Some local authorities in England have invested an estimated £6.6 billion in buying commercial property over the past three years, mostly with the aim of generating a financial return, according to the National Audit Office.
Consequently, debt has increased for many of these authorities, with a small group seeing significant increases in the amount they owe and in repayment costs.
Cllr Richard Watts, Chair of the LGA’s Resources Board, said: “An unprecedented period of funding and demand pressures has stretched local services to the limit with councils losing almost £16 billion in central government funding in the past decade.
“Councils have faced a choice of either accepting funding reductions and cutting services or making investments to try to protect them.”
Councils follow strict rules and assessments to ensure they invest wisely and manage the risk of their investments appropriately.
The report acknowledges that in many cases, investment decisions also support local regeneration and growth objectives.
The LGA is concerned that the recent rise in Public Works Loan Board (PWLB) interest rates has increased the revenue costs of all new borrowing for councils, throwing into doubt the viability of new capital programmes that help deliver on key government priorities such as housing and regeneration.
It wants the Government to introduce a borrowing scheme for councils for crucial projects, and to reinvest any profit made by the PWLB rate rise in local government.