English councils went on a massive £6.6bn commercial property spending spree over the past three years, buying office buildings and shopping centres to offset the impact of government funding cuts, the public spending watchdog has revealed.
The scale of the rush to acquire revenue-generating investments to fund council services has left many local authorities potentially badly exposed in the event of an economic recession or a property crash, the National Audit Office (NAO) said. Between 2016 and 2019, councils spent £3.1bn buying office developments, £2.3bn on retail property, including £759m on shopping centres, and nearly £1bn on industrial property – a 14-fold increase on the previous three years.
The chair-elect of the cross-party Commons public accounts committee, Meg Hillier MP, warned that the austerity-fuelled property investment boom raised “serious alarm bells” and called for ministers to take steps to minimise risks to taxpayers.
Councillor Richard Watts, chair of the Local Government Association’s resources board, said £16bn of cuts since 2010 had stretched councils to the limit: “Councils have faced a choice of either accepting funding reductions and cutting services – such as care for older and disabled people, protecting children, reducing homelessness, fixing roads and collecting bins – or making investments to try and protect them.”
Although the Treasury increased the cost of council borrowing last year, it is unlikely to significantly arrest the trend. A survey of councils earlier this month found 66% said they will become more reliant on income from commercial investments in the future and 75% planned to increase their level of borrowing.