Innovation in Local Government Risk Financing: Lessons from the UK and Nordic Experiences

Key developments in the public sectors of many countries over the past two decades have been the notion of ‘modernisation’, generally meaning a shift from a traditional public sector ethos to a more private sector approach, and its corollary ‘innovation’ (Bovaird and Löffler 2003; Flynn 2007). Innovation was, in the past, anathema to many in the public sector as, by its very nature, it introduced risk into what was a risk-averse environment. For example, in the UK, central government does not wish to see other parts of the public sector taking excessive risks, or taking risks which may be acceptable in the private sector but are regarded as not being within the public domain. The mantra is one of ‘balanced’ or ‘well managed’ risk taking. How, therefore, can public bodies construct a system to exploit fully private sector knowledge of the possibilities for the management of risk, especially for the financing of risk, yet comply with rules and regulations relating to the risks they are allowed to take? Risk financing, in this context, refers to the mechanisms in place to ensure that funds are available to meet the financial consequences of unforeseen losses.