Ministers worried ‘two or three’ councils borrowing too much

A senior civil servant has admitted the Government is worried that ‘two or three’ councils are borrowing too much money in order to buy commercial properties.

Speaking in front of the communities and local communities parliamentary select committee this week, top officials from the Ministry for Housing, Communities and Local Government admitted a few local authorities are borrowing very high amounts of money in proportion to their annual revenue budgets.

They were quizzed by committee members following reports that some councils, notably Spelthorne Borough Council, were borrowing large sums to invest in shopping centres, business parks and office space.

The Whitehall department’s director general, local government and public services, Dr Jo Farrar told the committee ‘there are only two or three local authorities we are worried about at the moment’.

‘In general, we think local authorities are borrowing responsibly,’ she added.

And the department’s permanent secretary, Melanie Dawes, said there are ‘only one or two’ councils that are borrowing very high amounts of money.

In October, the Chartered Institute of Public Finance and Accountancy (CIPFA) warned councils about borrowing too much money to invest in shopping centres and commercial buildings.

At the time, CIPFA said it is also planning to issue more guidance in the future that ‘will make it clear that these investment approaches are not consistent with the requirements of fiscal sustainability, prudence and affordability’.

Ms Dawes added there are only one or two councils that are ‘really pushing the envelope beyond the guidance we updated recently with CIPFA’.

‘We’ve done quite a lot of work with CIPFA on the about the overall local authority borrowing codes and the way they should be thinking,’ said Ms Dawes.

‘In a lot of cases, local authorities are investing in their own local high streets. They are doing so for reasons of regeneration and to support their communities. Where they are seeking just a commercial return, we think they need to be significantly more careful.

‘Since CIPFA published their latest guidance, we have been monitoring some responses. In some cases, we do still have some concerns.

‘What we don’t want to do is stop local authorities being sensible. The vast majority of them are doing that – making sensible investment decisions, but we need to make sure they are not taking on risks they cannot manage.’

Ms Dawes was also quizzed on the UK Shared Prosperity Fund, which is due to replace various EU social and regeneration funds after Brexit.

In response, she said the Government intends to ‘publish something soon’ about the Fund and that ministers have been ‘doing a lot of engagement with partners and LEPs’.