Levelling up and the LGPS
0Richard Harbord discusses government plans in the levelling up white paper for LGPS funds to invest up to 5% of their assets in infrastructure projects that support local areas.
Most readers may be too young to remember, but throughout the 1980s and 1990s an annual so-called negotiation occurred between the then three local authority associations and government departments over the local government finance settlement.
From September until Christmas, groups constituted for each service met with their counterparts and argued over changes to the 60+ measures of need that were used to guide distribution of the Rate Support Grant. We also deliberated over quantum, but doing so seldom brought any response unless the government had decided that in advance. The group I chaired for many years was Social Care and Port Health.
The fun of the whole thing was that you had no idea at all if your success made any difference to the authority association you represented until it was all brought together. Although we called the process “equalisation” based on measures of deprivation and need, it could well be argued that we were pioneers in “levelling up”.
More recently, the Fair Funding Group had been established to examine funding allocation based on deprivation and geography. This entity was killed off by a deadly cocktail of the general election and Brexit.
The rise of levelling up
Clearly these attempts, along with earlier schemes such as London equalisation, which tried to level up across the 33 London authorities, have been consigned to a historic Room151. In place of them we have the new “levelling up” approach.
I obviously believe that this new framework for funding distribution will have rigour and precision. Why else would the levelling up white paper be more than 300 pages? Fortunately, I only wish to comment in this article on the executive summary along with pages 162 and 163.
The executive summary notes that “the prime minister and chancellor have called on the UK’s institutional investors to seize the moment for an ‘investment big bang’ to boost Britain’s long-term growth. The UK government will go further and work with local government pension funds to publish plans for increasing local investment including setting an ambition of up to 5% of assets invested in projects which support local areas.”
22 March 2022
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Infrastructure investment
Skip to page 163 of the white paper and we find that “if all LGPS funds were to allocate 5% to local investing, this would unlock £16bn in new investment”.
When former chancellor George Osborne unveiled LGPS pooling without involving anybody else, his ambition was that the pools would concentrate on infrastructure. Initially, there were going to be four or five pools and that was to be their job. This is therefore an offspring of that ambition.
Page 163 states that LGPS investment in infrastructure has grown from under £1bn in 2016 to £21bn in 2021. It notes that funds and pools are being asked by the government to publish plans that set an ambition of up to 5% invested in projects to support local areas. The assumption is that, as the LGPS already exceeds the 5% figure, this must be additional investment.
The original objections were that infrastructure had an uneven supply and, given the fiduciary duty on funds, returns were often uncertain and inadequate. Various objections were raised and investments in Crossrail and HS2 cited as examples of the difficulties.
But, in fact, the market has adapted, hence the large increase in infrastructure investment up to 2021. Infrastructure funds have been set up with the ability to select projects and maximise returns. For instance, there are now affordable housing funds included in the mix.
When George Osborne unveiled LGPS pooling, his ambition was that the pools would concentrate on infrastructure. Initially, there were going to be four or five pools and that was to be their job. This is therefore an offspring of that ambition.
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Devil in the detail
So, without comprising on the fiduciary duty of maximising returns, it could be possible to further increase this type of investment. In a recent meeting between the Scheme Advisory Board and the Department for Levelling Up, Housing and Communities a number of points became clearer:
- “Local” in this context is defined as global, so a wider array of infrastructure investment will be possible not just in each fund area
- The only mandatory aspect of the white paper’s investment guidance will be for funds and pools to have a plan
- 5% is not a ceiling
- Government will be looking for new investment
- There are no timescales on achievement of the target, although, of course, the plans may include them.
As always, the devil will be in the detail; consultation in the summer will cover these proposals, as well as climate change targets. These will need to be discussed together with the Boycotts, Divestment and Sanctions Bill.
Section 151 officers will need to watch all these developments with care.
Richard Harbord is the former chief executive of Boston Borough Council.
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