Hambleton District Council, which launched a £30m commercial strategy “with risks” as part of an ambition to become financially self-sufficient, has admitted to having “more luck rather than good judgement” in not generating losses from the move.
The authority’s cabinet has agreed to suspend the company it created to invest and manage properties last September, after hearing the economic landscape had changed significantly, undermining the viability of the venture.
The leading councillors also agreed to remove a £30m commercial investment property portfolio from its capital programme.
The council had aimed to be financially self-sufficient by this financial year and not rely on Government grants to support its budget, meaning the council had to generate additional income of £400,000 this year, rising to
£600,000 in 2021/22 and then £800,000 in 2022/23.
Last September, a report to the authority’s cabinet stated: “The proposal to acquire a commercial investment property portfolio has the potential to make a significant contribution to the financial strategy and, therefore, to the delivery of public services and projects to improve the community, economic and environmental wellbeing of the district. However, the proposal is not without risks.”
It was agreed the council would spend up to £10m on any one acquisition and work to find investments got underway after the council employed legal, financial and property managers.
A year on and Councillor Peter Wilkinson, the council’s finance portfolio holder, told the cabinet meeting the company looked at several properties more than once, but did not complete any purchases.
He said just weeks after the council approved the strategy, interest rates increased on borrowing from the Publics Works Loan Board, meaning the potential profits from commercial investments fell.
In addition, members were told a government consultation on changes to public sector lending in March had made it clear local authorities would no longer be able to borrow money from the Public Works Loan Board to buy commercial property if the aim was solely to generate an income stream.
To compound this, the meeting heard the Covid-19 environment had made rental income uncertain.
Cllr Wilkinson said: “Nothing was purchased. If we had purchased some properties I think we may be in a different position and I would be nervous. I think that’s luck rather than good judgement because I don’t think anybody foresaw the circumstances of Covid-19.
“I would be particularly concerned about commerical property and knowing what rents you are going to receive and I reflect on the City of London where people have not returned to work and I hate to see what the effect will be on rental income on what was prime locations in central London. Real estate is not worth investing in at the present time in my view.”
The council’s leader, Councillor Mark Robson added: “There is an awful lot of authorities around the country that have fallen foul of this and it is costing them a lot of money. “
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