Lichfield District Council has decided not to proceed with its plan to invest in commercial property to generate income.
The local authority said it has made the decision following changes to borrowing rates and advice from the Chartered Institute of Public Finance and Accountancy (CIPFA).
But the council said is still going ahead with establishing a housing property company – Lichfield Housing Limited – to invest in residential property, which is expected to give a return of £900,000 over five years.
A report by the National Audit Office, which was published in February, revealed that councils in England spent £6.6bn on property investments between 2016 and 2019.
But there has been speculation in recent months that some councils, which have heavily invested in commercial property may be hit by the economic downturn caused by the coronavirus pandemic.
There have also been reports that the Treasury is planning to clamp down on local authorities using the Public Works Loan Board (PWLB) for raising money to invest in property.
Lichfield’s cabinet member for finance and procurement, Cllr Rob Strachan said it had looked at a number of potential property purchases.
‘To do this we needed to take professional advice relating to the properties under consideration and we have spent £15,000 in total,’ said Cllr Strachan.
‘After councillors considered the properties we were looking at buying, we decided not to proceed for different reasons.
‘Concerns began to arise that the activities of councils was driving up commercial property prices and was seeing them hold assets not directly related to their normal activities. As a result, the Public Works Loan Board increased borrowing rates for councils towards the end of last year.
‘The Chartered Institute of Public Finance & Accountancy has also advised councils they should not make investments in commercial property using borrowed funds purely to raise income. Therefore, we recognised the goal posts had changed and decided not to look to buy any property assets using borrowed funds,’ he added.
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