Simon Parker: bonds, property & Enterprise Zones

Simon Parker is director of New Local Government Network. He started his career in journalism and has since worked in management consultancy, lobbying and research, most recently as a fellow at the Institute for Government. He is working on NLGN’s ongoing ‘Commission on Next Localism’, a forum for those interested determining how local government can emerge from this period of cuts and austerity with an improved and more effective model for the sector.

Room 151: Can you explain the concept of local government raising money by moving from wholesale to retail service provision?

Simon Parker: Across the whole range of service areas we’re seeing this move from wholesale service provision to what you might call retail provision. In areas like adult social care you’re seeing personal budgets. In the past the council would plan and provide, now citizens are able to shop around. At the heart of it is the government who would like to push more choices down to the level of the individual.

What is interesting is councils are looking for models that will allow them to make money from their services. There is a sense that we have very strongly of councils getting more commercial in their approach to the world.

We have called for means testing because what the evidence seems to suggest is that the public recognises that they can pay a bit more to support services they care about. Could you relate say the cost of parking permits to council tax bands to create a system of charging? Councils would be delivering new services or indeed investing in new infrastructure to deliver a commercial return.

Room 151: Some councils are investing for return aren’t they?

SP: Yes, an obvious one is green infrastructure – if you go up to the North East you see that they’re really interested in kick-starting the wind industry up there. In a more traditional example than that you have Newcastle investing in an absolutely massive crane in the Port of Tyne which has unlocked a whole lot of new business there.

With these kind of investments which link in to business rate retention as well which gives you a return in itself, you’re entering a place where it will make a lot more sense to councils to raise money for investment in the economy and in things that will deliver them some kind of financial benefit as well as social benefit to local people. That notion of commercial means to social ends is a very important one for us in the new year.

Room 151: Are municipal bonds a real solution for a real number of councils?

SP: We think they probably are. We’ll have to wait and see exactly what emerges but with PWLB borrowing getting more expensive there is a case for saying that the bond market could deliver a better value solution.

Room 151: And the LGA pooled bond vehicle?

SP: If you’re moving as the LGA seems to be toward a local government finance function at a national level which would on-lend to local authorities it seems to me that it is realistic and lots of councils are looking at it.

That’s not to say that there won’t be lots of bugs to iron out but it seems to us that this is probably a goer in some form.

We talked a lot to the people doing it in Sweden and it seems like a sensible sort of solution. It’s a complex area though and it would be amazing if there weren’t legal headaches in setting up something like this, but it is clearly do-able because other places do it.

Room 151: What have you been hearing about councils making best use of their property assets?

SP: Property is a huge issue. The Total Place pilot reckoned there was about £20 billion to be saved over ten years from effective property rationalisation. The idea was that you pool lots of public sector money into one place and you would be able to redesign it around the needs of the local area.

You have got lots of property that’s not being used as smartly as it could be so there is a big case for saying let’s do property rationalisation.

You’d have to get every bit of the public sector to do that in concert to make it work and that’s not easy, especially at the moment because people are hunkering down a bit. Local government can rationalise property but there are bigger savings to be made if you’re looking at local government and health, and criminal justice. So, can we co-locate some of those things, have we got properties where we can move people into the same building?

In some cases it might be better to build a new office and sell off the old stuff. So there are savings across the whole public sector, but getting people to get together and plan that is harder than it sounds and harder than it ought to be.

Total Place was 2009-10 and the economy was a different place back then, property is a different place so you sell stuff, rent it out, you might not get the return you would have done previously but it still makes a lot of sense particularly because lots of public sector organisations will have fewer staff so rationalising property seems like an obvious win.

It also may not just be about selling property – you might say you have this property and are not going to get the best price for it so you can use it to try and drive up business start-ups and if you get those you ought to see some sort of return with business rates in the medium term.

Room 151: Do you think Enterprise Zones will work?

SP: The jury is out. In principal it is hard to object to them but the question is how big an impact will they really have? I find it hard to see any reason why you wouldn’t want to do it and you have towns wanting to do their own DIY version but there is a question over whether it is transformational to the local economy.

What is interesting about the model is a number of councils are supporting a single site together and then they will all benefit. I think that has to be the way of the future, not everyone is going to get to build the business park they want, you need to concentrate that capital in places where it is going to give you the best return. If everyone can benefit from doing that that seems very sensible.

Room 151: What is the main challenge facing local government finance heads in the year ahead?

SP: We can talk about that in two terms, there’s the acute challenge and the chronic challenge, which are short term and longer term. The acute one is clearly the cuts: they’re smaller next year but they’re not that much smaller and the easy stuff is gone, so if you look at things like planning, they were huge cuts, something like a third or a half of the planning budget is gone. You can’t do that again so the low-hanging fruit has been picked and planning directors are going to have to work with people in the council to find a much more either transformative solution or simply cutting back and starting to bite more into frontline services.

I know we talk about transformation a lot but because the cuts have been so front-loaded a lot of councils won’t have had the time to do the transformation work so I suspect we are going to see a lot of tightening of services, lots of reductions, more charging, and then probably we start swinging into more transformative territory in the last two years of spending review. So partly, laying the groundwork for that is a challenge to the finance professional.

So the short term one is dealing with the short term effects of the cuts and starting to swing the council into transformation mode.

In the longer run it really speaks to the capital work. The role of the finance director is going to change. We have looked to finance directors essentially to be the guys around the table who say yes or no to things. Their job is to look after the pennies and make sure the budget balances over the year. But we are going to have to move them into a different space. That’s partly about the risk associated with things like bonds and about them developing very sophisticated risk management techniques and it’s moving away from being the person who says yes or no to being the person who says ‘ok, we could do that if we do these other things.’ It’s interesting talking to the banks and they tell us that the stuff that they talk about to do with treasury and capital, that stays in the finance team, it’s not being talked about around the top table, it’s not a big issue for chief execs. I think that will have to change, the job of the finance director is going to be being the strategic adviser on how the council manages a portfolio of different financing mechanisms, of risk, it’s going to become a much more creative and strategic role. I think that will require some very new skills from some people in the sector because it’s not what they’ve had to do in the last decade and probably not for the last generation or so. It should be exciting for them because it raises the profile of that role. Those guys are not just the finance people, they’re the business partners, it puts them in a position to drive the future of local government in an even more powerful way than they already are.