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April 21st 2020
MPs launch inquiry into councils’ property spending spree
An influential cross-party group of MPs has launched an inquiry into councils investing in commercial property.
In its call for evidence, the public accounts committee (PAC) said there has been a ‘recent step-change’ in the scale that councils have been investing in shopping centres, office blocks and industrial estates.
The call quotes a report by the National Audit Office, which was published in February and revealed that councils in England spent £6.6bn on property investments between 2016 and 2019.
The NAO report also noted changes made by CIPFA and the Ministry of Housing, Communities and Local Government (MHCLG) around how councils can invest in such properties.
It also found that the data MHCLG collects has ‘limited usefulness for monitoring commercial activity and assessing its risks’.
The public accounts committee said it will be questioning officials from the MHCLG on ‘gaps’ in commercial skills in local government, and the extent to which the Department formally monitors commercial activity and long-term exposure to risk on May 11.
Responding to the committee’s announcement, CIPFA’s local government policy manager, Joanne Pitt, said: ‘With both the growing interest in commercial property investment and the current PWLB consultation, the PAC inquiry is not unexpected. Practically speaking, the launch of the inquiry amid the ongoing COVID-19 crisis will allow the sector to test the strength of commercial decisions against the current economic environment. For the long-term financial sustainability of the sector, it is important that we fully understand the options, risks and decisions being made in local government.
‘Recognising the challenges faced by local authorities, CIPFA released its Prudential Property Investment guidance in December 2019, intended to support local government to ensure that private acquisitions are prudent. We look forward to responding to the committee in line with our guidance.’
Last week, the credit rating agency Moody’s warned some councils will ‘face the loss of commercial income’ from newly-purchased buildings, as the coronavirus impacts the economy.
An agency briefing stated 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.
Interested parties can also submit evidence to the committee inquiry here.
Photo Credit – TheDigitalArtist (Pixabay)