Councils have exposed themselves to commercial investments which risk cuts in local services and a big bill for local taxpayers, according to a new report from the Commons Public Accounts Committee.
Its investigation found that financial pressure on local authorities’ budgets, combined with encouragement to invest in commercial enterprises to bring in income, had seen risky investments in commercial property “balloon” 14-fold in three years to an estimated £6.6bn. As much as 91% of this spending has been financed with debt largely from the Public Works Loan Board.
The PAC said the Ministry of Housing, Communities and Local Government “has been blind to the overexposure of local councils to certain sectors, risking a repeat of the impact of the overexposure of local authorities to loans from Icelandic banks in 2008”.
It is calling on MHCLG to develop and rapidly deploy interventions that stop what it labels “extreme risk taking”.
MP Meg Hillier, chair of the committee, said: “In just three years some councils’ external borrowing has exploded – and all on MHCLG’s sleepy watch.
“Councils are locally led and must make their own decisions. But it is hugely disappointing that the department does not have a clear view of potential risk of over-exposure despite the committee warning about this four years ago.
“If local authorities were counting on rents to repay that debt they are now, with the hit from Covid-19, in a very risky position – which means taxpayers and local services are in a very risky position. Add to this recent reports that eight out of 10 English councils are now at risk of technical insolvency because of Covid pressures and the picture is serious.”
Hillier claims the MHCLG “did not even bother to keep track of the underlying numbers or likely risk”.
Deputy chair Sir Geoffrey Clifton-Brown added: “The fact that the Public Loan Board has been brought in-house by the Treasury shows the level of concern about this. If the department toughen up the Prudential Code as we recommend and make the whole system much more transparent to the public, these measures taken as whole should bring about the behavioural change that is needed by local authorities in this area.”
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