Government fires warning shot over borrowing to invest

The local government secretary has hinted the Government may intervene if councils continue to borrow significant amounts of money to buy commercial properties.

Speaking in Parliament during the Local Government Finance Settlement last week, James Brokenshire (pictured) said he was aware of a few authorities ‘who are continuing to undertake significant amount of borrowing for commercial purposes’.

‘I share the concerns of CIPFA (the Chartered Institute of Public Finance and Accountancy) and others about the risks that these local authorities are exposing themselves and local taxpayers to,’ Mr Brokenshire told MPs.

‘We are considering with HM Treasury what further interventions may be required.’

Earlier this month, Spelthorne Borough Council defended its policy of investing in commercial properties, following reports in the national press.

A report by the Bureau of Investigative Journalism claimed the local authority in Surrey has borrowed almost £1bn from the Public Works Loan Board to buy a series of commercial properties.

In September, the council announced the purchase of the Charter Building in Uxbridge, the Porter Building in Slough and Thames Tower in Reading for £285m.

The leader of Spelthorne Borough Council, Cllr Ian Harvey said its approach is ‘restrained, prudent and risk-averse at all stages’.

And in November, West Sussex County Council bought an office block for £11.25m in Crawley to secure ‘new, long-term funding sources for the services it provides to its residents.’

Responding to Mr Brokenshire’s latest comments, CIPFA’s chief executive, Rob Whiteman said he welcomed the local government secretary’s support around some local authorities borrowing, which can ‘carry an implicit risk to long-term sustainability by creating a dependence on commercial income as they take on too much debt’.

‘Borrowing more than or in advance of their needs purely to profit from the investment of the extra sums borrowed does not sit right with council’s obligation to be prudent, or with the primary purpose of local authorities to deliver services and growth locally,’ added Mr Whiteman.

‘Councils must take a balanced and proportionate approach to commercial ventures.’