BUSINESS RATES

It's time for a serious, adult conversation on future funding

While the Government is right to caution against councils overexposing themselves on commercial investments, it needs to recognise its own role in creating this situation, according to Claire Kober.

Back in March, in a world that felt much simpler than today, the Government launched a consultation on revising Public Works Loan Board (PWLB) lending terms. The consultation followed an announcement the previous autumn, that with immediate effect PWLB borrowing rates were to increase by a percentage point. The rationale for both acts, Government argued, was to dissuade councils from following a small number of local authorities that have used this finance to buy significant amounts of commercial property for rental income. It pointed out that over the last four years, councils' PWLB debt has risen by £13bn, from £64 to £77bn.

Fast forward four months and the Government's warning looks prescient. Many of us have barely set foot in our offices since the consultation was launched and it's difficult to see that changing anytime soon. The pandemic has proved that we can be as effective working from home as commuting into an office. And it's not only landlords that will bear the impact of this seismic change, but the whole ecosystem that supports office-based working.

In this context, councils' investment in commercial property looks high risk, given uncertainty over the future financial performance of such assets. As the Office for Budget Responsibility has pointed out, commercial property is often among the hardest hit asset classes during economic downturns. Prices fell by 24% in the two years that followed the 2008 financial crisis.

While the Government is right to caution against councils overexposing themselves on commercial investments, it needs to recognise its own role in creating this situation. Commercialisation of the sector has been a response to a decade of funding cuts and demand growth. Starved of funding, councils had little choice but to find new ways of generating income.

The current situation also exposes the limitations of a policy approach in which local government is expected to rely on a small number of income streams – largely council tax and business rates – to fund essential public services. The current pandemic has demonstrated the fragility of such an arrangement. Now is the time for a serious, adult conversation between local and central Government on the future funding of local public services. Our communities deserve nothing less.

Claire Kober is managing director, homes at the Pinnacle Group and former chair of London Councils

BUSINESS RATES

Squaring the circle

By Seb Lowe | 18 July 2024

Joe Montgomery and Seb Lowe review the King’s Speech, and they conclude the sector is well placed to help the Starmer government find solutions to several co...

BUSINESS RATES

'Too costly to answer our own questions'

By Dan Peters | 18 July 2024

Whitehall has claimed it would be too costly to answer the same questions councils have been asked ahead of tomorrow’s productivity plans deadline.

BUSINESS RATES

Elections' Unsung Heroes

By Baroness Sharon Taylor OBE | 17 July 2024

Baroness Sharon Taylor celebrates the unheralded stalwarts who ensure polling day goes without a hitch.

BUSINESS RATES

Radical thinking for real solutions

By Rob Miller | 17 July 2024

Rob Miller argues councils need to remember their innovative past and sets out his five crucial steps for empowering local authorities to seize the challeng...