How many times do we hear that the recovery will be led by small and medium-sized firms?  And how many councils have in place measures to increase the number of SMEs on their patch?

Of course the problem, as with all these things, is that the rate of enterprise creation is very different depending on where you go.  New businesses are most often found in areas already well on the road to recovery while parts of the country that are still in deep, swampy recession, tend to see some of the lowest rates of new-start-ups or small businesses seeking to grow.

There are exceptions – like Warrington in the North West, which has created an exceptional environment for new businesses – but for every Warrington there are scores of other places where enterprise appears thin on the ground.

What should councils do about this?  While the problems of many localities are structural and rooted in a culture that does not appear to encourage entrepreneurship as a way of life, councils can, and in many places do, look to themselves to act.

As the biggest economic player in the area, there three things they can do.

1) Councils can make themselves far easier for local small and medium-sized businesses (SMEs) to do business with by simplifying procurement. SMEs often feel frozen out of the procurement and supply chain arrangements of local councils by
procurement which feels unwieldy for the size of contracts involved.

2) Councils like Cambridgeshire now support local business through a Cambridge and Counties Bank, aimed directly at local small enterprises.  This uses the Cambridgeshire Local Government Pension Fund Scheme in a creative way to enable local business to get a fast and easy stream of credit rather than dealing with leaden-footed high street banks.  Click here for case study

3) The active encouragement of entrepreneurialism among the council's own staff.  This manifests itself most powerfully in the creation of employee-owned spin-out
businesses, or ‘public services mutuals'.

These ventures are free to attract external capital, to sell services back to the council and also to grow into new markets. In areas where the economy is weak, this makes sense.

Take Sandwell Community Caring Services Ltd.  This business emerged from Sandwell MBC in the late 1990s as a £1m day services spin-out.  Today, it boasts a turnover of £15m and has grown to other parts of the UK.

Another example is Pure Innovations Ltd.  This was a £3m chunk of Stockport MBC's day services and today is a £6m turnover business operating in several parts of the country.

By backing their own managers to step out into enterprise, these councils have helped regenerate their local economies as well as enhance the public service offer for their own communities.

How do councils find and nurture their entrepreneurial talent?  The fundamental to do is to give it permission to put its hand up.  When Suffolk CC did this in 2009, several hands went up that led to the creation of several mutual enterprises with a total turnover value approaching £100m a year.

Say you want it to happen and, the evidence suggests that people will come forward. But it doesn't end there.  You need to create a ‘greenhouse' for these enterprises to grow.

Research on entrepreneurship tells us about the power of business mentors and help with early business planning, as Tower Hamlets is doing.

Councils need to create safe spaces in which ideas can be put through their paces and solid plans engineered. 

Finally, you need to use all the tools in the local government box to support these enterprises to get out of the blocks.

This means starter-contracts, working capital (the money to keep the business going until invoices are paid) and all the freedom it needs to make commercial decisions that make sense.

This latter point is actually the most important.  If something is to work commercially, it needs to be free from a heavy political or institutional steer, however well-intentioned.

The fate of all too many local authority trading companies, upon whom the council's hand can rest too heavily is testimony to this point.

Can you do all this?  Does procurement law allow it? In a short answer, ‘yes ‘, normally.  Nothing in law stops a council from supporting the development of new businesses that are for public benefit.

Next year, changes in EU procurement rules should make it far easier for smaller employee-led companies to be granted starter-contracts from councils.  For larger enterprises, there is hope, following negotiations at EU level, that it will also become easier for councils to create very large new employee-led companies without fear of getting the wrong side of EU procurement law.

The current law, of course, has not prevented scores of councils in England setting up employee-run businesses as the risk of successful challenge is, in reality, extremely low, given the social and economic benefits to local areas.

Make no mistake: The difficult spending settlement for 2015/16 has forced many local authorities to look seriously at the total picture of services and how particular services might work better as enterprises.

Our own work as an entrepreneurship agency working with councils has seen an upswing, particularly in areas where jobs are an issue and enterprise creation is seen as needing the kind of boost that a council alone can offer.

Unleashing the entrepreneurial potential of councils and their employees is one of the few remaining assets to be realised by councils as they re-invent themselves.

In councils, as in the country at large, the recovery begins with enterprise.

Craig Dearden-Phillips is the founding MD of Stepping Out Ltd which helps councils and their staff realise their entrepreneurial potential

Case Study: Cambridge & Counties Bank

Cambridge & Counties Bank, which has become the fastest-growing challenger bank in the UK, has a unique structure, being jointly owned by Cambridgeshire Local Government Pension Fund and Trinity Hall, Cambridge, each owning 50% of the bank.

Cambridge & Counties Bank launched last year and recently announced it has reached monthly trading profitability for the first time.  In just over a year, the bank has completed around 200 loans totalling around £80m to small and medium-sized businesses (SMEs) and now also looks after 1,500 SME deposit accounts.

The investment by the Cambridgeshire local government made good financial sense in bringing a good return for the pension fund and therefore reducing the potential of any burden on the taxpayer.

At the same time, it also had the added benefit of helping the local economy and business.

Chief executive Gary Wilkinson, who held a number of senior roles in the banking and building society sectors before joining the bank, is very proud of the performance so far. ‘It's rare for a bank to perform so well during its first couple of years,' he says.
‘The fact that the bank is on course to meet four year lending targets in just two years, and is set to release over £100m of loans to SMEs by the end of the year, shows that there really is an appetite for growth amongst local SMEs in areas like Cambridgeshire.'