THE BLOG

Capital Gains?

06/03/2017 15:17
Maria Toutoudaki via Getty Images

Most of us worry about what is going on with our public services. Operations are cancelled, there are bigger school classes, social care is in crisis, bin collections are less frequent and there are shorter opening hours for services.

What we tend to worry about less - at least at first - is what is happening to the capital underpinning many of these services - the buildings and equipment. At home, we know we have to spend on maintenance. If we don't, then at some point we suffer: the roof lets the rain in, the car breaks down, the dishwasher seizes up. We also know we have to reconfigure our capital stock every now and then - like spending more on solar panels or getting rid of an old expensive boiler.

These issues are now starting to emerge throughout the public sector.

They didn't show up for a long time, partly because the Labour Government threw the kitchen sink at capital spending after the tough years of the 1980s and early/mid-1990s. Building Schools for the Future put paid to our children being educated in leaky classrooms and terrapin buildings. The Decent Homes Programme did a lot for the poor condition of council housing stock. The Private Finance Initiative (PFI) - although beset by many problems - helped update the NHS estate. But that was then. When austerity hit, capital took a big blow.

Of course, people have been doing what they can. Councils have been selling off sites, consolidating facilities and using this to try to produce a more modern experience, both for staff and for citizens. But it is not easy.

Perhaps the place this capital squeeze feels most tricky is in health, amid reports that NHS Trusts were recently told their formal capital spending plans were unaffordable by £1bn - almost a third.

These plans are probably less than is needed, especially if we want to do more than to do up the stock, but to also reconfigure our services between acute and community/preventative ones.

What is the route around this? Some hope the Treasury will get more relaxed about investment which has a good payback, even if it takes a long time and that it will get rid of rules which appear to disincentivise selling off old capital stock to invest in new.

Perhaps the Government's semi-independent Infrastructure and Projects Authority will play a role - although most feel it has 'social infrastructure' simply as an add-on and not part of the serious business of 'economic' infrastructure. Others look for off-balance sheet funding - as with PFI, but without its flaws.

If private finance was not used for the design phase of a capital project or for the maintenance after it was built, it might make more sense and would still get things built.

Perhaps the 44 new and rather evasive sustainability and transformation plans are turning into the old strategic health authorities and can take a sensible overview, end the disruptive fragmentation of decision-making and allow capital to be released without fear of a free-for-all.

Another route concerns local authorities. Could they come to the rescue? In general, at least on the margins, the Treasury feels more comfortable with councils borrowing than it is with public services, although councils are still struggling to make the case to lift borrowing caps for investment in housing.

Much of the new capital we require to improve our health system will be about local things like community, primary health and social care, not shiny new hospitals. Councils also own key places in the community and give planning permissions.

In any case, if local political figures are against the reconfiguration it is unlikely to happen anyway, so they need to be in the loop.

Several local authority pension funds are looking for investments to make with good social outcomes.

Could some of the bonds to emerge from the new UK Municipal Bonds Agency find their way to health infrastructure and transformation, strengthening local health and local economies as we head towards a world where business rate income is going to be king?

Whatever the answer, there will have to be solutions soon and the search should go on for finding the best ones.

This blog was first published in The MJ

Comments

CONVERSATIONS