This weekend, the controversial investment arm of two Suffolk district councils turns five – having snapped up 21 properties, from a GP surgery to a Wagamama.
It will mark the milestone by clinching one final building, bought with what is left of an £100m pot funded by taxpayers.
This latest acquisition concludes a last-gasp spending spree which has seen CIFCO Capital Ltd, owned by Babergh and Mid Suffolk councils, splash nearly a third of the money – £31.4million – on properties from Coventry to Ipswich between November and April.
It signals the end of an era for what has been described nationally as the ‘public service gamble’ – where scores of local councils have borrowed £6.6billion since 2016 to play the property market and plug gaps in central Government funding.
£100m property portfolio
Babergh and Mid Suffolk have each borrowed £50m to invest in commercial property. That is the equivalent of £545 per head in the Babergh district, and £485 in Mid Suffolk.
From CIFCO, bosses say more than £5m in income has been generated so far.
Of that, £2.3m came in 2020/21 alone - despite retail tenants entering administration - however, it was also the year that put paid to the controversial practice altogether.
Within days of CIFCO buying revamped offices to sit opposite more offices it owns in Surrey for £7.9m in November, the Treasury pulled the plug and issued stern guidance preventing councils borrowing huge sums primarily for yield.
It meant that from November 26 authorities wanting to borrow in the next three years had to sign on the dotted line confirming they will only use low-interest Public Works Loan Board cash for safer options like regeneration or housing.
Council chiefs said CIFCO completed a drawdown of funds ahead of year-end on March 31, 2021 and on the same day secured one of its final investments – an £8.3million industrial estate in Braintree.
Screwfix, a car wash and two more traders on an industrial estate in Ipswich’s Cavendish Street came next for £1.5m in April with one final new-build acquisition set to be announced in the coming weeks.
It will cement the councils’ full £100m portfolio for years to come, with the authorities clear they have no further plans to invest in CIFCO.
Going forward it means that as a source of council income, the future of public services at Babergh and Mid Suffolk are tied to the unpredictability of the property market.
CIFCO has already felt the impact of Covid-19 on property values – it suffered an on-paper loss of £3.5m in 2019/20. Next month, its annual accounts should reveal the pandemic’s hit on finances.
Nationwide, warning shots have been fired by councils like Croydon, which effectively declared bankruptcy in late 2020 with £1.5bn debts, of which £545m stemmed from commercial property.
It led to an £120m government bailout and a ban on spending, which has only just been lifted.
‘Time will tell’ on cost to taxpayers
For Babergh, where finances are tight, council leader John Ward said that without CIFCO’s income, particularly during the pandemic, the authority would be in a “far worse position”.
Following decades of tight budgets, a National Audit Office survey found in March that coronavirus has left local authorities "seriously underfunded" with 94% of respondents from single-tier and county councils and 81% from districts expected to reduce service budgets.
The Government's proposed fair funding review, which aims to look at how money is distributed between English councils, was postponed last year due to Covid-19.
“The income CIFCO generates is helping us to continue to provide the essential services residents rely on,” Mr Ward added.
Previously, council bosses admitted that without CIFCO's income council tax could be hiked and services slashed.
Meanwhile, opposition councillors at better-off Mid Suffolk pointed to the authority’s million-pound reserves and £1.4m underspend last year.
“The sad irony about all of this, is that Mid Suffolk is having meetings at the moment of how to spend its underspends,” said Green Party councillor Andrew Stringer.
“Mid Suffolk was rapidly trying to find ideas of how to spend over £4m, which begs the question why did we take all these risks if we didn’t need the money, because that’s painfully obvious.
“What I fear we’re doing is putting ourselves at risk in the medium and long-term. Because I don’t think anyone in any investment sector is forecasting that commercial property is not about to go through an entire revolution.”
Conservative council leader Suzie Morley said CIFCO’s income supports the district’s post-Covid recovery, while its portfolio “provides a legacy of properties for the benefit of residents for years to come''.
She added: “It is testament to CIFCO’s careful risk management and expertise in balancing its portfolio, that rent collection levels remain above industry averages and repayments have been made in full.”
Babergh and Mid Suffolk are among around 60 councils that spent £2.5bn on properties outside their own districts which bosses say is to diversify investment and boost returns.
As to the long-term impact of that investment, Mr Stringer said “time will tell”.
He added: “While I don’t agree with the wider policy of CIFCO, I’d like it to be a success because I don’t want it to cost the taxpayers of Mid Suffolk and Babergh, which I fear it will.”
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