BY NEXT year Ashford Borough Council, in prosperous Kent, will have lost all its central-government funding. Before the Tory-led coalition began tightening its belt in 2010, government grants accounted for about half Ashford’s budget for services. Yet Gerry Clarkson, the council’s leader, refuses to moan. “I’m sick to death of hearing about austerity cuts,” he declares.

Instead, to maintain services, Mr Clarkson is gradually turning his local authority into a business. “We aim to be self-sufficient by the 2018-19 financial year,” he says. Other councils around the country are implementing similar policies, albeit with rather less gusto. It amounts to a revolution in local governments’ finances—and a risky one at that.

The squeeze on councils is severe. The National Audit Office (NAO), an official watchdog, calculates that central-government funding for local authorities has fallen by about half in real terms since 2010. At the same time, councils’ obligations have grown. Their populations are rising and ageing. New rules oblige them to offer more help to the homeless. Social care, for which they are largely responsible, is a fast-growing burden.

Cutting costs has been the first response to this crisis. But, argues Peter Nutting, the leader of Shropshire Council, “the fat has been squeezed out of the system now.” So councils have been developing new income streams in order to set balanced budgets for day-to-day spending, as they are legally required to do. Hence the businessfication of local government.

Take Ashford. The council has been buying shopping centres, developing office blocks and even building a cinema complex, Elwick Place. Mr Clarkson hopes that these investments will provide the rents and business rates to offset the impact of cuts in government funding. The council bought International House, an ugly office block opposite the railway station, for about £8m (then $13.2m) in 2014. It now brings in an income of £550,000 a year.

Councils are forbidden from using their capital budgets to fund services. But they can get around this rule by making capital investments whose returns then fund day-to-day spending. Shropshire Council bought some rotting old shopping centres in Shrewsbury in January, using £52m from its capital budget. The malls are expected to generate about £3m a year—income the council can spend on services.

The scale of purchases is big, and picking up. BNP Paribas Real Estate, a property adviser, says councils spent £325m on shopping centres in the first half of this year, more than in all of 2016, the biggest year on record. Some councils have been buying up assets outside their boundaries. Essex County Council’s £50m property investment fund has snapped up a shopping centre in Keighley, Yorkshire, and an office block in Watford. Medway Council, in Kent, has just bought a portfolio of ten distribution centres dotted around England, for over £6m.

To finance this spending spree, councils are not only dipping into their capital budgets. They are also borrowing, mainly from the Public Works Loan Board (PWLB). Established in 1793, its job is to lend cheaply to local authorities. During 2017-18 the PWLB advanced 780 loans worth £5.2bn, 42% more than in the previous year (it is unclear how much of this was for commercial investments and how much for other activities). Altogether, local authorities now owe the PWLB £70bn, out of a total borrowing of £96bn, a figure which has risen from £84bn in 2014.

On October 3rd the government paved the way for councils to take on still more debt, when it announced that it would remove a cap on how much money they could borrow against the value of their housing stock, in order to build more houses. Ministers hope that this will allow councils to tackle the shortage of homes in many parts of the country.

Councils argue that their financial experiments have been made necessary by their lack of other options. They have little ability to raise council tax, a property levy that is their main source of income. More than half the business taxes they collect are handed back to Westminster. And charges they can levy for services like granting planning permission are set centrally. “The system is thus forcing councils to be at their riskiest,” argues Simon Edwards of the County Councils Network.

Although their overall level of borrowing is manageable, the concern is that some councils are getting into businesses in which they have no expertise, hundreds of miles from home. “Are they investing in businesses that they truly understand?” asks one finance expert. With online shopping laying waste to bricks-and-mortar malls, those shopping centres may be a poor investment. Councils are also vulnerable to a downturn in the property market.

The government is aware of these risks. It published guidelines earlier this year that seemed to discourage councils from borrowing purely “to profit from the investment.” But it is still allowed. The government was also thought to be considering a ban on all purchases outside a council’s boundaries, but nothing has happened. It is the sheer scale of borrowing by some local authorities that worries many, especially relative to the assets of the council in question. Spelthorne Borough Council, in Surrey, has borrowed almost £1bn from the PWLB to finance a big splurge on property. This includes probably the biggest single purchase by a council, about £360m for a business park in Sunbury.

The fear is that some councils might have become over-exuberant. Local authorities have been burned before on risky investments. Some were enthusiastic investors in Icelandic banks in the late-2000s, for example. They may get burned again.