Public Sector Pressures: a green finance solution for local governments
Public Sector Pressures: a green finance solution for local governments
Over 300 councils have declared a climate emergency, and nearly all are assessing the risks and development plans. These significant investments include transportation, waste and land use, housing redevelopment. To deliver these projects is expensive, in a sector where demand pressures are significantly higher, costs are rising and the funding gap between what the sector needs and receives, is widening.
If you are a Section 151 Officer facing difficulties balancing your financial position alongside significant green investments, then we can support you. The pressure on already stretched local authority finances is likely to significantly curtail the transition to green infrastructure projects and impact on net zero targets. The question remains; can councils green invest their way out of financial difficulty? Put another way, can councils deploy green financing to deliver essential services whilst being under financial duress, AND future-proof themselves, minimising the risk of insolvency?
The Spring Budget of 2024 did not help in addressing some of the most pressing environmental issues facing the country. Take for instance, housing. To quote Simon McWhirter, deputy chief executive at the UK Green Building Council, "The Chancellor has failed to address the urgent need for upgrading our homes and buildings in this budget, which wouldn't just help address the climate crisis, but also directly tackle rising energy bills, poor-quality homes and provide a jobs boost into the economy." So, a missed opportunity.
Yet in the past, there has been actions taken to address climate change demands on cities, such as the establishment of the UK Infrastructure Bank. The Infrastructure Bank’s remit is to focus on (1) net zero support, and (2) levelling up. Both have demonstrable impacts on cities and local authorities. The budget of the bank is £22B, of which £10B is guaranteed by the UK government, £8B is in search of debt or equity-based projects that offer effective decarbonisation and net zero solutions and £4B is earmarked specifically for Local Authorities and councils. In fact, the minimum size that a council or Local Authority can receive is £5M, if investment is made in water, digital, clean energy, transport and supply chain, with the criteria that each project must be (a) additional, (b) on mandate, and (c) give a financial return of 2.4% to 5%, significantly below the current cost of capital. The bank sees itself as a proxy lever, moving capital and behaviour toward a more sustainable future.
Some of the cuts in services include the dimming of streetlights and reduced spending on highway maintenance. Would access to renewable energy and sustainable forms of transportation, which are a key funding issue for the Infrastructure Bank, be a worthy solution, albeit a more medium term one? The current solution for distressed Local Authorities is access to central government funding, especially for those required to file a S114 notice. However, those looking to avoid this eventuality, green investment may represent the delivery of medium to long-term financial benefits and social gain.
If a Local Authority is investing in propping up outdated infrastructure, is there scope for that investment be better positioned to deliver green solutions? The holy grail is to find a way that delivers both short, medium, and long term ‘sustainable’ solutions. Green and transitional financial products, guaranteed by the UK government may just fit the bill, investing in projects that support communities and future-proofing Local Authorities.
If you are a Section 151 Officer facing difficulties balancing your financial position alongside significant green investments, then we can support you. The pressure on already stretched local authority finances is likely to significantly curtail the transition to green infrastructure projects and impact on net zero targets. The question remains; can councils green invest their way out of financial difficulty? Put another way, can councils deploy green financing to deliver essential services whilst being under financial duress, AND future-proof themselves, minimising the risk of insolvency?
The Spring Budget of 2024 did not help in addressing some of the most pressing environmental issues facing the country. Take for instance, housing. To quote Simon McWhirter, deputy chief executive at the UK Green Building Council, "The Chancellor has failed to address the urgent need for upgrading our homes and buildings in this budget, which wouldn't just help address the climate crisis, but also directly tackle rising energy bills, poor-quality homes and provide a jobs boost into the economy." So, a missed opportunity.
Yet in the past, there has been actions taken to address climate change demands on cities, such as the establishment of the UK Infrastructure Bank. The Infrastructure Bank’s remit is to focus on (1) net zero support, and (2) levelling up. Both have demonstrable impacts on cities and local authorities. The budget of the bank is £22B, of which £10B is guaranteed by the UK government, £8B is in search of debt or equity-based projects that offer effective decarbonisation and net zero solutions and £4B is earmarked specifically for Local Authorities and councils. In fact, the minimum size that a council or Local Authority can receive is £5M, if investment is made in water, digital, clean energy, transport and supply chain, with the criteria that each project must be (a) additional, (b) on mandate, and (c) give a financial return of 2.4% to 5%, significantly below the current cost of capital. The bank sees itself as a proxy lever, moving capital and behaviour toward a more sustainable future.
Green Pounds (£) and green solutions
The UK Infrastructure Bank offer up to 50-year loans currently at gilts + 40bps (40bps lower than Public Work Loans Board in most cases). If a Council has not explored these options as part of its green investment strategy, then you could be missing out on significant savings to fund your investments. With focus on the part of the Infrastructure Bank’s budget around UK guaranteed funds, this may be a green lifeline to some councils and Local Authorities. In the news, some Local Authorities are cutting services and raising taxes, essentially reducing services to residents. Some of the fault can be left at the doorstep of central government. In a recent Local Government Association (LGA) post, by the 2024-25 financial year councils will have seen a 27% fall in real spending power for local services since 2010. The LGA attribute this fall to a cut in grants from central government, spiking inflation, and increased energy costs. Inflationary pressures impact everyone. Yet, the question remains, can a Local Authority look for a more creative solutions in addressing the hole in the budget, by using green pounds?Some of the cuts in services include the dimming of streetlights and reduced spending on highway maintenance. Would access to renewable energy and sustainable forms of transportation, which are a key funding issue for the Infrastructure Bank, be a worthy solution, albeit a more medium term one? The current solution for distressed Local Authorities is access to central government funding, especially for those required to file a S114 notice. However, those looking to avoid this eventuality, green investment may represent the delivery of medium to long-term financial benefits and social gain.
If a Local Authority is investing in propping up outdated infrastructure, is there scope for that investment be better positioned to deliver green solutions? The holy grail is to find a way that delivers both short, medium, and long term ‘sustainable’ solutions. Green and transitional financial products, guaranteed by the UK government may just fit the bill, investing in projects that support communities and future-proofing Local Authorities.