Council forced to stop buying property for profit after £63m investment

The Conservative-run council has borrowed £63 million from the government’s Public Works Loan Board (PWLB) and used that low-interest loan to buy buildings such as offices and shops.

It bought buildings across the country, including an £8 million office block in Newbury Business Park, a £2.9 million bank in Eastbourne and a £7 million Sainsbury’s store in a market town in North Yorkshire.

Those properties are rented out and the council aims to make a profit of around £1.26 million (two per cent) each year, so it can reinvest that money in front-line services.

READ MORE: Council not concerned about property prices falling despite £63m investment

It had planned to borrow £100 million in total, but in November 2020 the government said councils should stop borrowing from the PWLB to invest in property purely for profit.

Cllr Ross Mackinnon, executive member for finance, said: “We will not be looking to make any further purchases of commercial property.

“We will certainly be maintaining the current property portfolio to generate income, but further purchases are off the table.”

He has previously said the council is not concerned about property prices falling during the Covid-19 pandemic, because the has no immediate plans to sell them.

Cllr Ross Mackinnon

Around £6.6 billion was borrowed by councils for property investments between 2016 and 2019 and the government states “this is not an appropriate use of PWLB loans”.

In a report, the government said councils will be allowed to take out PWLB loans to invest in local infrastructure and regeneration projects but cannot borrow money “primarily for yield”.

It states that some councils are taking on risky long-term investments using PWLB money that should be spent on local infrastructure projects.

In recent years, several councils have lost millions of pounds by making investments which didn’t pay off.

READ MORE: 15,000 home Grazeley project 'not dead' yet

Croydon Council borrowed £545 million over three years to invest in commercial property and housing, but auditors said the council’s “strategy to invest its way out of financial challenge” was “inherently flawed”.

The London council was forced to declared bankruptcy in November after failing to close a £66 million funding gap.

The auditors also found the Labour-run council had spent almost £30 million on Croydon Park Hotel, which went into administration earlier this year, and lent almost £200 million to its housing company Brick by Brick, which has failed to turn a profit.