First appeared in Public Finance on 1st October 2011.
Sell in haste, repent at leisure
Ministers suggest that councils own many under-used assets that they could sell, using the savings for frontline services. If only it were that simple.
At the beginning of August, Eric Pickles announced that councils would be forced to publish their assets online, in order to make it clear what could be sold off and where savings could be made. By doing so, it is claimed that local authorities could raise up to £35bn in funds over the next 10 years and maintain their service delivery.
However, whilst savings need to be made wherever possible, it is not clear that the reality of raising funds by selling off property is as easily achievable as one might first have thought. Under current rules, any revenue generated from the sale of council assets cannot be put towards the actual running of front-line services. Therefore, any decisions to sell assets should be made as part of a larger plan that maps out cost efficiencies more generally.
Whilst such scrutiny can bring opportunities – raising awareness of what is publicly owned perhaps allows councils to make far smarter use of their assets – there are a number of issues that will need to be addressed to make any sales work in the long run.
The very fact that many local authorities are already undergoing huge transformation, re-evaluating almost every aspect of their organisation and structure, only increases the risk of reputational damage and service failure if assets are sold without full consideration for future ownership. Whilst many of the consequences can be foreseen and accounted for in advance, unfortunately some cannot and have the potential to be costly and damaging. So, councils will need to ensure their resilience is not compromised when deciding upon the asset strategy that best supports their future aims.
Additionally, sales of assets need to be guided by a vision of the future role and activity of the local authority. In order to make sure that they can operate in the way that they wish for years to come, councils will need their underlying asset base to be fit for this purpose. Selling off assets can have an impact both on the range of activities that a council can undertake and on the services that it can deliver, so a long-term strategy needs to be front of mind when deciding what to sell.
Moreover, many have argued that selling off property can be short-sighted given the current economic climate and brings with it limited financial benefit. Instead, holding off until the property market has recovered has the potential to create far greater returns for the community. Whilst it may not be possible to fully account for the movements of the market when drawing up plans, making sure that when to sell is given as much consideration as what to sell will be crucial. Added to this, it is commonly known that developers land bank. Selling assets without a long term vision could therefore create a situation where communities see assets sold, vacated and then boarded up for long stretches of time until the climate is right for development.
The ‘Community Right to Buy’ proposals at the same time as online mapping could give rise to an increase in the number of purchase applications from communities. ‘Right to Buy’ has radically different implications to measures like outsourcing and shared services, entailing a complete and marked shift in responsibility. Councils will need to tread carefully if transferring assets under these proposals as there is no clear way to guarantee that assets sold to support the community remain within the community, or that those groups assuming responsibility are best placed and resilient enough to so do. “Community Right to Use” may prove a more cost effective and efficient measure, allowing authorities to subsidise costs through community use and contribution but retain the asset while market conditions are less favourable to sell.
These remain challenging times for local authorities, as the drive to make savings continues unrelenting. This new suggestion is the latest in a list of potential efficiency measures and, like those before it, does have the potential to be an effective way of cutting costs without cutting services. However, for the sale of assets to be a success it will be prudent for councils to take a broader view; considering how this fits with further measures being implemented and the long-term objectives of each local authority. Without a degree of future-gazing, councils will risk putting up the ‘for sale’ sign too early.
