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District set to borrow £100m to build property portfolio

Members of Uttlesford District Council in Essex are to meet later this month to discuss borrowing £100m to invest in commercial properties.

Councillors will discuss the agreeing to the move in principle at their 2019-20 budget setting meeting on 21 February.

The local authority is looking to borrow £100m over three years to invest in commercial property. 

Of this, £20m would be allocated to further investment at Chesterford Research Park – in which the council owns a 50% share – and £80m allocated to other investments.

Councillors will also be asked to widen the areas in which the council can invest. 

At present, it has decided that all investment has to be within the district boundary.

Whilst the proposals still give preference to investment for commercial acquisitions within the district, the council would look at investment opportunities within Essex, Hertfordshire, Cambridgeshire and Suffolk should more local opportunities not arise.

The move comes at a time when local authorities are under renewed pressure about investing in commercial properties to replace money from central government.

Another district council – Spelthorne Borough Council in Surrey – hit the headlines last year after it was revealed it has borrowed almost £1bn from the Public Works Loan Board (PWLB) to fund a property portfolio.

‘For some time we have been working within a challenging financial climate, and we know the council will be receiving less funding from the government over the forthcoming years. Increasing council tax also does not cover the shortfall – for every 1% increase UDC only receives about £55,000 extra,’ said Uttlesford’s cabinet member for finance and administration, Cllr Simon Howell.

‘The purchase of the 50% share of Chesterford Research Park, for example, has proven to be an excellent investment which has delivered a surplus of £1.5m, after borrowing costs, in the first 12 months. The recent agreement to modernise a facility at the Park will see this sum rise by £500,000 a year from the second half of 2020.

‘By investing further, both in and out of our district, we can ensure that key services remain in place for residents,’ he added.

‘However, even with these investments, significant cost savings will still need to be found as we address a £4.5m per annum loss in government funding. We will, along with the MP, continue to lobby government for additional funding and to demonstrate to them the scale of the challenge that we and other rural councils face.’

Speaking to New Start, Paul Fairhurst from the group Residents For Uttlesford, commented: ‘As an investment specialist my concerns go beyond just the scale to the procedure and skills available to counsel.

‘Possibly the first question to ask might be why a prudent government would reduce funding to local authorities that encourages or possibly forces them to embark on risky adventures to anticipate funding shortfalls. Surely a more professional approach would be to establish  centralised funding mechanism with the requisite skill, expertise and scale to avoid these devolved regional risks?’

Click here to read the New Start feature on whether councils are gambling on their future buying shopping centres.

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