The Treasury plans to clamp down on local authorities making risky property investments by offering lower-cost public loans to councils.
Former British Land boss Chris Grigg, now chairman of the UK Infrastructure Bank, said there was “a desire to dodge some of the problems” caused by the “Spelthorne effect”, referring to the council in Surrey that borrowed £1bn of public money to fund a commercial property buying spree for rental income.
The bank, launched this year to replace the role of the European Investment Bank in helping to finance infrastructure projects, has begun offering to arrange loans to local authorities at a rate 20 basis points cheaper than the government’s Public Works Loan Board, the main lender to councils.
The loans will come with more stringent scrutiny and vetting procedures.
Councils in Croydon and Slough have effectively declared themselves bankrupt in the past year and were accused by the government of “poor leadership and chronic financial mismanagement”.
The Treasury has introduced restrictions stopping local authorities borrowing to fund the acquisition of properties primarily for yield, rather than regeneration.
