29th May 2026
The UK government has announced new measures designed to prevent councils in England from making what it describes as “risky investments” using public money. The move follows a series of high-profile financial crises involving local authorities that borrowed heavily to invest in commercial property, shopping centres, hotels and other speculative projects in the hope of generating income.
According to the UK government press release, ministers believe some councils moved too far away from their traditional role of delivering public services and instead took on levels of debt and financial exposure that could ultimately leave taxpayers carrying the burden if investments failed. The new measures are intended to tighten oversight of borrowing, strengthen government intervention powers and stop councils from using excessive debt to fund speculative commercial activity.
The concern did not emerge in isolation. Over the last decade, low interest rates and severe pressure on local government budgets encouraged many councils to search for alternative income streams. Some authorities purchased office blocks, retail centres and large commercial developments using borrowed money. While these deals sometimes generated revenue, the risks became much clearer after interest rates rose sharply and parts of the commercial property market weakened.
Several English councils subsequently experienced severe financial distress. In some cases, councils accumulated debts running into billions of pounds relative to their size. The collapse of a number of investment strategies has led to criticism that local authorities were effectively behaving like property investment companies rather than public service providers.
The UK government’s response is therefore aimed mainly at England, since local government finance rules are devolved elsewhere in the UK. Scotland is not automatically covered by the new restrictions because Scottish councils already operate under a separate regulatory framework controlled by the Scottish Government.
Scottish local authorities are governed by the Local Government Investments (Scotland) Regulations 2010 and must comply with rules set by Scottish ministers. Councils are required to publish investment strategies, assess financial risks and ensure borrowing remains prudent and sustainable. Professional standards overseen by CIPFA also apply north of the border.
In practice, this means Scotland already has some safeguards similar to those now being strengthened in England. However, the wider financial pressures facing councils are very similar. Scottish councils continue to face rising service demands, wage pressures, infrastructure costs and tight public finances. Like councils elsewhere in the UK, they have increasingly looked for new revenue streams and economic development opportunities.
There is, however, an important difference in scale and political emphasis. Scottish councils generally did not engage in speculative commercial property investment on the same scale as some English authorities. While there have been concerns over borrowing levels and individual projects, Scotland has largely avoided the dramatic council collapses seen elsewhere in the UK.
The political debate in Scotland therefore focuses less on “reckless investment” and more on whether councils are being squeezed financially by years of constrained funding settlements. Many Scottish local authorities argue that they are being placed in an impossible position — expected to maintain services, support local economic growth and invest in regeneration while operating under severe budget pressure.
This exposes a wider contradiction in UK public policy. Governments often encourage councils to become more entrepreneurial, attract investment and regenerate struggling local economies. Yet when councils take commercial risks in pursuit of these goals, governments frequently step in afterwards warning against speculative behaviour.
The new UK measures may therefore represent more than just tighter financial controls. They could also signal the end of an era in which councils were quietly encouraged to compensate for shrinking budgets through borrowing and investment activity.
For Scotland, the immediate legal impact may be limited because the new rules apply primarily to England. However, the broader debate about council debt, financial risk and local government sustainability is equally relevant north of the border. Scottish ministers may yet face pressure to tighten oversight further if financial conditions continue to worsen.
Ultimately, the issue goes beyond individual investments. It raises a much larger question about the future role of councils across the UK. Are local authorities supposed to be cautious service providers with tightly restricted finances, or are they expected to act as engines of local economic development and regeneration? Trying to achieve both at the same time may be where many of today’s problems began.
England
Councils to be prevented from making risky investments
Taxpayers to be protected from financial mismanagement in local government
Powers will be used to prevent excessive borrowing, risky investments and poor financial decisions in local government.
Announced today (28th May), these powers will be switched on to help the government find early warning signs by tracking every council’s investments, debt, and revenue to spot financial risk before it becomes a crisis, allowing faster action to protect taxpayers.
How these powers will work and what other measures could be used to find risks will all be considered in a consultation that has launched today.
In recent years, some councils have borrowed excessively in risky financial projects. Woking Borough Council amassed over £2 billion in debt, nearly 100 times its annual budget. And Thurrock Council built up £1.5 billion in debt through borrowing to finance failed investments, though both have curbed excessive borrowing since.
The new metrics will strengthen oversight and transparency and ensure that borrowing across local government is affordable and sustainable.
Local Government Minister Alison McGovern said:
In Woking, Thurrock, and other councils we’ve seen poor investment decisions leaving taxpayers footing a big bill.
We can’t afford to wait until a council is on the brink of collapse to act. That’s why we want to bring in new powers so we can identify the risks and act before its too late.
This is alongside making £78 billion available through the Fair Funding Review to get councils back on their feet through the first multi-year settlement in a decade.
The consultation will run from May 28 to August 6. The consultation can be found here: Capital risk metrics implementation and mitigation measures - GOV.UK https://www.gov.uk/government/consultations/capital-risk-metrics-implementation-and-mitigation-measures/capital-risk-metrics-implementation-and-mitigation-measures
These powers were previously introduced in The Local Government Act 2003, with section 12 that was amended by the Levelling Up and Regeneration Act 2023.
To operationalise these powers, regulations are required to specify the risk thresholds that would bring a local authority into scope for intervention, alongside the wider operational framework for how the powers would be applied. These powers will only come into force following the consultation.
The consultation also sets out considerations relating to Combined Authority debt.