Local authorities are increasingly entering into risky commercial property deals, which could result in a large bill for taxpayers, MPs have warned.
The Public Accounts Committee has raised concerns that the Department for Communities and Local Government is “complacent” about the risks to local authority finances from the changing character of commercial activities by councils.
MP Meg Hillier, chair of the PAC, said: “Poor investment decisions cost money – money that might otherwise be spent on public services.
“Local authorities need the skill set to invest wisely and the department must bear its share of responsibility for ensuring these skills are in place.
“But more fundamentally, the information central government uses is inadequate for understanding trends and associated risks in local government finance.
“This is a serious flaw in its ability to plan properly for the future and ensure councils are following a sustainable path, which includes ensuring the local capital finance framework remains fit for purpose.”
The amount of local authority money deposited with banks and other financial institutions has grown by £7.6bn since 2010-11, reaching £26.1bn at the end of the 2015-16 financial year. This level is higher than the previous peak of £25bn during the financial crisis of 2007-08.
The DCLG has been asked to update the committee by summer next year on how it is strengthening its understanding of the scale and nature of authorities’ commercial activities, “focusing in particular on the scale of risk across the sector and the types of authorities placing themselves at greatest risk”.
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