Panel discussion: Should councils spend taxpayers' money on commercial property and investments?

The TaxPayers’ Alliance hosted a panel discussion on local authorities’ spending on commercial property and investments on Tuesday 26th. The discussion, and subsequent Q&A, was wide ranging, and included the councillors’ experience of commercial property and other investments, the moral hazard for taxpayers that this may create, and the distortionary effects that such investments may have.

A video of the discussion and summary of each panellist’s points are provided below.

• Harry Fone – TaxPayers’ Alliance, Grassroots Campaign Manager (Chair)
• Ben Bradley – Member of Parliament for Mansfield
• Cllr Ferris Cowper – East Hampshire District Council
• Cllr Gerald Vernon-Jackson – Leader of Portsmouth City Council
• Alex Wild – Director at PublicFirst

Alex Wild:

• Local authorities have seen a substantial reduction in central government grants in recent years. Investment income can help to ameliorate some of this and keep tax low.
• There are five key risks with local authorities’ spending on commercial property and investments:
  1. There is a variation in the quality of councils. There will be a mix between local authorities with staff and councillors who have good commercial experience, and many who don’t.
  2. Commercial property can mean too many eggs going into one basket, and a very high risk profile on a local authority’s balance sheet.
  3. The Public Works Loan Board is being used to finance projects far removed from its original intention, such as sanitation.
  4. Creation of moral hazard. Local authorities can borrow at very low central government rates, but national taxpayers will suffer if investment decisions go awry.
  5. Such investments can also demonstrate anti-competitive behaviour. Councils can borrow at sovereign rates, whereas others must borrow at commercial ones.
• Local authorities’ financing should move more towards devolution of tax powers.
• Council tax is a blunt instrument that seems to have run its course.

Gerald Vernon-Jackson:

• Councils exist to provide residents with the services that they need and want.
• Providing children’s social services is incredibly costly: a place in a children’s home is about £2,000 per child per week.
  
  
• There are five ways to balance the books:
  1. Central government money. It is unrealistic to expect more of this in the near future. The cut this year will be £5.3 million to Portsmouth.
  2. Cut services. 50 per cent of spending is on social services, which means cuts are pushed down on to stuff which people like, such as libraries, theatres and parks.
  3. Raise taxes.
  4. Be more efficient.
  5. Increase income coming in. Councils such as Westminster have an easier job (such as through parking charges), compared to many other councils.
     
     
• Savings for next financial year at Portsmouth council were met almost exclusively through efficiencies and extra income (93 per cent). It also has the lowest council tax of any unitary authority in the South of England.
• We have a duty to taxpayers to keep council tax as low as possible, but also to protect services. Income is therefore hugely important in Portsmouth.
• Portsmouth has built a profitable ferry port and has long-term investments in commercial property, including owning the tax office.
• Local authorities behave differently to central government. Hampshire’s pension fund has £2.5 billion invested, rather than out of current taxation.
• The subsidy over the last nine years from central government has declined by £102 million. This has meant investing in properties across the UK, including £15 million in Portsmouth’s port, a Waitrose in Somerset, a Matalan in Swindon and a DHL distribution centre in Birmingham.
• The preference, however, should be for purchases to be made in Portsmouth.
• Investments in energy companies are risky, with 8 of them going bust in the last year.
• If councils are to provide the services that are needed, they need to rely less on London and invest sensibly as another source of income.

Ben Bradley:

• The public sector across the board is very good at asking for money, but this often isn’t matched with accountability.
• £64 million has been spent by Mansfield district council in areas outside of the district. This presents a political and economic problem, such as by closing a leisure centre in Mansfield, but also borrowing to buy one in Manchester.
• The £64 million could have been a game-changer in Mansfield. Yet the council is now instead bidding for £10 million of central government funding as part of the Future High Street Fund.
• An environment needs to be created which encourages the private sector to invest. By councils investing outside of their area, it does not create an incentive for private companies to then invest in the area of the council.
• Some local authorities do have the skills to manage investment and raise financing for them, yet many don’t. Assessing what is best practice is a challenge for those in local authorities lacking outside knowledge.
  
  
• There are several ways to increase income locally:
  1. House building, especially non-band A houses.
  2. Create a unitary authority, potentially saving £27 million a year.
  3. Business rates retention devolution.

Ferris Cowper:

• There is a conundrum with local government financing: the central government grant is declining, yet demand is rising. Carrying on as we are shows a complete lack of reality.
• All public sector funding in the UK needs fundamental reform.
• Experience at Mars shows that being told councils can’t innovate is wrong. What matters is the mind set of those in councils.
• Whitehall and Borden, a £1 billion regeneration project, is being led by East Hampshire district council. They were chosen by the county, government and developers to lead on the project.
• East Hampshire has the 2^nd best council tax record in the UK of any local authority over a 20 year time frame, with a 30 per cent decline in real terms with no front line service cut.
• In 2019-20, two thirds of revenue will be from income streams, and the rest from council tax and government. 20 years ago, 80 per cent was revenue was from tax and government, and 20 per cent income streams.
• This has been achieved by investments in property (12 per cent) and also selling services to other councils (19 per cent)
• Regenco sells regeneration advice services to councils across the UK and is on the list of MoD approved contractors.
• Bad examples should not be an excuse for doing nothing, because some do it well. Examples of success should be replicated, rather than the usual approach of local government to reduce down to the lowest common denominator.