Cotswold Conservatives are urging the Lib Dem administration at Cotswold District Council to learn the lessons from Croydon Council and not to follow in their footsteps.
Labour-run Croydon Council in London effectively declared itself bankrupt on 12 November 2020 and blamed its financial crisis on the havoc caused by the Covid-19 epidemic and on years of austerity.
For years the London council has embarked on a borrow and invest strategy which is the root cause of the council’s bankruptcy. Croydon council is £1 billion in debt, most of it from a Whitehall-administered, low-interest fund called the Public Works Loan Board, widely known as PWLB.
Croydon Council invested £260million in a council-owned, loss-making house-builder, Brick by Brick. In addition, they invested £200million to buy commercial properties, such as the Croydon Park Hotel and the Colonnades retail and leisure centre, most of which are thought to be declining in value. Croydon council has continued to make commercial investments this year, buying two more commercial properties.
The borrow and invest model adopted by Croydon council (and other councils) is very similar to what was approved and adopted by the Cotswold District Council Lib Dem administration at the September 2020 full council meeting.
The Cotswold policy will see CDC (which is currently debt-free), borrow up to £54 million on a 25 to 50-year time horizon in order to build additional housing across the Cotswolds. The administration is seeking a 2.5% return on investment and has assumed interest rates will stay below 1.7% for the next 50 years, even though the government has recently taken steps to make using PWLB money less of an attractive proposition for local councils, raising the cost of borrowing from 1.8 per cent to 2.8 per cent.
Although £54 million is a modest figure in comparison to the £1 billion borrowed by Croydon council, it still represents 4 times the council’s annual net budget requirement which is only £12 million.
As the policy was agreed in September, CDC is currently spending £350,000 on recruiting two officers and on hiring consultants to advise on the investments the council should make.
Cllr Richard Morgan, leader of the opposition Conservative Group said,
“It is madness for the Lib Dems to embark on this tax, borrow and spend agenda just as the country is experiencing a second wave of COVID-19 and when the long-term future of the commercial property market is so uncertain”.