Core cash investments in local projects on the rise

A combination of low returns from the money markets and the desire to encourage local regeneration is seeing some councils change the way they invest their long-term cash.

Local authorities are increasingly classifying a proportion of their general reserve as ‘core cash’ and investing it for the longer term. And, in line with current thinking, authorities are often using cash to help their economies by investing in infrastrucuture and services.

Shopping centre investment seems to be a particular trend in the South, with Basingstoke and Deane, Woking and Guildford all buying into local centres or looking at the possibility.

Basingstoke and Deane finance head Kevin Jacquest says that the council previously owned two-thirds of a town centre shopping centre but bought the rest of it a couple of years ago. “It is true that shopping centres appear to be a bit of a thing around here,” he says. “We moved out of cash into property and that enabled us to regenerate our town-centre shopping site.”

Guildford Borough Council has increased its authorised limit for 2013-14 by £75m to reflect the possibility of spend on regeneration. “We don’t have anything approved at the moment,” says senior accountant Victoria Worsfeld, “But this means we have the flexibility for future schemes without needing to increase our authorised limit at full council.”

Guildford also has core cash in a number of funds. Investec Target Return and the CCLA Property fund are viewed as longer term investments and the council has £5m in each.

Going forward Basingstoke’s Jaquest is looking at equity and corporate bond funds as he believes he could be getting a better return on the £61m he currently has in gilts. He also has core money with the International Bank for Reconstruction and Development and £20m in fixed deposits for over a year with other local authorities. “Some authorities are in the market for durations up to 2016 so we have done a little bit in those,” says Jaquest. “That’s more in our medium term cash and we have reasonable rates there, we did them a while ago.”

Glenn Hammons is chief finance officer for East Northamptonshire. “We certainly have a core cash policy and that is very much how we run our treasury strategy,” he says. The county council’s loan to the Silverstone racing circuit was made as a local regeneration play. “We used the council’s surplus core cash for that because we knew we didn’t need it for a number of years.”

The loan, which was treated as an investment, gave an above market return to the council, and was carefully organised so as not to take too much risk with public money. “Shares were signed over to the council so that it would have an asset which it could sell at any point,” Hammons explains. “And a lot of work went into the legal side.”

Similarly to Basingstoke, which has now invested in a number of regeneration projects including a doctor’s surgery, Northamptonshire now has a small collection. “We try to promote and forward-fund infrastructure within the county,” says Hammons. “We’ve invested in a new railway station and are looking to open up development to either raise additional business rates or build new houses which will see New Homes Bonus coming through.”