UNITED KINGDOM
A new report has found that some Local Authorities in the UK are building up huge debts by buying supermarkets, business parks and offices, tying the future of their public services to the uncertainty of the property market.
The report from the Bureau of Investigative Journalism (BIJ) claims Councils have borrowed massive sums — in some cases, the equivalent of 10 times their annual budgets — to finance the purchase of real estate.
“In the last two years, the number of Councils investing in property has doubled,” the BIJ report said.
“In the past financial year alone, Councils spent a total of £1.8 billion [A$3.1 billion] on investment properties, a sixfold increase from 2013–14.”
The BIJ said it had obtained details of the property investments made by more than 100 Local Authorities.
“Councils say they have been forced to find new ways to generate income given the steep cuts in Central Government funding, which the National Audit Office calculates has fallen by half in real terms since 2010,” it said.
However, experts warned that commercial property investments were volatile, and the fact that Councils were financing them through borrowing made them even riskier.
Head of Policy for the Chartered Institute of Public Finance and Accountancy (CIPFA), Don Peebles said this was a risk that Local Authorities had not been exposed to before.
“If you look at the most extreme examples, there are public services used by vulnerable people which are dependent on how well rental income in the property market is doing,” Mr Peebles said.
“This is a risk that Local Authorities have never been exposed to before and you have to ask whether they are equipped to handle that risk.”
The BIJ said the spending spree had been made possible by Councils’ easy access to low-interest loans from the Public Works Loans Board (PWLB), a national Government body.
There are no limits to how much Councils can borrow and they do not have to prove they can afford it; the PWLB leaves this up to Councils to decide.
London, 3 January 2019
