Local authorities should be local impact investors; it’s a smarter alternative to status quo, argue Power to Change and Social Finance

Power to Change and Social Finance are calling on local authorities to rethink the way they make investments in pursuit of income for local services.  In a paper published today, the independent trust supporting community businesses and not-for-profit organisation highlight how councils can invest in the community in a way that delivers economic, social and environmental benefits for council taxpayers, at the same time as delivering a financial return for councils.  They highlight enlightened local authorities already pursuing this strategy and call on more to use their balance sheets and access to flexible, long-term finance from the Public Works Loan Board to better benefit the communities they serve.

The paper, Investing in Localism, outlines how, increasingly, local authorities invest commercially for the benefit of remote shareholders outside of the local area and use the returns to fund local economic development, welfare and public services. It notes that in response to austerity, local government has developed sophisticated asset management strategies and is creating investment funds to generate income for core services. Where these investments are locally based, the paper reasons, there may be strong arguments that they provide valuable capital to drive local economic growth. However, many are simply freehold or leasehold investments that do not generate new economic activity. The sole purpose is to generate valuable income to fund local services.

This is where the problem lies, according to the authors, as unlike the private sector, local authorities are public bodies with a diverse set of statutory and policy responsibilities that should naturally lead them towards mixed-motive and socially-motived investment activity. As local government financing moves to greater retention of local business rates, councils will have a much stronger incentive to grow a sustainable tax base by attracting new businesses or supporting existing business to grow. Many councils are already pursuing this strategy, with the more enlightened and capable co-creating new community businesses through investments that can provide a financial return, generate additional business rates, and deliver a social or community benefit, instead of annual revenue expenditure.

Last year Lawrence D. Fink, the founder of Blackrock, called on companies to align their pursuit of financial return with social purpose. We call on local authorities to do the same and become local impact investors. A thriving community business sector can enable cash-strapped councils to continue to meet their objectives.

Vidhya Alakeson

CEO Power to Change

Cllr, Patrick Edwards, Chair of Economic Scrutiny Committee, London Borough of Waltham Forest endorsed the call: “Councils already invest to generate income to fund services. If the sector can develop the right skills and an entrepreneurial mindset there’s no reason why we can’t become successful impact investors too. We are best placed to understand community needs, can access capital affordably and have a stake in the local economy. That puts us in a great place to generate a social and financial return for council tax payers.”

The paper looks at examples of councils investing in community businesses to help provide public goods, supported and social housing, green energy, community spaces and leisure facilities. In particular Housing Gate Way and Enfield Council, and Goodwin Development Trust and Hull City Council are shown to strike an impressive balance between profit and purpose.

Robert Pollock, Director of Social Finance adds: “In straitened times shouldn’t we expect more authorities to use their balance sheets, borrowing powers and expertise to invest in services run for and owned by local communities; and to help to grow more inclusive local economies? Councils have the opportunity to become social investors that can achieve significant value for local taxpayers, and impact for their communities.”

Forward thinking councils can work with and enable communities to become more self-sufficient, self-fulfilled, and overall better places to work and live.

Robert Pollock

Director of Social Finance

Power to Change and Social Finance say the paper provides positive evidence that councils can, and have, successfully invested in community business, and call on other innovative local authorities to adopt these best practices.

To download a copy of the paper visit: https://www.powertochange.org.uk/wp-content/uploads/2018/05/Localism-Working-Paper.pdf

 

 

ENDS

For more information please contact:

Lisa Mangan on 07951 602 846 or email lisam@powertochange.org.uk

NOTES TO EDITORS

  • About Power to Change: Power to Change is an independent trust, whose funding is used to strengthen community businesses across England. At a time when many parts of the UK face cuts, neglect and social problems, we are helping local people come together to take control, and make sure their local areas survive and stay vibrant. Follow Power to Change on Twitter at @peoplesbiz and visit thepowertochange.org.uk for the latest community business news.

 

  • About Social Finance: Social Finance is a not for profit organisation that partners with the government, the social sector and the financial community to find better ways of tackling social problems in the UK and beyond. Since it started in 2007, Social Finance has mobilised over £100 million of investment and designed a series of programmes to tackle social challenges. These include support for 2,000 short sentence offenders released from Peterborough Prison, 380 children on the edge of care in Essex, 4,500 young people at risk of becoming NEET, 3,000 isolated older people, 2,500 people with severe mental health issues, and 1,400 homeless youth and rough sleepers.