The recent boom in council spending on land and buildings slowed last year, indicating that the craze for borrowing to invest in commercial property may be reaching its peak.
The government last week released final capital spending and receipts outturn figures for 2018/19.
The data showed spending in the “acquisition of land and existing buildings” category rising 8% to £4.4bn during the year.
However, this is a much smaller rise than recent years – spending in the category quadrupled from just over a billion pounds in 2014/15 to £4.1bn last year.
It is impossible to say how much of the spending in the category relates to commercial property.
However, when the provisional outturn data were released earlier this year, a source told Room151: “It is difficult to get figures that prove it, but the latest set of data seem to indicate a rise in commercial property investment by councils.
You just can’t prove it definitively.”
Speaking this week, Richard Harbord, former chief executive of Boston Borough Council, said: “I think it shows that it is levelling off.
“There are fewer opportunities and many authorities are prudently going as far as they are going to go on this.
“But also it is the continuing of austerity and the fact that as capital schemes which often take years to complete finish, councils are not replacing them with new schemes to assist the revenue effect.”
A slowing in the pace of increase in borrow-to-invest strategies by authorities would suggest there are other factors behind the continuing rise in council borrowing through the Public Works Loan Board (PWLB).
Figures for September show that councils took £1.6bn through the PWLB during the month.
This brings the total borrowed by councils this year to £9.6bn, considerably higher than the total for the whole of 2018 (£7.5bn).
A surge in PWLB borrowing during recent years has been fuelled by low interest rates, borrowing to fund property investment and the refinancing of Lender Option Borrower Option loans.
Elsewhere, the capital outturn data showed expenditure on trading services totalled £4.0bn in 2018-19, up £993m (33%) in real terms from the previous year.
New categories and guidance were issued in Spring 2018 that spending previously categorised as “central services should be recorded under trading services.
However, government commentary alongside the outturn figures said that although some of the increase in trading services expenditure may be attributable to reclassification, it didn’t account for all of the rise.
Thurrock, Spelthorne and Croydon were the biggest spenders in the trading services category, spending £401m, £375m and £294m respectively.
Surprisingly, expenditure in the housing category was down 6% in real terms from the previous year to £323m – still the second largest area of capital spending.
In the biggest category, expenditure on new construction, conversion & renovation totalled £13.1bn, down £1.0bn (7%) in real terms from the previous year.
Overall capital expenditure by local authorities in England totalled £25.9bn in 2018/19, up £202 million (1%) in real terms from 2017/18.
The final outturn was £1.2bn higher than provisional, due to the reclassification changes as well as some previously unreported expenditure.
Thurrock Council reported £401m of additional expenditure on solar and wind farms
London Borough of Barking & Dagenham reported £138m of additional expenditure, including £124m on planning & development services.
Gravesham (£94m), Croydon reporting (£56m) and Spelthorne (£51m) all reported additional expenditure – almost entirely in trading services – that was not included in their provisional outturns.
Across all local authorities, the proportion of capital expenditure financed by prudential borrowing has risen substantially – from 22% in 2014/15 to 38% in 2018-19.
The proportion funded by revenue resources has fallen from 24% in 2014/15 to 15% in 2018-19.
