At the TMBC Council meeting on 11 July, the Leader made a downbeat statement reminding members that when the budget was set for 2017/18, there was a projected funding gap of £1.6 million. Initial savings of £650,000 had been made but this still left £950,000 to be found by 1 April 2018.
According to the minutes (1) “The Leader stated that it was important to recognise that the funding gap and thus the savings targets now faced were despite the fact that the Council had delivered over £3M” and that he “...was sure that Members did not need reminding that the Council was now totally reliant on council tax, its share of business rates, new homes bonus, fees and charges and investment income for delivering local services”.
These figures, along with the recent controversy around the proposed sell-off of River Lawn and River Walk, reinforce the fragile nature of TMBC’s finances and underline the need for an urgent review of the borough’s financial strategy. In a nutshell, the council is running out of money at an alarming rate and, whatever the merits or otherwise of developments on River Lawn and River Walk, we need to find a way to ensure that council budgets are secured, not just in the short term but for the longer term too. Sadly, the Leader's statement did not give any indication of how this might be achieved
Of course, there are those who will be eager to point out that those councillors who are now wringing their hands and bemoaning the reductions in government spending, campaigned for that very government in the full knowledge that austerity would bring cuts so, they might say, they only have themselves to blame. Greens are certainly opposed to the government’s policy of austerity as it is an ideological choice, not a financial inevitability – there are other ways to deal with the financial crisis but the government has chosen to cut funding to local government as a key part of its response. We would do things differently on a national level but we would also do things differently at the local level and it is here that I think parties need to work together to find a way forward. The survival of non-statutory as well as statutory services is vital to our local communities and we need to all find a way to preserve them. There are solutions and those solutions cut across traditional party lines so, here at least, we need to put the common good above narrow party political considerations.
The challenge TMBC faces is the loss of revenue through the Local Government Financial Settlement and reduction in the New Homes Bonus resulting in the £1.6m funding gap already mentioned. Unfortunately, solutions are thin on the ground. The council could try to increase Council Tax (however the Localism Act gives communities a right of veto over any rise more than 2%) and, in any case, who wants to pay more for less?
Local authorities have minimal discretion over National Non-Domestic Rates (Business Rates) but, even if raising them was an option, the potential damage done to fragile business prospects, especially small businesses and high street traders would be counterproductive. The council could generation income from current assets (e.g. car parking charges), hire of Tonbridge Castle and other council run properties but, again, there is limited scope here for raising sufficient amounts of money without damaging the economic fortunes of the borough. There may also be diminishing returns as increasing charges might lead to less use.
However, there is one approach the council could consider: it could adopt a more commercially savvy strategy towards developing its assets using a similar approach to that employed by Sevenoaks District Council (SDC).
Our neighbouring borough has used its reserves to invest in local property and has now built a substantial portfolio that enables the council to be self-sufficient (for non-statutory services). It also enables the Council to intervene proactively in the local economy which is to the benefit of local businesses and the community as a whole. By contrast, TMBC is more interested in being an institutional investor in the wider property market and this approach does not deliver the ‘extra’ return that Sevenoaks benefits from but it does carry considerable risk (2).
By investing in local property, the council can use its financial muscle to drive desirable economic development as well as deriving an income to fund services. Through its investments in, for example, office buildings, retail premises, a working men’s club and other properties, Sevenoaks District council has managed to become the first financially self-sufficient local authority in the UK (3).
TMBC estimates a return on investment of only 0.55% (*) from its Core Fund Investments (4) (see 11.6) which is a real terms loss when inflation (currently 2.6%) is taken into account. Worryingly, the strategic reserve is reducing by around £2m (11.4 in above document) per year to cover revenue shortfalls and because of the poor investment choices noted above.
In stark contrast, SDC expects a return of 6% from its property investments (which it is currently over achieving) and has plans to further build its portfolio of locally held assets (5).
TMBC’s current financial strategy is not sufficient to address the new landscape of local government funding (or lack of it). Reductions in central government funding are permanent and the capitalisation of assets such as River Lawn to provide short term revenue funding will not address the issue in the long term. Add to this the year on year reduction in the strategic reserve and the poor return on current investments and it spells disaster for the council in the medium to long term. Now is the time to act to address this.
A way forward
TMBC should not prioritise selling assets like River Lawn for short term financial gain (**), but leverage those already held (in partnership with private sector investors where appropriate) to create revenue streams. It may be necessary to sell some assets to reinvest in more lucrative long term prospects but this should not be done as a short term “fix”.
The borough council needs to identify and acquire appropriate assets that are both capable of generating the income it needs and contribute to local economic development. It should use the strategic reserve for this and leverage its investment from other sources as needed. Indeed, it will need to do this as its current reserve is not now sufficient to generate the income required.
As noted, there is scope to sell some assets to raise the necessary capital to invest but selling capital assets to raise revenue funding is a recipe for disaster. Not to put too fine a point on it, it leads to bankruptcy. TMBC’s aversion to borrowing to invest is unhelpful. By contrast, SDC is prepared to borrow and is prepared to use the following sources to raise capital:
- Receipts from previous property disposals.
- Receipts from proposed land / property disposals in future years.
- Reallocation of some of the funds currently held in reserves.
- Borrowing from external lenders including Bank Real Estate Finance, Annuity Funds, Pension Funds, the Public Works Loan Board and the Municipal Bonds Agency.
(6)
Now is a good time to borrow to invest as money is cheap but this situation won’t last. TMBC has a limited window to get its finances back on track and even then it won’t be easy. The continuing reduction in its reserves reduces its capital base so there is no time to waste. This is not a party political or ideological issue but one of facing the reality of the current situation – it is a matter of survival. SDC is a Tory run authority after all and I would hope that TMBC might at least listen to them if nobody else.
Immediate action
Unfortunately the TMBC management and Cabinet appear to have developed a dangerous “bubble mentality” which they need to break out of as such an outlook invariably leads to poor management decisions. Therefore, I propose setting up a broad advisory forum comprised of key civil and civic society organisations and TMBC senior management and political leaders from all local parties and other stakeholders. This approach follows best practice (7) and, by including the wider community in the evaluation of potential strategies, the council will be able to draw on a wider talent pool in setting objectives while also increasing transparency and participation.
Cabinet should immediately instruct officers to draw up outline scenarios to utilise the council’s remaining £14 million core reserve and identify assets that represent good investment opportunities and those already owned by the council that might be sold or offered for development on a partnership basis to release investment capital. This is hardly revolutionary (after all, it is something Tory run Sevenoaks District Council has already done) and there is help available from many sources (8) so it is a strategy TMBC could follow if the political will is there.
By working together, the borough can find a way to become self-sustaining and although this is not necessarily an option for other parts of the country, it is an option for us. The benefits to the council and community at large could be considerable but time is running out. TMBC’s resources are diminishing at an alarming rate so action is urgent. Please write to your borough councillors to urge them to support this plan (you can find your local councillor here: https://democracy.tmbc.gov.uk/mgMemberIndex.aspx?bcr=1).
(*) The actual Core Fund performance reported to the Finance, Innovation and Property Advisory Board on 21 June 2017 show a slightly better than expected return of 0.71% up to the end of March 2017. (see: https://democracy.tmbc.gov.uk/documents/s23779/Report%20of%20Director%20of%20Finance%20and%20Transformation.pdd
(**) Unconfirmed reports suggest that they are selling off the Teen and Twenty site to property developers Assura at a discounted rate which would seem to undermine the council's claim that it is selling assets to maximise income and I wonder if this goes against their fiduciary responsibility to Tonbridge and Malling ratepayers.
Also read Bricks-Mortar-Money http://www.apse.org.uk/apse/assets/File/Bricks%20Mortar.pdf
This is already referenced in the text above (8), a report from the Association of Public Service Excellence (published this month) looking at how LAs can use their assets to generate revenue. Something I hope TMBC Cabinet members and officers will look at.
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