Local Government in the spotlight
Our national news cycle moves quickly and relentlessly. Few stories capture the front pages for long and coverage of the world of politics and government is all too often dominated by stories about a small number of national politicians and Westminster issues.
One result of this is that the world of local government is very rarely a leading story on the BBC news bulletins. With a handful of honourable exceptions (Jen Williams in the FT and John Harris in the Guardian) the funding reductions that councils have had to absorb over recent years have largely been ignored by the press and media. For a brief period last week that all changed when the news broke that Birmingham City Council had issued a s.114 notice.
The news was far from surprising to those of us who follow the machinations of English local government and were well aware of the council’s equal pay settlement. But the news that the biggest council in western Europe has issued what is effectively a bankruptcy notice was always going to catch the attention of the national media. Inevitably though, having only a short period of time to brush up on a subject that they had ignored for so long, many of the journalists wrote muddled pieces that failed to really to get to grips with the issues facing councils.
Some of the reporting, such as articles by Stephen Bush in the FT and Emma Duncan in the Times was thoughtful. For readers with little awareness of how local government finances work both writers will have shed some light. Bush explained the differences between the situations in Birmingham and other councils to have recently issued s.114 notices. Duncan wrote about how overwhelmingly council tax is directed to funding social care (around 85% of some council’s budgets).
The more confused reporting was best exemplified by the leader article in the Spectator. No writer put a name to this one, but it was presumably signed off by the editor Fraser Nelson who usually takes a more balanced approach to his journalism. The thrust of the article was that the news from Birmingham was just the latest example of the ‘staggering incompetence of our local councils’.
The three main charges against local government were the cost of delivering capital projects, councils’ alleged ‘dismal’ performance in responding to the pandemic and the failed acquisition of commercial properties as yield generating investments.
To take the case of Birmingham City Council first. it is true that there have been historic failings. As with the news stories about reinforced autoclave aeriated concrete in public buildings, there is a definite sense that people were, to coin a phrase, ‘sitting on their arses’. However, for the charge to stick that is an example of local government’s unique incompetence, it seems reasonable to conclude that this is an issue specific to local government. It would have only taken a very quick google search to establish that settling equal pay claims is an issue that is affecting organisations and businesses across the public and private sectors. National supermarkets and other retail businesses are particularly affected by this. The difference for local councils like Birmingham is that they cannot borrow money to fund ‘revenue’ expenditure, which is what this is.
We can quickly deal with the idea that project delivery and the pandemic response are valid examples of local government incompetence. Yes, navigating public procurement rules and delivering capital projects is frustratingly expensive and complex. The idea that this is a problem that is unique to local government and not a country wide problem presumably rests on the belief that Whitehall departments deliver capital schemes far more quickly and efficiently. Good luck with arguing that the delivery of national projects like HS2, motorways and energy and water infrastructure is a source of national pride.
I nearly fell off whatever I was sitting on when I read about the ‘reluctance (of local councils) to serve the public… during the pandemic’. A tiny number of council services such as libraries and leisure centres were closed during the pandemic but generally only while the social distancing rules were in place. Services such as bin collections, housing and homelessness, the aforementioned social care, street cleaning and grass cutting continued almost without pause. Far from withdrawing services it was local councils that started delivering a raft of new services. Food and medical deliveries were made to vulnerable residents and grants were disbursed to businesses at rapid pace. The writer highlights the temporary closure of playgrounds as evidence for the contention that services were withdrawn. As someone who was leading a council during the pandemic, I find it very hard to believe that a single town hall chief had time, let alone the inclination, to think that closing playgrounds was a priority for their worn out staff. Playgrounds, car parks etc were closed because councils were told that they had to be closed. A reaction that we know, with the benefit of hindsight, to have been over the top but England was not unique in taking steps like this.
The final area highlighted in the Spectator article is one that seems to be frequently misunderstood even within the local government sector – what the article describes as the ‘madness’ of ‘borrowing for commercial property acquisitions’ which has ‘failed spectacularly’. The writer is correct that during the coalition years the ability of local councils to borrow from the Public Works Loans Board (PWLB) to make commercial investments was increased. It took a little while for councils, including the one that I led at the time, to take advantage of this but it did spur an increase in council borrowing and investment. Before we go any further be under no doubt, this was full throated Keynesianism on the part of the Treasury whose collected brains knew exactly what they were doing. It was, as well as means for councils to balance their books, a way for the Treasury to pump money into the economy.
Councils owning property and renting it out is nothing new. Readers would likely be surprised to know how much commercial property in their areas is owned by councils. Long before I ever stood for council Worthing Borough Council, where I was Leader from 2015 to 2021 and where I’m still an opposition councillor, owned industrial sites and a one third share in the freehold of Brighton City Airport as well as chunks of local farmland and buildings in Worthing town centre. Similar situations will be true for almost every council in the country. Funding services through revenue from commercial property is nothing new for councils.
Several of the articles covering local government borrowing also make the mistake of assuming that all of the borrowing has been for commercial investments. Much of it has also been for investing in local regeneration and it’s correct to say that in the case of Woking and Croydon that has gone disastrously wrong. But without the ability to borrow, many projects such as the building of new swimming pools simply wouldn’t have happened. As well as borrowing to invest in commercial properties some of the borrowing has been conducted to lend money on at preferable rates to local partners such as social landlords or further education providers that can’t access the preferable rates from the PWLB. In these instances the money is secured on their assets – houses or large sites.
So, onto borrowing for commercial purposes and the contention that this was madness that has failed spectacularly. The ratings agency Moody’s has released data this week highlighting the twenty councils with highest levels of debt versus their income and my council, Worthing comes in at number five with £204m of debts. Woking, mentioned above, comes in at number two. Bankrupt Thurrock, with £1.5bn of debts, around a third of which was used to invest in a failed solar farm is down at number fourteen. Beleaguered councils such as Croydon, Slough, Bournemouth, Christchurch and Poole and Birmingham don’t even make the list.
Top of the list is little Spelthorne Borough Council. With total debts of £1.1bn, much of it spent on the BP office site at Sunbury, Spelthorne has a borrowing to income ratio of 86.9. Double that of any council in the country other than Woking. As such Spelthorne has been the byword for financial recklessness for opponents of councils making commercial investments. But herein lies the rub. Spelthorne remains in pretty robust financial shape, not in spite of the investments, but because of the investments. The same is true for most of the councils on the Moody’s list. The income from the commercial investments is all that is keeping some councils afloat now. The data in the Moody’s list is little help in offering a judgement on whether councils have invested well. To make that call it’s necessary to start delving more deeply into what has been bought and how the investment is performing.
The recent history of councils borrowing from the PWLB to invest in commercial, yield generating properties has some way to go yet. Investments can go down as well as up. In the case of Thurrock in particular some councils have made very poor investments which brings into question what governance arrangements were in place.
There’s lots more to be written about local government finances generally and the borrowing element specifically. The key bit that isn’t being widely reported is that for many councils, the choice to borrow at rock bottom rates to invest hasn’t failed spectacularly. It’s what is keeping local services running in many parts of the country.
