Hammersmith and Fulham Council is spearheading a joint venture with the private sector to offer debt management services to all local authorities. The man leading the venture, the council’s commercial director Michael Hainge, is driving cultural change through the public sector by bringing in FCA standards of conduct.
MLG: What stage have you reached with the joint venture?
MH: “So we went out to market with a formal procurement process and we’ve got a successful bidder. We’ll be forming the joint venture and should be in business by the end of May. It has been a very quick process. We were very clear about what we wanted and the best response was very good indeed.”
MLG: Was there a level of surprise among the companies invited to tender, given standard practises in the public sector?
MH: “Very much so. Not only were some people surprised – some companies didn’t feel they could bid. I had comments from more traditional elements of the market, saying ‘why would we want to do that? We couldn’t make any money from that.’
“If you look at debt owed to local authorities in a narrow way, you could say ‘let’s get as much as we can in as short a period of time as possible,’ but that does nothing to support communities. Even if you disregard the human cost (which we never will), there will ultimately be a financial cost for the council. There is no point in aggressively pursuing people because if, for example, the consequences of that pursuit mean they become homeless, we’ve then got a responsibility to house them – and that costs the council money. If you make someone homeless, and they have children, there’s an increased risk of the children entering the care system. Not only is that a blight on their life chances, but we will end up having to pay about £75,000 a year for every child we’ve got in care.”
MLG: So if that’s the thinking that led to a new approach, how will the joint venture operate? What conduct standards will it operate within?
MH: “We wanted the private sector to come in and help us perform better, but the joint venture ties them into us and we take a share in whatever profit they make. We’re now in a position where we can use successful bidders, but equally the joint venture can commission anybody else. Our offer to other councils will be on a contingency basis, so if we get nothing back, they pay nothing. The board constitutes six directors, three from the council, three from the successful bidder. While as the council we have the majority shareholding, the intention in structuring the board in that way is to make sure it is a partnership. No one is out-weighing anybody else.”
MLG: The debt purchase service for councils, combined with FCA standards applied to collections, does appear to be genuinely new.
MH: “I think it is. The market shied away from it in the past because of the level of knowledge of working local government debt wasn’t there. With the joint venture, we will bring our local government expertise together with the private sector.”
MLG: Are there any signs anywhere from other councils, whether they’re county or metropolitan or borough, that they’re at least starting a more modern approach to debt management?
MH: “The best you’ll find is signposting people to the voluntary sector for helping people manage their debts. We need to do more. Lots of the big enforcement companies are out there but what they’re selling is the same old fayre. Now with the limits on fees they can charge, they know they’re only going to get paid if they collect, so they’re only going to try to collect the low hanging fruit. If you take penalty charge notices, for example, from the evidence I’ve seen across the sector, when local authorities instruct an enforcement agent, they collect only 70 to 75 percent of the fines.”
MLG: If you could take us into the mindset of someone responsible for recovery of debt in a council, why don’t they want to change the approach to collections?
MH: “They’re under tremendous pressure. Councils are under particular scrutiny for their collection rates on council tax and business rates. Rightly so, because if you can’t collect the revenues, you shouldn’t be complaining about not having enough money to spend on services. However, how much time and support are those managers given? I think it would be unfair to judge them harshly given the pressure and the circumstances they operate in.”
MLG: What might act as a catalyst for other councils to modernise their collections strategies? Would it take a new leader to take a risk?
MH: “Putting it into context, local authorities have born the vast majority of austerity cuts and they have been extraordinarily good at realising savings and causing minimal disruption to essential services. We shouldn’t lose sight of that. They are under so much pressure and working so hard. To find the time and space to be creative is very difficult.”