MPs’ warning over council debt
AWHITEHALL department appears “blind” to billions of pounds of potentially risky commercial investments made by councils, MPs have warned.
The Commons Public Accounts Committee said that £6.6 billion of taxpayers’ money has been spent on acquiring commercial property in the three years to 2018-19, 14 times more than in the previous three-year period.
In a report, the committee warned that councils were “borrowing for yield” to offset financial pressures, and that many had built up longterm debts that need to be serviced with rental incomes.
The MPs expressed concern that the Ministry of Housing, Communities and Local Government (MHCLG) is “blind to the level of exposure of the local government sector to sectoral commercial risks”.
“If a commercial sector collapses or underperforms it is vital that the department has a better grasp on the likely impact on council finances,” they said.
“This is important because an individual council investment may pass muster with the auditors, but cumulatively the risk could be great and the impact falls on local council taxpayers and service users.
“Covid-19 has just served to underline the committee’s concerns.”
Committee chairwoman and Labour MP Meg Hillier 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. The department did not even bother to keep track of the underlying numbers or likely risk but at the end of the day, central Government will have to step in if a council fails.”
An MHCLG spokesman said: “Councils are responsible for managing their finances and must properly consider the risks and opportunities when they make commercial decisions.
“We are aware and share concerns about a minority of councils that continue to expose themselves and taxpayers to risk through significant amounts of borrowing for commercial purposes.
“We have already taken steps to tighten our guidance on council investments and are undertaking a review to develop a more comprehensive understanding of this activity.
“We’ve delivered an unprecedented package of support to councils during the pandemic including £4.3 billion of funding, while councils’ core spending power rose by £2.9 billion this year before additional emergency funding was announced.”