NAO scrutinises oversight of councils’ investment strategies

17 May 19

The public spending watchdog is investigating the government’s oversight of councils’ commercial property investment, MPs have heard.

Head of the National Audit Office Amyas Morse told the housing, communities and local government committee that a report on the subject is “in process”.

A number of councils have been looking for alternative revenue sources in recent years as their budgets have been cut, leading them to invest in commercial property. Typically, councils will borrow from the Public Works Loan Board to fund these investments.

CIFPA has previously warned that councils must not borrow “in advance of their needs purely in order to profit from the investment of extra sums borrowed” and has published guidance on the topic.

Quizzed on the subject by MPs on Monday, Morse revealed that the NAO is already drawing up a report.

“We are doing some work on it. We are doing a report on this at the moment, and it is in process,” he said.

He added: “Our report is looking at how rigorously the department is supervising this. We are not at a point where I can give any conclusions; I have not talked to the department about what our emerging findings are. But… you will guess from the fact we are doing a report on it that we think it is an interesting subject. It is fair to ask questions about it.”

Morse pointed out that the NAO had recently published guidance for auditors, encouraging them to consider the ability of councils to make sound investments.

The outgoing auditor general stressed that the guidance is not intended to tell councils “you should not be making commercial investments” but to urge them to consider whether they have the skillset to do so successfully.

Bob Blackman, a member of the committee, noted that there are some “extreme” investment cases in certain authorities – to which Morse agreed.

He said: “That’s right. There are all sorts of other questions about portfolio risk distribution and so forth, which we are trying to understand.”

One of the councils that has a significant property investment portfolio – Spelthorne Borough Council – recently moved away from the strategy.

Communities secretary James Brokenshire also highlighted the growing trend in his provisional local government finance settlement.

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