It is almost a certainty that as we reach the midpoint of 2018, all local councils within the UK will be feeling the squeeze. Local government is on an accelerating trajectory towards a situation where central government funding will discontinue, and there will only be three main sources of income - Council Tax, National-Non Domestic Rates (NNDR) and whatever could be made from their own activities. A protracted period of austerity has left local government with the arduous challenge of protecting vital and increasingly in demand public services while dealing with severe budget cuts, notably with the end of the Revenue Support Grant (RSG) from central government in 2020. In light of this, authorities will have to continue to delve into commercialisation as a route to raise much needed finance.
Analysing relevant statistics show that in recent years and up to today, local authorities have had to handle two main challenges. The first of which is that central government funding for local authorities has fallen by an estimated 49.1% in real terms from 2010-11 to 2017-18. Alongside reductions in funding, councils have had to operate with growth in demand for key services, as well as soaking up other cost pressures.[1] Demand has notably increased for adult and children’s social care. From 2010-11 to 2016-17 the number of households entitled to temporary accommodation increased by 33.9%; the number of looked-after children grew by 10.9%; and the number of people in need of care aged 65 and over increased by 14.3%.[2]
It is projected that by 2019/20 councils will face a combined annual funding gap of £14.4bn[3]. Hence, growing numbers of local authorities are changing their approach, shifting focus and energy away from reducing spending on services to looking for other sources of income. For a large amount of councils; investing in commercial property have shown to be the primary option for generating income. An investigation by the Local Government Chronicle in October 2017 discovered that 88 out of 265 responding councils had invested in property since 2010, with 50% of these being district councils from the South-East.[4] Commercial property strategies are particularly lucrative, as local authorities can borrow funds from the Public Works Loan Board (PWLB), at ‘sovereign rates’ (2-2.5%), and receive annual return rates on commercial property in the region of 5-10%. The difference between the loan rate and the return rate on letting out the property is where profit is made. The single largest investment made to date is Spelthorne Borough Council purchase of BP’s head office in Sunbury-on-Thames, for a sum of £380 million. [5]
Another popular commercial innovation trend that authorities are integrating into their strategies is the redesigning and transforming of services. These initiatives are often driven by the use of digital technologies to support both business management and service delivery. In the majority of cases, local councils collaborate with commercial businesses to achieve a digital transformation outcome. Cambridgeshire County Council is a recent example of a council that invested in a project that directly benefited the end user while simultaneously seeing a financial return. A digital service company was able to help improve Cambridgeshire County Council’s online blue badge application, so that digital application uptake almost tripled (20% to 58%), which significantly decreased the number of telephone applications at the Cambridgeshire contact centre (60% to 36%). The redesigning of the service resulted in the council achieving a saving of £60,000 in its first year, making back costs for the new service within six months.[6]
In conclusion, whether councils invest in property, enter joint ventures with private companies or employ other entrepreneurial methods, what is for certain, is without these commercial activities, councils would have to cut services and raise taxes - a lose-lose situation.
[1] Financial sustainability of local authorities 2018, Ministry of Housing, Communities & Local Government, p.7.
[2] Ibid
[3] Carr Richard, Commercial Councils: The rise of entrepreneurialism in local government, Localis, p.9.
[4] Calkin Sarah, Revealed: the councils spending millions on investment property, Local Government Chronicle, https://www.lgcplus.com/7021797.article?search=https%3a%2f%2fwww.lgcplus.com%2fsearcharticles%3fparametrics%3d%26keywords%3dsouth-east%26PageSize%3d10%26cmd%3dGoToPage%26val%3d8%26SortOrder%3d1
[5] Sandford Mark, Local government: commercial property investments, p.17.
[6] https://www.lgss.co.uk/blog/2017/10/05/lgss-transform-blue-badge-application-saving-60k-for-cambridgeshire-county-council-in-first-year-of-operation/
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