Councils risk losing millions in commercial investments

New research has revealed the risks of the multi-billion pound council commercial property portfolio, with some yields coming in at millions below forecasts.

The TaxPayers’ Alliance analysis of a sample of council portfolios across England showed a mixed picture for investments, with many risks even before the coronavirus pandemic.

A pandemic-induced recession and an increase in work-from-home could see rents from retail and office property fall, after a three year £6.6 billion spending spree by local authorities in England, detailed by the National Audit Office. Only around half of these investments take place within the council’s local area.

Evidence given by council leaders explained that access to attractive loans from the Public Works Loan Board (PWLB), at around £46 billion on average each year, has seen English local authorities spend billions of pounds on investment portfolios. Many have sought to offset reduced revenue support grants from central government, or to prevent rises in council tax, with mixed success.

Analysts have called for measures to restrict and monitor access to PWLB loans, as well as new requirements for councils to demonstrate financial expertise and diversify existing portfolios, before any investments are undertaken.

Harry Fone, grassroots campaign manager of the TaxPayers' Alliance, said: “The devastating economic impact of coronavirus should cause councils to think twice before rolling the dice with huge sums of taxpayers’ cash. While it can see some success, including keeping council tax down, there are no guarantees with any investment and ultimately it’s ratepayers that will end up footing the bill for underperforming portfolios.

“As we emerge from the coronavirus crisis, new measures and mindsets will be needed if we are going to make sure this doesn’t become a disaster waiting to happen for local authority finances.”  

One council, Runnymede, faced a black hole of £826,000 on total investments valued at £368 million. In another example, a 251-bed student housing block near Cambridge provided £180,000 less than anticipated, amid an overall shortfall of £877,000.