The Government is investigating whether Peterborough City Council may have broken the law by selling public spaces to help meet its running costs.
A major investigation into councils up and down the country by the Bureau of Investigative Journalism has revealed that in the past four years Peterborough City Council appears to have used nearly £23 million from selling property to help balance its books.
While councils are allowed to use money from selling properties for certain purposes, they are not allowed to use it simply to plug holes in their budgets.
The city council strongly denies any wrongdoing.
The discovery comes just a day before councillors vote on plans to balance the authority’s budget which are reliant on using another £10.6 million of money made from selling assets just to break even.
If found to be in breach of the rules, the planned spending could be disallowed and the Conservative-led council would have to find another way of bridging its deficit as a matter of urgency.
There are even fears Peterborough could follow the same path as Northamptonshire, which last February became the first council in more than 20 years to ban all but essential expenditure after it effectively ran out of money.
A government investigation found Northampstonshire County Council had breached regulations by selling off assets to balance its books in the years leading to its financial collapse.
Cllr Shaz Nawaz, leader of the opposition Labour group on the city council, described the revelations as very disturbing. He said: “I’m extremely concerned that this administration has not kept a better control of the situation. It shows a clear lack of competence.
“Today’s revelations are beyond shocking. I’m afraid of what this will lead to.”
However, Peterborough City Council cabinet member for resources Cllr David Seaton denied there was anything unlawful about the proposed budget as it was using money from the sale off assets to pay off loans, which was legal.
The council has seen an 80 per cent cut in its main government grant, as well as rising spending pressures.
Cllr Seaton said: “We pride ourselves on being an open and transparent council and have been very honest with the public about our use of capital receipts to repay debt. Each year we have done so it has been detailed in our Medium Term Financial Strategy and in our Statement of Accounts, both of which are public documents.
“I must also stress that we are not acting illegally in taking this approach. Legislation allows us to use capital receipts to pay debt and it is perfectly in line with the council’s Minimum Revenue Provision (MRP) policy. It has also been confirmed as appropriate by both external Treasury advisors and the council’s own external auditors.
“We have always been clear that this approach is not a sustainable financial strategy, but one which has enabled us to adopt a strategic approach to tackling the budget gap at a time when we are facing the most severe cuts to government funding in the council’s history. Doing so has allowed us to protect the vital services that our growing number of residents rely upon and need.”
The Bureau of Investigative Journalism passed its analysis of Peterborough’s finances, and the council’s response to its questions, to the Ministry of Housing, Communities and Local Government.
It said: “We are examining Peterborough City Council’s use of capital receipts in the light of this information. Local authorities must demonstrate the highest standards of transparency and accountability, and where appropriate the Government will take action where this is found not to be the case.”
Local Government minister Rishi Sunak told the Bureau that while rules on the sale of council assets had been relaxed three years ago, “we are clear that this does not allow for assets to be sold for authorities to meet day-to-day revenue costs”.
Sold From Under You, the Bureau’s project investigating council sell-offs, has revealed details of more than 12,000 public buildings and spaces including libraries, youth clubs and day centres sold since 2014/15. Councils have raised £9.1 billion from selling property during this period.
Statutory guidelines forbid councils from spending the proceeds raised from selling public spaces just to meet their running costs.
However, analysis of the city council’s finances suggests it has used £23 million this way. It has sold 50 building and land assets - such as pubs, petrol stations, a former community college and farmland - since 2014/15. The council acknowledges it has used capital receipts to meet running costs, but argues the way it has done so is legal.
A report last month revealed the council has earmarked a further 27 sites for sale over the next two years, including Peterborough United’s football ground, a bowling green, allotments, a library and a car park, with an additional 13 described as under consideration.
Peterborough’s accounts and other financial reports suggest that over the last three financial years the council used nearly £23 million raised from selling property in two ways which could potentially be unlawful.
Firstly, it has used the money to pay parts of its running costs - for instance, this financial year there was an overspend in Adult Social Care which seems to have been paid for with proceeds from asset sales. Secondly, it has used money generated from selling public spaces to pay the annual cost of its debt.
Peterborough’s accounts last year stated the council had become dependent on income from selling property - it was “reliant on maximising the revenue benefit of capital receipts,” said the document. Another £10.6 million of capital receipts is incorporated into planned day-to-day spending for 2019/20.
However, its latest financial report makes clear the policy of selling assets to make ends meet is unsustainable.
“As the council has used capital receipts from the sale of properties (assets) to support the budget for a number of years, the remaining value of assets is relatively low, especially with some of the higher value assets being sold in recent years,” the report said.
“This now leaves the council with very little flexibility to use capital receipts in the future to support the budget, and also reduces the potential for the council to generate property rental income.”
A council report from as recently as February 25 seems to indicate money from the sale of assets being used not just to repay debt but also as a lump sum to plug funding gaps in this year’s budget.
Last year the council, which has an annual budget of £147.5 million, launched its Stand Up For Peterborough campaign to lobby the government for “fairer” funding.