Investment decisions after Brexit


By Jo Pitt, CIPFA Local Government Advisor

At the CIPFA conference this summer a workshop session explores the opportunities for investments and the importance that this plays in the growth agenda. Without the right investment in business, skills and infrastructure, growth will be slower than anticipated and this has implications for the local government sector as it looks to move towards self-funding.

The session was going to be challenging enough with the debate around the correct level of risk and the moral dilemma of pension fund investment. However, now the die has been cast and we know the UK is moving out of Europe, discussions about investment are even more crucial.

For many years European investment has been part of the UK growth agenda. For example, in the North East, Local Enterprise Partnership area funds include £426m from the European Regional Development Fund (ERDF) and European Social Fund (ESF) as well as £10.5m from the European Agricultural Fund for Rural Development (EAFRD). Whilst it is too early to say what will happen to this type of investment it will all need to be reconsidered in light of the recent election result.

The time table for reconsideration will be linked with the government's exit strategy and at the current time this is unclear. What we do know is that the markets will be nervous and there will be short term unease with few decision being made. During this time both private and public sector as well as central and local government must look at their medium term financial plans and then the longer view. What level of contingencies is there in place and what impact will this have on plans in both the short and longer term will be just two of many questions that need to be asked.

One of the first tasks will be to continue to convince those willing to invest before the vote that the UK is still a good economic prospect and offers great opportunity for a return on investment. Local government has a central part to play at this time and stable finances support confidence. The conference event will be looking to talk through some of these approaches and see how the sector has responded.

Recently CIPFA has held a series of events called '2016 investment workshops Brexit special: investing in a low yield environment.' CIPFA pension's expert Neil Sellstrom commented: 

These events were an excellent opportunity for chief finance officers to talks about the risks involved. The vote meant that the timing of the events could not have been more perfect. Having listened to the conversation I think that the message coming out was that there will be a pause over the summer while we assess the possible implications. Then we will start to look forward to see how Local Government can influence the agenda.

What we do know is that this will be a long road and those who voted for this decision, now have a moral obligation to make sure it works and that the next generation are not left with an economic legacy driven by a protest vote. At CIPFA we are calling publicly for the government to avoid knee-jerk reactions aimed at finding a short term solution. Long term implications and financial stability need to be what drives decision-making.

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