The Treasury is planning to clamp down on councils investing in commercial property outside their own jurisdictions.
The restrictions are expected to be announced in the Budget on 22 November.
The move comes after councils splashed £2.2bn in commercial property since July 2015, of which 22% was outside their own jurisdictions, according to EG data.
The trend has been increasing dramatically in recent months with £262.7m spent in the year-to-date, a 79.2% increase on the 12 months prior.
Councils have been increasingly mimicking the private sector by investing in commercial property around the country to access an alternative income stream to plug the gap left by central government funding cuts. Where councils cannot access high yields in their own areas they have been acquiring offices, shopping centres and sheds in other areas of the country.
Some of the largest examples include Surrey County Council buying the Malvern shopping park in Worcestershire (pictured) for £74m in July, and Runnymede Borough Council buying the Chiswick Green office campus in West London for £65.1m in February.
Shelagh McNerney, head of development at Salford City Council, said it had been consulted on geographical restrictions to its investments and understood the concerns.
“When I look at some other authorities around the country, I would question some of their investment decisions, especially when it’s a long way from their actual neighbourhood,” she said. “We’re not about competing with the private sector around the country, but investing in our own neighbourhood.”
Salford has invested significantly in development in its own region, most recently supporting English Cities Fund’s Two New Bailey by taking a 25-year lease on the planned 190,000 sq ft office building, which it plans to sublease to future occupiers.
Waheed Nazir, strategic director, economy, at Birmingham City Council, which set up a commercial property vehicle earlier this year, also said it would be wary of investing outside its local area. “We feel more comfortable operating in the market we understand,” he said.
Greater Manchester combined authority chief executive Eamonn Boylan said that any restrictions would need to consider the positive impact such investment was having on regeneration.
“Councils need to make responsible decisions about how they invest in order to secure their financial platform,” he said. “I understand that there is real sensitivity about people investing outside their area, but a significant amount of investment that is going into commercial assets is also linked to area regeneration in localities and it is very, very important that the ability to do that is preserved.”
Alan Harris, partner at Montagu Evans, which advises councils on their property investment strategies, said one potential compromise could be a restriction where councils were able to use only Public Works Loan Board finance to borrow against 80% of a property acquisition outside their jurisdiction. Borrowing through the PWLB, which enables councils to access cheap debt, is already in the process of being tightened through the Chartered Institute of Public Finance and Accountancy’s prudential code.
A Treasury spokesman said the department did not comment on “Budget speculation”.