Home Economics Government Should Invest Because Local Councils Are Going Bust

Government Should Invest Because Local Councils Are Going Bust



It’s a not uncommon insistence over there on the left side of the aisle that government should be making the investment decisions for our society. Because, you know, all the bright people are in government, they’ve all the right incentives to make good decisions and so they do. Social utility will be optimised by handing the chequebook over to the sort of people who get elected to Parliament.

There might be the occasional logical flaw in that argument as stated just there but leave that to one side. We’re about to gain empirical evidence concerning this idea.

For some years now local councils have been able to borrow directly from central government at something like the rate that central government itself pays to borrow. Some of those councils have been using this to gear up their investments into commercial property.


English local councils are set to shed thousands of jobs and cut services as they count the cost of lost income from multibillion-pound holdings in office blocks, retail parks, airports and cinemas, all badly hit by the coronavirus pandemic.

The commercial investments, many acquired in a £7.6bn property spending spree in England over the past four years, were part of councils’ effort to find alternative incomes and protect local services that faced cuts or closure during a decade of deep austerity cuts.

Well, what went wrong?

Spelthorne borough council, Surrey
Spelthorne has a debt-funded commercial property portfolio worth an estimated £1bn. The council spent £385m on a BP research centre in Sunbury-on-Thames as well as a 170,000 sq ft office building in Hammersmith, west London, and Thames Tower in Reading.

The council receives many multiples of what it needs to run council services from its property income – but the income is also needed to service its debts. By March 2019 it had borrowed £1.1bn against annual core spending power of £11m, a ratio of almost 100 to 1.

As a start, the incentives were wrong. The people making the investments – the councillors – aren’t on the hook for them going wrong. Which is how we get gearing like that. No commercial organisation would ever be allowed to get to that sort of stage. Heck, Intu has just gone bust and even when bust its revenue to costs base was considerably better than that.

This is also not just about coronavirus. British commercial property has been declining as a golden investment for some years now. The internet is making inroads into the value of retail property – Intu was pretty much bust before the lockdown – and there’s been a rise in home working and decline in commuting into expensive office space for years now too. Sure, recent events have speeded things up, as shocks often do, but there’s nothing new about both trends.

That is, the investors here, those politicians, are also bad at investing.

There are ways this could have been made to work of course. Consider what a ruthless capitalist in charge of planning permissions would have done. Bought a greenfield site, granted himself planning permission for a megamall, brought in a builder and sat back to enjoy decades of rent on that difference between agricultural land values – £10,000 a hectare maybe – and zoned retail land – £1 million a hectare? More?

What did the politicians do? They invested the money in land that had already been rezoned by someone else. Instead of using their own power to make money for themselves – OK, their organisation – they paid the cash over to some other bugger exercising their such power.

They weren’t just not very good at investing they were incompetent.

But of course this means that government should direct investment in our economy. Because. And if you believe that I’ve a bridge to Northern Ireland to sell you.



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in British English
expunct (ɪkˈspʌŋkt)
VERB (transitive)
1. to delete or erase; blot out; obliterate
2. to wipe out or destroy

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