Looking for new sources of income

At the moment, councils get their income from four main sources: government grants (mainly the Revenue Support Grant (RSG) and New Homes Bonus), Council Tax, Business Rates, Fees & Charges, and property rents. Until 2010, RSG had been our main source of funding. In 2010-11, Hastings Council received £10.4m. This year, that’s fallen to around £2m, and will be phased out completely by 2020. New Homes Bonus was around £1m this year, but will also be phased out. Income from Council Tax is £6.3m, and the money we keep from business rates contributes a further £3m.

All of this goes towards funding a net budget of £14.2m. However, that figure is misleading. The net budget is the amount the council funds from grants and taxation, after deducting income from other sources, such as fees & charges and investments. The ‘real’ figure the council spends (not counting benefits payments) is more than £30m. That’s paid for by all sorts of income, including over £4m in commercial rents on council-owned properties, and £5.5m from fees & charges, for everything from car parking to crematorium fees.

The council has no control over some of these income sources: government grants and business rates are all determined by central government. Council Tax increases are determined locally, but if the council proposes a rise of more than five pounds a year, it must hold a referendum and get a majority to support the proposed increase. A referendum costs around £100,000 – so that’s a big risk.

So councils need to look at new sources of income. We’re considering sustainable energy generation, setting up a housing company to acquire and build housing, and commercial property investments. Of these, commercial property investments are the easiest way to generate income quickly. This year, new investments by Hastings Council included the Sedlescombe Road Retail Park, building a new factory for BD Foods, and building new kiosks on the seafront. Overall, these will raise an additional £400,000 a year.

Councils are able to get good net returns on commercial property because they can borrow money at low interest rates. And many are taking advantage of this – council commercial property holdings have increased tenfold over the last five years. But there are risks involved – the returns on these investments are entirely dependent on the occupiers of the retail parks, office blocks or factories. If they leave or fail, finding new tenants could be difficult.

So we’ll look very carefully at any proposed investments, to make sure they’re as safe as possible. But there are no guarantees. To replace lost government grant funding, councils are taking on a level of risk that would have been unthinkable ten years ago. And some of the riskier investments undertaken by councils could well fail. So while we’ll be doing all we can to maximise income through new investments, we will also do all we can to make sure those investments are secure. We need to raise money that will, as far as possible, protect council services as we enter this new world of self-financing local government. But we need to make sure that investment returns are properly balanced against the risks we’ll be taking.