It has recently come to light that Midlothian Council invested £13 million in Croydon Council, which has " issued two section 114 notices declaring it cannot pay its debts, estimated at £67million.", according to the report in Midlothian View (http://www.midlothianview.com/news/council-bankrupt-investment-review/?fbclid=IwAR0zNXTRFMWkTFN-Z3749DSZFV25Bk6-FSxKm66iRttGCOAQtL214Q89sLQ). Councillors have issued statements on fb discussions to say that this is a perfectly normal practice, but that Ernst & Young have been appointed to investigate.
One claim being made is that a council may borrow £50 m for a 5-year programme, at a low interest rate from government, but only need £10m for each year of investment. They there fore invest the "excess" £40 m in what they describe as low-risk councils, to claw back some of the interest payments. This sounds like a guaranteed way to lose money.
Is this a common practice and how many councils actually have the financial skill to manage risk?