Futures Forum: UK public finance: councils building a credit bubble >>> >>> In October 2008, UK councils lost heavily from speculative investments. Could this happen again?
Including nearer at home:
Futures Forum: District Council local housing company >>> "the ‘huge risk’ in speculating on the property market"
The Chartered Insititute of Public Finance and Accounting is worried:
Futures Forum: Councils in England are putting public funds at “unnecessary or unquantified risk” when borrowing to invest in commercial property
The East Devon Watch blog reports on the Bureau of Investigative Journalism's look into this:
“The public service gamble: Councils borrowing billions to play the property market” | East Devon Watch
With the report here:
The public service gamble: Councils borrowing billions to play the property market
Some of the smallest councils in England have built up huge debts by buying supermarkets, business parks and offices, tying the future of their public services to the uncertainty of the property market.
Councils across England have borrowed massive sums - in some cases the equivalent of ten times their annual budgets - to finance the purchase of real estate, our investigation has found.
In the last two years, the number of councils investing in property has doubled. In the past financial year alone, councils spent a total of £1.8 billion on investment properties, a six-fold increase from 2013-14.
Of biggest concern is the scale of debts accrued by four of the smallest local authorities in England - including Spelthorne Borough Council in Surrey, which says it is “heavily reliant on investment income” to fund the services it provides.
Spelthorne has so far borrowed £1 billion despite having a net annual budget of just £22 million - this equates to 46 times its spending power. Three other councils, Woking, Runnymede and Eastleigh, have borrowed more than ten times their budget.
The Bureau has obtained details of the property investments made by more than 100 local authorities. Today we have published the details in full, providing unprecedented insight into how councils are becoming property speculators - with additional details on the millions paid to property and finance consultants.
Properties bought by councils include a BP business park in Sunbury purchased by Spelthorne for £392 million; a Tesco Extra bought for £38.8 million by East Hampshire District Council; branches of Waitrose and Travelodge acquired by Runnymede District Council for £21.7 million and a B&Q store that is now owned by Dover District Council. Other acquisitions range from farmland and gyms to a Royal Mail depot and a solar farm.
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.
But experts warn that commercial property investments are volatile, and the fact that councils are financing them through borrowing makes them even riskier. If anything goes wrong, the consequences for taxpayers could be severe.
“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,” said Don Peebles, Head of Policy for the Chartered Institute of Public Finance and Accountancy (CIPFA), which oversees council finance and publishes the guidelines local authorities are supposed to follow.
“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 public service gamble: Councils borrowing billions to play the property market — The Bureau of Investigative JournalismSpelthorne Council's Investment Strategy - YouTube
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