Investment in commercial property

February 14th, 2020 by James Goudie KC

The National Audit Office has produced an 82 page Report on “Local Authority Investment in Commercial Property”. The Report makes Recommendations for MHCLG, HM Treasury and CIPFA. The Report’s “Key Findings” include with respect to risks and risk management and the Government’s “stewardship role”. The Report’s Conclusion on Value for Money are summarised as follows:-

“26.     The acquisition of commercial property can enable authorities to generate income in the context of financial pressure, while also supporting regeneration. However, the scale of investment of public funds in this activity in the last three years, the concentration of this activity in a relatively small group of authorities, and the use of borrowing to finance such investments is striking. The benefits from this investment therefore must be considered against the potential financial sustainability and value‑for‑money risks that have emerged.

  1. The Department as steward of the prudential framework, alongside CIPFA, has sought to address the implications for the framework of emerging risks from these activities. It has been alive to the financial sustainability risks for a small number of authorities and has made system changes in response. However, the Department is only expecting gradual change in those authorities’ behaviour despite the Committee of Public Accounts first highlighting concerns in November 2016.
  2. The position set out in this report raises questions about the extent to which the Department and HMT can rely on the prudential framework in its present form to support value-for-money decision-making in the current legal and financial context. The permissive nature of the prudential framework has been tested by new behaviours in the sector, and the Department has not yet responded in a timely way that also reflects the marked variations in activity across the sector. To protect against risks to value for money, the Department must take steps to ensure that authorities’ actions are in line with the principles underlying the framework. To support this, it should strengthen framework oversight and develop methods for more timely, flexible and targeted intervention when required.”

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