SHOPS shut, pubs closed, offices empty: Covid-19 has turned our cities into ghost towns. It’s not just businesses that have been affected; millions of pounds of taxpayers’ money is also in jeopardy.
In an attempt to raise more funds, under the auspices of battling ‘government austerity’, councils have turned to commercial investments. In the last three years alone, £6.6billion has been ploughed into property by English councils eagerly seeking a silver bullet. Splashing the cash on retail and office space, councils across England are entrusting taxes to portfolios that, as it turns out, have generally returned yields way below forecast. The Taxpayers’ Alliance has discovered, with an analysis of a sample of councils engaging in these practices, that five councils alone were left with a £2million black hole in their budgets.
One authority, Runnymede in Surrey, lost £826,000 on a shortfall in yields. A 251-bed student block bought by Cambridgeshire county council returned £180,000 less than forecast, just one of the investments that made up a funding void of £877,000.
It’s good news that councils are looking for ways to reduce bills for hard-pressed taxpayers. But forcing them to foot the bill when shaky stakes fail is an insult to the people they are supposed to serve. Commercial property is a risky business and can involve rolling the dice on investments worth millions. If councils want to build confidence amongst their residents, playing fast and loose with large amounts of funding is not the way to go about it.
Huge property portfolios don’t always add up to money off tax bills either. Despite their purchases, council tax in two more Surrey authorities, Spelthorne and Woking, is now £33 and £40 higher than it was seven years ago, exceeding the average for district councils in England. The leader of Woking council, David Bittleston, even confessed to taking as much council tax as possible, arguing a £5 year-o- year increase ‘is so insignificant’. Tell that to furloughed families on low incomes at risk of redundancy. Local authorities must stop treating their residents like cash cows. Levying large council tax hikes and playing the property market at the time is truly the worst of both worlds.
And it’s not just local residents that are being stung. Taxpayers across the country are financing hefty loans from the Public Works Loan Board (PWLB) that allows councils to shell out on pricy property. The loans come to a staggering £46billion per year on average. That compares with the £39billion spent on defence.
Perhaps it would be more acceptable if these investments were putting money back into the local communities. But only around half are made in the council’s area. If councils are looking to make investments, why aren’t they doing it in the areas they should know inside out, in the businesses most likely to benefit the people they are elected to represent?
If shortfalls were big before, they’re only going to grow. The enormous cost of the coronavirus policies should not be underestimated. Working from home does not seem to be reducing. Throughout the summer, worker footfall in town centres was scarce at 17 per cent of pre-lockdown levels. Boris Johnson’s pleas to white-collar workers to go back to the office are falling on deaf ears. Retailers aren’t faring any better. Whilst high street decline is not a new phenomenon, coronavirus has speeded up the process. Savvy shoppers have turned online, where you don’t have to wear a mask and there aren’t any socially distanced queues. Last week’s footfall was 25 per cent lower than the same week last year, and that’s the best it’s been since lockdown was lifted. There’s a long way to go before the economy is back up and running.
No one could have predicted the pandemic, but it serves as an important lesson to cash-happy councils in just how vulnerable the market is. Councillors should think twice before putting all their eggs in one basket. Like any prudent investor, councils need to tread carefully and invest only in projects which are highly likely to see healthy returns year on year. Intelligent investors don’t splash out on a whim.
If careless councils can’t restrain themselves, implementing measures to control them is the only option. An independent audit committee for every council would safeguard them against investments with unreliable returns, and the Treasury should put a stop to the PWLB handing out loans at below market rates for non-essential purchases. Restricting access to public loans and forcing councils to demonstrate financial competence must be introduced instead of allowing them to carry on bankrolling failing investments.
Tax-happy councils take note: you will never invest as wisely as people who handle their own money. Commercial property can and does offer some successes, but getting it wrong can be catastrophic for council finances and the public finances as whole. Think twice before rolling the dice. In fact, it just might be better to leave more money in taxpayer pockets and let us decide what local businesses are worth investing in.