The National Audit Office (NAO) has called on the government to review rules governing council borrowing and investment following a sharp increase in council spending on commercial property.
The NAO warned of potential investment risks from buying commercial properties, particularly in cases where councils have invested heavily and are reliant on the rental income generated from their property investments to keep up with debt repayments or fund local services.
It said the ministry of housing, communities and local government should review its rules in light of increased council spending on commercial property.
“MHCLG needs to look again at the framework which governs local authority borrowing and investment and consider whether it is still fit for purpose,” said NAO head Gareth Davies.
The report also laid bare the event to which council property investment had increased and how a small number of councils were investing particularly large sums.
The NAO estimated that councils spent £6.6bn on commercial property from 2016-17 to 2018-19 – 14.4 times more than in the preceding three years. An estimated £3.1bn was spent on offices, £2.3bn on retail property, and £957m on industrial property.
Some 80% of the £6.6bn spend on commercial property in the last three years was by only 49 local authorities.
Local authorities located in the south east of England were particularly active, accounting for 53% of commercial property spending in the last three years. District councils are also disproportionately big spenders in this area, accounting for 51% of commercial property spending from 2016-17 to 2018-19.