Who would set up a private company with too many staff, excessive overheads, lack of commercial expertise and only one customer, where the customer dictated the terms on which goods and services were supplied?

 

It would be thought of as an act of folly, with the business being doomed to a rapid collapse.

 

Despite this an increasing number of local authorities are setting up local authority companies which are structured in exactly the way described. Such actions put both jobs and service provision at risk. Moreover the local authority has to pick up the pieces when they fail.

 

It is possible to set up companies which can survive, but they need to be set up as commercial entities, with realistic staffing and overhead costs and the ability to compete for other customers in addition to the founding local authority.

 

There is real scope for public sector entrepreneurship, but promoters need to understand how the private sector works.