A post-Brexit slow down could hit council revenues and EIB funding, according to Moody’s
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Photo: European Parliament
Local authorities could face resource pressures following a vote to leave the European Union (EU), but the effect could be partly offset by reduced demand on services, according to Moody’s.
The ratings agency added that funding from the European Investment Bank, a recent focus for UK local authorities as an alternative source of borrowing, could also be threatened.
A detailed report by Moody’s into the effect of “Brexit” on the public sector released this week found that councils and housing associations would be hurt less than universities.
However, it said that councils could find themselves with less money due to slower economic growth caused by a decision to leave.
The report said: “Local authorities receive significant central government funding.
“Slower economic growth post-Brexit would weigh on the public finances, putting further pressure on these transfers.
“Slower economic growth would also weigh on local authorities’ own-source revenues, such as business rates and council taxes.
“These are set to become a more important revenue source thanks to recent changes that allow local authorities to retain a larger share of business rates income.”
Councils would also face the loss of EU investment funding for development projects – particularly in poorer areas which currently receive structural funding.
However, the report added: “Pressure on local authority revenues in the event of Brexit may be partly offset by reduced demand for services as immigration slows.”
In addition, funding from the European Investment Bank – which totalled €58.2bn across the public sector in 2014/15 – could dry up, Moody’s said.
Photo: EIB
“While we would not expect agreed funding (including funding agreed but not yet dispersed) to be removed, the future of these funding sources would be uncertain following a vote to exit.
“We expect, however, that at least some of the funding loss would be compensated by the UK government or alternative sources,” said the report.
Housing associations could face a slight hit if slower economic growth resulted in higher unemployment and rent arrears.
Associations relying on a large proportion of market sales could be hit by falling house prices caused by reduced demand from immigrants, according to the report.
However, it said that “the current excess of demand over supply, especially in the London area, would continue to underpin house prices in the UK”.
The Moody’s report also said that Transport for London (TfL) could be hit by reduced immigration from the EU if the UK votes for Brexit.
It said: “TfL expects passenger journeys to continue rising robustly over the next five years, albeit at a slightly slower pace than the previous five. If population growth were to be slower than anticipated, this would negatively affect ridership growth and farebox revenues.”
Jennifer Wong, vice president and senior analyst at Moody’s, said: “If the UK were to exit the EU, public sector entities in the UK could be affected through lower EU funding or lower central government spending transfers.
“At the same time, revenues could face pressure from lower economic growth and any immigration curbs. All public sector entities are vulnerable, but to varying degrees.”
Last week, a report from the Chartered Institute of Public Finance and Accountancy said that “too many” voters think EU membership makes no difference to public services “despite clear evidence to the contrary”.
A survey by polling firm ComRes for CIPFA, showed that a high proportion of people think that membership of the EU makes no difference to health and social care (46%), the quality of higher education (60%), consumer protection (44%) and regional economic development (40%).
However, concerns about Brexit were much more widespread among interviews with public sector leaders.
CIPFA chief executive Rob Whiteman, said: “Jobs, healthcare, defence and all the issues we care about rely on public services that are deeply interlinked with EU membership. This message has not got through strongly enough.
“What is abundantly clear, is that decoupling the British state from the EU will cause tremendous upheaval for public services for many years.”
