Embargoed: 00:01 Friday 11 September 2020
- English councils have invested heavily in commercial property since 2015.
- Analysis of a sample of local authorities showed millions being lost, with yields well below forecasts.
- The uncertainty caused by covid-19 confirms the need for new measures to restrict and monitor these investment activities.
Research from the TaxPayers’ Alliance has revealed the risks of the multi-billion pound council commercial property portfolio, with some yields coming in at millions below forecasts.
A covid-19 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.
TaxPayers’ Alliance analysis of a sample of council portfolios across England showed a mixed picture for investments, with many risks even before the virus. 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.
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.
Analysis of council investments
Select councils Leeds, Shropshire, Buckinghamshire, Surrey, Runnymede and Woking all reported that rental income was less than expected. The difference in income ranged from £21,107 to £826,189. Of the nine councils surveyed, five reported that rents were below forecasts in the most recent year for which data was available, in total by £2 million.
Spelthorne council was the only selected local authority that reported all investments were returning income in line with forecasts. This excluded one bought in September 2019, for which data was not available.
Torbay reported income was actually £860,000 above forecasts in 2018-19, though this did follow a £540,000 deficit in 2017-18.
A 251-bed student housing block near Cambridge provided significantly underwhelming returns in 2019, returning £180,000 less than anticipated amid an overall shortfall of £877,000 from Cambridgeshire council’s property portfolio.
Sedgemoor council has seen its portfolio value decline by £917,000, which can largely be attributed to declining value in retail investments.
East Hampshire sought to abolish council tax through commercial investment. Subsequently, East Hampshire has raised council tax only twice and it is now lower than it was in 2012-13.
- Council tax in Spelthorne and Woking is now £33 and £40 higher than in 2012-13, outstripping the average for English district councils
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.”
TPA spokesmen are available for live and pre-recorded broadcast interviews via 07795 084 113 (no texts)
Campaign Manager, TaxPayers' Alliance
24-hour media hotline: 07795 084 113 (no texts)
Notes to editors:
Founded in 2004 by Matthew Elliott and Andrew Allum, the TaxPayers’ Alliance (TPA) fights to reform taxes, reduce spending and protect taxpayers. Find out more about the TaxPayers' Alliance at www.taxpayersalliance.com.
TaxPayers' Alliance's advisory council.
In June 2019, TaxPayers’ Alliance research revealed that in 2016 and 2017 councils spent at least £74 million maintaining, renovating, securing and insuring empty commercial properties.
- In May 2019, the TaxPayers’ Alliance hosted a panel discussion on local authorities’ spending on commercial property and investment.