Uttlesford District Council says financial pressures are forcing it into £100m of borrowing, much of which could be invested in commercial property outside of its boundaries to raise income.
The council’s scrutiny committee will meet next week to discuss a new investment strategy the council is hoping to adopt alongside its budget for the next financial year.
The plan is aimed at borrowing £100m for investment to generate additional income to help overcome a deficit that is projected to reach £3.5m by 2023/24.
A report set to go before the committee says: “Prior to 2019/20 the Council only looked for strategic investments that were within the district boundary.
“This has severely restricted the opportunities for future investment.
“The emerging funding gap means that the council now needs to consider opportunities outside of its geographical boundary.”
The council expects to use £20m of the proposed borrowing to lend to its standalone company Aspire to develop the Chesterford Research Park, which sits within its area.
Uttlesford has already lent the company £50m after it took a 50% share in the research park in 2017.
However, the council said that, while preference will be given to such investment within the council’s own boundaries, if suitable opportunities did not arise, it would aim to invest within surrounding counties.
It added that if that was unsuccessful, “the council will look outside of the region but staying within the United Kingdom”.
The council said that it would also consider investing in the construction of homes or commercial property on its own land but that it currently owned a limited amount of suitable ‘general-fund’ land.
It also said that property prices in the district made it difficult to acquire existing housing to let at market rates as a means of raising income.
In February last year, the government adopted a revised investment code which required greater transparency from authorities borrowing cash to invest purely to produce a yield.
However, concerns have been raised that the guidance had failed to stem the amount of cash being borrowed at favourable rates from the Public Works Loan Board to invest in commercial property.
In December, communities secretary James Brokenshire said that the government would consider intervening in council borrowing to invest in commercial property
His statement followed CIPFA announcing in October that it would produce new guidance on borrowing to invest in commercial property.
Brokenshire said of councils investing in property: “I share the concerns of CIPFA and others about the risks that these local authorities are exposing themselves and taxpayers to”.
He said his ministry in consultation with the Treasury would consider how best to intervene.
Speaking at the CIPFA Treasury Management and Capital Conference in London in October, Don Peebles, the institute’s head of UK policy & technical, gave more clues as to what his organisation’s guidance could contain.
Speaking to delegates, he said: “It may well be that we actually specify and think about what exactly is ‘borrowing in advance of need’.
“We may set parameters of what proportionality looks like. We may give guidance on what the appropriate ratios are for commercial income associated with net service expenditure.”
Uttlesford’s budget for council services has been set at just £12.9m for 2019/20.
However, the council’s proposed strategy document stated that the authority’s Medium Term Financial Strategy Reserve “will provide a contingency fund to support payments for the investments should there be an in year income shortfall”.
It added: “This ensures that if there is a material downturn or variance against budget in one or more investment the council has sufficient reserves to cover the cost of the loan.”
