• Home
  • About
  • Subscribe
  • LATIF
  • Conferences
  • Dashboard
  • Edit My Profile
  • Log In
  • Logout
  • Register
  • Edit this post

Room 151

  • 151 BRIEF

    What's New?

  • Inflation ‘biggest concern for LGPS professionals’

    May 20, 2022

  • LGA calls for government support as regulators face staffing issues

    May 19, 2022

  • WMCA signs £4bn investment agreement with L&G

    May 18, 2022

  • Bill will give UK Infrastructure Bank power to lend directly to councils

    May 18, 2022

  • £400bn pension group collaborates on climate transition initiative

    May 17, 2022

  • CIPFA rejects proposal for vote on publication of fraud hub report

    May 17, 2022

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews
  • Briefs

Chancellor’s crackdown on property acquisition expected to hit councils investing beyond their borders

0
  • by Colin Marrs
  • in 151 News · Development · Treasury
  • — 9 Nov, 2017

Photo (cropped): HM Treasury, Flickr

Philip Hammond’s expected budget crackdown on council commercial property investment could stop councils using Treasury cash to spend on deals outside their own local authority boundaries.

Last week, Room151 revealed that leading figures from local government finance are expecting Hammond to signal new rules surrounding Public Works Loan Board borrowing.

Experts fear that the move could effectively restrict councils to land and property purchases which boost regeneration on their own patches.

Sean Nolan, director of local government at the Chartered Institute of Public Finance and Accountancy (CIPFA), told Room151: “We understand that the Department for Communities and Government (DCLG) will very imminently consult on changes to the investment regulations.

“These could prohibit borrowing solely for the purpose of procuring commercial property yield.

“The main impact of the prohibition would fall on borrowing to fund purchases outside borders, where it is more difficult for councils to argue wider economic benefits from the investments.”

Some experts have voiced concerns that any such move could create a “postcode lottery” that increases the gap between rich and poor councils.

Neville Pritchard, director of capital markets at property adviser JLL, said: “Investment opportunities for councils in poorer areas of the country would be restricted by this move.

“The quality of assets they would be able to buy would be limited and they would struggle to find too many income streams.”

A senior figure in the local government finance world, who did not want to be named, said: “This would be fine for those authorities with advantages in terms of their location, such as those in the M4 corridor. But it would hit seaside coastal towns or those in the middle of nowhere which don’t have the same demand from business occupiers.

“It would reinforce the gap between the haves and the have-nots.”

Currently, a number of councils have used PWLB borrowing to make purchases of property outside their areas.

But there is disagreement on whether it is legally necessary to do so through a standalone company, with councils opting for different approaches.

Some have questioned how easy it would be for the government to frame a watertight restriction preventing property investment.

Gerald Almeroth, strategic director of resources at London Borough of Sutton, said: “Whatever they introduce, some councils could work out how to get round it. How would they stop councils borrowing from PWLB to buy a property in their area which they sold a year later to spend the proceeds on a property further afield?”

Ironically, the largest commercial property deal by a local authority—Spelthorne District Council’s £360m purchase of a campus occupied by oil giant BP—was within its own boundaries.

Some in the sector have blamed the scale of the purchase for alarming the Treasury, prompting expectations of a crackdown in the budget.

But Nolan said that other options are open to the Treasury to dampen down council’s enthusiasm for borrowing from PWLB to fund property purchases.

“We understand the Treasury is looking at incorporating changes similar to those that CIPFA has proposed in the Prudential Code in terms of raising the bar around due diligence and proportionality.”

CIPFA president Andrew Burns, director of finance and resources for Staffordshire County Council, said the Treasury could also adjust minimum revenue provision (MRP) rules in a forthcoming consultation.

He said: “It is possible they could tighten the MRP rules so that councils have to pay back their borrowing more quickly, reducing the attractiveness.

“They might also say they would only let councils borrow 80% of the value of a property purchase, similar to a retail mortage.”

There is scepticism in the sector that the Treasury is looking at a crackdown due to concern for wellbeing of local authority finances.

One anonymous source said: “This seems to be more about the government listening to private property developers complaining about competition from councils more than concern for councils taking risks with their investments.”

Almeroth added: “We are not even outbidding the private sector. We have looked at more than 200 propositions in the past two years. We only bought five and in these cases we were mostly the only bidder.”

Get the Room151 Newsletter

Share

You may also like...

  • Are central banks losing their independence? 17th Mar, 2021
  • Cash flow forecasting key to treasurers 25th May, 2021
  • Q&A: Bond agency responds to ‘ill-informed speculation’ 4th Jul, 2021
  • Thriving in the pandemic: Avoiding the stragglers 12th Jan, 2021

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 1 day ago

    2022 LGPS valuations: difficult discussions in uncertain times: Michelle Doman looks at the impact of inflationary pressures, the war in Ukraine, climate risk and Covid-19 on employer contributions. At the start of 2022, for Local Government Pension… dlvr.it/SQlvy9 pic.twitter.com/Dd0lrHjWNb

    Room151 1 day ago

    Investing today: nowhere to hide: Partner Content: Alex Stanley from Ardea Investment Management suggests that investors have few places to hide amid a synchronised sell-off in both bonds and equities. However, there are catalysts that[...] dlvr.it/SQlNVC pic.twitter.com/KkGGnduzPL

    Room151 2 days ago

    Treasury to restrict PWLB loans to councils at risk of non-repayment: The Treasury has released new guidance that restricts local authorities’ access to Public Works Loan Board (PWLB) advances if there is a “more than negligible risk” of a council’s… dlvr.it/SQhLTV pic.twitter.com/vBsS7xMJdb

    Room151 2 days ago

    Mixed reaction to proposed government intervention powers: There has been a mixed reaction to the government’s legislative plans to strengthen its intervention powers over local authority finances. The Levelling Up and Regeneration Bill has proposed… dlvr.it/SQhLMB pic.twitter.com/50foWxpPGs

    Room151 2 days ago

    Post-Brexit struggles for national and local government regulators. @LGAcomms @NAOorguk Click the link below to read 🔻🔻 room151.co.uk/brief/lga-call… #Brexit #government pic.twitter.com/s3c8ySGy5G

    Room151 2 days ago

    CIPFA: a question of transparency: Roman Haluszczak’s campaign for publication of the independent report into the collapse of CIPFA’s London Counter Fraud Hub has been rejected again by the institute. He is now calling for[...] dlvr.it/SQgC5V pic.twitter.com/08fWsHFF4g

    Room151 3 days ago

    Back to the future for the PWLB: The Public Works Loan Board is tightening its lending criteria to ensure that loans will be repaid by local government borrowers. But, asks Peter Findlay, shouldn’t they have been doing[...] dlvr.it/SQcmmm pic.twitter.com/bVv4fe0Xlv

    Room151 3 days ago

    Great piece from Peter Findlay on the PWLB’s tightening of its lending criteria. He raises some pointed questions for the Treasury and explains why the ‘casino council’ characterisation was simplistic and inaccurate. #PWLB #localgov room151.co.uk/treasury/back-…

    Room151 3 days ago

    The Queen's speech highlighted the need for accelerating UK infrastructure investment into levelling up projects and cutting emissions. @UKInfraBank #QueensSpeech #ClimateAction #emissions Click the link below to read 🔻🔻 room151.co.uk/brief/bill-wil… pic.twitter.com/hFmF2veVIa

    Room151 3 days ago

    Huge funding heading to the @WestMids_CA from @landg. @andy4wm #LevellingUp #netzero #regeneration Click the link below to read 🔻🔻 room151.co.uk/brief/wmca-sig… pic.twitter.com/ajhZhia6mx

    Room151 3 days ago

    LGPS governance, Cagney and Lacey style: What regulatory response can be expected following the publication of the Good Governance project’s Phase 3 report and the closure of the Single Code of Practice consultation? Susan Black offers[...] dlvr.it/SQbfXf pic.twitter.com/xwqHOEu2AP

    Room151 4 days ago

    More evidence of the importance of emerging markets in the journey to net-zero. @BordertoCoast @BrunelPP @northernlgps @EAPensionFund @WYPF_LGPS Click the link below to read 🔻🔻 #LGPS #NetZero #NetZeroCarbon #EmergingMarkets room151.co.uk/brief/400bn-pe… pic.twitter.com/qCm0EGxzLn

  • Categories

    • 151 News
    • Agent 151
    • Audit
    • Blogs
    • Business rates
    • Chris Buss
    • Cllr John Clancy
    • Council tax
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Education
    • Forum
    • Funding
    • Governance
    • Graham Liddell
    • Housing
    • Ian O'Donnell
    • Infrastructure
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • Levelling up
    • LGPS
    • Mark Finnegan
    • Net Zero
    • Private markets
    • Recent Posts
    • Regulation
    • Resources
    • Responsible investing
    • Richard Harbord
    • Risk management
    • Social care
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Transport
    • Treasury
    • Uncategorized
    • William Bourne
  • Archives

    • 2022
    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Understanding the future of business rate retention
  • Next story News Roundup: Investment dips but borrowing climbs, MPs probe business rates delay, shared service accountability, Basildon property

© Copyright 2022 Room 151. Typegrid Theme by WPBandit.

0 shares