Robbie Blackhurst 18 September 2018

Investing to earn strategy

It’s no revelation that local authorities are under financial pressure, with mounting cuts for councils across the country and uncertainty surrounding central government as Brexit approaches.

Last month, the Local Government Association (LGA) claimed central funding for local councils will fall by a huge 77% by 2020. By then, the local authority funding gap could reach £5.8bn.

As austerity lingers, so does the threat to our social care services, schools and leisure facilities, not to mention the upkeep of our roads and parks. With such a significant drop in funding on the horizon, councils must be smarter about the way they generate income, not only for maintaining and improving public services, but also as a way of funding development and regeneration too. Councils must think commercially

It’s not just about filling gaps in funding though; local authorities should actively be seeking opportunities to make profit, in order to ensure services are protected for the long term. Local authorities must be more commercially-minded if they are to survive budget cuts.

Local authorities should explore monetising public buildings wherever possible. This could include the use of unused rooms or areas in schools and libraries for paid-for event and meeting spaces. The private sector has the opportunity to support this income generation by considering commercial variability in the design and build of new schools and other public amenities.

Leisure centres and libraries are facing closure but public-sector buildings like these have the potential to generate additional income for local authorities. Leisure centres that also focus on wellbeing, boasting things such as spa facilities and fitness classes, are picking up customers from private gyms, increasing income for their operating councils. Local authorities must view the public as consumers too.

Investing to earn

As well as investing in improving public buildings to increase footfall and ultimately profit, local authorities are increasingly looking to private investment to generate income, with a focus on long term ROI.

Liverpool City Council is one local authority that has placed great emphasis on investment in the private sector, identifying opportunities for generating income through its Invest to Earn strategy since 2012.

When Liverpool City Council purchased the famous Cunard Building (pictured above) for around £15m (including refurbishments) there was some inevitable negativity. However, with agents recently appointed to market the building again, an independent valuation has estimated the Cunard is now worth £32m, more than double the price the council paid. It has generated a rental income of around £2m a year for the council, an ongoing source of capital that has been reinvested in the city’s vital services.

Back in May, it was revealed that the Merseyside council was also set to acquire Liverpool Central Shopping Centre, in order to drive various regeneration schemes in the city, including the Circus Liverpool development and Knowledge Quarter Gateway. Its purchase of Liverpool Central Shopping Centre is expected to earn the council £4.3m during the first five years.

Mayor of Liverpool, Joe Anderson, said: ‘We’ve had two-thirds of our government funding cut since 2010 – £444m – which means we have the impossible task of juggling immediate public service pressures with long-term capital investment, while, at the same time, trying to develop new sources of revenue.

‘We need to be ambitious in finding practical solutions to the problems that an austerity-led agenda has left us with, both out of choice and necessity, as we seek to protect the vulnerable and discharge our broader responsibilities.

‘Ministerial indifference has left us little option other than to be creative and bold - and that is exactly our approach.’

Recognising council assets

As investments by Liverpool City Council show, purchasing privately owned buildings and collecting rent is a lucrative strategy. But it’s not only property investment that can be a big earner for local authorities. Recognising the assets they already own and understanding how to generate value from them can be just as powerful. For example, if an older school is built on a prime piece of central land, it may be a lot more profitable to move the school and sell the land to a private buyer.

Halton Council has sold around £27m of its land since 2010, making £7m from the sale of a former high school site.

Reinvesting to protect our services

Although selling land and purchasing buildings for rent are great income generators, it’s not just about the money alone. By investing to earn, councils can increase their capital pot which then be channelled into major regeneration projects and existing public buildings.

Development in towns and cities and the improvement of public buildings attracts new investment, footfall and ultimately more profit. Reinvesting continues a cycle of income which will strengthen the council financially for the long term and help protect our vital services through austerity.

Robbie Blackhurst is managing director at Procure North West.

This feature first appeared in Public Property magazine. Please email l.sharman@hgluk.com to register for your own free quarterly copy.

SIGN UP
For your free daily news bulletin
Highways jobs

Social Worker

Durham County Council
£35,412 - £39,152 (pre-progression) / £40,777 - £45,091 (post-progression)
We are looking for social workers who have completed the assessed and supported year in employment to join our Families First teams, working with our Durham
Recuriter: Durham County Council

Public Health Practitioner

Durham County Council
Grade 12 - £44,075 - £48,226
WHAT IS INVOLVED? We are looking for a candidate who is passionate about public health, has experience of delivering or commissioning public health s Durham
Recuriter: Durham County Council

Home Care and Support Worker 18.5hrs

Durham County Council
£12,791 - £13,412 p.a. (hourly rate of £13.26 rising to £13.90) -part-time Grade 4
If you have elderly friends and relatives, you will understand the value they place on independence. This role will give you the opportunity to work Seaham
Recuriter: Durham County Council

Team Manager

Durham County Council
£50,269 to £54,495 p.a. (Grade 14)
This is an exiting opportunity to join a newly established team within Durham supporting young people in care preparing them for independence. The N Durham
Recuriter: Durham County Council

Learning and Development Support Officer

Durham County Council
£26,403 to £28,598 pro rata p.a. (Grade 5)
An exciting opportunity has arisen for a motivated and experienced Learning and Development Support Officer to join a small team within our award winn Durham
Recuriter: Durham County Council
Linkedin Banner