Government must help council finance chiefs manage urban investment risks to secure growth, Localis report advises
Council finance directors need greater institutional support to balance their responsibilities for attracting large-scale private investment with their onerous legal financial management duties, if the government’s national plan for growth is to succeed, a report from the think-tank Localis has argued.
In a paper issued today entitled “Ride the wave – balancing investment risk and opportunity to guide urban renewal’, Localis suggests that resolving this tension between securing urban investment and managing fiscal prudence will require not just a boost in local government’s in-house capacity for commercial and financial professionals, but also the development of greater institutional maturity, as well as an integrated method for evaluating councils and combined authorities in their growth efforts.
The study, supported by Core Cities UK and CIPFA, argues that local government’s dearth of sufficient commercial and financial expertise is a barrier to winning investment and collaboration vital to running successful Public-Private-Partnerships (PPPs).
‘Ride the wave’ further advises that English councils and combined authorities could learn lessons in managing place-based investments from the devolved governments of Scotland, Wales and Northern Ireland.
Among the headline recommendations contained in the report, Localis calls for central government to:
- provide the structural and institutional supports to local authorities to manage time-consuming and complex Public Private Partnerships, providing a policy focus on nurturing the internal expertise and capacity for councils to manage investment risks.
- provide commercial frameworks for local authorities to use in structuring PPPs for local investment and regeneration – adopting the Welsh Mutual Investment Model to focus on risk allocation, transparency and the exclusion of ‘soft’ services.
- simplify and clarify how public sector can get funding and investment expertise, possibly from the development of a single front door for matching local investment prospectuses to public financial institutions.
The paper calls for strategic authorities to co-ordinate across regional boundaries to improve planning and development strategies and for new combined authorities to adopt institutional maturity models that accelerate their ability to secure private investments by rapidly improving their governance, risk management and planning skills.
‘Ride the wave’ also urges government to develop a single, tiered, outcomes framework for local government, harmonising the Local Government Outcomes Framework for councils with the Integrated Settlements Outcomes Framework applying to combined authorities to measure ‘quality’ growth that takes account of environmental, inclusive and social outcomes.
Report author and senior Localis researcher, Sandy Forsyth, said: “Our analysis centres on how local authorities can navigate investment risks and opportunities within a changing policy landscape characterized by a new emphasis on city-regions, empowered mayoral authorities, and a reliance on private finance.
“The key argument of Ride the Wave is that for the government’s growth agenda to succeed, local investment risk must be balanced with opportunity within a new, evolving ecosystem of mayoral strategic authorities and national financial institutions.
“The core challenge lies in the tension between driving investment pipelines for growth and the need for fiscal prudence. To resolve this, fundamental issues related to local government capacity, institutional maturity, and outcomes evaluation must be addressed.”
Localis head of research, Joe Fyans, said: “Chief Financial Officers (CFOs) operating under the well-established hierarchy of borrowing and investment priorities under the Prudential Framework, and local leaders alike, face severe political backlash and financial consequences when risk isn’t managed. So naturally, the financial culture around planning reinforces prudence, throttles risk appetite and stymies growth ambitions.
“Addressing this means dealing with the structural weaknesses caused by local government’s diminished capacity – a frailty which currently act as a barrier to investment and collaboration. And this shows up most markedly in the dearth of in-house specialist commercial and financial skills which encourages an overreliance on external consultancy.”
Joanne Pitt, senior policy manager at CIPFA, said: “Local government finance leaders are at the frontline of balancing opportunity with accountability. The drive to attract private investment into our towns and cities must be matched by the right frameworks, skills and governance to manage risk responsibly.
“CIPFA, Core Cities UK and Localis’ study highlights the urgent need to invest in financial and commercial capacity within councils – ensuring that Chief Financial Officers are empowered to deliver growth that is both sustainable and fiscally sound.
“By strengthening institutional support and creating clearer routes to expertise, government can help local authorities unlock the full potential of public–private collaboration.”
Stephen Jones, director of Core Cities UK, said: “Securing investment in our cities is critical to realising our economic potential and ensuring our cities can compete on the global stage, providing jobs and incomes for people across our places and wider city regions.
“The fiscal position means we need to be more innovative in how we fund that investment, leveraging private institutional capital and utilising the full suite of public financing levers.
“This is not straightforward and requires risk to be balanced between public and private sector and needed across a range of investments that we need, whether that is infrastructure, housing, innovative businesses or commercial property.
“This report will be a vital resource, offering practical advice and sharing learning on what has worked. We fully endorse its recommendations.”