Local authorities have invested in commercial property for a long time, but there has been a recent step-change in the scale of activity. Estimated commercial property purchases for 2013-14 to 2015-16 were £460m; compared to an estimated £6.6bn for 2016-17 to 2018-19.The NAO’s report ‘Local authority commercial investment’ assesses whether MHCLG has effective oversight of the risks to the financial sustainability of local authorities due to their investments in commercial property.
The report finds that there has been a significant increase in out-of-area commercial property acquisition. There has also been an increase in acquisitions that are outside the acquiring authority’s LEP area. The report also finds that changes made by CIPFA and MHCLG to statutory guidance have not stopped some authorities borrowing large sums, to invest in commercial property. Commercial property acquisition is concentrated in a relatively small proportion of authorities. The NAO conclude that local auditors have raised concerns about the governance and risk management arrangements for investment activity in some authorities. The data MHCLG collects has limited usefulness for monitoring commercial activity and assessing its risks.
The Committee will question officials from the Ministry of Housing, Communities, and Local Government on gaps in commercial skills in local government, and the extent to which the Department formally monitors commercial activity and long-term exposure to risk.
The Committee will also ask officials about the Ministry’s response to COVID-19, and what impact the pandemic has had on local government finances.
The NAO’s February 2020 report on ‘Local authority commercial investment’ assesses whether MHCLG has effective oversight of the risks to the financial sustainability of local authorities due to their investments in commercial property.