151 BRIEF

  • Consultation opens on future of IFRS 9 statutory override

    A government consultation has opened into whether the IFRS 9 statutory override should be allowed to elapse, be extended or made permanent.

    IFRS 9 is the standard covering financial instruments and took effect in local government from the 2018-19 financial year. However, there were concerns that this could significantly impact councils with holdings in pooled investment funds.

    Following a previous consultation, the government agreed to a five-year statutory override of IFRS 9’s requirements relating to fair value movements on pooled investments. This arrangement is due to expire on 31 March 2023, and so the government must decide quickly on its future approach.

    Three options are proposed in the new consultation: allow the statutory override to elapse; extend the override on a time-limited basis; or make the statutory override permanent. Responses are required ahead of the 6 October 2022 deadline.

    A Room151 survey in May found that treasury managers and section 151 officers were overwhelmingly in favour of the override either being made permanent (68%) or extended (19%).

    David Green, strategic director at treasury advisers Arlingclose, told Room151 that the sharp fall and subsequent rebound in financial markets during the Covid-19 pandemic showed the value of the override.

    “We will make the case for it to be made permanent so that local authorities are never required to raise council tax or cut services due to temporary market fluctuations just when their residents need them the most.,” he added.

    The consultation includes questions on the “financial consequences”, impact on the audit process and effect on pooled funds if the override is allowed to elapse.

    The document states: “In making any decision, it is important for the government to understand the risks and benefits of either allowing the statutory override to elapse, thereby bringing local government financial reporting in line with other entities, or to keep the statutory override in place on either an extended or permanent basis.”

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  • EAPF criticised for water company investments

    The Environment Agency Pension Fund (EAPF) has been criticised by campaigner Feargal Sharkey for investing in UK water companies that are also subject to investigation by the Environment Agency.

    Commenting on Twitter, Sharkey said that six of England’s sewage companies are currently under investigation by the Environment Agency and Ofwat, and the EAPF has investments in three of those companies.

    Sharkey added that Emma Howard Boyd, chair of the Environment Agency, was “until the last few weeks” chair of the EAPF Investment Sub-Committee.

    A spokesperson for the EAPF told Room151 that it was “legally separated” from the operational and regulatory functions carried out by the Environment Agency. Exposure to UK water company investments is managed externally by the Brunel Pension Partnership (BPP) LGPS pool.

    The spokesperson added that Howard Boyd had stood down as chair of the EAPF Investment Sub-Committee in November 2020.

    Through BPP, the EAPF invests in water company bonds managed by Royal London Asset Management (RLAM). RLAM told Room151 that it engages directly with companies in the portfolio on issues such as droughts, flooding, flood infrastructure and biodiversity.

    EAPF investments in water companies, through RLAM, are worth £37m, which represents 0.8% of the £4.5bn value of the fund’s total assets as of March 2022.

    A spokesperson for BPP added: “Pension pools have been regularly asked by the UK government to invest in UK infrastructure to improve sustainability performance – that capital is crucial to enabling companies to improve. Inevitably, UK infrastructure has strong connections to local government, and therefore to Brunel’s clients.”

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  • Welsh pension fund confirms £50m investment in clean energy

    Clywd Pension Fund has confirmed that it has appointed Capital Dynamics to manage a £50m investment in clean energy infrastructure in Wales.

    The partnership between Clywd and Capital Dynamics’ Clean Energy platform will be structured as a Separately Managed Account and will deliver green energy under the Welsh Government’s National Development Framework.

    ‘This new venture with a long-term trusted partner enables the fund to make a positive social and environmental impact in Wales which will benefit our members and employers, whilst still achieving an appropriate investment return,” said Philip Latham, head of Clywd Pension Fund.

    Writing on LinkedIn, Debbie Fielder, deputy head of Clywd Pension fund, added: “Great to finally get it over the line and start investing in Wales.”

    Administered by Flintshire County Council, Clywd Pension Fund has assets under management approaching £2.5bn, with 50,000 members and more than 50 participating employers in North East Wales.

    “We are delighted to support Clywd Pension Fund on their mission to facilitate locally-owned clean energy infrastructure and support Wales’ drive towards net zero,” said Barney Coles, co-head of Capital Dynamics Clean Energy.

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  • Inflation ‘disastrous’ for local services, warns LGA

    Soaring inflation, rising energy prices and National Living Wage (NLW) pressures are putting council services at risk, the Local Government Association (LGA) has claimed.

    Responding to a report from the Institute for Fiscal Studies (IFS) examining the inflation squeeze on public services, the LGA said that local government budgets were having to be reset with potential cuts to essential services.

    “Inflation is not going to come down overnight. The impact on our local services could be disastrous. This will stifle our economic recovery, entrench disadvantage, and undermine government ambitions to level up the country,” said James Jamieson, LGA chairman.

    The LGA estimated that inflation, energy costs and projected increases to the NLW will add £2.4bn in extra cost pressures onto council budgets this year, rising to £3.6bn in 2024/25.

    Jamieson called for “adequate long-term funding” and the “right powers” for councils.

    The IFS report warned that inflation was rapidly eroding the real-terms growth rate in day-today public service funding. If the government chose not to compensate departments, it would “heighten the considerable pressures on public services” as the winter approaches.

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  • Consultation opens into care charging reforms

    The government has opened a consultation into the social care charging reforms that are due to be implemented from October 2023.

    The consultation seeks views on the government’s proposals, including plans for an £86,000 cap on care costs and an extension of the means test whereby the upper capital limit will increase to £100,000 and the lower capital limit to £20,000.

    Excluded from the scope of the consultation are the “Fair Cost of Care” proposals, which aim to address a systemic problem that has seen people who fund their own care having to pay more than councils do for those who are eligible for public funding.

    Responses can be made to the consultation until 23 September. The government said that it would then review the responses and would confirm its approach by the 2023-2024 local government settlement at the latest.

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  • ADASS survey: ‘worst fears confirmed for adult social care’

    Six hundred people a day are joining growing waiting lists to be assessed for care and support in England, according to a survey from the Association of Directors of Adult Social Services (ADASS).

    The survey shows that almost 300,000 people are now waiting for an assessment of their needs by social workers, an increase of 90,000 (44%) in five months. One in four has been waiting longer than six months.

    ADASS said that, at this rate of increase, the number waiting will reach 400,000 by November – double the figure in November 2021.

    Sarah McClinton, ADASS president, said that people in need of support were being left in “uncertainty, dependency and pain”, with a rapid deterioration in the situation. “These new findings confirm our worst fears for adult social care,” she said.

    ADASS chief executive, Cathie Williams, added: “Contrary to claims, social care is not being fixed and we need decisive action and funding now to get us through the months ahead and to start to build the foundations of the reformed system that we all want to see.”

    In total, 542,000 people were awaiting assessment, review or the start of a service or direct payment – an increase of 37% on the figure in November 2021.

    The results are based on responses from ADASS members in 83 councils across England.

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  • GMCA to unlock funds for home energy-efficiency upgrades

    The Greater Manchester Combined Authority (GMCA) has announced a new partnership with the Green Finance Institute (GFI) to unlock funding for energy-efficiency improvements for thousands of homes in the city region.

    According to the GFI, many property owners struggle to undertake energy-efficiency upgrades due to the lack of finance available to fund improvements.

    The partnership will aim to overcome the finance barriers homeowners face by allowing them access to new, attractive sources of private and blended finance to fund energy-efficiency upgrades to their properties. It aims to invest “millions of pounds” to help cut energy bills for up to 60,000 homes.

    Cllr Martyn Cox, GMCA’s lead for green city region and waste, said: “It’s crucial that as we become greener, we become fairer, so people are not left behind. That means making sure people are less reliant on carbon-intensive energy at home, whilst reducing their energy bills.”

    The partnership will provide access to new funds for energy-efficiency upgrades through local climate bonds, green mortgages, demand aggregation financing, green rental agreements and a new property-linked finance scheme.

    Through this partnership, the GFI will work with financial institutions, retrofit specialists and local organisations to pilot a series of funding solutions designed to provide a blueprint for other councils across the UK to follow.

    Emma Harvey, GFI’s built environment programme director, said: “Local authorities have a deep understanding of their residents’ needs and increasingly recognise the opportunities to work with the private finance sector to deliver access to finance for their citizens.”

    The partnership builds on the GFI’s work with the Greater London Authority and is part of the GMCA’s Retrofit GM strategy, which tackles the building retrofit challenge through innovative finance solutions.

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  • Levelling up committee calls for urgent boost to social care funding

    A report by the Levelling Up, Housing and Communities Committee (LUHC) has said that additional funding is urgently required to finance adult social care and called for a multi-year settlement for councils.

    The report found that adult social care is currently under severe cost pressures from the increase of the National Living Wage, National Minimum Wage and rising inflation.

    It also highlighted that additional pressures from Covid-19 exacerbated the underlying structural challenges of rising demand, unmet needs and difficulties in recruiting and retaining staff in the sector.

    The report said: “The message rang clear throughout our inquiry: the adult social care sector does not have enough funding either in the here and now, or in the longer-term.

    “The government must provide a multi-year funding settlement to give local authorities the visibility they need both of their own sustainability and also to help shape sustainable local care markets.”

    The report noted that the majority of the Social Care Levy, which was introduced to raise additional funds, will go to the NHS and the money that is going to adult social care is for reforms, not cost pressures.

    Clive Betts, LUHC Chair, said: “Wherever the money comes from – from allocating a higher proportion of levy proceeds to social care, or from central government grants—the government urgently needs to allocate more funding to adult social care in the order of several billions each year.”

    The report also highlighted the lack of a clear roadmap to implement the government’s long-term reform of adult social care, which was outlined in its White Paper.

    Eleanor Roy, CIPFA health and social care policy manager, said: “Providing clarity on how these reforms are to be achieved and the better alignment of policy across central government departments would help local government navigate this complex landscape, which has many competing priorities.

    “Without such a plan and adequate funding, the vision for reform will not be realised.”

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  • Oxfordshire councils abandon housing plan

    Five councils in Oxfordshire have abandoned a housing plan that could have seen thousands of homes constructed in the county.

    The councils – Oxford City and Cherwell, Vale of White Horse, South Oxfordshire and West Oxfordshire district councils – said it was “with regret” that they were unable to reach agreement on the “approach to planning for future housing needs”. It is understood that the disagreement was over where and how many houses should be built.

    Funding of £215m had been earmarked within the Oxfordshire Housing and Growth Deal for the development of the Oxfordshire Plan 2050, which was first announced in 2017. The original deal targeted the construction of 100,000 homes by 2031.

    In a joint statement, the authorities said: “The Oxfordshire Plan 2050 work programme will end and we will now transition to a process focused on local plans. The issues of housing needs will now be addressed through individual local plans for each of the city and districts.

    “The councils will cooperate with each other and with other key bodies as they prepare their local plans.”

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  • GLIL and Octopus invest £400m in world’s largest offshore wind farm

    GLIL Infrastructure and Octopus Energy Generation have established a joint venture to invest £400m in acquiring a 12.5% stake in Hornsea One, the world’s largest operational offshore wind farm.

    GLIL and Octopus are each investing £200m in the venture, with Octopus confirming that the deal has been signed and completion is scheduled for October 2022.

    Hornsea One, located off the Yorkshire coast, has 174 wind turbines and can generate enough energy to power more than one million homes. It is run by Danish energy company Ørsted, which retains a 50% stake.

    This is the first offshore wind investment by GLIL, which invests in infrastructure projects and is supported by a number of UK Local Government Pension Scheme funds, including Greater Manchester, Merseyside, West Yorkshire and Lancashire.

    Daniel Hobson, GLIL Infrastructure investment director and Greater Manchester Pension Fund head of real assets, said: “Offshore wind capacity plays a major role in the generation of renewable energy, so the potential of what is being developed here is vast.

    “Our investment will not only support the UK’s energy transition and net-zero ambitions, and continue our track record in the renewable energy sector, it will also generate sustainable, long-term returns for millions of pension fund members.”

    Octopus Energy Generation is a major investor in renewable energy assets in Europe and manages over £4.2bn of assets, including wind and solar farms. The Octopus investment is on behalf of Nest, the UK government-established workplace pension provider.

    Alex Brierley, co-head of Octopus Energy Generation’s fund management team, said: “This latest deal is testament to the huge demand we’re seeing from institutional investors to invest in renewable energy, helping pension savers’ money make a truly positive impact on people and the planet.”

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