Multi-million pound commercial deals defended by council amid criticism
- Credit: Archant
North Somerset Council insists its commercial investment decisions are based on a ‘sound business case’ after the authority spent more than £50million on acquisitions this year.
Local authorities across the country have been criticised by the Chartered Institute for Public Finance and Accountancy (CIPFA) for putting money at ‘unnecessary or unquantified risk’ when borrowing to invest in commercial property.
In a statement, CIPFA, the accountancy institute for the public sector, said councils ‘must not borrow more than or in advance of their needs purely in order to profit from the investment of the extra sums borrowed’.
The council used a £37.95million bank loan to purchase North Worle District Centre in February, while a deal to buy Weston’s Sovereign Shopping Centre using £21million of borrowed funds was agreed in April.
CIPFA will issue more guidance to authorities as it believes these investment approaches ‘are not consistent with the requirements of fiscal sustainability, prudence and affordability’.
The council hopes to make more than £1million from the Sovereign Centre and at least £225,000 in the first year of its North Worle District Centre ownership but insists it has not borrowed funds ‘purely to make a profit’.
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Its spokesman said: “We always consider the legal framework within its financial planning and strategic decision making and we have given due regard to CIPFA’s core principles of prudence, affordability and sustainability in respect of commercial investment activities.
“We can assure people the council has not borrowed more than, or in advance of need, purely to make a profit.
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“Our strategy is very much focused upon investing within our area so we understand the wider economic, social and regeneration impacts of any decisions.
“Each of our commercial investment decisions is based on a sound business case with modelling undertaken to consider a range of risks and sensitivity analysis options.
“We regularly monitor and report our prudential borrowing limits to demonstrate the affordability and sustainability compared to our revenue budgets.
“Our commercial investment programme is fairly modest compared to many others.”
Worle councillor and CIPFA accountant Denise Hunt told the Mercury: “North Somerset Council needs to take note of this advice given its recent foray into speculative retail commercial deals, particularly when added to people’s concerns about the risky nature of the purchases.
“These are strong words from CIPFA and while councils have been forced in the face of massive government cuts in funding to seek income generating opportunities, clearly they need to act prudently and not speculatively.
“I am keen for the council to act appropriately in residents best interests and not to expose the council tax payer to any excessive risk.”