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Income generation: local authorities build back better

Wayne Butcher Wayne Butcher

As the UK enters its first recession in 11 years, local authorities face the increasingly daunting task of protecting vital public services. Philip Monaghan looks at how councils across the country are looking to income generation as a solution.

After an era of prolonged austerity, councils and other local authorities face tightening budgets and increased financial pressures as a result of the COVID-19 lockdown. Many are trying to be more resourceful with their income generation, but they face a familiar issue – criticism for being either overly commercial or not commercial enough.

In respect to security, liquidity and yield, local authorities have a legal and moral duty to manage resources responsibly. The continued rise of income generation and commercialisation in local government means that borrowing and investment activities have been under intense scrutiny.

This isn’t surprising, as of March 2020, the sector’s total borrowing and investment amounted to £127 billion and £46 billion, respectively, according to MHCLG.

Before lockdown, the spotlight focused on the sector’s exponential increase in property investments over the past half-decade. This is indicative of a broader concern about an absence of prudence and long-term sustainability if “the sector is maxing out on its government credit card” as CIPFA put it.

Building back better

The term ‘building back better’ was coined by Governor Cuomo of New York in response to the coronavirus situation, and has quickly become part of the UK local government lexicon too.

There appear parallels again with the past when there was a similar call to arms associated with a stronger role for local authorities in a national recovery from the GFC and global preparations for the UN ‘Sustainable Development Goals’ (2015), which in turn succeeded the ‘Millennium Development Goals’ (2000), and before that ‘Local Agenda 21’ (1992). In this sense, ‘building back better’ is a new interpretation of ‘sustainable development’.

The onset of coronavirus has led to an increase in the appetite for risk and income generation in many councils, but it comes with a twist: there may not be a return to business-as-usual (BAU) and the idea isn’t particularly desirable anyway, due to reduced air pollution, congestion and improved work-life balance, etc, during lockdown.

Instead, local authorities could turn to commercialisation and alternative income generation sources to deliver improved place-based outcomes, such as quality jobs, affordable housing and care, and greener growth.

Income generation risks and rewards: a balancing act

Since the emergence of coronavirus, there are fresh concerns that councils’ dependency on certain types of commercialisation may determine their resilience to the impacts of COVID-19 and lockdown. For example, some local authorities may struggle without rental income or business rates from vacant retail property as high street shops go bust, alongside parameters such as local authority type.

Below is a good range of metrics an authority could apply to assess how they are performing in terms of income generation and embracing opportunities in comparison with peers. By framing the problem and current position, a council will then be able to create a tailored solution.

Financing costs to net service expenditure Commercial income to net service expenditure Long-term borrowing to council tax revenue Investments to council tax revenue

For every £ of net service expenditure, how many £s relate to financing costs

For every £ of commercial income generated, how many £s net service expenditure is spent

For every £ of council tax revenue generated, how many £s are borrowed

For every £ of council tax revenue generated, how many £s are invested

The higher the ratio, the less spent on financing costs 

The lower the ratio, the greater the commercial income

A lower ratio indicates less long-term borrowing

A lower ratio indicates fewer investments

Top national performers include Cotswold, Warwick, and Basingstoke & Deane

Top national performers include Woking, Surrey Heath, East Hampshire

Top national performers include Eden, Ribble Valley, Hackney

Top national performers include City of London, Bromsgrove, Isles of Scilly

Is income generation the way to build back better?

So, is income generation a good thing for building back better? Our research shows it can be a force for good, but only if local authorities are clear about the problem they are trying to solve and have the required expertise to make the chosen solution work.

For support with income generation for local authorities, get in touch with Wayne Butcher.

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