Expected returns of £450,000 a year
The cabinet have recommended to full council that up to £20m be allocated to an investment fund, either from existing resources or funding from the Public Works Loan Board.
The money would then be drawn down and invested as and when required and would be expected to give the council a net return of £450,000 a year.
The ‘low risk’ strategy, which would see some of the investments made within East Devon, is one of the ways in which the council is preparing to plug the expected £2m funding gap in its 2020/21 budget.
Any decision on investment of more than £5m would have to be made by the council, but delegated authority to the Deputy Chief Executive in consultation with Leader, Portfolio Holder for Asset Management, Portfolio Holder for Finance and Portfolio Holder for Economy would be given for anything less than that.
Tim Child, Senior Manager – Property & Estates, told the cabinet that the Commercial Investment Framework was a strategy to help deliver income that would be gleaned from land and property and that the overview committee had supported the principle of it.
He added: “This is a method tried and tested by other authorities. Some have done this and others are trialling it. The model we are set to go with reflects the low risk appetite for East Devon and some of the investments will be within East Devon.”
Chief Executive Mark Williams added: “As the new council prepares for the 2020/21 budget and the £2m funding gap and a 13 per cent reduction in our budget, we will have to do something and a lot of engagement with the public around it. As part of that engagement, I dare say public will say what are you doing to protect the services, and one of those things is to engage in low risk activity to try and generate some income by investing in property.”
Cllr Philip Skinner, portfolio holder for the economy, said that he was very supportive of the idea and was the kind of work the council needed to do. He said: “I look at Torbay, and they are known as a basket case, but they have put together a fantastic financial team and have made some phenomenal investments up and down the country.
“They are doing a really good job, and want to make investments in our patch, so we need to make sure we get there first, as there is a speed that you need to move at in the commercial world as good deals don’t last long as other people recognise that there are good deals.
“We need to make these investments to ensure we can find a way to cover the funding gap we will be facing. We need to wake up and smell the coffee on this. I am very supportive of this and this is the kind of work we need to be doing.”
Among the investments Torbay Council has made includes purchasing a bakery in Bodmin from Proper Cornish Ltd for £3m, with a council spokesperson saying that investment in properties from Cornwall to Kent will raise an estimated £2.8m and that they need to generate more income to fund local services due to budget cuts.
Cllr Mike Allen added: “This strategy is very important. The amounts are small compared to other authorities who are borrowing up to £100m, but this is a prudent way of filling the black hole gap we have in the revenue income.”
Leader of the council, Cllr Ian Thomas, added that the council was taking a very professional approach to an area that they historically haven’t covered very well.
Concerns though about the strategy were raised by Cllr Roger Giles, who said that he would have thought that people generally would want the council to borrow money to provide services for residents and to borrow to provide additional housing for the less well-off residents.
He said that property investment brings with it the potential for significant risk if things go wrong and there were concerns about the public perception of making these investments, particularly if they are outside of East Devon.
Full council will make a final decision on whether to approve the Commercial Investment Framework at its meeting on February 27th, where it will also finalise the budget for the 2019/20 financial year.
The cabinet agreed with the overview and scrutiny recommendation hat there should be a Council Tax increase of £5 a year made on an Band D council tax property, taking the meaning the average tax payer will be charged £141.78 a year for 2019/20.
They also agreed to recommend that a vacant post within the Economy Portfolio at a cost of £25,000 be reinstated. The deletion of this vacant post in the draft budget was agreed by the Strategic Management Team as a saving in line with Transformation Strategy “Fit for Purpose” imperative as they believed the saving could be made through efficiencies and would not impact the service, but the cabinet disagreed and said that it would help free up the economy and planning teams from their current pressures.