Treasurers issue loans to boost local economies

Councils across the UK are rising to the challenge of promoting growth in their regions with investment and loans.

The LGA recently stressed that councils should use reserves to fund development. If reserves are used to cover cutbacks they will run out within five years, according to the LGA’s calculations.

Three councils, Northamptonshire, Staffordshire and Bristol were cited for their work in growth promotion and Northamptonshire has now won a government award in part for its financial backing of the Silverstone Race Circuit.

The Department for Business Innovation and Skills has named Northamptonshire County Council the ‘most enterprising in Britain’ for its investment in Silverstone and also for its Brussels office.

The council loaned the motor racing group £10m in 2010 to help it update its facilities. It made a further £1.5m loan to help fund the Silverstone Masterplan which will include a technology park, business park, three hotels and an education campus.

The race circuit had been on the brink of closure due to financial difficulties. “If we lost Silverstone the impact on the local economy and jobs would have been a massive blow to the local economy,” explained Northamptonshire County Council’s director for environment, development and transport Tony Ciaburro. “Locally we employ 21,000 people involved in Silverstone and supporting activities. It contributes £2bn to the local economy. As we saw that potentially going down the pan we felt it was incumbent on us to step in as nobody else seemed prepared to.”

The two loans of totalling £11.5m came from treasury reserves. The £10m loan has a variable interest rate of 12 month Libor +2% reset every quarter and is being repaid in installments by December 2014. The smaller loan is part of a joint venture with the Silverstone Masterplan. It is tied to the net profits of Silverstone Estates so that when the profit threshold of two times the investment is reached, a minimum payment of 10% of the investment is repaid, plus the investment return which is 5% of the net profit above the threshold. Interest of base+1% compounded annually is also payable. The funding agreement remains in force until March 31, 2020.

“We did it in a way where we understood the risks and overwhelmingly mitigated most of them,” added Ciaburro.

Staffordshire County Council also used its reserves to invest in a local business park, the i54 South Staffordshire. Technology company Moog moved onto the site last month to join Eurofins Scientific. Jaguar is investing £355m for its site which will create 750 jobs.

“The site was owned by the regional development agency, which made us aware that there had been initial interest from Jaguar Land Rover in Spring 2011,” said council spokesman Christian Marcucci. “Together with Wolverhampton City Council, the county council needed to act decisively and make a decision to invest in the site. Jaguar Land Rover announced its decision to locate its new engine plant at i54 South Staffordshire in September 2011.”

The construction on a dedicated motorway junction for the site on to the M54 begins this month and will be the biggest highways construction project the county council has carried out and a unique scheme for a highways authority, which does not usually invest in motorway related projects.

Bristol has around £63m earmarked to spend on a number of local projects which in total are worth near £370m. They include schools building, a rapid bus transport scheme and broadband investment. A spokesman for the council said that the Bristol’s reserve levels were typical of a large city. “They’re determined on our priorities for spend,” he added. “Our capital programme takes a number of years to deliver. We have set aside income from land and property sales, together with government grants, to fund these schemes.”