THE festive spirit was sorely tested as East Hampshire District Council’s policy of ‘borrowing to invest’ was forced into the public eye.
But, with Government revenue support for local councils plummeting to zero next year, EHDC is asking how else it can be expected to generate enough income to continue providing public services.
The unseasonal clash was brought about by EHDC’s decision, at a full council meeting before Christmas, to remove the £40million per year cap to allow the borrowing of up to £200million over the next five years.
The money is needed, says EHDC, to provide more flexibility in its bid to meet “investment property aspirations for identified and specified property acquisitions.”
It was a decision flagged up by BBC South Today which included a clip of Chancellor Philip Hammond expressing concern, to a select committee, over local authority borrowing to invest programmes which were using tax payers money and may not be taking into account the risk involved.
At present Tory-run EHDC is able to borrow from the Public Works Loan Board (PWLB) at a rate of 2.5 per cent and, with its 25-strong property portfolio showing a 7.38 per cent return, the practice is considered by councillors to make sound commercial sense.
But before Christmas it became clear that, despite Lib Dem-run Eastleigh operating a much larger commercial property portfolio, local Liberal Democrats were not in favour of the policy.
Councillor John Pritchard questioned EHDC’s mandate to risk tax payers’ money in borrowing around eight times its annual budget, while continuing to work on a long-term goal of achieving zero council tax.
He told The Herald he was ‘particularly concerned about the scale, the timing and where the money will be invested’.
He added: “Last month, the Department for Communities and Local Government (DCLG) launched a consultation on the proposed changes to the prudential framework of capital finance, which looked likely to restrict local authorities from borrowing large sums of money.
“Was it for this reason that EHDC included this late agenda item at such short notice, and ‘railroaded’ this decision through?”
Although posted four days before the meeting, the late agenda item had failed, he felt, to give people enough time to react, resulting in no public input, no consultation and, with no opposition, had sailed through.
Posting on the Liphook community website, Lib Dem Trevor Maroney wrote: “I didn’t see anything in the Conservative manifesto during the district elections in 2015 stating they intended to borrow these sort of sums.
“There has been no public consultation on creating this amount of debt.
“Is EHDC to become a property investment company in all but name? What has happened to open and transparent governance? “
In a statement, issued before the Christmas holiday, EHDC argued it was part of its ‘long-term financial strategy’ to build a portfolio of commercial properties worth approximately £29million, with a further £25million in pending purchases.
The statement said: “The whole portfolio produces a rent of £2.3million a year, a much higher yield than keeping money in a bank and is a vital part of the council’s overall strategy to raise income to offset cuts in government grant.
This new financial structure allows the council to act quickly in an increasingly competitive market.”
EHDC finance portfolio holder Ferris Cowper explained: “Suitable properties do not come on to the market in five equal chunks of £40million.
“This year we have been lucky to be able to bid for several ideal properties, and are likely to exceed the originally agreed £40million limit.
“Our advisers and buyers need the flexibility to buy, say, £50million one year and £30million the next and therefore the original motion was unnecessarily restrictive.
“While there is still an overall limit of £200million, the motion allows us to optimise our purchasing to the benefit of all council tax payers in East Hampshire.”
On the question of whether EHDC had the expertise for taking on such level of investment, with particular reference to its New Inn building on the A3 at Liphook, which is currently empty and the subject of a legal dispute, Mr Cowper assured: “Obviously we are not taking any decisions without excellent advice.
“In many cases we are using the same advisers as the larger property fund managers in the City.
“Our approach is, as with Eastleigh, to develop a broad-based portfolio so that any issues with one property can be subsumed within the larger fund and still return superb yields to council tax payers of East Hampshire.
“The latest data I have shows the value of the Liphook Services asset to be higher than the purchase price.”
He added: “The council holds these investments for the long term, 20-years plus.
“At the moment there is no plan to trade property on a frequent basis and so our fund is unaffected by short-term swings in value.
“We buy for yield, not capital growth. We want to preserve our capital but it is the yield that pays for maintained services.”