CASH-STRAPPED councils across the region have spent millions dabbling in the property market in the hope of generating income to balance their books, The Northern Echo can reveal.

A joint investigation with the Bureau of Investigative Journalism found that North Yorkshire’s council spent £850,000 on buying a freehold occupied by a bank in Stafford recently, while Newcastle’s snapped up a £1.5m warehouse and the City of York invested in a medical lab and spent almost £13m on a city centre shopping and leisure hub.

The number of local authorities buying investment properties in England has almost doubled in the last two years, with councils – some in the North-East and North Yorkshire – spending billions in a bid to generate income in the face of swingeing Government cuts.

Government guidelines from April state that “authorities must not borrow more than or in advance of their needs purely in order to profit from the investment of the extra sums borrowed”.

But concerns have been raised over authorities funding investments through borrowing and subsequently being saddled with debts beyond their spending power.

The practice, which has seen some authorities plunge money into properties hundreds of miles from their area, has attracted controversy, with Liberal Democrat leader Sir Vince Cable suggesting recently that councils were “gambling” with public money.

Authorities in North Yorkshire, Newcastle and York disclosed details of their property investments in response to Freedom of Information requests.

As previously reported by the Echo, North Yorkshire County Council (NYCC) recently bought a freehold property 145 miles away in Stafford that currently houses a branch of the Halifax bank.

It was purchased from Frankel Portfolio Property LLP as part of the council’s bid to embrace a “culture of commercialism” to help them to protect frontline services as it continues to contend with the impact of £180m cuts.

Figures show that, as of the second quarter of the 2018/19, the authority had outstanding borrowing of £379,305,000 – representing 43.9 per cent of its net current expenditure – and a £12,095,000 increase in borrowing since the first quarter of 2018/19.

However, NYCC did not borrow to purchase the Stafford property and said it was financed through internal funds – namely, working capital and reserves – with the council carrying out due diligence.

In Newcastle, where the council’s outstanding borrowing stood at £664,946,000, representing 114.92 per cent of its net current expenditure and a decrease of £24.1m, £1.55m was spent on buying the Sage building on Benton Park Road in 2017.

The purchase allowed for the relocation of the Newcastle Furniture Store and the sale of its former premises, the proceeds from which were used to repay original borrowing and invest surplus back into council funds.

A spokesman for the authority said: “Investments like these are a necessity as we look to make income where we can to counter the continued cuts we have faced, which see us needing to make a further £60 million in savings over the next three years.

“Without prudent investment we would be left with little choice but to make further savings to maintain a balanced budget.”

In 2017, The City of York Council reportedly outbid private investors to purchase a string of properties – housing a mixture of retail, food and leisure businesses – in Swinegate East and West, paying London Mutual Insurance £6.54m and £5.56m respectively.

The authority also paid the Secretary of State for Defence £275,000 to invest in land and buildings associated with the ACM Global Central Lab on Hospital Fields Road.

In 2016, it invested £830,000 in land and buildings on the same road and £940,000 in the Fermetol Trading Estate.

York’s outstanding borrowing stood at £257,465,000 in the second quarter of 2018/19, representing 101.22 per cent of its net current expenditure.

A spokesperson for the Local Government Association (LGA), said: “The money local government has to pay for local services is running out fast and there is a real and growing uncertainty about how local services are going to be funded beyond 2020.“With councils facing an overall funding gap that will reach £7.8 billion by 2025, they have had to look for new ways to generate revenue. Councils have been encouraged to find ways of protecting services by generating income from alternative sources.

“Councils face a choice of either accepting funding reductions or having to cut services as a result, or making investments that can secure those services in the long term. In doing so, they have to follow strict rules and assessments to ensure they invest wisely and manage the risk of their investments appropriately.

“In many cases, councils have not only been making investment decisions that can help them replace funding shortfalls, but also contribute to their local economy and environment.”