Why Some Local Authority Trading Companies Thrive While Others Fail: Lessons for the Sector
- truthaboutlocalgov
- 6 days ago
- 8 min read
Local Authority Trading Companies (LATCOs) have emerged as a strategic tool for councils seeking to innovate in service delivery, diversify income streams, and respond to austerity pressures. These companies wholly owned by local authorities operate with commercial freedom while remaining publicly accountable. From waste management and leisure services to housing and social care, LATCOs have been deployed across a wide range of functions. Yet, the track record of LATCOs is mixed. While some have delivered impressive financial returns, improved service quality, and fostered local economic growth, others have struggled facing financial collapse, reputational damage, or being brought back in-house. The reasons for this divergence are complex and multifaceted.
This blog explores the critical success factors that underpin thriving LATCOs, including strong governance, clear strategic alignment with council priorities, robust financial planning, and a culture of commercial acumen. It also examines common pitfalls such as weak oversight, unrealistic growth expectations, lack of market understanding, and political interference that have led to failure. Drawing on case studies, sector insights, and lessons learned, this piece aims to provide local government leaders with practical guidance on how to set up, manage, and review LATCOs effectively. Whether you're considering launching a new trading company or reviewing the performance of an existing one, understanding what separates success from failure is essential for protecting public value and delivering sustainable outcomes.
Successful LATCOs: What Sets Them Apart?
While many Local Authority Trading Companies (LATCOs) face challenges in balancing commercial ambition with public service values, a select few have demonstrated sustained success. These organisations offer valuable lessons in governance, strategy, and operational delivery. Below are three standout examples:
Commercial Services Group (Kent County Council)
Commercial Services Group (CSG) is one of the UK’s most successful LATCOs. It operates 33 businesses across sectors including education, HR, procurement, and energy, showcasing a highly diversified portfolio that spreads risk and enables cross-sector innovation.
CSG generates hundreds of millions in annual revenue, with 87% of income derived from outside Kent, demonstrating its ability to compete nationally while reinvesting profits locally. Its success is underpinned by:
Strategic use of Teckal exemptions and Section 95 powers, enabling compliant commercial trading.
Robust governance, with a professional board and clear accountability structures.
A strong commercial culture, driven by skilled leadership and a focus on customer service and innovation.
CSG exemplifies how a council-owned company can scale effectively while remaining aligned with public sector values.
Norse Group (Norfolk County Council)
Norse Group is another high-performing LATCO, with turnover exceeding hundreds of millions and a workforce of over 9,000 employees. It operates 22 joint ventures across England and Wales, delivering services in facilities management, waste, and care.
Its joint venture model ensures:
Local authority oversight, maintaining democratic accountability.
Commercial independence, allowing for agile decision-making.
Shared risk and reward, aligning incentives between the council and the company.
Over the past decade, Norse has returned tens of millions to the public purse, demonstrating that LATCOs can be both profitable and socially valuable. Its success is rooted in strategic clarity, operational excellence, and a commitment to partnership working.
OPUS
OPUS is increasingly recognised as a successful LATCO, with an impressive £100 million in annual revenue. While detailed public data is limited, its performance suggests a well-run operation with strong foundations. Likely success factors include:
Clear governance arrangements, ensuring transparency and accountability.
Strategic alignment with council priorities, enabling it to deliver services that meet local needs while pursuing commercial opportunities.
Operational autonomy, allowing it to innovate and respond to market conditions without excessive bureaucratic constraint.
OPUS demonstrates that success is not solely about scale it’s about clarity of purpose, effective leadership, and disciplined execution.
LATCO Failures: Cautionary Tales
While Local Authority Trading Companies (LATCOs) can offer innovation and income generation, several high-profile failures have exposed the risks of poor governance, weak financial planning, and strategic misalignment. These cautionary tales offer vital lessons for councils considering commercial ventures.
Robin Hood Energy (Nottingham City Council)
Robin Hood Energy was launched with the aim of tackling fuel poverty and challenging the dominance of the Big Six energy providers. However, despite its social mission, the company collapsed, resulting in a taxpayer loss of £38 million, with over £3 million in unpaid claims to creditors. Key failings included:
Governance breakdowns, with insufficient scrutiny and weak financial oversight.
Councillors lacking commercial expertise, leading to poor strategic decisions and an inability to respond to market volatility.
A lack of transparency and risk management, which ultimately contributed to Nottingham City Council issuing a Section 114 notice, indicating severe financial distress.
Robin Hood Energy serves as a stark warning about the dangers of entering complex, competitive markets without the necessary commercial capability or governance safeguards.
Bristol Energy (Bristol City Council)
Bristol Energy was created to deliver social value and compete in the energy market. However, it failed to achieve commercial viability, with losses estimated between £36.5 million and £50 million. The company was eventually sold for just £1.3 million, far below the level of public investment. Contributing factors included:
A weak and poorly evidenced business case, lacking robust financial modelling and market analysis.
Limited understanding of the energy sector, which is highly competitive and capital-intensive.
Insufficient transparency and scrutiny, which eroded public trust and hindered effective oversight.
The Bristol Energy experience highlights the importance of rigorous due diligence, sector expertise, and ongoing performance monitoring when councils venture into commercial markets.
Brick by Brick (Croydon Council)
Brick by Brick was established to deliver housing and generate revenue for Croydon Council. However, it became a symbol of overreach and mismanagement. The council loaned up to £200 million to the company, with £70 million ultimately written off.
The LATCO contributed to Croydon’s Section 114 notice and a £1.3 billion debt crisis, with key issues including:
Unrealistic expectations around housing delivery and financial returns.
Poor build quality, leading to reputational damage and reduced asset value.
Failure to deliver dividend payments, undermining the financial rationale for its creation.
Brick by Brick underscores the risks of overambitious development strategies and the need for robust project management, financial controls, and realistic forecasting.
Sector-Wide Trends and Data
The use of Local Authority Trading Companies (LATCOs) has grown significantly across the UK over the past decade. As councils continue to seek innovative ways to deliver services and generate income amid financial pressures, LATCOs have become a prominent feature of the local government landscape. However, their performance and impact remain mixed.
LATCO Growth and Scale
There are now over 850 LATCOs operating across the UK, with 384 employing staff directly. Around 80,000 people work in 105 large LATCOs across 82 local authorities, covering sectors such as leisure, housing, social care, waste, and facilities management. This proliferation reflects councils’ desire to retain control over service delivery while exploring commercial opportunities enabled by the Localism Act 2011.
Mixed Performance and Risk Landscape
Despite their popularity, LATCOs have delivered mixed results. While some have generated substantial returns and improved service quality, others have faced financial collapse, governance failures, and reputational damage. The UNISON 2025 report, Trading Places, highlights several sector-wide concerns:
Legal risks, particularly around equal pay and employment law, as seen in the landmark Cordia Services LLP case in Glasgow.
The emergence of two-tier workforces, with LATCO employees often receiving lower pay, inferior pensions, and reduced protections compared to council staff.
A lack of adherence to national collective bargaining agreements, such as the National Joint Council (NJC) and Scottish Joint Council (SJC), which has led to workforce inequalities and union concerns.
These issues raise questions about the long-term sustainability and ethical foundations of LATCOs, especially in light of recruitment and retention challenges across local government.
Success Factors Identified by Grant Thornton
Grant Thornton’s report, In Good Company, offers a contrasting perspective by identifying key traits of successful LATCOs. Their research points to three critical enablers:
Robust business cases: Successful LATCOs are built on clear, evidence-based plans that assess market demand, financial viability, and strategic fit.
Commercial culture: Thriving LATCOs recruit leaders with private sector experience, foster innovation, and operate with agility, often running their own systems independently of the council.
Strategic governance: Effective oversight, including skilled boards and non-executive directors, ensures accountability and alignment with council priorities.
Grant Thornton also notes a shift from outsourcing to insourcing, with LATCOs offering councils greater control and the ability to reinvest profits locally.
Lessons for Local Government
The rise and fall of LATCOs across the UK has created a rich landscape of learning. Councils considering launching or reviewing a trading company must approach the model with both ambition and caution. The following lessons distil what works and what doesn’t based on sector-wide experience.
What Works: Building Sustainable LATCOs
Joint Ventures with Clear Governance Structures
LATCOs structured as joint ventures such as those used by Norse Group offer a balanced approach. They allow councils to retain strategic control while enabling commercial flexibility. Clear governance frameworks, including shareholder agreements and defined roles, help ensure accountability and alignment with public service values.
Commercial Independence with Council Oversight
Successful LATCOs operate with operational autonomy, allowing them to respond quickly to market conditions, innovate, and manage risk. However, this independence must be paired with strategic oversight from the council, including regular performance reviews, shareholder engagement, and alignment with broader policy goals.
Recruitment of Commercial Talent
LATCOs require leadership with commercial acumen. Councils must recruit individuals with experience in business development, financial management, and customer service skills that may not be prevalent in traditional public sector roles. A strong executive team can drive growth, manage risk, and foster a culture of innovation.
Regular Governance Reviews and External Scrutiny
Governance must be dynamic, not static. Councils should conduct regular reviews using tools like the Local Partnerships LATCO Review Guidance, which provides a structured framework for assessing performance, risk, and strategic fit. External audits, board evaluations, and stakeholder feedback should be built into the governance cycle.
What to Avoid: Common Pitfalls and Risks
Over-Politicisation and Lack of Board Expertise
LATCOs can fail when political agendas override commercial logic. Boards dominated by elected members without relevant experience may struggle to make sound business decisions. Councils should ensure boards include independent non-executive directors with sector expertise and a clear understanding of fiduciary duties.
Poor Financial Forecasting and Risk Management
Unrealistic revenue projections, underestimation of operating costs, and weak risk controls have contributed to several LATCO failures. Councils must insist on robust financial modelling, stress testing, and contingency planning before launch and maintain rigorous financial oversight throughout the LATCO’s lifecycle.
Excessive Council Control That Stifles Agility
LATCOs need the freedom to operate commercially. Excessive bureaucratic interference such as slow decision-making, rigid procurement rules, or micromanagement can undermine their ability to compete and innovate. Councils must strike a balance between control and agility, ensuring LATCOs are empowered to deliver results.
Conclusion
Local Authority Trading Company Organisations (LATCOOs) have become a prominent feature of the local government landscape, offering councils a mechanism to deliver services more flexibly, generate income, and retain strategic control. When structured and managed effectively, LATCOOs can drive innovation, improve service quality, and reinvest profits into local priorities.
However, the sector’s mixed track record shows that LATCOOs are not a guaranteed success. Their viability depends on three critical pillars:
Strategic clarity: Councils must be clear on the LATCOO’s purpose, its alignment with corporate objectives, and its role in the wider service ecosystem.
Commercial capability: LATCOOs require leadership and operational teams with the skills to navigate competitive markets, manage risk, and deliver value.
Robust governance: Effective oversight, including independent board members, transparent reporting, and regular performance reviews, is essential to safeguard public interest.
Councils must learn from past failures where poor forecasting, weak governance, and political interference led to financial losses and adopt best practices that prioritise accountability, agility, and public value.
Call to Action
If you're a local government leader considering launching or reviewing a LATCOO, ask yourself:
Do we have the commercial skills and leadership capacity to succeed?
Are our governance structures strong enough to balance autonomy with accountability?
Is our strategic rationale clear, evidence-based, and aligned with our corporate plan?
If the answer to any of these is uncertain, it’s time to pause, reflect, and seek expert guidance. LATCOOs are not a shortcut to financial sustainability they are complex, high-stakes ventures that require careful planning, skilled execution, and ongoing scrutiny. Done well, a LATCOO can be a powerful asset. Done poorly, it can become a costly liability. The choice lies in how councils prepare, govern, and lead.
