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EXECUTIVE SUMMARY DOWNLOADCash-strapped local authorities are becoming sophisticated financial investors, using historically low interest rates to make themselves financially independent of national government, a new report from localism think tank NLGN claims today.
While councils are revenue-poor, they are relatively capital rich, investing more than £20bn a year in projects ranging from housing to petrol stations and shopping centres. Despite austerity, councils were actually spending more on capital investment in 2014/15 than four years previously.
Local government is using these investments to generate revenue to prop up hard-pressed public services, with a handful of smaller councils using their income to become independent of national grant funding.
However, the report finds that there are clear risks associated with council borrowing, and that high profile failed investments could easily result in central government introducing tough new regulations.
The report recommends that:
- Local government must continue to take advantage of low rates to make investments that drive financial self-sufficiency.
- Every council should publish a 25-year forward view of its investments, testing them against a range of future scenarios.
- Councils need to find ways to secure greater commercial expertise through in-house training programmes and a new national ‘Growth for Britain’ scheme to bring mid-career professionals from the private sector into local government.
We should welcome the fact that councils are going into business, using smart commercial investments to maintain local public services. Low rates represent a huge opportunity for local authorities to increase their financial resilience. But this ambition needs to be matched by a clear focus on social value, prudence and transparency. Councils must be very careful to avoid over burdening their local ratepayers with poor investments.
Mark Boleat, Policy Chairman of the City of London Corporation said:
“While it is a good thing that councils are looking at new sources of funding to maintain strong public services, it is vital that these investments are managed properly, and a reasonable level of risk is managed.
“These investments must always be made with the end goal of providing better services for residents and those in need, and must be transparent so that taxpayers know how their taxes are being utilised.
“In this time of low interest rates it is refreshing to see councils making their money work harder for the benefit of the community.”