Why local governments should use their community wealth to tackle the cost of living crisis
By Ryan Bellinson and Daniel Wainwright
The cost of living crisis has made daily life untenably challenging and stressful for Britain’s working and middle classes. Parents are having to make impossible decisions to forgo meals for themselves so that their children can eat. Upwards of 12 million households could face fuel poverty this winter, having to choose between turning their heat on or paying for other essential household bills.
Local authorities are on the frontline of the emerging crisis, responsible for delivering critical services such as social care, youth services, and social housing. They are already working in a state of extreme financial distress, having seen their funding from central government slashed by almost half during the austerity measures of 2010–18. In the aftermath of COVID-19, runaway inflation and Liz Truss’ disastrous ‘mini-budget’, the government is once again looking to tighten fiscal policy — with inevitable further pressure on local government budgets, and putting the services millions are depending on during the cost of living crisis in peril. This pressure is boiling over, with a range of councils from across the political spectrum either having declared bankruptcy or warning that they may have to do so in the near future.
In part, the vulnerability and fragility of local government is a result of the high degree of centralisation of UK politics. The UK is a unitary country, where the central government reigns supreme, delegating specific authorities to local governments to deliver services and take responsibility for particular policy spheres with corresponding resources allocated to deliver these functions. Two-thirds of local government revenue in the UK is a transfer from central government — the 6th highest share across the OECD. By contrast, in Germany it is 45% and in France only 23%, suggesting a much higher degree of local government financial autonomy.
But this doesn’t mean that local authorities in the UK are powerless to act. Instead, as our new report exploring the possibility of a local community wealth fund for Camden argues, we need to make the case for entrepreneurial funding mechanisms that can support local governments to respond to their current financial difficulties in different ways. A small number of pioneering local governments in diverse contexts have already leveraged a range of innovative approaches that could serve as inspiration for local government’s in the UK grappling with seemingly insurmountable challenges.
The areas where local governments have flexibility or discretion over policy and services is where entrepreneurial funding mechanisms could have the most potential. This could include anything from providing job training programs for disadvantaged young people to adopting climate action policy pathways that stretch beyond the central government’s ambition. These discretionary or even experimental initiatives pioneered by local governments can serve as a vital stabilising force during periods of tremendous economic uncertainty. In addition, they can act as a springboard to new opportunities that can improve a community’s well being during more steady periods. Moments like the present, defined by economic crisis and social fragility, are the exact periods when progressive local government programs and policies are most needed and when locally controlled entrepreneurial funding mechanisms can create the most significant community impact.
To paraphrase the urban wealth fund proponent Dag Detter, local governments often oversee portfolios that are hiding an enormous amount of hidden wealth. This can come in the form of public real estate holdings that could be efficiently managed in an urban wealth fund model to regenerate derelict or disused areas as has been done in Hamburg, German or redirecting procurement resources to build community wealth as achieved in Preston, England.
In addition to public assets, local governments also have unique access to debt and equity instruments that could be directed in a finance vehicle to distribute their collective community’s wealth. In Camden, we looked at how they might use their access to vast resources to equitably distribute public value around their four ambitious Borough-wide renewal missions. Through our research, we found that Camden has access to numerous low-cost, long-term, stable and scalable streams of finance that could be directed through a ‘Community Wealth Fund’ to provide residents with access to services or grant programs which distribute and advance public value. These debt and equity instruments range from mobilising funding through the Public Works Loan Board to community municipal investments to bond issuance to the London Borough of Camden Pension Fund.
As we show, the capitalisation and funding piece is just one critical component of ultimately developing an entrepreneurial local government funding mechanism. To pursue and eventually piece together the puzzle, local governments need to think deeply about a range of relevant issues. These include how these approaches to distributing community wealth will fit within an existing financial ecosystem, how their governance model will be structured to co-create local markets around public value or how the local community will be engaged throughout the financial instrument’s life cycle to utilise local knowledge and create public feedback mechanisms.
The cost of living crisis is stretching local governments to their breaking point as they seek to provide a lifeline of stability to their residents. However, local governments must start actively thinking boldly about developing their own entrepreneurial funding mechanisms to generate the resources they need to support their residents. It’s clear that central governments alone will not provide communities with the financial resources needed to tackle society’s present challenges. Local governments must step up and find opportunities for directing their community wealth into equitably shared public value.
You can read more about our work exploring an entrepreneurial urban funding mechanism for the London Borough of Camden in our recent policy report. You can explore more of our work on innovative local governance and urban finance through our Cities Programme.
If you would like to learn more about our continuing work with Camden, please contact Daniel Wainwright.
