When it comes to financing our own future, we need to focus on the revenue

While many in the NHS wait to see if a loosening of the purse strings enables some much needed capital to be injected into our ageing estate or perhaps a welcome end to pay restraint, our colleagues in local government are left wondering quite how and where they will find the funding needed to finance future local services.

If the failure to pass the Local Government Finance Bill before the snap election was unfortunate, its omission from the slimmed down Queen’s speech certainly appears careless. This particular piece of legislation was a critical part of the ongoing reforms to underpin the financial sustainability of local authorities – moving from the current grants based system to one that places more power, democratic control and accountability in the hands of local leaders to grow their own economy.

Applying the devo brake?

Councils have been evolving their financial decision making for some time, with the expectation – encouraged by government – that successive reforms would reward a more strategic local economic planning focus, with areas increasingly able to retain the proceeds of growth. This rise in risk based finance has been at the heart of the emerging devolution programme.

 This particular piece of legislation was a critical part of the ongoing reforms to underpin the financial sustainability of local authorities

Included in the Finance Bill, and therefore now under doubt, was perhaps the best known example of this, the introduction of 100 per cent retention of business rates. Putting aside the often valid concerns about the impact of localising this particular tax mechanism on widening inequalities across England, councils at least knew what was required of them to generate their funding. As a result, they were acutely focused on schemes that raised revenue.

Rise in variable private financing

Placing this in context, while the NHS looks at vast potential land sales across England, recent Department for Communities and Local Government figures show a 133 per cent rise in land and building purchases made by local authorities over the past year, up from £1.2bn in 2015-16 to £2.8bn in 2016-17. 

These deals, largely financed by borrowing through the Public Works Loan Board, included shopping centres, town centre developments, industrial parks, energy and waste plants and office space – anything that could generate long term income streams.

These purchases were not necessarily local either, with councils scouring the country for commercial opportunities. In return, the revenue generated, albeit variable of course, has increasingly been used to underpin the growing demand for core public service provision – from public health to adult social care.

Why does this matter to the NHS?

For an NHS that is working across new footprints and has ambitious plans for different models of service delivery, local government is our most important partner. Whether or not the Treasury decides to support sustainability and transformation partnership estates plans, the health service should be talking to local government colleagues about ways of maximising the use of land and assets across the local area. 

For an NHS that is working across new footprints and has ambitious plans for different models of service delivery, local government is our most important partner.

In particular, we should be recognising the vast improvement and investment in commercial capabilities that councils have made, evidenced through the proliferation of joint ventures and local asset backed vehicles now being established to lead large scale local regeneration projects.

If there are commercial reasons for using Treasury backed loans from the Public Works Loan Board then there are also social ones. 

In some instances, it will be appropriate for this financing stream to support local health and care developments, particularly when moving away from the traditional acute model. Done correctly in fact, investing in this area should enable community assets that do both, simultaneously addressing our rising demand for public services with the need to bring in ongoing revenue from things such as rental, advertising, services and tax.

Certainly this balance is being borne out in some of the early successful One Public Estate examples.

A future based on revenue

While local government leaders reacted with dismay to the lack of a Finance Bill in the Queen’s speech, many believe the localisation of fiscal policy is still inevitable. The government has committed to its Fair Funding Review and the delay may even enable the sector to better shape not only the 100 per cent business rate retention policy (which is, after all, still being trialled in most of the new Combined Authority pilot areas) but the broader arguments for local income tax revenues.

This increasing localisation of both powers and finance is demanded because councils believe it can help them raise money locally. 

This brings us to the question of revenue. Many in the NHS believe that local government partners wanted devolution so that it can spend money locally. This is a fatal misunderstanding. This increasing localisation of both powers and finance is demanded because councils believe it can help them raise money locally. 

For the NHS to play a part in local regeneration, development and economic planning it needs to understand this distinction and ask our local authorities how we can help. The government may have ignored the Local Government Finance Bill for now but its intentions will, one suspects, very much remain.

Michael Wood is local growth advisor at the NHS Confederation.