Local authority finances have never been under greater pressure.

Kent County Council has made £514 million of savings since 2010 and had to address a £119.1m gap in its finances to balance its 2017-18 budget.

To deal with this it approved a 3.99% increase in council tax but has still had to find £76.7m of cutbacks.

One way of addressing these efficiency requirements has been the rise of the local authority trading company, known as a LATCO.

These independent firms are launched to look after certain council services and run them as a business – while also competing in the open market for private sector contracts.

One of these is GEN², a company set up by the council to manage its £2bn of properties across Kent, including schools, libraries and office buildings.

Kent County Council is the sole shareholder and its largest client. “It’s a win-win for the community,” said interim chief executive Terry Mitchell.

“Many of the things we do would have previously been done by other private sector companies but because we are owned by KCC, a large proportion of the proceeds from the company get returned back to the local authority to be reinvested to support services in the county.”

The other hope for GEN², which operates from County Hall in Maidstone, is that it begins bringing in revenue from other public sector bodies.

It successfully tendered on the open market for a contract to look after properties owned by Dartford Borough Council and made the final shortlist for a contract for the management of London Fire Brigade’s portfolio.

The council estimates the market for facilities management for local authorities and academy trusts is worth about £700m.

“There is a lot to go at,” said Mr Mitchell.

“All these substantial contracts will be advertised and open for competition. The opportunity is going to be there for us to bid. Dartford is an early indicator that we can compete and win.”

The big issue with LATCOs is whether it is fair for them to compete for work with private sector companies, when they have the significant financial backing of the public sector.

"This is an emerging market and there is an advantage for those that are the first movers..." - Terry Mitchell, GEN²

This is governed by EU case law, which says authorities can only set up a firm if it has a restriction on its trading.

It is only able to increase turnover by up to 20% of what it gets from the council.

GEN²’s turnover from KCC last year was £8m, meaning it could only increase its capacity by £1.6m.

Mr Mitchell wants to enter Oxfordshire, Berkshire and Hampshire as well as inner London boroughs. He aims to grow the company’s workforce from 120 to 200 people within two years.

LATCOs are not a new idea. Kings Hill-based Commercial Services – a KCC-backed supplier of educational equipment and energy procurement – traces its history to 1902.

However, the trend for LATCOs is growing. KCC plans to launch its Invicta Law service in June, which will take care of its legal work and tender for other local authority work.

What is there to stop other councils setting up other companies to compete with the likes of GEN²?

Mr Mitchell said: “Another local authority could do the same. This is an emerging market and there is an advantage for those that are the first movers.

“We have got off to a good start and Kent has a good heritage with this kind of thing. Commercial Services has been around for 100 years which shows KCC knows how to run private sector companies.”