Reserves are in place to cope with temporary falls in rental income but “should there be a significant permanent reduction in income, service provision would need to be reviewed”, the council’s report said.
Woking’s finance director Leigh Clarke told the Bureau: “It’s too early to assess the long-term impact of the coronavirus, but it is reasonable to assume the world will be a different place after this crisis.”
The outlook looks particularly bleak for councils that have invested in retail. The sector was already struggling before the lockdown led to the closure of all but essential shops. Despite government support schemes, a recent study suggests a prolonged lockdown could wipe out half of the market. The NAO found more than a third of councils’ spending on property in the past three years, up to £2.3bn, had been in the retail sector.
Gloucester council used all of the £862,000 it raised from investments in 2019-20 – half of which relates to the retail sector – to fund services. It has so far only collected a quarter of the rent owed for April to June.
Spelthorne borough council, which was highlighted in a Bureau investigation, invested in retail property only weeks before lockdown. In February it announced the purchase of the Elmsleigh shopping centre in Staines-upon-Thames for a reported £40m. Now more than 90% of the stores are closed. The scale of the Spelthorne’s investments means it has become “heavily reliant on investment income” to fund services. Its portfolio was predicted to bring in £9.9m this year – more than council tax and dwarfing business rates and government grants.
Spelthorne did not respond to questions about its investments and rental income, but did say it had “positioned itself to withstand any adverse impacts on its commercial rent [to] ensure there is no impact on the income stream supporting the council’s services”.
The government has provided more than £3bn to keep councils going through the pandemic but one council leader told the committee up to four times more could be needed. Moreover, this funding is not meant to cover losses from commercial investment.