Q&A with Nigel Kennedy

Oxford City Council head of finance and section 151 officer talks about his council’s investment in low carbon development, ethical investment and why it is not creating standalone companies to deliver services.

Room151: Your investment in a low carbon hub got some publicity recently – what is it?

Nigel Kennedy: The council is looking to work with a not for profit social enterprise, Low Carbon Hub (IPS)  which facilitates the provision of renewable energy schemes in the community in Oxford and the surrounding area with the overall aim of reducing carbon emissions. The council has been working for a while with them on a number of renewable schemes funded from European grants. Over a number of years they have facilitated a variety of solar panel and hydro schemes financed via a share issue mechanism. The share issue pays for the scheme, the host business benefits from lower utility costs, the hub benefits from the feed-in tariffs from which the shareholders are repaid their original amount plus a dividend leaving the balance to be re-invested to further community benefit. In addition all parties have the knowledge that they are doing their bit to reduce the nation’s carbon emissions.

With the current scheme the council is providing a loan facility of up to £2.3 million to the Low Carbon Hub to be drawn down over the next six months for the installation of solar panels to schools and businesses in Oxfordshire.

R151: What interest will you get?

NK: The council’s rate of return will be 5% from the date the money is drawn down to the date the funds are repaid to the council. At the end of six months, when all PV panels will have been installed, the share offer will take place which will raise the money required to repay the loan. Not all the money will be drawn down immediately so we won’t get 5% of the full £2.3m for the full six months – we estimate our return will be approximately £33,000. The loan has the potential to be being run on a revolving basis, so we could fund future iterations of the scheme if both parties are agreeable.

R151: What are the risks involved?

NK: The main risk to the council is if the share offer does not secure the amount of money to enable Low Carbon Hub to repay the loan. In that event the agreement will allow for a three month ‘period of grace’ to give the Low Carbon Hub the opportunity to raise alternative funds. If repayment is still not made the agreement allows for the creation of a floating charge over the Hub’s assets, assignment rights over the assets and the contracts, and step-in rights to intervene in the business to ensure the appropriate steps are taken to secure the project as a going concern.

R151: Your council has also been in the news because some councillors are interested in introducing an ethical investment policy. Where do you stand with that?

NK: We are working on that at the moment. Members have requested officers to look into establishing an ethical investment policy and have requested work be done to progress this further. As yet we haven’t agreed a policy and are currently reviewing the options.  As a council we do not knowingly make direct investments with unethical counterparties, however members have requested we formalise this approach with the aim of including a statement within the Treasury Management Strategy. It’s a tricky subject, on the one hand as the council’s section 151 officer I have a fiduciary responsibility to not only ensure the safe return of the council’s investment in any counterparty but also to ensure an adequate rate of return. An ethical investment policy could significantly affect the rate of return.

R151: What are the biggest financial issues facing your council?

NK:

• Uncertainty over the level of revenue support grant
• Uncertainty over universal credit
• Volatility over business rates
• Falling income levels and ongoing effect of interest rate changes
• Increased demand for public services from an ageing population
• Dealing with the implication of cost reductions from Oxfordshire County Council

R151: Do you see yourself creating any standalone trading companies?

NK: We don’t see the need at the moment. We undertake work for a number of public sector bodies using our powers under the 1970 Local Authorities (Goods and Services) Act for instance building repairs, highways maintenance and vehicle maintenance. We do not see the need to set up a stand-alone company yet.

R151: What is your view on outsourcing services to private firms?

NK: At the moment we provide most services in house. We have soft market tested some services such as refuse collection in the past and we benchmark our services with outside organisations such as for building repairs.  Our customer satisfaction levels are high and we win work in open competition so we must be doing something right.

R151: What is your position on the proposed local government bonds agency?

NK: It is not something we have looked at in detail yet.  We are not in the market for external borrowing and bonds may be too long an investment for us.

R151: Tell us about your property investments…

NK: We invested £3m into the CCLA property fund during 2013/14.   The fund is growing and at the last count they were saying there were around 60 authorities invested in the fund with a total value of around £200 million. We are looking to put more into indirect property investments. If you look at the return on those funds then it can get up to 8-9% which helps us make our money work a bit harder. The council is however aware of the potential risks which it will mitigate by providing revenue cover from reserves.