Public accounts experts have raised the alarm over councils ploughing taxpayers’ money into commercial property, after new research revealed a three-fold surge in hotel investments by local authorities. Councils spent £93m buying hotels in 2018, up from £33m the previous year, according to Knight Frank, as they sought alternative sources of income following years of budget cuts.

Local authorities can pay for property investments using low-interest debt from the Public Works Loan Board, a government agency set up to help fund capital projects.

The professional body for public sector accountants this weekend warned them against becoming dependent on commercial property revenues and putting public money at risk.

Don Peebles, of the Chartered Institute for Public Finance and Accountancy (CIPFA), said: “Commercial investments often do not sit well with the primary purpose of local authorities, which is the delivery of quality services to local residents.”

While “the avoidance of all risk is neither appropriate nor possible” councils should make sure “they do not take on an inappropriate amount of risk when exercising their investment powers,” he added. CIPFA stipulates that the main focus for treasurers should be on protecting capital rather than maximising returns.

Among the biggest spenders on hotels last year was the London borough of Croydon, which paid £30m for the Croydon Park Hotel and £6.7m for a Premier Inn in the area. Other large deals included the sale of two Travelodge buildings in Scarborough and Lincoln to their respective councils for £14m and £12m each. Knight Frank’s Shaun Roy said some councils invest in hotels rather than shopping centres or office blocks because they tend to be run by their operator rather than needing to be managed by local authorities.

The property agent also found that councils are planning to spend £600m by 2021 in building new hotel-focused developments through public-private partnership schemes.

The Public Works Loan Board is due to be abolished and its functions folded into the Treasury in the coming years. A Croydon council spokesman said: “In the face of significantly reduced government funding we have had to look at alternative ways to fund essential services. We work hard to make sure our investments are appropriate and will deliver the best possible return for our residents.”

Mr Roy said: “By investing in hotels the council receives rental income generated by these assets, which offer a secure, long-term income stream, with inflation-linked cash flows, combined with an increase in the underlying property’s value over an extended period of time.”