Councils will be hostage to market forces

The debate has raged this week about whether it is right for Peterborough City Council to loan a company £15m to build a Hilton hotel on Peterborough’s Fletton Quays site. Increasingly local authorities are turning to new and creative ways to create income and replace the declining pot they receive from central government. Peterborough is far from the first council in the region to invest in a hotel. This deal looks solid. The council will be paid back and will make £500,000 interest. If something went wrong then it would own a hotel - something it could run on behalf of taxpayers or sell to recoup its cash. But, of course, there are no completely ‘safe bets’ when it comes to investments - ask any financial adviser or actuary. In this case the city council does not look exposed but is nonetheless ‘betting’ £15m on a project. However, it also stands to reason that as local authorities around the country look to make investments to supplement their income, at some point a percentage of those investments will go wrong. It’s that point of principle that is causing grave concern to many who fear that public services funded by privathe investments is a road that will inevitably have some big potholes in it. When market forces apply there are always winners and losers. In this case there is no reason to suggest that the city council has made anything other than a prudent and in all probability successful investment with its £15m loan. But councillors are quite right to question such investments at every turn - a lot of public money is at stake.