Government ‘blind’ to risks of council property spending sprees

A group of MPs has criticised ministers for being ‘blind’ to the ‘extreme risks’ taken by some councils investing in shopping centres, office blocks and other properties.

In a report published today (13 July), the influential public accounts committee says that some councils have exposed themselves to large commercial investments, which could create problems in the future.

It also accuses the Ministry of Housing, Communities and Local Government (MHCLG) of being ‘blind’ to the issue, risking a repeat of the impact of the overexposure of local authorities to loans from Icelandic banks in 2008.

As previously reported by New Start, some local authorities have borrowed multiple times their annual spending power.

A report by the National Audit Office, which was published in February, revealed councils in England spent £6.6bn on property investments between 2016 and 2019.

The report says MHCLG must ‘develop and rapidly deploy interventions that target’ this kind of ‘extreme risk taking’.

The committee first warned about this risky borrowing in 2016, and now says it is ‘extremely disappointed; that far from heeding that warning, the ‘complacent’ department has sat back and watched that spending ‘balloon 14-fold’ since then.

‘In just three years some councils’ external borrowing has exploded – and all on MHCLG’s sleepy watch,’ said committee chair, Meg Hillier.

‘Councils are locally led and must make their own decisions. But it is hugely disappointing that the department does not have a clear view of potential risk of over exposure despite the Committee warning about this four years ago.

‘If local authorities were counting on rents to repay that debt they are now, with the hit from Covid-19, in a very risky position – which means taxpayers and local services are in a very risky position. Add to this recent reports that large numbers of English councils are now at risk of technical insolvency because of Covid pressures and the picture is serious,’ she added.

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

‘We are aware and share concerns about a minority of councils that continue to expose themselves and taxpayers to risk through significant amounts of borrowing for commercial purposes. We have already taken steps to tighten our guidance on council investments and are undertaking a review to develop a more comprehensive understanding of this activity.’

Photo Credit – Skeeze (Pixabay)