Concern over council debt after 'risky' shopping centre purchases
Councils are facing rising debt after 'risky' investments in commercial property such as shopping centres, it has been warned.
The National Audit Office said debt has increased for many authorities with a small group seeing significant increases in the amount they owe and the cost of repayment.
Walsall Council is among the authorities to invest in this way as it purchased the Saddlers Centre in 2017 for £13.8 million.
The decision by the then-Labour authority has been criticised amid concerns its value had fallen last year.
But the move was defended by councillors saying it was part of a wider regeneration masterplan for Walsall town centre.
The National Audit Office said local authorities invested £132m in property in the West Midlands between 2016 and 2019.
But authorities from other areas also spent around £288m in the West Midlands during that period.
The audit office estimates between 38 per cent and 91 per cent of spending on these purchases was financed by borrowing.
It said local authorities face potential investment risks from buying commercial property, such as in the event of an economic recession or a downturn in a particular economic sector, particularly where authorities are dependent on their rental income to keep up with debt repayments or fund local services
National Audit Office head Gareth Davies said: "Local authorities have responded innovatively to the challenge of funding constraints, with some investing in commercial property to secure additional income.
"However, the benefits from this investment must be considered against the potential risks to authorities, particularly given the concentration of this activity and associated borrowing within a relatively small group of authorities.
"The Ministry of Housing, Communities and Local Government needs to look again at the framework which governs local authority borrowing and investment and consider whether it is still fit for purpose."