Local authorities are to be banned by the Treasury from investing in commercial property such as offices and shopping centres. The practice is being reviewed as part of a consultation into the role of the Public Works Loan Board, which some local authorities have used as an easily accessible source of financing for their property investment.
While the consultation is not due to finish until July, the Treasury said at the end of May that it wanted to see an end to the investments – which have resulted in some local authorities becoming dependent on rental income to fund services.
A spokesman for the Treasury said: “Our starting point is that local authorities should invest public money in regeneration, housing and delivering services, not in speculative commercial investments, which can put local and national taxpayers at risk.”
Since 2010, government funding for councils has been halved, with £15bn lost due to the cuts, which led to the number of councils investing in property more than doubling.
A recent report by the NAO (National Audit Office) said councils had spent £6.6bn on commercial property since the end of March 2016. Some local authorities are now reportedly dependent on income from property investments to provide services. Woking borough council in Surrey reported a month before lockdown that its investment and rental income was the equivalent of 88% of its budget for services. Next year that figure was predicted to rise to 98%.
Risk of bankruptcy
Mayors in some of England’s biggest cities warned last week that many local authorities are at risk of going bust, with potentially devastating consequences for communities unless the government takes immediate action.