Government accused of launching 'attack on local democracy' with new council investment rule

Curb on local authorities' right to divest from companies they regard as unethical could be slipped through Parliament

The Government has been accused of launching a “direct attack on local democracy” by preparing to slip through Parliament an unprecedented curb on councils divesting from trade and investments they regard as unethical.

Councillors, MPs and a wide range of NGOs fear that the move, which they complain will be forced through the Commons without proper scrutiny, could stop local authorities refusing to trade with, or include in their pension fund portfolios, companies involved in the arms trade, fossil fuels, tobacco products and Israeli settlements in the occupied West Bank.

Ministers are consulting on changes to pensions regulations and are preparing new procurement guidelines to stop town halls operating “municipal foreign and defence policies” through “politically motivated boycott and divestment campaigns... against UK defence companies and against Israel”. A 2007 survey of local authorities showed that they were investing £300m in BaE alone.

Campaigners say that decisions in the early Eighties to divest from South Africa by anti-apartheid councils, including those of Glasgow, Newcastle and most London boroughs, would have fallen foul of the proposed new regulations. Planned amendments to the Local Government Pension Scheme Regulations 2009 are designed to “make clear to authorities that in formulating these policies their predominant concern should be the pursuit of a financial return on their investments... They should not pursue policies which run contrary to UK foreign policy.”

But Andrew Smith of Campaign Against Arms Trade said: “Public money should be used for the public good, not to support destructive industries like the arms trade that profit from war. The Government is always stressing the importance of localism, but this is a direct attack on local democracy and decision-making.

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Justine Greening, the Secretary of State for International Development, defended the FCO guidance (AFP/Getty)

“At the moment the focus may be on arms companies and Israel, but if these changes are allowed to go ahead then they could affect almost all campaign groups.”

Paul Parker, the recording clerk of Quakers in Britain, which was the first Christian denomination to divest from fossil fuel companies, said: “Organisations should be free to spend and invest money in a way that reflects the views of their members.” The pensions committee of London’s Labour Hackney council is to consider calls to divest from fossil fuel companies at a special meeting in January.

The move by the Government is equally designed to prevent councils from boycotting Israeli companies or public institutions in response to calls by the pro-Palestinian Boycott Divestment and Sanctions [BDS] campaign. But activists also fear that the ban could stop councils from divesting from companies operating in Israel’s West Bank settlements – despite the fact that the Foreign Office (FCO) currently advises private sector businesses against trading with or investing in such companies. Britain, like most other Western counties, regards the settlements as illegal under international law.

The FCO guidance was defended in the Commons last week by Secretary of State for International Development Justine Greening. Asked by the Labour MP and shadow transport minister Richard Burden whether she agreed it was “perfectly reasonable for both public and private institutions to pay due regard to that advice when they make their own investment and procurement decisions”, Ms Greening said: “They should do that; that is good Foreign Office advice.”

But it is not clear that the FCO or Ms Greening’s department was consulted when the move was launched. A press release issued by Conservative Central Office on the eve of the party conference in October cited the case of Leicester City Council, which decided earlier this year on a boycott limited to goods from West Bank settlements. An application by local Jewish groups for judicial review of the decision will be heard in the High Court next year.

The Communities and Local Government Secretary Greg Clark said in the release: “Divisive policies undermine good community relations, and harm the economic security of families by pushing up council tax. We need to challenge and prevent the politics of division.”

The French-owned multinational water, energy and waste management company Veolia – which collects refuse for a wide range of British local authorities – announced in April that it was closing down its operations in Israel. The move followed a concerted campaign to persuade it to halt its work in West Bank settlements, during which Labour-controlled Birmingham became at least the third council to warn Veolia it might not renew its £35m per year waste disposal contract when it runs out in 2019 if the company continued to operate in the occupied West Bank. The requirements in the city’s Business Charter for Social Responsibility – currently being reviewed with a view to strengthening its ethical elements – include suppliers’ compliance with the Universal Declaration on Human Rights.

A Department of Communities and Local Government (DCLG) spokesman said: “Councils should not be using pensions and procurement policies to pursue their own boycotts and sanctions against foreign nations. We are tightening up the rules to ensure taxpayers’ and the UK’s interests are protected.” 

Whitehall sources added that the “social, environmental and governmental” policies of council pension funds should reflect government foreign policy and that a reference to the Foreign Office’s guidance on business risks abroad would be included in the new guidelines for the pension funds. But the DCLG did not say whether councils would therefore be free to boycott companies operating in Israeli West Bank settlements.

Mr Burden, chair of the All Party Palestine Parliamentary Group, said the Government appeared to target councils that were acting in line with Foreign Office advice against trade with companies in the settlements of West Bank, because it carries financial, commercial and certainly ethical risks. They seem deliberately to be conflating divestment from these illegal activities with a generalised boycott of Israel. If they don’t know the difference that’s very worrying and if they do know the difference – as the FCO does – they are being misleading.”

Mr Burden said he would be challenging ministers on this “bluntly crass” and “potentially anti-democratic” policy when the Commons returns in January. The wider issue was that it would “prevent councils pursuing goals like community cohesion, environmental sustainability and human rights in line with the best practice of the progressive private sector. It’s called corporate social responsibility. The right ethical investment decisions in the long term are often also the right business decisions.”

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