Net Revenue Optimisation

“Charging for local services makes a significant contribution to council finances” according to the Audit Commission report “Positively Charged”.  It goes on to say:

• “In 2006/07, councils in England raised £10.8 billion from charges for services, not including housing rents. This was around 8 per cent of their total income and about half as much as they raised in council tax.

• County councils collect the most charging income, but it is for district councils that charges make the greatest contribution to service delivery; equal to nearly one-fifth of total service expenditure.

• Over a quarter of councils generate more income through charging than they do through council tax.

• Education services, such as school meals and transport; social services, such as homecare; and highways and transport services, such as parking, account for over half of all income raised through charges.

 Councils also use charging to influence individuals’ choices and behaviours, to bring other benefits to local communities:

• Charges can be set to encourage or discourage people to use services and, through concessions, to target services at particular groups.

• They can also be used to ration services and other resources where demand is high or where overuse is deemed undesirable.

• Councils have used charges and concessions to pursue local objectives, such as encouraging recycling and composting; reducing congestion; and promoting participation in sports and leisure activities by target groups to reduce health inequalities.

Councils do not always make the most effective use of their charging powers:

• Only one in five councils believes it uses charging to its full potential.

• Powers introduced in 2003 to charge for discretionary services have remained largely unused by councils.”

Salami Slicing is no Longer Enough

Many Councils are realising that the traditional approach of “salami slicing” budgets will be insufficient in today’s climate. The expected savings targets threaten this approach due to their likely urgency and severity.  At the October 2009 SOCITM annual conference the consensus was that 20% savings will be demanded of councils over the following 4 years.

However, due to “ring-fencing” of some services, councils will have to adapt to cope with reductions of around 40% of their revenue budget in other services.

Table One: Example from a Metropolitan Unitary

Income, Fees and Charges all need reviewing more rigorously than ever before and we have a simple Net Revenue Optimisation Tool that serves as a checklist for each income generating service.

We have noted significant scope for improvement in some councils for:

• Improving collection rates

• Reducing collection costs per £1k of revenue

• Exploiting (Joint Ventures) JVs and trading

• Exploiting Intellectual Property (IP)

• Licensing ideas and processes to other LAs or Agencies

We also note that with several councils there appears to be a disconnect between the increase in discretionary charges and the “opportunity cost” – for example,  increasing a charge by inflation (2%) is missing the required rate of saving (say, 10%) and thus putting even more extreme pressure on the Service in future years.

Commercial considerations are rarely well assessed within the local authority environment in our experience with a few notable exceptions such as the 20% increase in London transport prices in Oct 2009.  In particular, revenue yield is frequently over optimistic – a 5% increase in car parking charges will not equate to a 5% increase in revenue.

There is a window of opportunity, before the cuts come into effect, in which Councils can help shore up their Resources Budget by effectively growing the cake – reducing the impact of the cuts.

Diagram One: Squaring the Circle

• We recognise the practical constraints on local authorities

• We are skilled at facilitating dialogue to balance these issues

• With our approach we frequently arrive at win-win solutions

We are acutely aware of the pressures that impinge on local government but we do also believe that well-facilitated debate both internally and externally can arrive at optimised revenue collection and hence less cost cutting.

The challenge is then to ensure that every Service is optimising its net revenues and utilising any new fee paying services opportunities.

We have developed a rapid, structured approach to help our clients do just that. Our approach looks at the range and delivery costs of both your statutory fees and the commercial approach to services you currently 'sell'.

Our Structured Approach

1. Identify revenue services and rank by size

2. Assess collection rate and cost. Benchmark and test customer insight

3. Identify additional services, target commercial price, optimise collection

4. Realise savings, market services, train staff, commercialise and share service

5. Market test, transform offering. embed culture

We then test this against your statutory obligations, Members' directives and local circumstances. We will apply our considerable commercial expertise to model revenue yield and help you to redesign your processes and to optimise your revenue and collection costs. We will train and develop your staff and provide service templates to your processes.

We also offer Member workshops to facilitate discussion around revenue income, with a view to presenting a more realistic set of targets with greater likelihood of realisation.  In these we bring examples of best practice and bring out some of the myths built around discretionary charging.  We use Customer Journey Mapping as a persuasive tool to illustrate the real perceptions that their voters may have of a service.

We are so sure we will add value that our implementation fees are directly linked to your net revenue increase.

To find out more please contact us.