Thierry Henry and Paul Scholes have recently returned to the football clubs they served so well for many years, raising a few eyebrows, but in both cases with immediate impact.
British local government and the capital markets were a team, too, combining to exploit the economic growth triggered by the Industrial Revolution for public benefit through public health and education infrastructure and for local economic benefit through strategic transport investments such as the Manchester Ship Canal.Happy returns; Thierry Henry and Paul Scholes (inset,) have both returned to the clubs they served so well for many years. (Pic: Kirsty Wigglesworth/ (AP) Press Association images/blog gallery.)
The UK’s highly-centralised political dynamic and Whitehall’s ever-tightening grip on local government spending since the 1970s all but eliminated the routine use of funding from the capital markets for local infrastructure and services, except through Whitehall-controlled programmes and devices such as the Private Finance Initiative.
Local authorities face their most severe financial pressures for three generations, and have to control their own destiny and not rely on Whitehall as localism takes hold.
So is it time for the two institutions whose collaboration built so much of our public service infrastructure – and made such dramatic improvements in health, educational and economic outcomes as a consequence – to re-connect?
Local authorities have new powers to act in the interests of their communities, to enter into commercial arrangements, to have greater control over the use of their resources and to partner with other public, third and private sector organisations.
In every local authority area there is unmet need and consequential social and economic disadvantage. Current revenue budgets are insufficient to meet all this need and it is extremely difficult to free up money within these budgets to invest in service transformation or preventative programmes even though these would have the dual benefits of improving outcomes and reducing long term expenditure.
Dealing with the ‘here and now’ and daily crises mean that these sensible approaches are put to the side with the ironic consequence that the call on resources spirals rather than reduces. Most local authorities have strong balance sheets and are asset rich.
When aggregated in a sub-region or over a greater area these balance sheets outmatch most listed companies and local authorities have a further advantage over the corporate sector given the security of much of their income.
Local authorities collectively hold significant reserves that could like the value of property assets be put to effective use on behalf of communities.
The Government is currently exploring with the Local Government Association and others how local government pension funds could invest in public infrastructure.
Whilst there is an urgent need and economic imperative to invest in infrastructure there are also compelling cases to invest in softer services such as child care, adult social care, households with complex and challenging problems, the development of community capacity and much more.
There is also often a strong financial and business case for investing in service transformation including support services such as IT in order to reduce revenue costs over time.
If securing efficiency requires investment, and that investment delivers a cashable saving, then why not deploy the saving to secure the investment?
Services can be transformed by redesign, aggregation of scale, the effective and appropriate application of IT, people development and the use of modern equipment and fit for purpose buildings.
Local authorities need capital funding that over the next five years or so they simply will not receive from their traditional sources. They have to look at alternative options – and these are closer to hand than may at first appear.
Some local authorities are introducing or considering introducing social investment including raising social impact bonds. Often this will involve commissioning services through contract from social enterprises and the wider third sector.
This is to be encouraged and is likely to grow in significance over the next three to five years. It does require the ability to understand and measure both impact and the causes of change. It will require effective risk and commercial management.
It will also require willing investors and service providers. There is growing interest in social investment as a new asset class in the financial services industry which is encouraging.
The greater challenge and opportunity for local government is to convince institutional investors and investment banks that they should regard investment in public service transformation and development as an appropriate component of a modern asset allocation model.
This investment should not be and does not have to be left to individual philanthropists, Corporate Social Responsibility budgets or government funds. Local authorities have to make the business case for investment in the kind of projects already mentioned in this article, and they have to make it in terms that make sense to fund managers.
We see evidence that this is beginning to happen, and being met with a cautious but positive response.
Local authorities should also consider how they can mutually work together to self-insure for a variety of hard to forecast events and pressures such as peaks in demand for social or child care.
Perhaps too much emphasis has been placed on shared services at the expense of considering mutualism across and between authorities.
There could be opportunities to introduce tightly-focused mortgage products enabling local authorities to address the specific issues in their local housing markets that cause concern.
No one at the moment knows all the answers or can identify all the opportunities that exist but we feel that the time is ripe for local government nationally and locally to explore how it might rekindle some of the entrepreneurial and municipal spirit and actions of the past in order to invest for the future.
These options could involve creating municipal banks and savings schemes, local authority insurance projects, using existing assets and community resources in different ways to add value and re-connect with the financial services industry and the investment community.
Registered providers of social housing should be taking a lead by seeking ways to expose their balance-sheets to innovative investment classes.
The unmet social, educational and environmental needs and the potential opportunities that are being lost or never pursued because of the cuts agenda; the desperate need for new physical infrastructure to support local services and economic growth; and the opportunity to make long term savings alongside service improvements through transformation and prevention programmes all demand that political and executive leaders go for investment now!