The most senior civil servant in charge of local government has outlined Whitehall’s approach to helping councils avoid wasteful investments in commercial property.
Melanie Dawes said the government will consult on extending local authority investment code requirements on financial investment to cover real estate purchases.
The permanent secretary at the Department for Communities and Local Government (DCLG) reiterated her department’s continuing desire to assist councils derive income from commercial activities.
She told delegates at Room151’s annual Local Authority Treasury Investment Forum: “We are working with CIPFA to update statutory codes published by the department.”
“We are looking at extending the requirements to consider security, liquidity and yield, in that order, to all investments, and not just financial investments.
“We want to enhance the transparency requirements and we are looking at also updating the guidance on translating minimum revenue provision to make sure that you individually, and collectively, are not storing up repayments in the future in a way that is not fully understood.”
Dawes played down any fears the government might attempt to dampen property investment through statutory restrictions or ministerial directions, saying: “That sense that one size doesn’t fit all is very important. We are not in the market for saying this is OK and that not, or some sense of trying to be restrictive about this.
“I don’t think we would know how to do that from central government, actually. And what we have learnt over the past 10 to 15 years is that if we do get too prescriptive, often we create a cliff edge that gets us all into trouble. That sense of one size fits all is very important.”
News of the consultation was welcomed by Andrew Burns, CIPFA president and director of finance and resources at Staffordshire County Council.
He called on local authorities to respond to the consultation when it comes forward and urge central government to retain self-regulation for local government.
“It is important that we resist those arguing for a rules-based approach,” he said.
Dawes attempted to reassure councils that her department is unlikely to remove the ability of local authorities to pursue commercial initiatives and investments.
She said: “We do support what you are trying to do here. We do not want to restrict opportunities for you to use commercial structures. We acknowledge that often, where it is about regeneration, nobody else is going to take that perspective. And social outcomes matter. But purely commercial outcomes can be appropriate as well.”
But she emphasised that councils need to show they are transparent about their decision making and managing risk effectively.
She added that: “People are entitled to know that the decisions being made are proportionate to the size of the council, the size of the income flows and the asset base and balance sheet.”
Lorna Baxter, chief finance officer at Oxfordshire County Council, questioned how liquidity could be a consideration in long-term property investment, and Dawes said the question was likely to be raised during consultation.
