Councils and their pension funds could be stopped from withdrawing investments in , arms and oil under plans dubbed an “attack on local democracy” by a Birmingham MP.
The proposed curb comes at a time when the £11 billion West Midlands Pension Fund is coming under pressure from campaign groups to withdraw funding from arms dealers and oil companies.
Latest accounts revealed the giant fund had , and an companies.
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The proposal could also impact on Birmingham City Council’s Business Charter for Social Responsibility which gives ethical companies, such as those who pay the living wage, an advantage in tenders for large council contracts.
Tens of thousands of former and current council workers from the seven West Midlands metropolitan districts, including , are members of the fund.
From March, the West Midlands Pension Fund will also join forces with other public sector funds in the region to pool investments in a £35 billion pot and cut management costs.
Northfield Labour said the Government’s proposed block on divestment would be an “assault on local democracy” by removing the right of elected councils to choose who they invest or work with. He is now organising a Parliamentary debate on the issue.
But the Conservative Local Government Secretary Greg Clark warned that left wing councils were playing politics with pension funds, undermining government foreign policy and pushing up the bill for council taxpayers.
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The issue has become particularly sensitive around deals with firms working on illegal settlements in the West Bank of Palestine and the Government is keen to prevent authorities from adopting a boycott on deals with Israel.
Two years ago, Birmingham City Council told French multi-national Veolia it would not get its £35 million per year waste contract renewed in 2019 if it continued to be involved in West Bank settlements.
It is thought this threat, along with pressure from other public sector customers, led to Veolia withdrawing from West Bank activity last summer.
Mr Burden, who chairs Parliament’s All Party Palestine group, pointed out that the DCLG proposal also flew in the face of Foreign Office advice against investments in the West Bank.
The Isreali settlements are illegal under international law.
He said: “They seem to be conflating the issue of the illegal settlements in the West Bank with more general boycotts of Israel and the two are not the same.
“The Foreign Office is even warning are risky for a number of reasons.”
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Mr Burden added that private sector firms were allowed to make ethical judgments on contracts and investments and so should local authorities, acting in the interests of local residents.
“An increasing number of private sector companies are also realising that the right ethical decisions are also the right business decisions,” he added.
The policy was first proposed by the Conservatives last October amid fears that ethical investment policies could undermine Britain’s relations with Israel and impact on the defence industry.
At the time, Cabinet office minister Matthew Hancock said: “Conservatives are on the common ground.
“We will take steps to stop such outdated policies being pursued through procurement and pension policies.
“We will safeguard the security of families at home and prevent such playground politics undermining our international security.”
Co-ordinator of the campaign to get the West Midlands Pension fund to withdraw from fossil fuel investments Kay Edwards said: "This proposal to curb how councils make their investment or divestment decisions is anti-local democracy.
"Pension-holders and funds should be able to have a say where their money is going.
"Councils should be able to consider ethical factors where they don't affect the financial performance of the fund - this is already the advice of the law commission.
"However there are also strong financial reasons for divesting from fossil fuels, which are getting stronger every day."