The inquiry by the Public Accounts Committee will see MPs examine whether local government officials have the commercial skills required for such transactions, after it was revealed that councils had been on a £6.6 billion spending spree in the last three years.
A report by the National Audit Office (NAO) on ‘Local authority commercial investment’, published in February, found there had been a huge increase in authorities buying up retail, leisure and office premises between 2016 and 2019. The total spend between 2013 and 2016 was just £460 million.
The NAO report assessed whether the Ministry for Housing, Communities and Local Government has effective oversight of the risks to the financial sustainability of local authorities due to their investments in commercial property.
The report found there had been a significant increase in out-of-area commercial property acquisition, some authorities were borrowing large sums to make the purchases, and that commercial property acquisition was concentrated in a relatively small proportion of authorities.
Steve Charmley, cabinet members for assets, economic growth and regeneration at Shropshire Council, said: “Shropshire Council acquired the three shopping centres – Darwin, Pride Hill and Riverside – in January 2018 with the primary purpose to support the economic growth and regeneration of Shrewsbury town centre.
“We were fully aware of the likely downturn in the fortunes of the high street, and it’s for exactly that reason that the purchase was made – so that we could manage and mitigate the expected downturn, while enabling fresh development in the town.”
The council will soon reveal its plans for the demolition of the Riverside Centre, and is assessing options for the refurbishment and reconfiguration of the Pride Hill centre.
Meanwhile a £2 million revamp of the Darwin Centre has been put on hold as a result of the Covid-19 pandemic, but it is hoped work will be able to resume soon.
Councillor Charmley added: “It’s important to make clear that the prime concern of the Public Accounts Committee is about ‘out of area’ investment and that Shropshire has no investment property outside of the county.
“The investments we are making are rooted in strategies to transform, strengthen and improve our towns and local economy.”
The NAO concluded that local auditors had raised concerns about the governance and risk management arrangements for investment activity in some authorities.
On May 11, the Public Accounts Committee will question officials from the Ministry of Housing, Communities and Local Government on gaps in commercial skills in local government, and the extent to which the department formally monitors commercial activity.
The inquiry comes as fears grow over the potential loss of income from such investments as a result of the coronavirus pandemic.
Shropshire Council has not revealed the extent of its income loss from the shopping centres since the outbreak escalated.
A council spokesman said earlier this month: “We are all dealing with extremely challenging circumstances, and rent and service charge payments are a growing concern for a number of our tenants, though we’re not in a position to discuss any specific circumstances.”