Published on Friday, 27th November 2015

 

A little bit of good news: the City Council has completed a deal to buy an investment property in Gloucestershire. The warehouse unit located near the M50 has an existing tenant and will generate a return in excess of borrowing costs. All told the council hopes to make at least the £480,000 allowed for in the budget in annual profit from investment properties of this kind. Deals like this work because the council can borrow for 4.2% and yet there are solid investment properties out there that return around the 6% mark. In the short-run it is even more profitable than that as the council can lend out the City Deal money in advance of needing to spend it.

 

The council may borrow as much as £50m this year for these investments. The LibDems are unfortunately trying to claim that somehow the council could instead just borrow money and spend it and that this proves there is no financial squeeze. That is self-evident nonsense. £50m of spending would result in about £2.1m in interest payments and the principal would also have to be repaid over 25 years, meaning annual repayment costs of £4.1m and nothing to repay it with. That’s the problem with loans. They have to be paid back. You can’t borrow your way out of poverty or of debt.

 

Tags: Budget