Councils across England are borrowing large sums of money to purchase properties to supplement their income from government funding cuts. With a gap of £7.8bn, councils are having to seek extra sources of income to continue their services.
Tying their income to property investment leaves the council and its services on very shaky ground. If a council makes a loss on an investment, it is the people on the receiving end of the council services – the taxpayers – who suffer. Existing cuts are already having an effect and there is no end in sight.
Where is the money coming from?
This begs the question as to who are the councils borrowing from? The money comes from a government body known as the Public Works Loan Board (PWLB), which has no limit on how much it can lend and to whom. The government has been trying to draw up guidelines to discourage such borrowing since April 2018; however, it is the government that is forcing councils to make such risky investments in the first place due to the drastic cuts that have hit all councils and all services hard.
Councils are running up huge debts that outweigh their spending power; for example, Spelthorne Council has an annual budget of £22m and a debt of £1bn on loans to buy property. It is not the only one running up huge debts, with Eastleigh, Woking and Runneymede borrowing over ten times their annual budget.
What are the risks?
In today’s climate, with the potential of a no deal Brexit on the horizon, a property market crash is a very real option. According to the Bank of England, the economy is facing a very real downturn. For other investors in property management Cheltenham is seeing the consequences of council borrowing, with prices being driven up as councils pay over the odds with no limit to how much the PWLB will lend.
Austerity is pinching hard and councils are putting themselves and their services at huge risk just to make ends meet. We can only hope that the future of the economy improves and that councils can continue to do their good work without financial risk.