A role for non-bank lenders ahead of UK's 2030 deadline
For Earth Day Caroline Davis, head of public sector leasing at Triple Point, considers the role leasing can play through non-bank lenders to relieve pressure on local councils looking to fund investment in alternatives to fossil fuels as decarbonisation efforts step up ahead of 2030.
The past two years have seen an increased focus on public sector spending. Since early 2020, the effects of the pandemic have put a considerable strain on budgets. Even before Covid-19, councils were facing serious financial challenges, and cost pressures are set to reach £8bn by 2024/25 simply to keep vital local services running.
Amid this financial squeeze, an important part is being played by non-bank lenders, furnishing authorities with much-needed financing. This often comes in the guise of leasing vital equipment and vehicles to public sector organisations such as NHS trusts, as well as councils and schools across the country.
With central government grants cut by 37% in real terms between 2009/10 and 2019/20, councils rely heavily on increased council taxes to prop up their budgets. Tax hikes alone will not satisfy the financial demands of local authorities and efficient cost-cutting methods are necessary to uphold the vital services provided by these organisations.
Non-bank lenders can play an instrumental role in aiding the cost-cutting measures needed by local authorities. Take utility vehicles for example. A street cleaning vehicle can cost anywhere between £30,000 and £70,000. If an entire fleet needs to be purchased, the costs can quickly approach hundreds of thousands of pounds, making the acquisition prohibitively expensive for councils.
This is where non-bank lenders can alleviate significant outlays by leasing utility vehicles to public sector organisations. Contracts are tendered, with several companies bidding for each lease to ensure the taxpayer gets the very best pricing. The council selects the most appropriate vehicles to suit their needs, and the successful investment business will then finance these vehicles for the local authorities on flexible and affordable terms, typically spread out over five to seven years.
A leasing partnership enables a faster and more comprehensive transition to new fleets, grounds maintenance equipment, and yellow plant equipment, while used vehicles can be re-sold after the lease term has ended. Lenders in this market have often worked with particular councils for a considerable amount of time so there is a good understanding of what councils need.
As central government accelerates decarbonisation efforts ahead of 2030 emission targets, councils are increasingly under pressure to invest in alternatives to fossil fuels. While electric vehicle charging points are a major part of this drive, council fleets are likewise expected to go electric. While some progress has been made in certain areas of the country, reports show that 19% of councils do not have an EV strategy, while 37% have not made significant progress on their action plans.
Electric specialist vehicles such as waste collection trucks or gritters can be up to three times the price of their diesel-powered counterparts, making significant investments difficult to achieve within budget restrictions. If councils are to play a part in the push for a greener future, non-bank lenders will have to step in with leasing plans, allowing local authorities to switch to net-zero equipment.
Investor appetites have shifted significantly since Covid-19 first emerged in the UK. The collective reliance on health services and the important efforts of authorities to mitigate local issues in the past two years have generated an increased willingness for ethical and meaningful investment opportunities.
Lending businesses can provide the public sector with the much-needed tools and cashflow, while allowing investors to participate in the process. Creating opportunities for ethical investment is one of the reasons why public sector leasing is a successful business model.
In order to navigate the financial strictures caused by the pandemic as well as enabling the green transition, public sector organisations will require significant investment into infrastructure and vehicles. By providing essential funds and equipment, non-bank lenders can play a critical part in upholding the vital services provided by the public sector.