New guidance published on council property investment

Finance experts have warned councils that any decisions about property investments must be made with ‘transparency and financial sustainability in mind’. 

The Chartered Institute of Public Finance and Accountancy (CIPFA) has published new guidance about what is expected of local authorities who are taking out large loans in order to investment in property.

In recent years, councils have invested in a range of property, including hotels, farms and supermarkets in order to generate additional revenue or make up a shortfall from central government.

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

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

And last year, 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 guidance makes clear that authorities must not borrow more than or in advance of their needs ‘purely in the interest of profit’.

It also reflects circumstances where there is no specific or projected need to borrow, but an opportunity has been identified to make profit greater than the authority’s cost of borrowing.

‘In a landscape still reeling from a decade of austerity, we would not expect commercial investments in property to be abandoned in full,’ said CIPFA’s head of policy and technical, Don Peebles.

‘However, we must ensure that responsible decisions are made with transparency and financial sustainability in mind.

‘In the end, the most important consideration is how taxpayers will be affected by decisions made at the top, and they should not be left in the dark about the process,’ added Mr Peebles.

‘While local authority borrowing is covered under CIPFA’s Prudential Code, the increasing role of property investment in councils’ financial plans has driven the production of this new guidance addressing the specific issue.’

Photo Credit – Stevepb (Pixabay)