“Publicly owned buildings and land could be at greater risk of being sold off by cash-strapped councils after a government ruling, a leading expert has warned.
Peterborough council appeared to breach one of the government’s “golden rules” between 2015 and 2019 when it balanced its books by using £24 million raised from selling assets.
However, after an inquiry into this practice — prompted by the Bureau — the Ministry of Housing, Communities and Local Government (MHCLG) has decided to take no action against the council, potentially leaving the door open for other councils to do the same. The decision seems to be a U-turn, as government officials had previously told the council they disagreed with its position in correspondence seen by the Bureau.
Professor Tony Travers, of the London School of Economics, told the Bureau more local authorities may now take the opportunity to sell the “family silver” to make ends meet.
The ministry declined to comment when asked whether Peterborough’s spending was legal and if other councils are allowed to make use of the policy.
Local authorities are supposedly barred from selling their assets to plug gaps in their finances unless the money is used to fund cost-cutting measures. The regulations are designed to prevent councils becoming reliant on selling off land and buildings to pay running costs.
This is exactly the situation Peterborough finds itself in, leaving it with little of value left. It used money from selling off assets, called capital receipts, to pay what is known as the Minimum Revenue Provision charge, which is a proportion of its annual budget that has to be set aside to repay loans borrowed to fund things such as building schools.
An investigation by the Bureau found that, since 2015, Peterborough had used capital receipts totalling £23 million to meet the cost of MRP, despite guidelines which say the charge must be met from councils’ day-to-day budgets. The council’s latest accounts, released since our story was published, bring that figure up to £24 million.
This reduced the pressure on the Conservative-led council’s finances but also made it dependent on selling assets to break even – an unsustainable position in the long term, as Peterborough itself admits.
In total, Peterborough sold about 50 assets — including pubs, petrol stations, a former community college and farmland — between 2014 and July 2018. In February a further 27 sites were earmarked for sale over the next two years, including a bowling green, allotments, a library and a car park. A Labour councillor called it a “fire sale”.
After the Bureau asked the government about the situation in Peterborough, an investigation was launched. In response, the council insisted it had not broken the law, adding that its spending had been approved by auditors and other external advisers.
Speaking at a council meeting a day later, David Seaton, Peterborough’s cabinet member for resources, dismissed the story as “fake news” and said the council had sought the advice of a leading financial QC who had “given us the opinion that he cannot see Peterborough council acted illegally in any way”.
Councillors then passed this year’s budget, which includes a further £10.6 million in capital receipts to pay the MRP charge.
In the months that followed the council was asked by the government to explain its position. The Bureau obtained copies of correspondence between the council and MHCLG under freedom of information laws. In the most recent letter obtained by the Bureau, dated May 16, a government official made clear to the local authority that the way it spent capital receipts did not fall within the legislation. …”