By Gareth Davies: Publicly owned buildings and land could be at greater risk of being sold off by cash-strapped councils after a government ruling, a leading expert has warned.

Peterborough council appeared to breach one of the government’s “golden rules” between 2015 and 2019 when it balanced its books by using £24 million raised from selling assets.

However, after an inquiry into this practice — prompted by the Bureau of Investigative Journalism — the Ministry of Housing, Communities and Local Government (MHCLG) has decided to take no action against the council, potentially leaving the door open for other councils to do the same. The decision seems to be a U-turn, as government officials had previously told the council they disagreed with its position in correspondence seen by the Bureau.

Professor Tony Travers, of the London School of Economics, told the Bureau more local authorities may now take the opportunity to sell the “family silver” to make ends meet.

The ministry declined to comment when asked whether Peterborough’s spending was legal and if other councils are allowed to make use of the policy.

Local authorities are supposedly barred from selling their assets to plug gaps in their finances unless the money is used to fund cost-cutting measures. The regulations are designed to prevent councils becoming reliant on selling off land and buildings to pay running costs.

This is exactly the situation Peterborough finds itself in, leaving it with little of value left. It used money from selling off assets, called capital receipts, to pay what is known as the Minimum Revenue Provision charge, which is a proportion of its annual budget that has to be set aside to repay loans borrowed to fund things such as building schools.

An investigation by the Bureau found that, since 2015, Peterborough had used capital receipts totalling £23 million to meet the cost of MRP, despite guidelines which say the charge must be met from councils’ day-to-day budgets. The council’s latest accounts, released since our story was published, bring that figure up to £24 million.

This reduced the pressure on the Conservative-led council’s finances but also made it dependent on selling assets to break even – an unsustainable position in the long term, as Peterborough itself admits.

In total, Peterborough sold about 50 assets — including pubs, petrol stations, a former community college and farmland — between 2014 and July 2018. In February a further 27 sites were earmarked for sale over the next two years, including a bowling green, allotments, a library and a car park. A Labour councillor called it a “fire sale”.

Speaking at a council meeting a day later, David Seaton, Peterborough’s cabinet member for resources, dismissed the story as “fake news” and said the council had sought the advice of a leading financial QC who had “given us the opinion that he cannot see Peterborough council acted illegally in any way”.

Councillors then passed this year’s budget, which includes a further £10.6 million in capital receipts to pay the MRP charge.

In the months that followed the council was asked by the government to explain its position. The Bureau obtained copies of correspondence between the council and MHCLG under freedom of information laws. In the most recent letter obtained by the Bureau, dated May 16, a government official made clear to the local authority that the way it spent capital receipts did not fall within the legislation.

However, when the investigation concluded last week MHCLG’s position had changed. A spokesman said the department was “not taking any further action regarding Peterborough council at this time” but that it would discuss with the Chartered Institute of Public Finance whether clarification of the guidelines was needed to “ensure local authorities’ practices meet its intent and objectives”.

Professor Travers, one of the UK’s leading local government experts, said he sympathised in some ways with the department’s decision. “There’s a lot of pressure on MHCLG not to put councils under any more pressure.”

However, he added: “Clearly there’s a risk to community spaces. We know the spending which has been cut most is discretionary spending, things like culture and leisure. So as soon as night follows day the capital resources likely to come under the most pressure are likely to be those associated with the services councils are already cutting back.”

Professor Travers said it was “never wise” to rely on selling off assets. “It’s selling the family silver to prop up this year’s lifestyle.”