Southwark Liberal Democrats have said they will end the council’s investment in tobacco firms if they win control of the council next year – and instead look to invest the money in new homes in the borough.

The announcement follows revelations that Southwark Council’s Labour administration has been investing millions of pounds in tobacco firms through its pension fund at the same time as telling residents they should give up smoking.

Now Southwark’s Liberal Democrat council group says it is looking at how it could instead use the council’s pension fund to invest in residential property and put the rental income back into staff pension pots.

A stable income from rents could outperform investment in stocks and shares, says group leader Cllr Anood Al-Samerai, at the same time as providing much-needed new homes in the borough. It would mark a turning point for the council, which to date has not entered the private sector lettings market. Acting as a builder and landlord would mean profits would be retained by the council rather than going into developer’s pockets.

Cllr Al-Samerai says she will be raising the proposal with Liberal Democrats in the Department of Communities and Government to discuss how the plan would work in practice.

Latest figures show the council is putting more than £5m into three different tobacco companies – twice as much as previously thought when Liberal Democrats uncovered the dubious investment in June.

Southwark Liberal Democrats say they would remove all investments in tobacco as part of a new ethical investment policy. The matter was also raised in Parliament by local Liberal Democrat MP Simon Hughes.

Recent research from moneyfacts.co.uk has shown that returns from ethical investment have outstripped non-ethical investment over the past three years.

Southwark Liberal Democrat Group leader Cllr Anood Al-Samerai said:

“We are looking into how we can invest in residential property to get good value for money for taxpayers at the same time as building much-needed new homes. This is an exciting new direction which Liberal Democrats will get underway if we win control of the council next year.”

“Whilst Labour council bosses want to put pension money into tobacco, Southwark Liberal Democrats will invest it into building new homes in the borough. We are on the side of residents who want a more ethical approach to council investment and better value for money.”