In a recent article published on the Room 151 website it was argued that attempts to curb the appetite of local authorities to borrow for commercial property investment purposes were not working and that guidance alone would not do the trick; far stronger medicine was needed. That maybe the case.
The problem is that local authorities find themselves in a financially precarious position. I suspect most would prefer to be getting on with the day job of providing services to their residents, than investing in commercial property, but their options for raising revenue are limited. Commercial property offers the best hope of generating significant income streams in the short to medium term.
If the Government were serious about stopping local authorities investing in commercial property then there are, as the article suggests, things they could do. In particular they could legislate and indeed there is a Private Members' Bill before Parliament which seeks to prohibit local authorities from investing in commercial property and is due to have its second reading in Parliament on 23rd November. The Bill is very broad in scope and if it became law it would likely have unintended negative consequences. Nevertheless, the opportunity is there and it will be interesting to see whether it gets the Government's support or its provisions are taken on board in other Primary legislation. It seems unlikely that it will. Shutting the door on local authorities revenue raising through commercial property investment would only make their financial position even worse than it is now. This would, in turn, put pressure on central Government to increase public spending to make up the shortfall. In the current climate there is no obvious reason why they would want to do that.
Most concern appears to be expressed over the use of cheap and easy Public Works Loans Board (PWLB) cash to purchase commercial property, as private sector lenders tend to be more discerning in how their cash will be used, and therefore ask more searching questions before lending.