To provide the Committee with more detail on the approach to asset investment and the criteria for making decisions about investment.
The Cabinet Member for Finance and Resources, Councillor Simon Hall, introduced the report, highlighting to Members that it had been a priority in the Labour Party election manifesto to use the borrowing power of the Council to improve service delivery and increase income generation. The Asset Investment Strategy set out in the report formalised this commitment using a balanced approach.
The Executive Director for Resources advised that local authorities were increasingly pursuing property investment as a means of increasing income and as such the different approaches employed by other authorities had been used to highlight best practice in designing the Council’s own strategy as well as being informed by the framework provided by the Chartered Institute of Public Finance and Accounting (CIPFA).
The Chairman, Councillor Sean Fitzsimons, welcomed the paper, but questioned whether it linked into the Council’s strategy for dealing with its existing debt. In response it was confirmed that a key intention of the Strategy was for each investment to deliver a net income above the cost of borrowing. It was not expected that this would lead to an additional burden on Council Tax Payers, with the risks carefully reviewed before any decision to proceed on each purchase.
As a follow-up it was questioned whether there were the requisite skills with the Council to build and manage an investment portfolio. It was confirmed that an element of professional advice would be required on each decision and some investments may be in need of a strong asset management presence which would need to be bought in and factored into the costs. The Council does have a certain level of expertise in this area within the workforce, but it additional support would need to be brought for the more technical aspects.
The Cabinet Member, Councillor Simon Hall, highlighted to the Committee that there were risks in pursuing this approach, which increased as more was invested, even with a balanced portfolio. It was also highlighted that there would be a focus within the strategy of pursuing investment opportunities within the borough, unlike some other local authorities who invested across a wide geographical area.
The main risk factors were questioned along with the Council’s ability to mitigate against any such risks. It was confirmed that any valuation report on an investment would include a number of different valuations including redevelopment for other uses. Additionally the risks involved in each investment would be thoroughly reviewed prior to purchase and steps to mitigate against these identified where possible.
It was questioned whether the Asset Investment Strategy would have an effect upon the Council’s ability to borrow to build public assets? It was highlighted that the Council was already borrowing funds to build new housing and that the intention of the strategy was to increase income for other options.
It was also questioned how the different factors were balanced when deciding if an investment should be pursued or not. It was advised that should one factor raise significant concern, then it may be enough to rule out an investment, but it would need to be balanced against the other factors involved as part of the whole picture.
Although the decision to focus on investment within the Croydon area was welcomed, it was also highlighted as a potential risk should the property portfolio become too heavily focussed in a small area. In response it was confirmed that most local authorities would be predominantly invested in their local area, but this would be factored into the risks considered as part of any investment. It was highlighted that the Council did have a more diverse investment portfolio in the Council’s pension fund. It was also highlighted that property in Croydon was relatively cheap in comparison with much of London
Although the principles underlying the strategy received a general level of support amongst the Committee there was concern raised about the transparency of the process and in particular how Members of the Opposition would be kept informed of investments and whether the process would benefit from greater oversight.
In response it was confirmed that in developing the Asset Investment Strategy it had been designed to address these concerns, however there was an issue relating to the short timescales for commercial negotiation that restricted the amount of consultation that could be arranged, but briefings on decisions could set up. As a solution it was suggested that it may be of benefit to brief lead opposition Members and possible the Chairman of the Scrutiny Committee prior to a decision being taken.
There was a general consensus that the ten criteria set out in the strategy provided a good basis for decision making, although there were differing views expressed on focusing investment solely in Croydon. There was a suggestion that an additional criteria to allow consideration of the reputational risks in certain investments should also be considered.
The Scrutiny Committee welcomed the report, and its explanation of the Council’s proposed decision-making matrices, but we also note that it was produced after the first bid had been lodged, and without this paper it would not have been possible to judge the soundness of the acquisition.
That the Cabinet improves how the Minority Group is formally briefed prior to decisions being taken on individual investments as part of the Asset Investment Strategy, and ensure the briefing is done early in the process.
Any future asset acquisition paper should refer back to the proposed matrices and the judgements the Council has made to recommend approval of the purchase.