continuing to rise.

Shropshire Council needed more than another reorganisation.

It needed income.

By 2012, the language had changed. The authority would no longer behave merely as a council. It would trade, compete, win contracts and generate what became known as “public profit”.

The phrase was exquisite.

It sounded commercial without sounding mercenary, profitable without sounding greedy and public-spirited without requiring anyone to explain precisely how much profit would arrive, from whom, or when.

The age of municipal enterprise had begun.

Enter ip&e

In May 2012, Shropshire Council announced a “ground-breaking” approach to public services.

A new company was being created: ip&e (group) limited, short for “Inspiring Partnerships and Enterprise”. Lower-case letters were apparently essential. Nothing announces commercial confidence quite like a company name that appears to have escaped from a management consultancy’s flip chart.

The proposal was substantial. Catering, cleaning, facilities management, finance, personnel, information technology, legal and printing services were among the functions considered for transfer. Together, the areas employed more than 1,700 people and spent about £36 million a year.

This was not a cautious experiment conducted behind the stationery cupboard. It was intended to become one of Shropshire’s largest employers and to place significant Council services inside a commercial company.

Then Council leader Keith Barrow said the changes would create jobs, boost the economy and “change the face of local government as we know it in Shropshire for the better”. He wanted local people to see and feel the difference within twelve months.

Public bodies are admirably generous with deadlines when the deadline is attached to a promise.

Evidence: Shropshire Council announcement, 24 May 2012

The commissioning council

By February 2013, the Council was describing ip&e as the beginning of a “new chapter”.

The company would supply services to public and private organisations, win external work and return a public profit for reinvestment. Shropshire said it was the first council in the country to attempt the model on such a scale.

The underlying idea was not foolish.

Councils employ skilled staff, hold specialist knowledge and operate services that other bodies may wish to buy. Properly priced, professionally managed and honestly measured, commercial trading can generate useful income.

But a business requires customers who are not merely different pockets in the same pair of municipal trousers.

It needs accurate pricing, disciplined costs, reliable accounts, firm controls and managers capable of distinguishing turnover from profit.

Above all, it needs a market.

The Council’s publicity suggested that ip&e was preparing to stride boldly into one.

The figures later showed that the market had barely bothered to visit.

Evidence: Shropshire Council, “New chapter” for public services, February 2013

The business meets the figures

In February 2016, less than four years after ip&e was incorporated, Cabinet received a review of the company.

The report is what happens when a press release finally meets a ledger.

ip&e recorded losses of £69,802 for part of 2012/13 and £114,701 in 2013/14. It produced a profit of £28,029 in 2014/15.

A forecast surplus of £83,000 was expected for 2015/16, but the Council’s own report explained that this represented money left unspent on Council-awarded contracts. It was not profit earned from external trading.

The company could therefore show a surplus provided its principal customer was also its owner, commissioner, financier and emergency exit.

Its estimated turnover for 2015/16 was £14 million. Of that, 98.7 per cent came from Shropshire Council contracts, including schools trading income. External contracts were worth £187,710.

Central company costs were estimated at £613,937.

After the cost of securing and delivering external work was taken into account, outside income contributed only six per cent towards those overheads. The remaining 94 per cent fell upon ip&e and Shropshire Council.

This was less a commercial engine than a Council department wearing novelty cufflinks.

Evidence: Cabinet review of ip&e, 17 February 2016

The controls department calls

The same review recorded approximately £190,000 in direct costs to the Council arising from company decisions. These included not purchasing certain support services from the Council, delaying contract reductions and renting offices outside the Council’s existing estate.

A financial health check identified the need for significant improvements in financial management, information technology systems, contracting procedures and governance.

The report added, with almost surgical restraint, that these weaknesses were unlikely to have occurred had the activities remained inside the Council.

The authority had created a company to gain the freedom and discipline of business.

It acquired the freedom.

The discipline was still in the post.

Officers concluded that the services could trade more effectively from within the Council. They recommended ending the relationship with ip&e because of “poor financial and trading performance”. Cabinet agreed that the company should cease operating and that its staff and services should return to Council control.

Thus ended the enterprise that was going to change the face of local government.

The face survived.

The company did not.

Evidence: Cabinet review and closure recommendations, 17 February 2016

A lesson was available

It would be unfair to say that ip&e achieved nothing.

The review recorded savings on two Council contracts, and several activities continued after returning in-house. Nor does one failed company prove that every council-owned business is doomed.

But ip&e’s central proposition had failed.

A company created to win external business remained overwhelmingly dependent upon its owner. Its outside income was small beside its overheads. Its controls required substantial improvement, and the Council ultimately decided the work would perform better back where it had started.

The institutional lesson should have been unmistakable.

Commercial ventures require more than optimism, branding and a Companies House number. They require independent challenge, transparent performance measures, strong controls and a willingness to stop when the evidence no longer supports the prospectus.

The name ip&e disappeared.

The instinct behind it did not.

The Council goes shopping

In January 2018, Shropshire Council completed the purchase of the Darwin, Pride Hill and Riverside shopping centres in Shrewsbury for approximately £51 million.

The stated purpose was broader than financial investment. Ownership would allow the Council to influence regeneration, improve the town centre and secure a continuing income stream.

Council leader Peter Nutting called the purchase “very exciting and hugely important”. Deputy leader Steve Charmley described it as a “once in a lifetime opportunity”.

The Council said the centres would provide £2.7 million of income for the following year’s budget.

The seller’s explanation was equally revealing. Its fund manager said the disposal formed part of a strategy to reduce the portfolio’s weighting towards retail and recycle the money into other investment opportunities.

One party was reducing its exposure to retail property.

The other was a council borrowing £51 million to acquire it.

Markets depend upon different opinions. Taxpayers are entitled to ask which party had read furthest into the brochure.

The later performance and valuation of that purchase deserve their own examination. For present purposes, the deal marked another stage in the Council’s transformation.

Shropshire was no longer merely delivering and trading services.

It was now a major commercial property owner.

The next costume required a hard hat.

Evidence: Shropshire Council shopping-centre announcement, 24 January 2018

From landlord to developer

On 28 February 2019, Full Council approved the establishment of a wholly owned local housing company.

The public case joined two attractive ideas.

First, the private market was not supplying enough suitable and affordable homes in the right places.

Second, a commercial company could generate income, support development and help the Council become more financially self-sufficient.

The company would acquire land and develop homes for sale and rent. A politically balanced Housing Supervisory Board of nine councillors would exercise shareholder oversight. Council approved an initial unsecured loan of £250,000 for operating and establishment costs, while the first business plan modelled sites at Ifton Heath and Monkmoor in Shrewsbury.

The papers promised market intervention, affordable housing, place shaping, economic growth, income generation and financial self-sufficiency.

It was a prospectus containing something for everybody.

Homes for those who needed them.

Work for local firms.

Regeneration for communities.

Income for the Council.

Risk, naturally, would be managed somewhere in the appendices.

Evidence: Full Council decision establishing the local housing company, 28 February 2019

The pattern is established

Between 2012 and 2019, Shropshire Council travelled a considerable distance.

It created a company intended to revolutionise public services and generate public profit.

It closed that company after poor financial and trading performance.

It borrowed £51 million to buy three shopping centres.

It then approved a housing-development company intended both to address unmet need and strengthen the Council’s finances.

None of those decisions, taken alone, proves recklessness or improper conduct. Each had an arguable public purpose. Each was supported by reports, advice and the familiar assurance that risks had been considered.

Together, however, they reveal a pattern that Chapter 1 makes impossible to ignore.

The authority created to simplify local government had begun to rely upon increasingly complicated commercial ventures. The Council that promised clearer accountability was placing more activity inside companies, contracts and shareholder arrangements. The organisation created to save money was borrowing and investing in the hope of generating more.

The formula was becoming familiar.

A public problem.

A commercial solution.

A confident prospectus.

And the risk safely escorted towards the appendices, where it could trouble nobody during the presentation.

ip&e had already provided the warning. Commercial ambition without genuine customers, strong controls and independent challenge was not enterprise. It was merely council business wearing a company badge.

But the warning did not halt the experiment.

It increased the stakes.

The Council had tried becoming a trader.

It had then borrowed £51 million to become a major retail landlord.

Now it intended to become a property developer.

The new company would acquire land, build homes for sale and rent, intervene where the private market had failed and generate income for the Council. It promised affordable housing, economic growth, regeneration and financial self-sufficiency.

Not one objective, but all of them.

The ambition was no longer merely to conduct council business commercially. It was to use public borrowing, public land and a council-owned company to reshape the housing market itself.

The Council had been given one clear warning.

It was about to place a much larger bet.

The company was called Cornovii.

And its promise was not modest.

Three thousand homes.

The hard hat was on. The chequebook was open.

Reality was waiting in Chapter 3.

Chapter 3: The Cornovii Experiment

Three thousand homes, a commercial future and one exceptionally confident business plan.