Follow the yellow brick road… ‘Bricks Mortar Money’
In challenging times for local government many councils are increasingly reliant on assets and investment as a means to generate much needed new sources of income. It is not without controversy and just like the yellow brick road leading to the Emerald City many councils will face perilous drops and will only proceed with caution. The prize for councils is not meeting the Wizard of Oz but the rather more mundane outcome of surviving austerity to keep the good ship council afloat.
Assets and investments have been proven to provide a generous new source of income for cash-strapped local councils. They are also used to support local economic regeneration and councils have been discerning in their approach as to where they should place their investments. Whilst Ministers nervously watch councils and are jumpy about so called ‘borrowing in advance of need’ it is a rather different picture within council commercialisation teams that are strident in ensuring any risks are well managed and there is clarity about the purpose of investments. The APSE / CIPFA guide ‘Bricks Mortar Money’ created a ten-step guide to support councils embarking on investing and lesson number one was about being clear on the objectives and purpose behind any given investment.
APSE does not necessarily share the nervousness about out-of-area investments that appears to be at least one of the concerns driving the National Audit Office recent announcement to investigate council investment activities. Spreading risk across different economic areas safeguards against a rapid downturn in one area and provides for a more balanced and therefore risk managed investment strategy.
Property and assets is however only one strand to councils acting more commercially through necessity. The changing face of local government finance, with increasing reliance on council tax and business rates, means that to replace the lost revenue support grant and specific grant allocations either more money has to be found or services must be cut or reduced. Recent APSE and NPI research found that £3.2B has been lost from neighbourhood services alone. Cuts of this magnitude on the most visible frontline services are not easily reconciled with attracting new businesses to local areas and keeping residents happy.
As an alternative to rapid decline councils are adopting a very clear spirit of New Municipalism. This approach embraces the stewardship role of local councils in the local economy and places social justice at the heart of solutions. Raising money through additional fees and charges is not about charging more to the most vulnerable citizens but it is about generating new sources of income that can be recycled into local frontline services. Economic resilience is a key component of fees and charges. This often places councils in the role of a market disruptor. Where existing markets are failing to deliver for local residents and local businesses increasingly entrepreneurial councils are unapologetic about intervening. This can mean building new homes that are financially unattractive to traditional developers or clearing an airport runway to add further utilisation to Highways winter maintenance vehicles. In both cases the council can generate a surplus and the local economy benefits; whether new affordable homes to house key workers or keeping open a vital economic gateway like a local airport.
Choices have already been made at a government level to change the shape and structure of local government finance. Councils cannot afford to therefore row back on their commercial and investment activities. However, APSE is confident that the vast majority of councils manage risk sensibly and that local sensitivities about approaches to fees and charges is now part of the central discourse in balancing strained local finances. They may not reach the Emerald City but they are at least staying on the right road.
Paul O’Brien is Chief Executive of the Association for Public Service Excellence and will be chairing the Public Finance Theatre at the Public Sector Solutions Expo 2019 on the 25 June at the ExCel Centre.