Vibrant places

Learning from innovative income generation practices

Innovation is key to addressing the public sector’s challenges and making the most of the available opportunities.  

Councils are innovating on income generation by utilising alternative delivery models (ADMs) to fund as well as deliver new income opportunities. This includes harnessing one or a combination of traditional and new investment instruments, with options related to facilitation and regulation, public funds, debt and equity.

In addition to ADMs, authorities are looking to alternative sources of funding such as pension funds and social impact investors – but critically also other public bodies themselves to help deliver a financial and social return.

Some councils strongly believe that they should not intervene in the market – for them this is the role of the private sector or central government. Other councils however, view market intervention as a fundamental duty, not just reversing market shortcomings but also creating new markets. In the latter instance, social return considerations may be both about a perceived public duty of care to do good or to do no harm, such as health and social care integration or climate risk

Despite a wave of local devolution over the past half-decade, UK government is still heavily centralised. Compared to their international counterparts, UK local authorities are much more dependent on central government transfers (See Figure 8).

Figure 8 – Public sources of council revenue

Figure 8 – Public sources of council revenue

Source: OECD

Changes to business rate retention and council tax precepts to incentivise growth and metro mayor models respectively will shift the balance further in favour of local government leaders. At the same time, councils are striving to innovate in new and different ways on income generation due to revenue pressures.

Councils are being creative in terms of new types of investment class and co-producing solutions. Most notable is the rise of P2P investments where two or more local authorities come together as an investor or investee.

This trend may extend to the global domain, given council treasury strategy can sometimes include seeking to borrow or invest on the international stage. Just as interestingly, a number of authorities are also aiming to borrow or invest at the global level to generate income that requires a social return.

Read our Income generation report for case studies of new and innovative practices, how they have delivered additional benefits to the authority and the area, and the different financial mechanisms used to fund or deliver income generation.

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Income generation report: