Sean Egan believes that the new Localism Act gives local authorities the opportunity to enter into a more commercial relationship with arts organisations.
Local government is undergoing, even by its own standards, the greatest changes for a generation. The Localism Act sweeps away many, if not most, of the restrictions that would have prevented local authorities approaching their activities with a flexibility that includes commercial risk-taking. Terminology is important. The notion of investment I propose is not investment in the broader sense of funding projects which improve the community and which have no financial return. The opportunity is for councils who believe in a particular piece of work or project to consider providing an element of funding on the basis that it may provide a return for the council and as a result reduce its net investment. I am not advocating that councils start looking for arts projects as a source of income generation as I do not feel that is realistic or helpful. The underpinning council objectives would remain and most projects will remain in need of grant funding or subsidy. Nor do I wish to redraw the delicate ecology of arts organisations needing subsidy in order for them to deliver worthwhile work. It is that councils which might otherwise limit their spending could enhance their support by taking a commercial position. Under Section 1 of the Localism Act there is now a ‘general power of competence’. The profound innovation is not the power itself but the contrast with the previous regime. Under that the council needed always to be able to point to an express or implied power in statute as allowing them to act as it wanted. This new power allows them to do anything an individual could do (provided it is not already restricted in statute). The old regime therefore greatly restricted local authorities’ ability to develop different methods for funding projects. There are still limitations for councils in how they invest (rather than grant-fund), the most important limits being contained in the ‘Prudential Code for capital finance in local authorities’ which sets out a professional code of practice when local authorities look at their programmes for capital investment. The essence of this might be boiled down to the principle that councils must be able to demonstrate that their funding of investment is affordable in revenue terms. My particular interest in this article is to encourage councils to look at cultural projects, both individual productions and longer term building-based projects, and see them not just as applicants for subsidy but also, if the project has a real commercial potential, to consider this as a quite different opportunity. Councils might take a royalty, a share of profits and seek to recoup the original investment, subject to negotiation with the recipient of the investment. For building-based projects there might be annual payments out of income. In legal terms ‘investments’ need to be considered quite differently from grants. Investments are made under contracts, grants are not. Grants are not made for a consideration but in order to enable organisations to fulfil their missions. There are a number of funding initiatives for arts projects and a sense that social finance can deliver new sources of funding. Government imitations include Big Society Bank and Big Society Capital though this is not focussed on the arts. Existing funds are providing some finance on new ‘semi-philanthropic’ bases which include an element of commercial risk and return. I agree that an Arts Investment Fund as discussed by Graham Henderson (see AP issue 254 p12) would be a major step forwards. Councils taking a new and innovative look at arts projects may also find that they can now enable more activity without increasing this funding and will find other like-minded initiatives which could serve as funding bedfellows. Sean Egan is a Partner and Head of Arts and Media at Bates Wells & Braithwaite London LLP.