Local authorities are grappling with a spiralling funding crisis as demands for services such as social care booms. Earlier this year, accountancy firm Grant Thornton warned that four in 10 local councils are at risk of going bust over the next five years.
IFG senior researcher Stuart Hoddinott warned that the Government is using short-term measures that will make the crisis worse in the long-term.
Mr Hoddinott said: “It’s another, quieter way of supporting local authorities that doesn’t make as big a headline as a local authority going bankrupt. The government decision to expand the use of exceptional financial support, not to be too cynical, but may be a way of trying to avoid those section 114 notices.”
More councils would likely have effectively declared themselves bankrupt if the Government had not increased use of exceptional financial support, Mr Hoddinott added.
He said: “But it is not a sustainable solution. Obviously you can only sell buildings once, but your pressures are ongoing.”
Analysts warned that councils are selling commercial property at the worst possible time, as the post-pandemic shift to homeworking has depressed prices of office buildings.
Matthew Oakeshott, chairman of OLIM Property, said: “At the moment what we are seeing in the market, which we recognise as council sales, tend to be better quality properties which still have tenants. They’ve lost a lot of money, but at least they are saleable.
“They are selling properties like retail warehouses and supermarkets, but that’s only what we’re seeing, that’s the tip of the iceberg.
“But a lot of what they have bought, department stores and shopping centres that are now empty, you can’t give away. So what we are seeing first of all is the better quality ones being billed at a loss.”
Mat Oakley, director of commercial research at Savills, warned that fire-sales will ultimately push more councils into bankruptcy because they will lose money on the sales and also lose vital sources of income.
Mr Oakley said: “By the sheer act of selling it, your income from it disappears, and they are no longer solvent and they have to go into the council equivalent of bankruptcy.”