The latest cuts in local government budgets announced by the Chancellor have intensified the search for innovative ways to deal with the new situation. One way to address this is to spin-out a competitive local government service-line, creating a new venture which can be either publicly or privately owned.

KPMG has produced a Guide to Local Government Spin-outs for councils  grappling with the challenge of improving the financial value of the services they deliver. It offers practical steps for exploring and creating alternative delivery models.

Successful spin-outs have been in the fields of adult social care, leisure and education – areas where the main component is staff, not assets, which provides for a more straightforward process.

Much focus has been on mutuals but they are not universally appropriate. A range of local authority services could benefit from being spun-out into different vehicles, such as joint ventures, companies owned by a local authority or those that are privately held.

The optimal structure is determined by factors including the nature of the services; the size and scale of the operation and its margins; the competitive environment; future funding requirements and whether assets are involved.

Despite the range of potential vehicles, the actual spin-out process is similar.

The Guide asserts that the least risky way to spin-out a local authority service is to use a two-stage approach where an interim ‘incubator vehicle’ is used; a Local Authority Trading Company (LATCO).

Guide to Local Government Spin-Outs is published by KPMG.