Somerset Council has £300m property debt despite sell-off
A local authority has to pay off nearly £300m of loans with interest despite selling the properties bought with the money.Somerset Council is in the process of selling the shops and offices in its commercial property portfolio, which it inherited, along with the loan debt, from former district councils.But it has had to spend the proceeds on services such as adult social care, following its warnings that it could go effectively bankrupt.A council spokesperson said it was "clearly in the taxpayers' interest" to sell the properties rather than borrow more money.
The council's properties ranged from an M&S building in Yeovil, to offices in Bristol, business parks including Street Retail Park, a TK Maxx in Worcester, and an NCP car park in Bournemouth.
The district councils that were replaced by Somerset Council in 2023 along with the county council bought the properties with £298m in loans as part of an investment strategy taken by a number of English local authorities.The £298m sum included fees and stamp duty as well as the cost of the properties.The councils hoped to rent out the properties and use the money to run local public services.However, just months after Somerset Council was created, it declared a "financial emergency" and said it would sell off 48 properties.It was given special permission by the government to spend the proceeds on running day-to-day services like adult social care and children's services.But the portfolio has significantly lost value due to falling market prices in recent years.
At the end of March 2024, the council's properties, including any already sold, were valued at £219m – a £78m loss on the initial investment.As of 31 December 2024, Somerset Council has sold properties for £76m that cost £104m to buy, a £27m loss.The £76m has been spent on day-to-day services in 2024/25, and the £104m debt remains with the council.The council will also have lost the rental income from those properties.Only around £18m of the debt arising from the property loans had, in March 2024, been paid off.The purchases were largely funded by borrowing from the Public Works Loan Board, which the current council is responsible for repaying with interest. It makes these payments from its revenue budget.Jonathan Carr-West, of the Local Government Information Unit think tank, said councils had been encouraged to invest in commercial property by the government but many found the purchases "exacerbated their financial problems".The council spokesperson called for the government to take "urgent action to fix the system of funding local government which is fundamentally broken".
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