Ipswich council borrowed more than £56 million in November to buy commercial property in the town, buying buildings that are already occupied to get a regular rental income.
Public Works Loans Board revealed in the monthly report the details and shows how local authorities are able to borrow money at low-interest rates to invest in property. Many authorities use the PWLB to borrow money for capital investments at a low rate – enabling them to get a much higher return on rental income.
The borough borrowed just under £30m at 2.15% a year fixed for 20 years and £26.5m at 2.49% fixed for 20 years. Council leader David Ellesmere said this money was used to buy a particular commercial property in the town that is already occupied and would provide this income from day one of the purchase.
The purchase has not yet been concluded so Mr. Ellesmere could not say where it was. “But this kind of investment is vital for an authority like Ipswich that has had its funding cut by £12m over the last four years. Without this, we would be facing really serious cuts to core services.”
Mr. Ellesmere said the borough borrowed money to invest for two reasons – to secure an ongoing income (as in this case) or to invest in a new commercial opportunity that could take several years to mature as in the case of the sugar beet factory site investment at Sproughton.
However, the opposition Conservative group is worried about the authority’s level of borrowing – and has warned it could face losses if there was a fall in the property market. Opposition leader Ian Fisher said: “We realise why the council is doing this and that there is a need for some commercial confidentiality, but we are worried that they are gambling with public money to some extent.
“We do not know at this stage where the money is going and there is inevitably an element of risk with this kind of deal.“We feel it might be better to pause this for a couple of years until we know how the economy is going to be doing after Brexit – potentially the council could end up with large losses.”
Councils across the country – and of all political control – have been investing in major developments over the last few years.