Housing and communities secretary James Brokenshire, during the Local Government Financial Settlement, said he shared CIPFA’s concerns on a few authorities continuing to undertake excessive significant amounts of borrowing for commercial purposes.
While delivering the settlement he warned that the Government might seek to intervene in the way councils invest for commercial gain should some councils continue their current strategies.
This reinforces the recent statement by CIPFA on ‘Borrowing in advance of need and investments in commercial properties’, which highlighted the risks of such borrowing, with additional guidance to be issued shortly.
Police emerged from today’s settlement with the ability to double their council tax precept to £24 per year for the average household, allowing them to raise an additional £500m a year, according to the Government.
Rob Whiteman, CIPFA CEO, said, “Police have been under immense strain, and they will no doubt welcome the additional funding. However it is evident that the Government is seeking to recover some of their income tax cuts announced in the Autumn Budget in today’s settlement.
“While the Government can claim they have enhanced flexibility to local funding, when citizens around the UK find increases in council tax rates are to limit service reductions caused by central government reductions, it creates huge political and resident pressures on councils.
“It’s good to see the Government’s continued commitment to finding a more effective funding formula by reforming business rates, but in the end this will not mean additional net funding for local government. And London for example will be disappointed that its rate retention scheme is less than originally intended.
“To deliver its commitment to sustainable council finances, the Government must be bolder, braver and consider policy options for longer term reform.
“We welcome James Brokenshire’s support for CIPFA’s concerns around some local authorities borrowing, which carry an implicit risk to long term sustainability by creating a dependence on commercial income as they take on too much debt.
“Borrowing more than or in advance of their needs purely to profit from the investment of the extra sums borrowed does not sit right with council’s obligation to be prudent, or with the primary purpose of local authorities to deliver services and growth locally.
“Councils must take a balanced and proportionate approach to commercial ventures.”
For further information please contact the CIPFA press office on T: 020 7543 5703 or E: Liam.Macandrew@cipfa.org
CIPFA, the Chartered Institute of Public Finance and Accountancy, is the professional body for people in public finance. CIPFA shows the way in public finance globally, standing up for sound public financial management and good governance around the world as the leading commentator on managing and accounting for public money.