By Peter Hetherington
Local authorities are rediscovering a sense of civic pride, as the recession makes commercial self-sufficiency an urgent necessity. Is this the birth of 'real localism', asks Peter Hetherington
Storm clouds are gathering over town halls. Although councils persuaded the Treasury to maintain a relatively generous spending package for local government in this year’s Budget, the crunch will come soon. Multibillion pound cuts beckon, threatening services from social care to highways and the environment. Some council chief executives privately fear a scorched-earth approach to local government, regardless of who wins the next election.Over-gloomy? Already the global financial meltdown is biting deep into council finances. In England alone, the latest estimates suggest authorities have lost £2.6bn as capital receipts – income from land and building sales, for instance – fall sharply, investment income plunges and fees and charges from car parking and planning melt away.
Now with the departure of Hazel Blears from the Cabinet, new Communities and Local Government Secretary John Denham has a chance to change tack and move away from his predecessor's obsession with community empowerment at the expense of other priorities.
Will he, for instance, address the bigger economic picture by encouraging
councils to develop job creation and business support strategies – a task made easier by the Local Democracy, Economic Development and Construction Bill?
As for the Conservatives, will David Cameron and his front bench build on the success of local initiatives being developed by the party’s town and county hall administrations? With the party gaining almost all the counties in last week’s elections – Labour lost its four remaining shires – the Tory leader has a golden opportunity to show he means business. But some senior Tories doubt that his much-vaunted ‘localism’ will lead to meaningful devolution from Whitehall to local government – privately, the shadow Treasury team speaks a different language to the party's council leaders. But necessity is starting to drive invention as local authorities consider alternative ways of funding vital areas before the Whitehall axe falls.
Bright ideas are emerging, particularly from councils – ironically, often Conservative ones – which are becoming pace-setters in developing longer-term money-making initiatives. Among the pioneering schemes being launched from Kent to Essex, Birmingham and beyond are municipal banking, council-owned bus services, post office takeovers, large-scale property development and council house building. Welcome, 'real localism'.
These relatively small initiatives are spawning bigger plans. Within two months, the Local Government Association and the New Local Government Network think-tank, as well as several senior councillors, are likely to float one of the most far-reaching initiatives seen in local government: a national mutual fund. The aim is for it eventually to be used to finance big infrastructure projects and kick-start local economic programmes.
Behind the scenes, several big councils have been meeting to discuss how authorities can collectively use their financial muscle to fill the looming gap as the Treasury reins in finances after 2010/11, and maybe well before. At the heart of the plan is some £30bn of local government funds held in cash deposits and the wider money markets at any one time.
‘There must be smarter ways in which authorities can exert leverage using their financial muscle,’ says former local government minister Chris Leslie, director of the New Local Government Network. ‘There is enormous potential in councils pooling their resources and, when you think of it, a lot that can be done on the public works front if people pull together.’
According to one of the main players, the initial aim would be to invest collectively on the basis that sums of several billion pounds could attract better interest rates than smaller investments. Once established, however, the mutual could begin investing in public works projects, particularly those that offer a return, such as public transport schemes. ‘The idea could eventually be to fill the void left by the government withdrawing from these big spending areas,’ Leslie added.
If that all seems fanciful, who would have dreamt at the start of this decade that some councils would be embarking on ventures far removed from conventional services? In several areas, a renewed spirit of municipal enterprise is taking root as adventurous authorities exploit little-used provisions in two seemingly innocuous pieces of legislation. The 2000 and 2003 Local Government Acts respectively gave authorities an all-embracing power to promote economic and social wellbeing and then, crucially, to trade and charge for services.
This was followed by powers to ease local authority credit, through so-called prudential borrowing. Used creatively, these new freedoms give larger councils the ability to become bigger business and economic players – individually, or collectively.
Take Kent, for example. The yellow buses criss-crossing its countryside have become as familiar to regular travellers as the hop fields and fruit farms that dot this self-proclaimed 'garden of England'. The buses not only provide school transport for thousands of pupils, they provide regular services around Maidstone and Ashford and underpin a large park-and-ride scheme in Canterbury.
The bus fleet, branded Kent Top Travel, has become a symbol of the county's determination to push the boundaries of local government into areas where more timid authorities fear to tread. This included challenging near monopolies – two big national bus companies – to drive down prices and give local taxpayers better value for money.
That hard-headed business ethos, under a pragmatic Conservative administration, has helped Kent to launch a series of other companies through a profitable, separate commercial services division. The ventures include an energy arm, which bulk buys electricity for 112 other authorities as well as Kent; an employment agency; and an education equipment business, which supplies stationery, furniture and IT to schools in the county and elsewhere.
And it does not end there. 'We have more ideas in the pipeline, but we don’t want to give the game away yet,' smiles Kevin Harlock, director of the division, which turns in an annual profit of £100,000. 'But it’s sufficient to say there are other opportunities out there.'
The pity is, precious few councils are infused with such enthusiasm, Harlock says. 'I’m a bit disappointed authorities in general don’t seem to be very proactive and up for the challenge in going the extra mile,' he laments. 'Why are people not grasping the opportunities?'
Nick Chard, then the county council’s Cabinet member for finance, jokes that, if by some fluke, Kent were listed on the stock exchange it would easily become a 'FTSE 100 company'. The authority, England’s largest in population terms, has a £1.3bn net revenue budget.
Chard is proud that the commercial services division is a freestanding enterprise, borrowing on the open market without any call on council finances and local taxpayers. 'It is a commercial enterprise pure and simple, using the best business principles,' he enthuses.
The council’s excursion into bus operations, insists Chard, was driven by necessity when the two operators in Kent increased charges for school transport by '25% to 35%'. He adds: 'So when contracts came up for renewal, we went to the market place and set up our own company.'
Significantly, it is now the third largest bus operator in Kent, with a 100-vehicle fleet, half of which is directly owned and the remainder leased. Similarly, when charges for recruitment services were significantly raised, the commercial services division set up its own agency – Kent Top Temps Ltd – to serve both the county and other authorities. And with energy prices wildly fluctuating, another company – Laser – was established to bulk buy electricity for the county council. Scores of other authorities soon used its services.
But Chard would like to do more. Along with Chris Leslie, he believes that councils could punch well above their weight by pooling resources and, perhaps, judiciously using a small part of their sizeable pension funds to fund projects that offer a return. Kent’s fund alone is worth £2.6bn.
Chard is pragmatic. 'The old Left-Right barriers are no longer there. We are all entrepreneurial and much more aware of how we can make a difference locally by using the powers at our disposal.'
Over the Thames estuary, in Essex, county council leader Lord Hanningfield evokes the nineteenth-century heyday of local government, when cities and counties took a lead role in helping communities and people in need. 'I think local government has lost its way a bit and I’m trying to take it back to what it once did for people,' he says. 'We’ve got too obsessed with what national government tells us to do.'
Hanningfield says he is following the example of municipal pioneers – notably Birmingham’s former mayor, Joseph Chamberlain, who provided clean water, public health, energy, transport,
education, and banking a century ago.
Over the past year, Tory-run Essex has provided £1.5m to rescue, so far, 15 sub- post offices. It also recently laid the foundations for the first municipal bank in Britain since Chamberlain created one in Birmingham – testing the legal boundaries of local government to the limit.
Initially, the council is ploughing £50m of its balances into the project in partnership with the Spanish banking group, Santander, which is throwing another £15m into the pot. While the fund will be operated by Santander, governance will be provided by an advisory board of councillors and invited experts. Loans of up to £100,000 will be available for healthy small businesses that find it difficult to raise loans from high-street banks. The eventual aim is to create a full-blown institution, under the ‘Banking on Essex’ label, regulated by the Financial Services Authority.
Now the county council’s policy team has suggested another initiative, with national significance: bringing the whole post office network under local government control, leaving Post Office Ltd to provide the products. Although the government has promised £150m a year to subsidise the network until 2011, the council fears only 4,000 of the 13,500 branches nationally might eventually remain. It believes counties and big unitary and metropolitan authorities should collectively assume control of the network.
Chief executive Joanna Killian says Essex's move into post office takeovers and banking has not been easy. Legal advice was initially discouraging. 'We eventually found a way through uncharted territory, challenging conventions all over the place. But in spite of the heavy government directions under which we work, you’ve sometimes just got to say "sod this, we know what we want, let’s just find a different way". Our politicians are more ambitious than others I’ve worked with in that they want to seize their wellbeing powers (in the 2000 Act) and are willing to test the boundaries.'
Similarly, Birmingham, the original municipal pioneer, has set its sights on banking in a more modest form, using the wellbeing powers to help small businesses. But the city council, a Conservative-Liberal Democrat administration, is also using its clout as the biggest landlord in the city – it owns almost half the land in Birmingham – to identify 60 prime sites for development, throwing in its ownership as a carrot to attract developers. It also wants to re-enter the housing market, building homes for renting and, possibly, for sale in partnership with others.
Stephen Hughes, the city council’s chief executive and its former finance director, believes local government could assume a far wider economic role because of its triple-A credit ratings and access to 'relatively cheap money'.
But he cautions: 'We are limited by our lack of imagination and the ability of different organisations to overcome critical barriers to working together. (But) I would say we’re at the forefront of pushing that forward.'
For example, colleges of further education are running short of development funds because of the collapse of the Learning and Skills Council capital programme. In response, Birmingham has floated the idea of lending local colleges money for redevelopment and expansion.
Hughes says the wellbeing powers give councils authority to do 'almost anything' in theory. But he sees a much bigger picture emerging, particularly in conurbations, where town halls now have a duty to co-operate with other public sector bodies, such as the NHS, under Local Area Agreements. Why not, he says, morph big councils into super-commissioning bodies – 'this is a personal view' – handing out contracts for a range of public services, from health to training and policing?
Ominously, he adds that time is not on the side of local government. He fears that unless councils reshape their operations to take account of a much harsher financial climate, they will inevitably be 'pushed back to the 1980s and 1990s, cutting core services'.
As he says: 'We are entering really challenging times.'
Peter Hetherington writes on community affairs and regeneration
