More for Your Money

Using Local Government Investments to Strenghten the Local Economy

Author: Tom Shakespeare   |   23/06/2009

This research presents some thoughts and recommendations around the need to fundamentally reconnect local government investments with the creation of a civil society and a sustainable environment. For too long the model for social and environmental investment has relied solely on philanthropic giving, or grants from the public sector. This has been categorised by the growth of large charities to the detriment of smaller, local charities – fundamentally undermining the connection between ‘investor’ and receiver. But there are huge opportunities for both an economic return on investment and better local outcomes, which are not recognised by the current financial markets. Local government, in its local leadership role is perfectly placed to begin to provide the investment which impacts directly on their local area, and which provides the funding for a new social and environmental market to emerge.

This piece of research was written as part of Localis’ research programme to explore ways of addressing the fundamental problems associated with the current system of local government finance and the related detachment between government and citizens. In this publication we make a number of recommendations for local government investments which are designed to address the current problems facing the economy – providing greater ‘safety’ of investments; stimulating new growth and improving what we call the ‘wider economy’. It also sits in a wider context of reform and, for example, attempts to create a platform from which an independent system of local government funding redistribution can be built; reassesses the role of local government in terms of service delivery; creates emergent and meaningful cross-border partnerships, and; encourages economic development and a strong civil society for local areas to thrive. The key recommendations are:

• Safety of reserves. The Debt Management Office (DMO) should look to allow Local Authorities to provide additional flexibilities on reserves deposited with the Treasury.
• Wider definition of ‘capital’. The Treasury should widen the definition of the ‘Supported Capital Expenditure’ (SCE) loan and rebrand it as a ‘Local Economic Development Loan’ (LEDL) so as to ensure that the wider meaning of ‘capital expenditure’ is captured.
• Paying back the debt of nationalised banks. The Government should examine opportunities to create a duty on part or fully nationalised banks to place a set proportion of their investments into social or environmental schemes, or allocate sold national assets directly to Community Development Finance Institution (CDFIs) or other suitable organisations.
• Spreading risk and encouraging new growth. Groups of Councils should set up a new sub-regional voluntary fund system for local Councils to replace or supplement PPP/PFI – which we call a ‘Mutual PPP fund’. We believe this will help to encourage new growth schemes and will allow Councils to spread their risk more effectively over a larger area whilst simultaneously increasing investment.
• Rethinking local government. Councils should use their trading powers more widely to stimulate new markets and as a way of shifting service provision onto other providers and reducing Council tax. The use of these powers should be monitored by the existing local government bodies to ensure that the use of these powers is not creating distortions and pockets of deprivation.
• Creating new social and environmental markets and growth. Set up a Local Investment Fund to invest into the improvement of local areas. We recommend that this fund is managed by an existing organisation such as the Post Office. This would help to encourage investment into social/environmental improvement schemes and help to strengthen the existing social investment market. It will also begin to lay the part of the groundwork for a more independent system of local government funding redistribution. The government should set up a Parliamentary Steering Committee to oversee the creation and implementation of social and environmental investment marketplace.