Deep cuts to government funding have led a council in south London to ask its residents to invest their own money, for a financial return, to build cycle hangars, LED street lighting and green upgrades at schools and leisure centres.
Amid a financial crisis hitting town halls across England, councillors in Southwark have resorted to a crowdfunding scheme to raise £6m over the next six years to help fund climate-friendly projects.
In a creative response to the double challenge of financial constraints and maintaining investment required to tackle the climate emergency, the scheme plans to raise £1m for the coming financial year with the offer of a 4.6% return for investors.
An overwhelming majority of English local authorities are planning deep cuts to services and maximum possible council tax rises to remain financially solvent, despite an extra £600m cash injection from the government.
“Certainly that’s the context,” said Emily Hickson, the Labour-run council’s deputy cabinet member for green finance. “Southwark is not different to any other council in the country: we’re all struggling with the lack of central government grants and keeping up with inflation.
“We are in the black and that’s because we are being innovative.”
The scheme allows investments of as little as £5, and had raised more than £50,000 within hours of its launch on Tuesday. It is open to individuals and businesses regardless of residency, with a fixed return of 4.6% a year over a five-year term.
Potential investors are warned, however, that their capital is at risk and they may lose some or even all of the money they put in.
Figures from the Local Government Association on Wednesday show two-thirds of English councils are planning cuts to neighbourhood services this year – such as waste collection, road repairs, library and leisure services – as they struggle to plug funding gaps.
As years of underfunding from central government collide with higher inflation and rising demand on services, it estimates councils are facing a £4bn shortfall over the two financial years to 2024-25.
It warned that 85% of councils were planning to make cost savings to balance their budgets for the coming financial year.
Southwark council said this month it needed to find savings and efficiencies to close a budget gap of £6.7m for the coming financial year amid rising pressure on services and increasing costs. It is also planning a maximum allowed council tax increase of 4.99%.
Since 2010, the council has lost government funding in cash terms of more than £146m.
Earlier this month, Southwark came under fire for tearing out communal spaces and children’s playgrounds to make room for new homes, which were then left boarded up when the council ran out of money.
The local authority’s crowdfunding scheme will be managed by Abundance Investment, a financial platform focused on ethical and sustainable community investment projects that is managing more and more programmes on behalf of English local authorities.
After launching its first in 2020 for Warrington council in Cheshire, nine local authorities have launched crowdfunding drives using the platform to meet climate targets, including West Berkshire, Camden and Cotswold district council.
Hickson said the Southwark scheme would involve a cheaper interest rate for the local authority than borrowing through the government’s public works loan board, which offers councils cheap long-term loans to finance local projects. It would also have the benefit of engaging residents directly with the council’s climate emergency plans.
“It’s pretty small. It’s not the way councils around the country are going to solve their budget crises,” Hickson said. “It should enable us to do this on an accelerated time span. These types of projects do need to happen.”