The post you are reporting:
Courtesy of the Times.
Councils are still spending more than £100 million a month betting on the commercial property market despite guidelines limiting the practice as fears grow of a collapse in prices. Local authorities have spent £1.8 billion in the last year buying retail centres, shops and offices, chasing returns to replace revenue lost in government cuts. They have spent more than £3 billion since 2013 and some have spent huge multiples of their annual income.
Spelthorne borough council in Surrey has a net budget of £22 million but has spent more than £600 million. Its accounts declare it “heavily reliant on investment income” to fund services. In April, the government instructed councils to take more care to avoid risk after warnings that demand for retail space was falling and rents stagnating as consumers spend less or shop online. If rents collapse, councils may be left with debts that they can repay only by cutting services or raising taxes. Lord Oakeshott of Seagrove Bay, chairman of Olim Property which manages £1 billion of commercial property, accused councils of using taxpayers’ money to buy “rubbish assets”. “It’s a real double whammy coming for council tax payers and income tax payers,” he said. “Councils have been the buyer of last resort for very poor shopping centres and department stores . . . What they bought would have been overvalued at the time and is far more overvalued now.”
An analysis of council spending by the Bureau of Investigative Journalism showed that East Hampshire district council had paid almost £40 million for a Tesco Extra, and Runnymede council in Surrey paid £21.7 million for a Waitrose and a Travelodge. Many of the investments sit far from authorities’ areas. Last year, Broxbourne council in Hertfordshire spent £17.2 million on a site occupied by Tesco, 170 miles away in Grimsby; Torbay council in Devon bought a warehouse 230 miles away in Kent. Eighty per cent of Surrey county council’s investments have been outside the county. Councils often borrow at low interest from the Public Works Loans Board, part of the Treasury. There are no limits to how much they can borrow and they do not have to prove they can afford it.
Spelthorne council did not accept that it was taking substantial risks and said all its acquisitions since April had been made in accordance with the new guidance. Ian Harvey, its Conservative leader, said: “The fact that the acquisitions are financed by fixed-rate interest loans at historically low rates enables us to have confidence that future council tax payers are not exposed.” Other councils said that purchases had not breached the guidelines and investments were low risk. A government spokesman said: “Councils are responsible for managing their own finances and making the right decisions for the communities they serve. The new codes . . . strike the right balance between allowing them to be innovative while ensuring that taxpayers’ money is properly protected.”