Rental income is a financial lifeline says council leader

Rents earned from Hastings Borough Council’s (HBC) expanding portfolio of commercial property is saving jobs and services says the council’s Labour leader Peter Chowney.

Last month we reported that in his report to council Mr Chowney had explained why the council had bought a number of commercial properties. He outlined that income generated from the rents of those properties would bring the council much needed cash and possibly head off the need for future cuts in services.

Hastings Borough Council has seen its revenue support grant from central government slashed from £9m in 2010 to just £1.5m for the coming year and according to Mr Chowney the council needs to find new ways to raise extra cash and owning commercial property is one way to do that.

This week Mr Chowney took to print using his own social media accounts to explain in greater detail what the council’s objectives are, this is what he wrote: “I’ve been asked by a few people to explain in more detail why the council is buying commercial properties, and why this is a key feature of the Labour manifesto for the council elections.

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One of the properties owned by Hastings Borough Council that is generating income for the authority.

“Since 2010, the funding the council receives from government grants and business rates has fallen from £12.7m to £3.9m. That’s a cut of 69 per cent, or £45m cumulatively over the eight-year period. All councils have received big cuts to their grants – on average 49 per cent across the country.

“Over that period, the number of staff employed by the council has fallen from 600 to around 370. It did fall to a bit above 300, but new self-funding schemes, such as selective licensing for private landlords, have created new jobs. Overall though, many services have been reduced or discontinued. The community support team has pretty much disappeared for example, so most of the work we used to do supporting residents’ associations and working in the most deprived communities has gone. Some front-line services have also had to close.

“Councils don’t have much flexibility in the income they receive from external sources. Revenue grants are entirely determined by the government, council tax increases are restricted to 2.99 per cent without a local referendum and anyway, an additional one per cent on the council tax generates only £60,000. And the council has no control over business rates – they are set by central government.

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“Cuts to front line services would have been much deeper if the council hadn’t embarked on a programme of income generation. This programme has generated an additional £2.2m in annual income over the last three years. Most of this has come from buying  tenanted commercial properties. The council borrows money from the Public Works Loans Board (PWLB) to fund these purchases.

“The PWLB makes loans available to public sector bodies at well below commercial rates, around three to – 3.5 per cent for a 40 year loan. These loans are repaid monthly, with repayments made up of both interest and capital. Because the commercial properties we’re buying already have tenants, we get an immediate rental income. This is used to repay the loans, but the rent is significantly more than the cost of the loan repayments. So that net income is what generates income for the council.

“As a rule, the council only buys commercial properties with a ‘full repairing lease’, so any repairs needed to the buildings during the course of the tenancy are paid for by the occupiers. Every year, there is a rent review, so the rents will gradually go up over time – but the loan repayments stay the same. And after the loan is paid off, all the rents is net income.

“So far, the council has made three large commercial property purchases: its own offices at Muriel Matters House, the Bexhill Road Retail Park (TKMaxx) and the Sedlescombe Road Retail Park (Dunelm). We are looking to purchase more.

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Hastings Borough Council already owns its own headquarters, Muriel Matters House, in the town centre.

“The Tory opposition on HBC thinks we shouldn’t be buying commercial properties and proposed a budget amendment this year to end the programme, along with a £700,000 spending cut that would have led to 17 job losses and the closure of many front-line services. To make up the additional £2.2m deficit they would have had without new commercial property purchases, they would have had to cut around 50 jobs, ending pretty much all non-statutory services. Tories elsewhere seem perfectly happy with commercial property purchase – Sevenoaks Council have bought up most of Sevenoaks Town centre, and are now financially self-sufficient, and don’t need any government grant to make the books balance.

“Running commercial property isn’t a new venture for the council. We already own most of Castleham and Ponswood factory estates, and the freehold of Priory Meadow Shopping Centre, as well as other properties such as the Carlisle pub. Rents from commercial property are one of our biggest sources of income. So it makes sense to expand that property portfolio to generate additional income, to help cover the gap in the budget left by massive cuts in government grants.

“There are other income generating initiatives too, such as the new council-owned housing company, and our plan to generate sustainable electricity locally, supplying it to Hastings households and businesses though a local supply network. But these are longer-term initiatives. The cuts in government funding are coming too deep and too fast to cover through long-term initiatives, and there’s a £2.5m hole emerging in the budget by 2021. So we need more income to cover that – and further commercial property purchases are the most likely way to do that quickly, if we can identify the right properties.”

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