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More money required

Analysis - Local government is seeking new funding methods to counter an expected tightening of the Treasury purse strings.

Anticipating a tight funding settlement for the next three years, some councils are already developing alternative funding streams to meet their transport ambitions. Essex County Council wants to form a private infrastructure company to fund and deliver all its capital transport projects over the next 10 years (News last week).

Meanwhile, communities minister Ruth Kelly wants to give local authorities new powers to use social housing rents to borrow money to build more housing. A newly published Conservative party policy document claims that councils should be given far more powers to issue bonds and borrow.

The momentum for selffunding is building up but key obstacles remain, says Imperial College professor of transport infrastructure, Stephen Glaister.

Local authorities already have considerable powers to borrow within 'prudential' limits enshrined in the 2003 Local Government Act and financial markets have cash to lend. But the revenue streams to securitise such loans are still a long way off, he says.

'Councils already have prudential borrowing powers and there is nothing to stop them borrowing substantial sums. The obstacle is lack of cash against which to borrow.' Warwickshire County Council director of environment and economy John Deegan agrees: 'In areas such as highways and waste there is every prospect of more money coming locally but the bigger problem is nding the money to pay it back.' Sir Michael Lyons' recent report on local government finance for the Treasury championed the idea of giving councils the power to negotiate increases in business rates paid by local firms which stand to benet from new transport infrastructure. But while the Treasury is said to be sympathetic to the idea, legislation would be required and there is no sign of that happening any time soon.

Councils have the power to set up congestion charging schemes that could swell their transport budgets. But five years after Ken Livingstone launched the successful London scheme, there is little prospect of any other local authority launching one. A recent petition on the 10 Downing Street website gathered 150,000 signatures from opponents of a national road charging scheme. This is hardly likely to encourage the development of local options.

But the government is using the promise of cash from the Department for Transport's Transport Innovation Fund as a carrot to encourage councils to press ahead with such schemes.

Another option is to borrow on the back of revenue from a proposed tax on housing developers. This would replace Section 106 agreements under which developers put something back into the local community in return for planning permission.

The proposal to apply Planning Gain Supplement to all new building developments could raise an estimated £20,000 per new household. But there is concern that it will simply lead to less houses being built at a time when there is a shortage.

Gordon Brown has promised less 'top down' government and more self-funding for councils.

But swift action is needed to help local authorities develop the funding streams to help secure this increased borrowing.

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