How Councils Can Use Their Property Portfolios to Balance their Budgets



Continuing cuts in funding to Local Government are making it increasingly harder for Local Authorities to balance their budgets. This summer, Northamptonshire County Council issued its second Section 114 notice, after issuing the first Section 114 notice in over 20 years in February. Other councils are also making major cuts to spending and services. However some Councils have been exploring ways to use their property portfolios to balance their budgets even in these tight times. This article will explore the merits of these approaches.

One approach is for Councils to invest in property. This is an increasingly popular strategy. Councils have spent £4.1 billion on property investment over the last 4 years and made nearly 3.5% of total property investment in 2018. This investment is typically funded by low-cost loans from the Public Works Loan Board (PWLB). Spelthorne Borough Council alone has borrowed nearly £1 billion from the PWLB for property investment. The yields from these investments can offset funding cuts. For example, the yield on Spelthorne Borough Council’s investments contributed £7.5 million to its 2018/2019 budget, allowing it to run a balanced budget despite funding cuts. Additionally, this income has been used to fund new housing in the borough. Property investment can also be used to drive the development of a Council’s Local Area. Woking Borough Council last year purchased Duke’s Court for £72 million, in part to secure jobs by safeguarding office space in the Borough.

There has been some criticism of property investment being made by Local Authorities with critics noting that Local Authorities lack the experience of private sector investors and that money may be better spent on projects such as housing development. To ensure that Councils are able to match the private sector on experience, it is essential that they work with experienced advisors. This may entail a JV with a private developer and the use of legal advisors with investment and private sector experience. With regards to the criticism that money could be better spent on the development of the Local Area, the example of Woking Borough Council.

l shows that investment can actually benefit the Local Area and the example of Spelthorne shows that the proceeds can be used to reinvest in projects such as housing.

On the other hand, some Councils have chosen to sell surplus property assets. In the 2016/2017 financial year, over £115 million of assets were sold to fund frontline services. Gloucestershire County Council alone, as part of their ‘One Gloucestershire Estate’ strategy, has generated £105 million in capital receipts and cut operational costs by £2 million annually.


Some commentators have criticised this approach, arguing that Councils are disposing of useful community assets for a one-off dividend. The Chief Executive of the LGIU also notes that “you can only do it once”. However, much of the risk depends on the Council’s approach to disposing of properties. For example, Gloucestershire County Council’s disposals have included the disposal of land for development in the centre of Gloucester and consolidation of blue-light services into shared hubs. Both of these schemes can be expected to have long-term economic benefits.

To conclude, therefore, both investment acquisitions and the sale of surplus assets can be viable strategies for Councils looking to balance their budget. In both cases there are risks, but these can be overcome so long as the council takes a strategic approach. DJB has advised numerous Local Authorities on both investment acquisitions and disposal projects. Should you require any further information, please contact our Local Authority contact, Sue McCormick, at Sue.McCormick@djblaw.co.uk.





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