Why You Cannot Run a Local Authority Like a Business
- truthaboutlocalgov
- Nov 29, 2025
- 17 min read
The Myth of the Business Model in Local Government
The phrase “We need to run this council like a business” is one of the most persistent myths in local government. It’s easy to see why it appeals: councils manage budgets worth hundreds of millions, employ thousands of staff, and deliver services to a population that rivals the customer base of major corporations. Surely adopting a business mindset would make them leaner, more efficient, and more innovative?
The truth is more nuanced. While councils can borrow certain practices from the private sector such as performance management, digital transformation, and customer service principles their core purpose, governance structure, and statutory obligations make the business model fundamentally incompatible with public service. In fact, trying to run a council like a business can lead to poor decisions, ethical dilemmas, and even legal breaches.
This blog explores seven key reasons why local authorities cannot and should not be run as businesses, and why understanding this distinction is critical for effective leadership.
1. Purpose vs Profit: The Heart of the Difference
The most fundamental distinction between a local authority and a business lies in its purpose. Businesses exist to generate profit for shareholders. Every decision is ultimately judged by its impact on the bottom line. If a product line is unprofitable, it’s cut. If a market looks risky, it’s avoided. Efficiency and profitability are the guiding stars.
Local authorities, however, exist to serve residents and improve community wellbeing. Their success is measured in social outcomes: safer streets, better schools, cleaner environments, and healthier populations. These outcomes rarely translate into financial gain.
The Scale of Social Responsibility
In England, local authorities spent £27.1 billion on adult social care in 2023–24, an increase of 14.2% from the previous year. Of this, 79% (£21.4 billion) was spent on long-term support for people with complex needs services that are essential but generate no revenue. Over 2 million requests for adult social care support were received by councils in the same year, highlighting the sheer scale of demand.
Compare this to a business model: if a service line consumes 80% of your budget and delivers no financial return, it would be shut down immediately. Yet councils cannot do that. They are legally and morally obliged to provide these services, regardless of cost.
The Cost of Care
The House of Commons Library reports that adult social care is the single largest area of council spending after education, accounting for over 40% of all local authority service expenditure. Some councils spend up to 80% of their entire budget on social care when children’s services are included. This is not discretionary spending it is driven by statutory duties under laws such as the Care Act 2014 and Children Act 1989.
Why Profit Cannot Be the Yardstick
Consider adult social care. A business would never continue providing costly support to a handful of vulnerable individuals if it eroded margins. Yet councils have a statutory and moral duty to do exactly that. As Peter Chandler of Leicester City Council put it:
“City councils are not businesses, but there are areas where they can act more commercially while still ensuring they always act for the public good.”
This quote captures the nuance: councils can adopt commercial thinking in some areas, but profit can never be the primary goal. Their mandate is public good, not shareholder value.
The Human Dimension
Behind these numbers are real lives. In 2023–24, 858,720 people received long-term care from local authorities in England. Many of these individuals are older adults or working-age people with disabilities who rely on council support to live safely and with dignity. Cutting these services to “balance the books” would not just be unethical it would be unlawful.
Future Pressures
The Health Foundation estimates that an additional £8.3 billion will be required by 2032–33 just to keep pace with growing demand for adult social care, driven by demographic change and rising complexity of needs. This is not a market opportunity it is a societal obligation.
Key Takeaway
Profit cannot be the yardstick when the mission is safeguarding lives. Local authorities are not designed to maximise shareholder returns; they are designed to uphold statutory duties and protect the most vulnerable. Their “bottom line” is measured in social impact, not financial gain.
2. Statutory Duties and Zero Market Choice
Unlike businesses, councils cannot pick and choose their markets. They are legally obliged to deliver certain services, regardless of cost or demand. From safeguarding children to collecting household waste, these duties are non-negotiable. Councils cannot simply say, “We’ll stop providing homelessness support because it’s loss-making.” Doing so would breach the law and devastate communities.
The Scale of Statutory Duties
Local authorities in England operate under an extraordinary legal framework:
There are over 220 statutory duties under legislation overseen by the Department for Levelling Up, Housing and Communities, and more than 1,100 duties across other departments.
These duties span housing, education, social care, planning, environmental health, and more. They are not optional they are legal obligations.
Examples include:
Care Act 2014 – Requires councils to promote individual wellbeing and provide care and support for adults with eligible needs.
Children Act 1989 – Imposes a duty to safeguard and promote the welfare of children in need within the authority’s area, including providing accommodation where necessary.
Housing Act 1996 – Places a duty on councils to prevent homelessness and provide temporary accommodation for eligible households.
These laws mean councils cannot “exit” services that are expensive or complex. For instance, homelessness prevention and temporary accommodation are statutory duties even though demand has surged and costs have spiralled.
Financial Impact of Statutory Services
Statutory services dominate council budgets:
In 2024–25, local authorities in England budgeted £127.1 billion for service expenditure, with the largest shares going to education (£41.7 billion), adult social care (£24.5 billion), and children’s social care (£14.1 billion).
Upper-tier councils allocate an overwhelming 78% of their net revenue expenditure to social care for adults and children.
These are demand-led services, meaning councils have little control over volume or cost. If more children need safeguarding or more adults require care, councils must respond regardless of budget constraints.
As the House of Commons Local Government Committee warned:
“The financial strain on local government is driven almost entirely by mandatory, high-cost, demand-led services… councils have little control over that demand.”
The Legal Consequences of Failure
Failure to meet statutory duties is not just a reputational risk it can trigger legal action, Ombudsman investigations, and judicial reviews. Monitoring Officers have a duty to report any decision or omission that could breach the law. Councils cannot simply “scale back” statutory services without facing serious consequences.
Council leaders have repeatedly highlighted the tension between statutory obligations and funding:
“Without a fundamental change either in the way these services are funded, or in councils’ statutory obligations, all of upper-tier local government will soon go over the cliff edge.” Cllr Roger Gough (Kent CC) and Cllr Rob Humby (Hampshire CC)
They argue that outdated statutory requirements such as home-to-school transport and comprehensive library services are based on legislation from the mid-20th century and no longer reflect modern realities.
Why Market Logic Doesn’t Apply
Businesses can withdraw from unprofitable markets. Councils cannot. Statutory duties mean they must continue providing services even when costs soar and funding falls. This is why the “run it like a business” mantra fails: public law trumps market logic.
Key Takeaway
Local authorities are bound by law to deliver essential services, regardless of financial viability. These duties protect society’s most vulnerable but they also create structural pressures that no business model could sustain. Councils cannot “choose their customers” or “exit loss-making services.” Their mandate is legal, moral, and democratic not commercial.
3. The Funding Model: Fixed and Politically Controlled
Businesses can increase revenue by raising prices, expanding markets, or innovating products. Councils cannot. Their income is largely fixed derived from government grants, council tax, and business rates. These streams are politically controlled and often unpredictable.
The Three Pillars of Local Authority Funding
Local authorities in England rely on three main sources of revenue:
Council Tax – A property tax on residential properties.
Business Rates – A property tax on commercial premises.
Government Grants – Allocations from central government for local services.
In 2019/20 (pre-Covid), councils received 52% of their funding from council tax, 27% from retained business rates, and 22% from government grants. Unlike central government, councils cannot borrow for day-to-day spending; they must run balanced budgets or draw down reserves.
The Shrinking Grant and Rising Pressure
Between 2009/10 and 2019/20, central government grants fell by 40% in real terms, from £46.5 billion to £28 billion (2023/24 prices). Even after temporary Covid support, grant income was still 21% lower in real terms by 2021/22. Councils tried to compensate by raising council tax, which increased 30% in real terms over the same period, but this disproportionately impacts residents in deprived areas.
As the Institute for Fiscal Studies notes:
“Despite real-terms increases in funding since 2019–20, English local government funding per resident remains on average 19% below 2010 levels.”
This structural gap means councils are under constant financial strain, even before inflation and rising demand for social care.
Political Control and Uncertainty
Council tax increases are capped by referendum thresholds set by central government. If councils raise tax above these limits, they must hold a local referendum a costly and politically risky exercise. Business rates are also set nationally, with councils retaining only a portion of the income. This leaves councils with limited fiscal autonomy compared to other G7 nations, where local governments collect a far higher share of taxes.
Funding allocations are subject to annual Local Government Finance Settlements, which can change with political priorities. Short-term settlements make long-term planning almost impossible. As one government policy paper admitted:
“A decade of piecemeal change has left many local authorities in crisis… rising demand and costs, a proliferation of micro-managed funding pots, and a broken system fuelled inequality and unfairness.”
Commercial Ventures: A Risky Escape Route
Faced with funding cuts, some councils turned to commercial ventures property investments, housing companies, and energy schemes to generate income. Initially, this seemed like a smart workaround. Councils borrowed cheaply and invested heavily in commercial property, spending £7 billion collectively between 2016 and 2019.
But when markets shifted due to Brexit, Covid, and rising interest rates many of these ventures collapsed. Thurrock Council, for example, amassed £1.4 billion in debt and faced a financial black hole of £469 million, partly due to failed investments. Woking Borough Council borrowed billions for property schemes, including a £605 million skyscraper project, only to see them fail, forcing drastic service cuts.
As the Public Accounts Committee warned:
“The debt mountain at UK councils has reached staggering levels… and the impact on services for residents is liable to be extreme and long-lasting.”
These failures underscore the danger of applying a business mindset to public finance. When commercial ventures fail, taxpayers foot the bill, and political fallout can last for years.
Why Councils Cannot “Think Like Businesses”
Businesses can pivot, raise prices, or exit markets. Councils cannot. Their revenue streams are capped, politically controlled, and tied to statutory obligations. Even innovative income generation is constrained by law and ethics. Councils exist to serve communities not to maximise profit.
Key Takeaway
Local government funding is fixed, fragile, and politically determined. Councils operate within a system that prioritises fairness and accountability over financial flexibility. Attempts to mimic business models through commercial ventures have often ended in disaster. The reality is clear: you cannot run a council like a business when its income is capped, its duties are mandatory, and its risks are borne by the public.
4. Democratic Accountability: Decisions in the Public Eye
In the private sector, a CEO can make swift decisions to seize opportunities. In local government, every major decision is subject to political cycles, scrutiny committees, and public consultation. This democratic process is essential for transparency and fairness but it inevitably slows down the pace of change.
Why Accountability Matters
Local government decisions affect everything from housing and transport to social care and education. Unlike corporate boards, councils operate under a principle of public accountability, meaning decisions must be open to challenge and review. The English Devolution Accountability Framework states:
“Local leaders and institutions must be transparent and accountable… residents must be able to hold those responsible for local decisions to account.”
This framework reinforces that scrutiny is not optional it is a safeguard against unethical behaviour and poor value for money.
The Role of Scrutiny Committees
Since the Local Government Act 2000, councils with executive arrangements must maintain overview and scrutiny committees to review decisions and hold leaders to account. These committees can:
Call in decisions before implementation.
Question cabinet members and officers.
Recommend changes based on evidence.
While vital for democracy, scrutiny can delay projects. Councillor feedback highlights that scrutiny often adds weeks or months to timelines for major policies, especially when multiple committees are involved.
As the Local Government Association notes:
“Scrutiny is an essential part of ensuring that local government remains transparent, accountable, and open resulting in improved public policies, services and outcomes.”
Public Consultation and Engagement
Councils must consult residents on significant changes whether closing a library, altering transport routes, or approving housing developments. This is not a tick-box exercise; failure to consult properly can lead to judicial reviews and reputational damage.
Yet engagement levels remain modest. The Community Life Survey 2023/24 found that only 33% of adults in England engaged in any civic participation (such as contacting a councillor or attending a meeting) in the past year a decline from 41% in 2019/20. This means decisions often reflect the voices of a small, motivated minority rather than the whole community.
Political Cycles and Decision-Making
Councillors are elected to represent residents, not shareholders. Their priorities often reflect social justice and community needs rather than financial optimisation. A decision that looks “efficient” on paper such as reducing care packages may be politically unacceptable if it harms vulnerable groups.
Election cycles amplify this dynamic. Research shows that policy agendas shift significantly after local elections, with new administrations revisiting or reversing previous decisions. This creates uncertainty for long-term projects, especially infrastructure and regeneration schemes.
Council leaders frequently stress the tension between efficiency and accountability:
“We need to consistently engage and ask, ‘What do you want from us? What do you need?’ The government should meet people where they are, not where we are.” Theresa Ewing, community engagement advocate.
And as one scrutiny expert observed:
“Scrutiny done well doesn’t just review decisions; it shifts thinking, builds trust, and unlocks progress at every level.” Su Turner, Shaping Governance
The Trade-Off: Transparency vs Speed
Democratic accountability ensures fairness, but it comes at a cost: slower decision-making. While businesses can pivot overnight, councils must navigate layers of governance, consultation, and political negotiation. This is not inefficiency it is democracy in action.
Key Takeaway
Local government decisions are made in the public eye, shaped by scrutiny, consultation, and electoral accountability. These processes protect residents and uphold trust but they also limit the agility that characterises private-sector decision-making. Councils cannot and should not operate like corporations when their legitimacy depends on openness and consent.
5. Risk Appetite: Why Failure Is Not an Option
Businesses thrive on calculated risk. They invest in new markets, take bold bets, and accept that failure is part of growth. In fact, global research shows that 70% of large projects fail in some way, yet private firms often treat this as a learning opportunity and move on.
Local authorities cannot afford that luxury. A failed project doesn’t just dent profits it impacts vulnerable residents, erodes public trust, and can trigger legal and political consequences. When you’re responsible for housing families or protecting children, caution is not just prudent it’s essential.
Why Councils Are Risk-Averse
Local government operates under intense scrutiny. Every decision is subject to audit, public consultation, and political oversight. The Local Government Association stresses that risk management is “fundamental to good governance” and must be embedded across the organisation to avoid catastrophic failures.
This risk aversion is not a weakness; it’s a safeguard. Councils must weigh every risk against statutory duties and reputational impact. As the Orange Book guidance from HM Treasury puts it:
“Public sector organisations cannot be culturally risk averse and be successful… but risk must be managed systematically to anticipate and prepare successful responses.”
The Cost of Getting It Wrong
When councils do take bold risks, the consequences of failure can be severe:
Thurrock Council accumulated £1.4 billion in debt after high-risk commercial investments collapsed, leaving a £469 million budget gap and forcing emergency government intervention.
Woking Borough Council borrowed billions for property schemes, including a £605 million skyscraper project, only to see them fail leading to drastic service cuts and reputational damage.
These cases illustrate why councils hesitate to “think like businesses.” When a private company fails, shareholders lose money. When a council fails, taxpayers foot the bill, and essential services suffer.
Risk Aversion vs Innovation
Risk aversion can stifle innovation. As one governance expert noted:
“Local government as a national entity is mostly risk averse… Innovation isn’t tidy. It involves a little bit of risk.”
The LGIU report on risk management warns that excessive caution can lead to missed opportunities for digital transformation and service improvement, especially in areas like housing and regeneration.
Yet the stakes are high. Councils cannot gamble with services that safeguard lives. This creates a paradox: innovation is essential for efficiency and resilience, but every experiment must be tightly controlled.
Building a Balanced Risk Culture
Modern guidance encourages councils to adopt a formal risk appetite framework, defining what level of risk is acceptable in different contexts financial, operational, reputational. For example, Ashfield District Council uses a scale from “averse” (minimal risk tolerance) to “hungry” (open to high-risk, high-reward innovation).
The goal is not to eliminate risk but to manage it intelligently. As the Good Governance Institute explains:
“Risk appetite represents a balance between the potential benefits of innovation and the threats that change inevitably brings.”
Key Takeaway
Risk aversion in local government is not about fear it’s about responsibility. Councils must innovate to survive, but they cannot gamble with public safety or statutory duties. Every risk must be calculated, transparent, and aligned with democratic accountability. Failure is not an option when lives and trust are on the line.
6. Market Dynamics: No Competition, No Consumer Choice
Competition and consumer choice drive efficiency in business. Companies innovate, cut costs, and improve quality because customers can switch to a competitor. This pressure is the engine of the private sector.
Local authorities operate in a completely different environment. For most statutory services such as social care, planning, waste collection, and housing support councils are the sole provider. Residents cannot “switch supplier” if they dislike the service. There is no competitive market for safeguarding children or issuing planning permissions. These are legal duties, not commercial offerings.
Why Councils Are Natural Monopolies
Local government services often fall into the category of statutory monopolies, where legislation grants exclusive rights to a public body to deliver essential services. This is deliberate:
Services like adult social care and child protection require universal coverage and consistent standards.
Introducing competition could fragment provision, increase costs, and undermine safeguarding.
As the Competition and Markets Authority (CMA) notes:
“Local authorities affect local competition as purchasers, suppliers, regulators, and market shapers… but competition does not always work well in these markets.”
In other words, councils are designed to prioritise equity and reliability, not market rivalry.
The Impact of No Market Pressure
Without competitive forces, councils rely on internal governance, democratic accountability, and performance culture to maintain standards. There is no incentive to “win customers” or “grow market share.” Instead, improvement depends on leadership, transparency, and community engagement.
Resident satisfaction reflects this dynamic. According to the Local Government Association’s polling (October 2024):
74% of residents are satisfied with their local area as a place to live, but only 56% are satisfied with their council’s overall performance.
Just 36% believe their council provides value for money, the lowest rating since 2012.
Trust in councils has fallen to 50%, down from 71% during the pandemic.
These figures show that, in the absence of consumer choice, councils must work harder to build trust and demonstrate value.
Why Market Logic Doesn’t Apply
Businesses thrive on rivalry. Councils operate under legal exclusivity to ensure universal service and fairness. Introducing competition into statutory services would risk inequality and inefficiency. Instead, councils must rely on scrutiny, benchmarking, and citizen engagement to drive improvement.
Key Takeaway
Local authorities are natural monopolies by design, delivering essential services where competition would undermine equity. Performance improvement comes from leadership, governance, and transparency not market share. This is why the mantra “run it like a business” fails: councils exist to serve everyone, not to compete for customers.
7. Ethical and Social Imperatives: Fairness Over Efficiency
Businesses can prioritise profitable customers and streamline operations for efficiency. Councils cannot. Their mandate is rooted in equity, inclusion, and safeguarding even when it’s costly. Maintaining a service for a small group of vulnerable people is not optional; it’s a legal and moral obligation. Efficiency matters, but it cannot override fairness. That’s the essence of public service. Councils exist to protect the most vulnerable, not to maximise margins.
The Legal Framework for Fairness
Local authorities operate under the Equality Act 2010, which imposes the Public Sector Equality Duty (PSED). This requires councils to have “due regard” to:
This duty applies to every major decision from budget setting to service redesign. Councils must assess the impact of changes on vulnerable groups and demonstrate fairness in decision-making. As the Equality and Human Rights Commission explains:
“Assessing equality impacts is not just a legal requirement it is a positive opportunity to make better decisions based on robust evidence.”
The Scale of Vulnerability
Councils support millions of people who would otherwise fall through the cracks:
In 2024–25, local authorities in England handled 640,240 safeguarding concerns and initiated 185,270 statutory enquiries under the Care Act protecting 148,830 individuals from abuse or neglect.
Adult social care alone supports over 850,000 people with long-term needs, many of whom require intensive, costly interventions.
These figures underline why councils cannot apply a “profit-first” lens. Cutting services for these groups would breach the law and devastate lives.
Equity vs Efficiency: The Trade-Off
Economists call this the equity-efficiency trade-off: policies that maximise efficiency often reduce fairness, and vice versa. For councils, the choice is clear: fairness comes first.
A business might close an unprofitable rural branch.
A council must maintain rural transport links to prevent isolation even if usage is low and costs are high.
As one governance expert put it:
“Public services are not commodities. You cannot apply the same logic as retail or tech. Our accountability is to residents, not to a market.”
Equality Duties in Action
The Equality Framework for Local Government helps councils embed fairness into every aspect of service delivery from housing and education to workforce diversity. It requires authorities to:
Understand community needs
Deliver responsive services
Employ a diverse workforce
Demonstrate compliance with the Equality Act
This framework ensures that decisions prioritise inclusion and social justice, even when budgets are tight.
Why Fairness Costs Money
Equity often means higher costs. For example:
Providing special educational needs (SEN) transport for a handful of pupils can cost thousands per child.
Maintaining domestic abuse refuges for a small number of victims requires significant investment in staffing and security.
Yet these services save lives and uphold rights. Councils cannot and should not withdraw them for the sake of efficiency.
Key Takeaway
Local authorities are guardians of fairness. They exist to protect the vulnerable, uphold equality, and foster inclusion even when it’s expensive. Efficiency matters, but it can never override the moral and legal imperative of equity. That’s why councils cannot be run like businesses: their bottom line is justice, not profit.
Learning from Business Without Becoming One
This is not to say councils should ignore private-sector practices. In fact, there is much to learn from business provided these tools are adapted to a public service context. The goal is not profit; it’s value for money and social impact.
1. Digital Transformation: Streamlining Processes and Improving Experience
Businesses have embraced digital technology to enhance customer experience and reduce costs. Councils can and should do the same.
Example: Many authorities now use online portals for planning applications, reducing paperwork and speeding up approvals.
Impact: The Local Government Association reports that digital self-service can cut transaction costs by up to 95% compared to face-to-face interactions.
But the difference lies in intent. For councils, digital transformation is not about driving sales it’s about accessibility, inclusion, and efficiency for all residents, including those who are digitally excluded.
2. Performance Management: Clear KPIs and Accountability
Private firms thrive on measurable performance. Councils can adopt similar principles:
Setting Key Performance Indicators (KPIs) for service delivery (e.g., response times for housing repairs, processing benefits claims).
Using data dashboards to monitor progress and identify bottlenecks.
However, KPIs in local government must reflect social outcomes, not profit margins. For example, success in adult social care is measured by quality of life and safeguarding, not revenue growth.
3. Commercial Awareness: Understanding Cost Drivers
Councils need strong financial literacy to manage shrinking budgets. Commercial awareness helps leaders:
Analyse cost drivers in services like waste collection or home-to-school transport.
Explore income generation within legal limits, such as charging for discretionary services or leveraging council-owned assets.
But this must be done ethically. As one council leader warned:
“Commercial thinking is useful, but our accountability is to residents, not shareholders. Every pound earned must align with public interest.”
4. Adaptation Is Key
Borrowing from business does not mean copying blindly. Councils operate under statutory duties, democratic accountability, and equality obligations. Any private-sector tool must be re-engineered for a context where fairness outweighs efficiency.
For example:
A business might optimise delivery routes purely for cost savings.
A council must ensure routes serve isolated communities, even if it increases costs.
Key Takeaway
Councils can learn from business but they cannot become businesses. Digital innovation, performance management, and commercial awareness are valuable tools when applied with public service values. The ultimate goal is better outcomes for residents, not shareholder returns.
Conclusion: Councils Are Not Corporations
Local authorities can and should adopt some business-like practices: robust performance management, innovation, and financial discipline. These tools help councils deliver better services and make the most of limited resources. But their core mission, governance, and statutory constraints mean they cannot be run as businesses. To do so would undermine the very principles of public service.
Councils are democratic institutions entrusted with the wellbeing of communities. Their success is measured not in profit margins but in lives improved, inequalities reduced, and communities strengthened. That’s a responsibility no balance sheet can capture.
As one senior local government leader put it:
“Our bottom line isn’t profit it’s people. Every decision must reflect that.”
This is the essence of local government: fairness over efficiency, accountability over agility, and social impact over shareholder value. Councils exist to protect the vulnerable, uphold rights, and create opportunities not to maximise margins.
So, while councils can learn from business, they must never lose sight of their unique purpose. Public service is not a commodity. It is a commitment to democracy, equity, and trust values that no corporate model can replicate.
