Importance of Local Authorities investing to earn
Updated: Aug 6, 2019
It’s no revelation that local authorities are under financial pressure, with mounting cuts for councils across the country and uncertainty surrounding central government as Brexit approaches. Last month, the Local Government Association (LGA) claimed central funding for local councils will fall by a huge 77% by 2020. By then, the local authority funding gap could reach £5.8bn.
As austerity lingers, so does the threat to our social care services, schools and leisure facilities, not to mention the upkeep of our roads and parks. With such a significant drop in funding on the horizon, councils must be smarter about the way they generate income, not only for maintaining and improving public services, but also as a way of funding development and regeneration too. Councils must think commercially.
It’s not just about filling gaps in funding though; local authorities should actively be seeking opportunities to make profit, in order to ensure services are protected for the long term. Local authorities must be more commercially-minded if they are to survive budget cuts.
Local authorities should explore monetising public buildings wherever possible. This could include the use of unused rooms or areas in schools and libraries for paid-for event and meeting spaces. The private sector has the opportunity to support this income generation by considering commercial variability in the design and build of new schools and other public amenities.
Leisure centres and libraries are facing closure but public-sector buildings like these have the potential to generate additional income for local authorities. Leisure centres that also focus on wellbeing, boasting things such as spa facilities and fitness classes, are picking up customers from private gyms, increasing income for their operating councils. Local authorities must view the public as consumers too.
Investing to earn
As well as investing in improving public buildings to increase footfall and ultimately profit, local authorities are increasingly looking to private investment to generate income, with a focus on long term ROI.
Liverpool City Council is one local authority that has placed great emphasis on investment in the private sector, identifying opportunities for generating income through its Invest to Earn strategy since 2012.
When Liverpool City Council purchased the famous Cunard Building (pictured above) for around £15m (including refurbishments) there was some inevitable negativity. However, with agents recently appointed to market the building again, an independent valuation has estimated the Cunard is now worth £32m, more than double the price the council paid. It has generated a rental income of around £2m a year for the council, an ongoing source of capital that has been reinvested in the city’s vital services.
Back in May, it was revealed that the Merseyside council was also set to acquire Liverpool Central Shopping Centre, in order to drive various regeneration schemes in the city, including the Circus Liverpool development and Knowledge Quarter Gateway. Its purchase of Liverpool Central Shopping Centre is expected to earn the council £4.3m during the first five years.
Mayor of Liverpool, Joe Anderson, said: ‘We’ve had two-thirds of our government funding cut since 2010 – £444m – which means we have the impossible task of juggling immediate public service pressures with long-term capital investment, while, at the same time, trying to develop new sources of revenue.
‘We need to be ambitious in finding practical solutions to the problems that an austerity-led agenda has left us with, both out of choice and necessity, as we seek to protect the vulnerable and discharge our broader responsibilities.
‘Ministerial indifference has left us little option other than to be creative and bold - and that is exactly our approach.’
Recognising council assets
As investments by Liverpool City Council show, purchasing privately owned buildings and collecting rent is a lucrative strategy. But it’s not only property investment that can be a big earner for local authorities. Recognising the assets they already own and understanding how to generate value from them can be just as powerful. For example, if an older school is built on a prime piece of central land, it may be a lot more profitable to move the school and sell the land to a private buyer.
Halton Council has sold around £27m of its land since 2010, making £7m from the sale of a former high school site.
Reinvesting to protect our services
Although selling land and purchasing buildings for rent are great income generators, it’s not just about the money alone. By investing to earn, councils can increase their capital pot which then be channelled into major regeneration projects and existing public buildings.
Development in towns and cities and the improvement of public buildings attracts new investment, footfall and ultimately more profit. Reinvesting continues a cycle of income which will strengthen the council financially for the long term and help protect our vital services through austerity.