Residents have a good idea of what councils do. Or at least are supposed to. Unlike the labyrinthine structures of Whitehall departments or the alphabet soup of quangos, councils have clear responsibilities that most Brits recognise as being valid public services that taxes are worth paying for.

It depends on the type of council, but broadly these responsibilities cover housing, bins, parking, recycling, planning, street cleaning, licensing, libraries, social care, and parks, among others. There is broad agreement that these are important services that councils should be expected to provide, even if there is debate on the extent of the provision, or how this provision should be funded.

There is also broad agreement on what councils absolutely shouldn’t do. Councils shouldn’t, for example, engage in foreign policy or trade negotiations. These are the prerogative of Westminster. More fundamentally, councils shouldn’t ever risk taxpayer money on speculative investments.

Unfortunately, a few too many councillors and council officials have tried to play Warren Buffet in recent years, leading to some spectacular self-implosions within the corridors of the UK’s town halls. Whether it’s Robin Hood Energy’s bankruptcy blowing a black hole in Nottingham City Council’s budget or Croydon Council’s streak of investments gone wrong, local authorities have been asking their shareholders – the local taxpayer – to foot the bill for their failures.

This dismal record is not warning enough for some. Because in the latest example of a council betting the house on red, Arun District Council has decided to invest almost £500,000 of local taxpayers’ money on a luxury bed and breakfast in the picturesque town of Arundel in West Sussex. The hope is that the council could use tourism in the town to improve their bottom line. This is ambitious to say the least – while undoubtedly a desirable place to visit, there are few sights beyond the castle and a pleasant high street. But, in a warning to other councils, questionable figures and a lack of scrutiny have created a perfect storm.

The problems with this scheme are many. There is enormous and almost unanimous opposition from residents – but that’s perhaps not surprising, as new developments rarely meet with local support. And then there is the maths. The council assumes that on a capital investment of £486,000, it will be able to charge £503 a night, with an occupancy rate of 60 per cent. This means an annual surplus of around £50,000 once costs are deducted. This is a solid rate of return, assuming all goes well. Except the figures seem to come from thin air, and not even the council can properly back them up. In fact, research into other holiday lets in the town charging £500 a night have found occupancy rates of just 29 per cent. This is 39 per cent for properties at £150-£300 a night.

Further, local builders have told campaigners in Arundel that the actual capital costs for the initial investment will be more in the region of £650,000-£700,000. Given the long history of public sector projects exceeding estimates, and with the road in question suffering severe problems due to flooding, the prospect of cost overruns should be taken seriously.

That ten per cent return suddenly vanishes, and the prospect of an annual loss, particularly given the highly unpredictable nature of tourism over the past few years, becomes very real. If this comes to pass, who will be responsible for paying for this?

So how on earth a council has reached the decision in the first place? There is never a time for councils to engage in property speculation. But at a time of national and local tax hikes, spluttering services and a cost of living crisis, every penny counts. It shows a shocking disregard of Arun District Council’s duties to their residents that they would think this is how to spend half a million pounds, particularly given the already yawning deficit in their housing budget.Yet presented with these figures at committee, by an individual who has now left the council, the councillors saw a way to make an easy buck. They failed to scrutinise, or seriously question the assumptions underpinning the project. They didn’t see the white elephant, they only saw the cash cow.

It’s these failures of scrutiny, multiplied, that lead to councils issuing the notorious Section 114 notice, an effective declaration of bankruptcy. For any councillors reading, whenever a plan like this is proposed, take a good look under the bonnet. There’s a good chance you’re being sold a lemon. A bit more scrutiny, a few more questions asked, and the nightmares of Croydon and Nottingham may have been avoided, or at least lessened. It can be difficult for councillors to think in the long term – an election is never more than a few years away. But when councils make mistakes in the short term, it’s residents who will pay in the long term.

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