April 17th, 2012
The concept of a revolving loan fund may not be revolutionary – as long ago as the 1950s the UK government had such a scheme in place to help farmers afford new infrastructure. But it is new to waste management in London, and I believe that it has the potential to stimulate London boroughs to respond creatively to the financial pressures they are under and find opportunities to maintain or even enhance services while making savings.
No choice but to change
The efficiency review loan fund is part of a £4.6m Efficiencies Programme that my organisation, the London Waste and Recycling Board (LWARB), launched in December and was the topic of the London Conference in March. Comprising seven work streams, the Programme is a major opportunity for London boroughs to get support for projects that will cut the cost of their waste operations without affecting the quality of the service experienced by the public.
Make no mistake, these are tough times for local authorities. The 2010 spending review announced that the overall level of central government formula grant to councils would be subject to a cumulative real terms cut of 26.8% by 2014-15, so all have major savings to find. One response to austerity is to cut back waste services – as the third largest area of expenditure for many boroughs, it has to be balanced against competing demands like schools, social services, libraries and leisure.
While budgets are being squeezed, the cost of landfill continues to rise. Boroughs must conform to the Mayor of London’s Municipal Waste Management Strategy, which identifies opportunities to make significant financial savings by investing in recycling. Keeping services the same simply isn’t an option, and I want LWARB to help authorities respond to the challenge of austerity and see the opportunities to change how services are delivered so that equally good results can be achieved more cheaply.
There are some specific projects LWARB has already identified it wants to support – for example, service sharing, which could range from niche and specialist services, following the model of the London-wide Hazardous Waste Contract, all the way through to shared collection services. We’re also interested in where boroughs can achieve real benefits through joint procurement without compromising their ability to respond to the wishes of local people – whether that’s through getting the best price on waste management equipment, or through taking part in pan-London recyclate contracts.
But the loan fund is different – it offers councils the up-front funding for potentially wide-ranging efficiency reviews that can take a top to bottom look at their waste services – household and commercial, refuse and recycling, collection and bring (including RRCs). We’ll then work with WRAP and others to identify funding to support projects to implement the creative ideas for making savings that the reviews produce. And as local authorities make savings, they will pay back the loan to LWARB so that we can offer further funding in the future. Meanwhile, we will promote the lessons learned so that other councils can see examples of what works, and just as importantly, what doesn’t.
Initially we’ll be making around ten loans – and to get the scheme off the ground, the initial participants will benefit from a low-risk variant on the deal. If they don’t make any savings as a result of the efficiency review, they won’t have to pay anything back. However, I am confident that the savings are out there to be found – we’re working with Eunomia at the moment to develop a robust way of measuring the savings that are achieved. In a year’s time, with five or six reviews completed and implementation of some of the findings taking place, LWARB will start to see money coming back, ready to fund a further cohort of authorities.
In the longer term, we’ll be looking to share the risk on efficiency reviews with authorities – an important change, as I see one major advantage of the loan fund being the way it incentivises authorities to act on efficiency review findings. I’m strongly of the view that important changes in how council services are delivered are best implemented when there is an influential sponsor in the authority, and this model is perhaps better at providing this than traditional grants, as it demands clear buy-in from members and senior officers up front when the decision is made to take on the risk of the loan.
Of course, I’m not saying that improved efficiency can absorb all of the cuts London boroughs will need to make. Austerity seems to be here to stay, and it is possible that a reduction in waste service levels may be necessary for a council to meet its budgetary constraints. But boroughs that make use of the efficiency programme will be able to demonstrate to local residents that all of the options have been considered in advance of tough decisions being made, and any cuts are made in the light of a full appreciation of the options,