A COUNCIL has reported strong property lease returns – but is predicting tough times ahead.

Wychavon District Council has collected £1.2 million in lease returns off property investments in the Waitrose supermarket development in Droitwich and the Pershore Hospital project.

Councillor Bob Banks, Wychavon’s finance chief, told colleagues both capital projects had turned into “good investments” in the years since they were completed. However, shrinking interest rates on the council’s bank investments mean finance staff are predicting returns to dwindle to a fifth of their levels in 2008/09.

The council manages all its financial investments of about £20 million in-house It’s balance sheet also currently takes account of the £1.5 million investment in Landsbanki – in limbo following the Icelandic banking collapse of 2008.

Coun Paul Middlebrough, council leader, said the extra lease cash had put the council in a better financial position than many neighbouring authorities when government funding was being cut.

The receipts follow a decision by the district council to put £8 million into the Waitrose development which opened in 2005 and £6 million into Pershore Hospital which was unveiled in 2006.

Coun Banks revealed the combined returns on both leases were running at seven per cent of the original investment per year, well above both high street savings rates and the best commercial and government bond rates.

But the council’s treasury management mid-year review revealed just what a poor state council investment returns are in following plummeting interest rates and the recession.

Investment income in 2008/09 was £1.78 million (a 4.7 per cent return) but is estimated to fall to just £370,000 (a 1.5 per cent ret-urn) by the end of the current financial year.

Rules governing the council’s finances mean it must put its cash in low-risk investments, meaning the vast majority of taxpayers’ cash is in bank accounts or bonds with rates linked to the historically low Bank of England base rate of 0.5 per cent.