Policy of borrowing money to invest in commercial property defended by council

PUBLISHED: 11:58 22 November 2018

Town Hall.

Town Hall.

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North Somerset Council has defended its commercial investment policy after spending more than £50million this year on business acquisitions.

Local authorities across the country have been criticised by the Chartered Institute for Public Finance and Accountancy (CIPFA) for putting money at ‘unnecessary or unquantified risk’ when borrowing to invest in commercial property.

In a statement, CIPFA, the accountancy institute for the public sector, said councils ‘must not borrow more than or in advance of their needs purely in order to profit from the investment of the extra sums’.

The Times reported in September North Somerset and Bath plus North East Somerset councils will join forces to build around 50 homes at The Uplands in Nailsea and 18 at Downside in Portishead.

MORE: Housing to net council £6million?

There are also plans for 44 homes in Churchill Avenue in Clevedon, although this may be carried out in a separate venture.

While North Somerset will spend around £10,000 to set up and finance the arrangement, it is proposing to receive 75 per cent of profits from land value and sales.

The authority says feasibility studies show it could raise up to £6million for ‘community benefit’.

The council was loaned £37.95million to purchase North Worle District Centre in February and a £21million deal to buy Weston’s Sovereign Shopping Centre using borrowed funds was agreed in April.

MORE: Council eyeing more multi-million-pound investments as it confirms shopping centre deal.

Its spokesman said: “We have given due regard to CIPFA’s core principles of prudence, affordability and sustainability in respect of commercial investment activities.

“We can assure people the council has not borrowed more than, or in advance of need, purely to make a profit.

“Our strategy is very much focused upon investing within our area so we understand the wider economic, social and regeneration impacts of any decisions.

“Each of our commercial investment decisions is based on a sound business case with modelling undertaken to consider a range of risks and sensitivity analysis options.

“We regularly monitor and report our prudential borrowing limits to demonstrate the affordability and sustainability compared to our revenue budgets.

“Our commercial investment programme is fairly modest compared to many others.”

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