Head of the NAO Amyas Morse revealed at a housing, communities and local government committee session last month that the watchdog is taking a closer look at a growing trend of borrowing to invest in commercial property.
Tony Travers, director of LSE London, told PF: “I have no doubt that some authorities will be wary of potential criticism.”
Several councils have pursued a strategy of borrowing cheaply from the Public Works Loan Board to invest in property as a source of revenue following cuts to local authority budgets.
Travers said this strategy has left some councils open to criticism, owing to the “long-term exposure” of their investments.
The local government secretary James Brokenshire highlighted the trend as an area of concern in his provisional local government finance settlement in December 2018.
Christian Wall, director at PFM Advisors UK, added: “It has been obvious for some time that there is concern – independent oversight is overdue.
“Some councils will think it is a fantastic thing and others will consider it an unwanted intrusion.”
CIPFA has recently decided to tightened its guidance on the topic and suggested that councils must not “borrow in advance of need”.
Paul Dossett, head of local government at Grant Thornton, told PF: “Clearly, government funding over the years has not been enough to balance the books, meaning councils are faced with choices.
“If a local authority has done its due diligence and has taken advice on investments, then they have got nothing to worry about.” He added that some councils had taken
risks by investing, but that this can be rewarded with return on investments.
“There is more risk involved in property than stashing the money away, but I am not sure authorities that do that are great stewards of public money either – you have got to take measured risk,” he said.
Travers said the publicity that the NAO report will bring will make it “more difficult for the government to do nothing”.
But Wall warned that should the government act on the impending report, “the extremities of a few should not rule out the possibility of a more measured course of action from others”.
Morse told MPs on the housing,communities and local government committee that his organisation will look at “how rigorously the [MHCLG] is supervising” property investments.
