Councils’ property spending spree ‘raises serious alarm bells’

MPs have urged the government to take stock after an official report revealed the amount of money spent by councils on buying commercial property has risen by 14-fold.

A report out today by the National Audit Office (NAO) shows councils in England have spent £6.6bn on supermarkets, office blocks and warehouses between 2016 and 2019.

According to the NAO, this is 14.4 times more than councils spent in the preceding three years.

Between 206 and 2019, the NAO estimates councils have spent around £3.1bn on acquiring offices, another £2.3bn on retail property, including £759m just on supermarkets and £957m on industrial property.

New Start has reported in the past that many councils are turning to property investment to make up for the shortfall in the money they receive from central government.

In September 2019, New Start reported that South Somerset District Council had bought Glastonbury branch of B&Q for £4.4m.

It came just weeks after the same local authority bought the UK distribution hub of toy giant Hasbro in Newport for £2.78m.

And in 2018, a report by the Bureau of Investigative Journalism revealed Spelthorne Borough Council in Surrey had borrowed almost £1bn from the Public Works Loan Board to buy a series of commercial properties.

The NAO report says more than three quarters (80%) of the £6.6 billion spend on commercial property in the last three years was by only 49 local authorities.

However, 105 authorities spent at least £10 million buying commercial property in this period, compared to only 13 authorities spending at least this amount in the previous three-year period.

Local authorities located in the South East of England are highly active, accounting for 53% of commercial property spending in the last three years.

The report adds that district councils are also disproportionately big spenders in this area, accounting for 51% of commercial property spending from 2016-17 to 2018-19, but only 6% of the sector’s spending power.

‘Local authorities have responded innovatively to the challenge of funding constraints, with some investing in commercial property to secure additional income,’ said the head of the NAO, Gareth Davies.

‘However, the benefits from this investment must be considered against the potential risks to authorities, particularly given the concentration of this activity and associated borrowing within a relatively small group of authorities.

‘MHCLG needs to look again at the framework which governs local authority borrowing and investment and consider whether it is still fit for purpose.’

Commenting on the report, the chair elect of the public accounts parliamentary select committee, Meg Hiller, said: ‘Given local authorities have faced such big cuts, it understandable that many might take part in risky investments to get more money in.

‘However, a 14-fold increase in spend on commercial property raises serious alarm bells. Most of these acquisitions by value are being made by a small number of authorities, and activity is concentrated in the South East.

‘The department needs to take stock and ensure that there is protection for local taxpayers from local authorities acting as investment bankers.’

In response, a MHCLG spokesperson said: ‘Councils are responsible for managing their finances and must properly consider the risks and opportunities when they make commercial decisions.

‘We will carefully consider this report in our work as stewards of the local government finance system.’

Photo Credit – Stevepb (Pixabay)