Article

Local authorities that are building back better

Wayne Butcher Wayne Butcher

Local authorities across the country are building back better from the impact of COVID-19. In the second part of our series, Philip Monaghan looks at councils that are thriving despite the challenges.

Income generation is not a new trend for local authorities and it isn't likely to disappear any time soon. With ever-tightening budgets and increasing challenges from recent events, generating income and managing spend to respond effectively to local issues is of increasing importance for many councils.

When developing a bespoke income generation solution to a local problem, a council should first look to see what could be learned from the actions of its peers. Below we have outlined some promising alternative long-term income streams across local authorities in the UK. 

Risk management and diversification for local authorities

Until now, property has been one of the most-popular investments for local authorities, and so, naturally, has also had the most regulator and media scrutiny. But for councils with the relevant expertise and experience, there are many other avenues to explore.

Experience is a critical consideration for effectively managing investment. As we know, any investment brings risk and councils are legally and morally obliged to effectively manage public spending.

Councils may be wary of pursuing new territory under the current circumstances, however, it’s wise to consider the case for change at a later stage. 

New opportunities for local authorities' income generation

During the coronavirus response period, some elements of a revenue portfolio will be particularly vulnerable. This includes lost income from commercial office rental or lower business rate collection, for example. But there will also be others that will benefit from the market disruptions and new ways of working.

There may be new opportunities to buy stressed local assets on favourable terms, or in repurposing the council footprint through space optimisation in private rental accommodation or social housing.

When considering a new source of income generation, local authorities must ensure they have done their due diligence.

The vulnerability and opportunities assessment, regarding income generation and coronavirus, should always include a financial forecast that considers sensitivities, scenario testing and a plan of the council’s potential response. This response needs to be perfectly balanced, and will include both mitigating new risk and making the most of the advantages on offer to help the council 'build back better'.

Funding a place-based recovery

As local authorities start to plan their place-based recovery from the events of 2020, a suite of co-ordinated interventions that are resilient to change and can be sustained financially may be best served through the establishment of a strategic commercial investment and income fund.

This fund would have a diversified portfolio of projects so that councils are not overly exposed in one particular area either by category:

  • Treasury investments
  • Commercial joint ventures
  • Contracts for service
  • Collection of properties

Or by industry:

  • Business parks
  • Venture capital for local firms
  • Solar farms
  • Office rental
  • Affordable housing provision
  • Workplace parking levies

In conclusion, income generation can play a genuinely transformative role in helping local authorities to return stronger from the impacts of the pandemic. However, this only holds true if a council reboots its solution to align it to the new problem and possible opportunities it is now presented with.

Clinging on to the false hope of meeting future challenges with historic solutions will not build back better, and may not build back at all. 

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

Alternative income generation streams for local authorities

A horizon scan of sector innovations suggests that many local authorities across the country are well placed to identify long-term revenue streams, which also deliver better place-based outcomes. Here are some of the best-performing council schemes:
West Berkshire council’s community municipal bond (CMB) Facilitated by Abundance Investment, this allows residents to crowdfund local green infrastructure, such as solar panels for schools.
It provides income from commercial projects, has a lower cost of borrowing than the current Public Works Loan Board (PWLB) rate and engages the public in the Council’s Declared Climate Emergency.
Kent County council’s Kent Life Services Fund (KLSF) A £50-million venture capital fund backed by the council. This will be invested in small, high-growth companies active in life sciences and offer equity investments with a focus on game-changing medical technologies and advanced therapeutics.
Enfield council’s investing-to-save programme on affordable housing As an alternative to paying high rents to private sector landlords, this local authority borrowed to invest £120 million in more than 500 units of affordable accommodation for vulnerable families and individuals. This saved £5 million from its homelessness budgets.
Greater London Authority's (GLA) tourism levy The GLA has made the case for a voluntary tourism levy in the form of a visitor donation scheme on short-stay accommodation. Depending on how the scheme is structured, it could return between £77 million and £240 million per annum1.
This revenue is earmarked for re-investment in the public realm and local creative industries.

1 The return on options from a tourism levy is drawn from an earlier financial model published by the GLA. Source: Working Paper 83: Options for a tourism levy for London A publication for the London Finance Commission, 2017.

Article
Income generation: local authorities build back better Find out more
Article What do I do with all this empty office space? Find out more
Report How local authorities can prepare for coming challenges Find out more