Southend Council’s caution over property investments pays off

Southend Council’s cautious approach to property investments aimed at plugging funding gaps has insulated it from greater financial harm caused by the coronavirus pandemic.

The council agreed to set aside a pot of £20m in January last year for potential investments in properties such as shopping centres, leisure centres and industrial units.

Councillors hoped the returns from the investments would have helped to make up for the serious financial losses caused by Government cuts.

But the authority has now revealed it has not spent a penny of the £20m pot – a decision which is likely to have prevented the council from suffering significant losses in the wake of the coronavirus, which has seen the value of commercial property and rents plummet.

Councillor Ian Gilbert, leader of the council, said there is no set time frame for the money to be used but he did not rule out making future investments.

He said: “We would not simply purchase properties just because they’re available, we would ensure extensive and expert due diligence would be carried out on any investment considerations to ensure it is a suitable investment.

“To date, none of the budget has been spent, but we are exploring opportunities that would benefit the council and the local tax payer, as we continue to face increasing local demand for services and financial pressures due to insufficient Government grant support.”

Despite not spending the £20m allocated in 2019, the council’s deputy leader, Cllr Ron Woodley, said the authority does already have some small investments in commercial property made earlier but he is “confident” they will continue to bring in a profit, despite the pandemic.

Those investments include the Gas Works car park, which generates returns through parking income. That incomes dropped during the heigh of the lockdown but in the long-term it will pick up and continue to bring in returns.

Mr Woodley said: “We agreed to do this cautiously and that is how we have done it. The problem is a lot of councils went mad with it and I believe one even bought an oil refinery for around £230m.

“This leaves authorities overburdened and that is why the Government has previously indicated that this would have to stop.

“What has happened is Covid-19 has put a stop to it and is maybe waking people up.

“We invested in the town. We bought the Gas Works car park and we are now getting the benefit of revenue from parking charges.

“But we have made sure we haven’t over-extended ourselves.

“Covid-19 has had an impact ,but you have to be extremely cautious with this, which we were doing. You don’t have to be investing in big projects like shopping centres.”

He added that the returns must be kept as additional income rather than money that frontline services rely on.

A recent report from the Nation Audit Office estimated that other councils across the country have spent £6.6bn on commercial property since the end of March 2016.

Many are now relying on these declining returns to fund the frontline services which are helping battle the virus.

Neighbouring unitary authority, Thurrock Council, has taken a different approach to investing.

Over the past four years, Thurrock Council’s investment strategy has seen it run up a debt of more than £1.2bn, with the money being largely borrowed from other councils across the country.

The authority has said the borrowed money is being invested into renewable energy schemes across the country and has brought in more than £30m, which has cushioned the authority from the impact of Covid-19 and funded frontline services.

The borrowing is set to increase to more than £2bn over the next three years but has come under scrutiny due to it appearing to go against national guidance which says authorities should not borrow to make a profit.

Cllr Woodley said it was unlikely to be an approach Southend would take.

“Only Thurrock knows their financial situation but that level of debt is quite high and I would be extremely worried.

“Would I be that bold? I don’t think so.

“I do like a return on investment but it has to be sensible. The short term borrowing from other councils is one way of doing it that but they could ask for it back at short notice and that could leave a hole in the finances of Thurrock or any other council.”

Meanwhile, Basildon Council has an agreed budget of £80m for commerical investments and it has already spent almost £40m acquiring properties in Bath, Stevenage, Tunbridge Wells and Richmond.

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Steve Shaw

Local Democracy Reporter