Financial mechanisms: creating finance for SD |
This section looks at a few of the different mechanisms and powers that local authorities can use to create finance for sustainable development, including: |
Grants |
There are a huge range of grants and ring-fenced funds available to local government that can be used to support sustainable development. Grants are often seen as a key mechanism for financing sustainable development. Our own Survey (PDF), for instance, found that 93% of local authority finance directors think that a lack of funding for sustainable development from central government is a barrier to financing sustainable development. It is worth bearing in mind, however, that grants don't need to be specifically allocated for sustainable development in order to support sustainability. Whether grants are used in this way will often depend as much on the local authority's own commitment to sustainable development as on the type of grant or fund. A transport grant, for instance, could theoretically be used in a sustainable or non-sustainable way depending on the local authority's approach. We are not able to offer a comprehensive list of funds available for sustainable development for local authorities because the scope is so wide; but we will use this section to signpost you to key sources of information for funding relating to sustainable development. For now, one place to start is the Energy Saving Trust's (EST) funding database. |
Local area agreements (LAAs) |
Local Area Agreements (LAAs) have become increasingly important area-based funding agreements between central government and local areas (local authorities and Local Strategic Partnerships). They are three-year agreements, that set out the priorities for a local area. The UK Government's 2006 Local Government White Paper, Strong and prosperous communities, says that the future purpose of LAAs will be to act as the delivery plan for Sustainable Community Strategies. In this way, LAAs are in effect delivery vehicles for sustainable development; every local authority is required to produce a Sustainable Community Strategy "for promoting or improving the economic, social and environmental well-being of their area and contributing to the achievement of sustainable development in the United Kingdom" (see the Local Government Act 2000. This means that LAAs can, and arguably should, be used to ensure that the very significant amount of funds attached to them are directed towards maximising a local area's contribution to sustainable development. Defra has produced a short guide on Delivering Sustainable Communities through LAAs (PDF). Further advice on delivery of sustainable development through LAAs can be found on the UK Government's sustainable development web pages: You can also read about how Cornwall has used its LAA to support sustainable energy in our case studies database. |
Power of wellbeing |
The power of wellbeing is a discretionary power allowing local authorities to do anything they consider is likely to promote or improve local economic, social or environmental wellbeing. The integration of these three components - economic, social and environmental - is the key to using the power to support sustainable development. It can be regarded as a 'power of first resort', removing the need to search for specific powers elsewhere. The power enables local authorities to, for example:
The power can be used with other powers, such as the power to trade - allowing local authorities to trade on a commercial basis, through ESCOs for example (see below) - and the power to charge for discretionary services - allowing local authorities to charge for discretionary services on a cost recovery basis. The power of wellbeing therefore has wide-ranging potential to enable local authorities to establish financial (and non-financial) mechanisms to support sustainable development, through areas such as renewable energy, sustainable transport and local food-sourcing. Resources on the power of wellbeing and sustainable development include:
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Prudential borrowing |
The CIPFA Prudential Code was introduced in April 2004. It enables local authorities with a good financial record to borrow unlimited amounts, as long as the spending plans are affordable, prudent and sustainable in the long term. Prudential borrowing is therefore particularly useful for raising money for 'invest-to-save' schemes that that involve up-front capital investment but which over time save money and provide better services. CIPFA's website has a range of resources about the Prudential Code. |
Renewable energy based energy services companies (ESCOs) |
Renewable energy ESCOs can be used by local authorities to reduce their own energy costs and to finance low or zero-carbon energy supply. According to the EST, there are two basic types of renewable energy ESCO: "one generates and sells energy then uses the proceeds to fund energy efficiency measures in the local community, whilst the other produces and distributes an energy service to the local market". The many potential advantages of ESCOs include: reduced carbon emissions; fewer people in fuel poverty; reduced bills for customers; a higher proportion of money spent on energy retained within the local community; access to finance for energy efficiency improvements; more convenience for customers; and a focussed organisation specifically designed to take forward sustainable energy projects. Woking Borough Council set up its wholly owned ESCO, Thameswey Ltd, in 1999 to develop a sustainable energy system financed primarily from the private sector. Other examples of local authorities in the UK that are already using ESCOs include Southampton City Council and Aberdeen City Council. |
| Further reading: |
- Bertoldi, Hinnells and Rezessy, Liberating the power of Energy Services and ESCOs in a liberalised energy market. Read now » |
| Setting the scene | What is sustainable development? | Publication (PDF) | Survey (PDF) | Acknowledgements | More resources |
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