The credit rating agency Moody’s has warned some councils will ‘face the loss of commercial income’ from newly-purchased buildings, as the coronavirus impacts the economy.
The update on UK councils’ credit worthiness states that operational capacity for many local authorities is under ‘extreme stress’ due to the current pandemic, but it believes the overall financial impact will be low thanks for interventions from central government.
However, it notes that some councils will ‘face the loss of commercial income from recently acquired or developed office, leisure and retail property’.
The note from Moody’s also quotes a report published by the National Audit Office (NAO) in February, which shows councils in England spent £6.6bn on supermarkets, office blocks and warehouses between 2016 and 2019.
‘The duration of the crisis is uncertain, but a prolonged recession would be credit negative for these local authorities, depending on the extent of their exposure,’ the note adds. ‘Within our portfolio, the most exposed local authority issuers are Aberdeen City Council (Aa3 negative), Warrington Borough Council (A1 negative) and Guildford Borough Council (Aa2 negative), all of which have relatively large portfolios of commercial, retail and leisure properties.’
The briefing states that Warrington Borough Council has the ‘highest exposure to commercial income as a proportion of its gross service expenditure’.
But it adds that much of its income comes from buildings and sources, which are unlikely to be affected by the coronavirus outbreak, such as supermarkets and energy centres.
In March, the government launched a consultation on the future of the Public Works Loan Board, which has been used by some councils used it to buy ‘significant’ amounts of commercial property.
According to the consultation document, which is available on the Treasury website, the government is consulting on revising the terms of PWLB lending to ensure that local authorities continue to invest in housing, infrastructure, and public services.
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Senior reporter – NewStart