A local authority credit bubble?
Held on Wednesday, May 31, 2017, 12.30-2.15pm
John Plender (Financial Times)
Andrew Burns (CIPFA)
Christophe Parisot (Fitch Ratings)
At the end of April, the FT’s John Plender (who also chairs the CSFI’s Advisory Council) published a long article on what he called “the council credit bubble”.
The gist of this was that local councils in the UK have been plunging into the commercial and residential property markets on a heroic scale, trying to plug the gaps in their budgets caused in part by years of funding cuts. Their rationale is simple: they can borrow (from the Public Works Loan Board) at around 2.5%, while property has historically yielded 6-8% or more.
Is this smart finance? Or is it an accident waiting to happen? The history of local governments punting in the markets is not reassuring – think Orange County and Japan in the 1990s. But, so far, all that has happened in the UK is that a few red flags have been raised – notably by the Public Accounts Committee. Are John and others over-egging it? Or, as ‘Brexit’ approaches, will a property decline (particularly in the commercial space) lead to a Northern Rock-style scandal?
But I hope John won’t get things all his own way. In addition to John, who has been an editorial writer and columnist at the FT since 1981, I am also delighted that we have two other panellists to kick off the discussion:
- Andrew Burns, who is Vice President of The Chartered Institute of Public Finance and Accountancy and finance and resources director at Staffordshire County Council; and
- Christophe Parisot who is head of international public finance for EMEA at Fitch Ratings, which he joined in 2007 from Dexia.
Maybe there is nothing to worry about – and maybe the Treasury is right not to be too excited that money from the PWLB is being punted on the property market. But, just in case John is on to something, it is worth listening to both sides of the argument.
If you (or a colleague) would like to join us – and, perhaps, to share your own opinions – please let us know by emailing firstname.lastname@example.org or by calling the Centre on 0207 621 1056. As usual, wine and sandwiches will be provided.