District councils increasingly turning to commerciality

9 Jul 19

District councils are juggling a host of financial challenges as they face greater spending commitments at a time when funding is falling and when many of the challenges on the horizon are ‘unknowns’.

That was the message delivered at a panel discussion entitled ‘Financial management and commerciality in districts – what next?’ at Public Finance Live 2019.

Setting the context within which district councils are currently operating, Simone Hines, president of the Society of District Council Treasurers and director of finance and procurement and Nuneaton and Bedworth Borough Council, revealed that shire districts (except Dorset) had seen by far the biggest funding reductions in recent years.

She added that uncertainty around business rates retention, rising demand around homelessness due to welfare reform changes, new guidance expected around commercial property investment and uncertainty around the government and Brexit were all adding to the more difficult operating environment.

“While districts have seen the biggest funding reductions across local government, choices are having to be made around future sustainability,” she said. “They are having to consider risk versus reward and adopt far more business-like approaches in a bid to offset financial challenges. In our own council, for example, we have seen costs associated with homelessness rise from around £300,000 to £1.2m – so we have to find new ways to meet that.”

As part of the session, Ian Knowles, executive director of resources and head of paid service at West Lindsey District Council and Adrian Rowbotham, chief finance officer at Sevenoaks District Council, shared examples of how their authorities have generated additional revenue from new commercialisation strategies.

Lindsey council’s Knowles said his authority had implemented a ten-year medium-term financial plan that had seen them buy up a number of assets in the local community, many of which were returning 6% yield. He said the authority’s success had been built on using reserves for economic development and social regeneration; only using borrowing where a return can be generated; and aligning officer and member risk appetite.

Sevenoaks’ Rowbotham set out the criteria by which his authority makes investment decisions. That criteria, he said, included an income yield of a minimum 3% above treasury management return or borrowing rate over a ten-year average; a focus on lot sizes of £1m-£10m on either freehold of long-term leasehold; a focus on industrial, office, retail, trade counter and private residential asset categories; and investments within 50 miles of Sevenoaks or within Kent.

Hines added that the challenges being faced by district councils were being increased because of the number of ‘unknown’ issues on the horizon – such as the fall out from Brexit, uncertainty around government stability and delays to business as usual activities such as the Spending Review.

Did you enjoy this article?