Urban wealth funds are not a ready-made solution to the financial crisis in local government – but there are a variety of ways to improve the situation, according to a finance panel at Room151’s Monthly Online Treasury Briefing (MOTB).
These range from a comprehensive review of local government’s purpose and the statutory functions it should provide, to reducing political interference and rhetoric around the delivery of services such as refuse collection.
Lorna Baxter, executive director of resources & section 151 officer at Oxfordshire County Council; Alison Scott, shared director of finance at Three Rivers District and Watford Borough Councils; and Adele Taylor, finance director & s151 officer, commented on a recent suggestion that urban wealth funds could invest in local assets to avoid selling them at fire-sale prices and alleviate the financial crisis across councils.
That case was made by Andy Haldane, former chief economist at the Bank of England and current chief executive of the Royal Society of Arts, in a recent contribution to the Financial Times, as reported in Room151.
Scott said there was a “danger of thinking up new ways of borrowing, which has never actually been an issue for local government”. Using urban wealth funds would also not address the core problems the sector faced, she said, which revolve around tight revenue budgets, ongoing service demand, and funding rather than capital investment.
The MOTB panellists suggested a range of solutions to alleviate the financial pressures on local government. Photo: Shutterstock.
Taylor stressed that, as with any “new and different solution”, it was vital to think about the “risks and the problems with it” and not just “follow what is emperor’s new clothes”.
She also pointed out that at some of the authorities in the most challenging financial positions that she has worked at, they had got into that situation partly because they were “trying things that were different and were seen at one point to be the silver bullet for local government funding, which was to be more commercial”.
An array of solutions
The panellists outlined several factors that, combined, could offer a solution to the financial crisis facing local government – and which they hoped would be considered in a post-general election environment. However, all agreed that additional funding was unlikely.
Baxter called for a “fundamental reset in terms of what local government is here to provide” from a legislative point of view, and said that, with the availability of new technology, a review of means testing in areas such as home-to-school transport and concessionary fares was urgently needed. “That’s an area where we really need to work with the next government to think about how we can do things differently to make local governments sustainable,” she said.
Taylor agreed that there was a need to reassess “the things that local government actually should be doing”. She argued that while more responsibilities had been placed on the sector, with some statutory functions there are question marks over whether “we the right people to deliver them”.
And in other areas of service delivery, such as refuse collection, Taylor said there was too much “political interference” and “rhetoric about how we deliver these services” rather than letting authorities get on with the job at hand using their local knowledge and expertise.
Looking at other solutions, Baxter also suggested thinking about ways to maximise assets, and to “think about commercial in a different way”, which, as reported, is high on the agenda at Oxfordshire. She also noted the potential for devolution and reforming council tax.
Scott stated that stability was the “most important thing” to have as resources “get tighter and tighter”. “You can’t budget on a year to year basis when we know resources are being squeezed. We need some certainty so we can give clear messages to our members in terms of what we need to do in the revenue budget,” she said.
She also called for more trust between ministers and local government, and for more conversations to take place. “If you believe in democracy, you need to trust local democracy and have much more adult conversations,” Scott added.
Scott also said it was vital to “sort out the early intervention and prevention agenda” in social care to avoid continuing in the current “hand to mouth existence”.
The next Parliament should also put a “real focus” on housing and find a way to “free up allowing us to invest in housing”, Scott stated, as it is the root cause of many other issues, including health and social care.
For Taylor, a simplification of funding is also needed. She pointed out that while local government gets funding from lots of government departments, the process involved varies dramatically. For example, some forms require councils to “sign our life away” and “give our inside leg measurement and everybody else’s inside leg measurement for a very small amount of money, whereas other government departments are giving away millions and millions of pounds and just trusting us to get on with it”.
She added: “Somebody just needs to take a step back and actually see and simplify the way in which we get our funding from various government departments. That’s another big ask.”
Treasury trends
Room151’s Monthly Online Treasury Briefing also featured a macro-economic update from Aegon Asset Management UK’s Nick Edwardson, and an interactive session run by Kelly Watson, head of local government relationships at CCLA.
The latter session explored how investment and borrowing strategies have moved on since Room151’s Treasury Investment & Current Affairs Survey was published last September, and featured eight questions.
Among the results, 92% of webinar attendees said they expected their treasury portfolio to yield less in the next financial year, while 61% of respondents said they had not increased activities in the local to local lending market in recent months.
Service demand is now considered the biggest risk to local government over the next 12 months, with 81% of respondents selecting this option. It has overtaken inflation as a risk factor (31%), with inflation seen as being on the way down. While political instability received 28% of respondents’ attention, perhaps the biggest surprise was that 25% of respondents now saw councils’ own mismanagement or inefficiencies as a big risk to the sector.
Watson suggested this might be because there is now “more awareness” around this issue.
Room151’s Monthly Online Treasury Briefings take place on the last Friday of every month, with the next scheduled for 31 May. Please click here for more information.
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