According to a report, local authorities are becoming more sophisticated financial investors, using historically low interest rates to invest in assets ranging from housing to petrol stations and shopping centres. Despite government spending cuts, councils made more than £20bn of capital investment in 2014/15 in England and Wales, above the level of four years ago, today’s Securing a resilient future report found.
Using revenue from these investments has allowed councils to support public services, with a handful of smaller councils using their income to become fully independent of national grant funding.
The review highlighted that investments were being made for three purposes – revenue generation, ‘invest to save’ programmes, and social value.
Examples highlighted in the report include Bristol City Council investing in extra care homes, Cambridgeshire County Council investing in a guided busway to improve connectivity, and Doncaster Borough Council’s Smartlight project to modernise residential street lighting.
NLGN director Simon Parker said such schemes should be welcomed, adding that 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,” he added. “Councils must be very careful to avoid over burdening their local ratepayers with poor investments.”
Among the risks highlighted in the report are that higher interest rates or a recession in the property market would hit investments, or that any high profile failures could lead to tighter regulations.
The review urged councils to publish a 25-year forward view of its investments, testing them against a range of future scenarios, as well as boosting their commercial expertise. In particular, it called on the Local Government Association to back a ‘Growth for Britain’ scheme to bring mid-career professionals from the private sector into local government.
It also called on government to provide a stable backdrop for local authority investments, including clarity over the future of council housing companies and setting a reset period for 100% local business rate retention of at least 10 years to ensure that councils can borrow against future income.
