Which cities have turned to investing to offset spending cuts?
A lack of fiscal tools is encouraging many councils to invest commercially, but this raises questions about its long-term sustainability
A lack of fiscal tools is encouraging many councils to invest commercially, but this raises questions about its long-term sustainability
A number of authorities have been building an investment portfolio to counter cuts to government grant. This no doubt has helped them protect services but raises further questions about how sustainable this is.
While the headlines on austerity centre on cuts to central government grant, less attention tends to be given to how local authorities have responded by looking to other sources of income. One such way is through investing in areas such as commercial property, and data from local government in England gives some insight into how large this has become.
The overall increase in income from investment activities has been modest. Local authorities received £298 million more in 2017/18 than in 2009/10 in real terms from investment income. This as equivalent to 2.6 per cent of the total cut in day-to-day spending over the period.
Urban authorities overwhelmingly led this increase. As a group, cities saw an increase of £333 million, meaning that authorities elsewhere in England saw a fall of £35 million.
But there hasn’t been a strong wave of urban entrepreneurialism – these returns were concentrated in a handful of places. London authorities made up the vast majority of the increase, accounting for £243 million of the overall urban rise – 73 per cent of the total increase in cities.
Looking at the growth on a per resident basis shows that some other cities have also been active. Luton leads the list, partly explaining the overall increase in its day-to-day spending that Cities Outlook 2019 shows. Income from investment rose by £13.7 million over the period, the equivalent of a £59 increase for every resident in the city. This has mainly come from both the expansion of Luton airport, which the authority owns, and through other property investment.
Warrington is in second place, with a rise of £50 per head (an overall increase of £10.5 million). While the data doesn’t give a breakdown of where this has come from, the legacy of being a new town means that the council owns a lot of land in its area and has been active in the development of it. As the table below shows, it’s followed by Manchester (£37 per head) and Coventry (£26 per head).
| City | Growth in investment income per head 2009/10-2017/18 (2017/18 prices) | |
| 1 | Luton | 59 |
| 2 | Warrington | 50 |
| 3 | Manchester | 37 |
| 4 | Coventry | 26 |
| 5 | London | 21 |
| 6 | Wigan | 16 |
| 7 | Aldershot | 12 |
| 8 | Ipswich | 10 |
| 9 | Northampton | 9 |
| 10 | Oxford | 8 |
As a decade of austerity comes to end, this year’s edition of Cities Outlook looks at how city spending power has changed.
Download the report hereThere are questions about whether having local authorities making investments in this way is a good thing, both from the perspective of risk and through the potential to crowd out the private sector. Indeed, this was something raised by James Brokenshire last December in the House of Commons.
The reality is though that both the scale of the cuts to government grant and the lack of flexibility to deal with these cuts has forced a number of authorities to look elsewhere. Bringing in stricter guidance on investments alone does nothing to address the main reason why some authorities have turned to this source of money in the first place – cuts to core funding and a lack of freedom to raise money from other sources.
This can and should be addressed in this year’s Spending Review; all eyes are now on the Chancellor to see what measures he will set out to help them manage their finances more sustainably.
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KEVIN COX
What is the issue with ‘crowding out the private sector’? Do you think that local government can’t make careful investments? And if it is a question of rents from property development, why not? The public has already invested in the highways and other public facilities which enhance rents, so it is only socially just that they get a return on it.