Jack Shaw analyses the government’s proposal to give local government greater flexibility to sell off assets to cover deficits in day-to-day spending on services.
Local authorities in England are in a crisis: since 2021, seven of them have issued ‘bankruptcy notices’ – known formally as a Section 114. That is without historical precedent.
The Prime Minister has responded by placing the blame on individual authorities (see Nottingham, Middlesbrough and Birmingham) which share one feature: they are Labour run. Presenting the challenges facing the public sector as a partisan issue – rather than systemic, affecting Conservative, Labour and Liberal Democrat authorities – is misplaced. Yet despite the rhetoric, politics is now colliding with policy.
While the government has accused authorities of borrowing beyond their means, it is now exploring the prospect of giving them additional borrowing powers, tacitly recognising that the Local Government Finance Settlement – the annual allocation of funding for authorities – is insufficient.
The government has also proposed new flexibilities so authorities can capitalise their costs – meaning they could address their deficits in day-to-day spending on services such as social care and homelessness by selling off assets. The quid pro quo for these flexibilities is that authorities will need to agree an ‘efficiency plan to reduce costs’ within a clear ‘payback period’.
On one level, asking questions about how productive the £23 billion of assets authorities hold is entirely legitimate. Not all assets generate a return, social or financial; some will be liabilities that authorities have earmarked for sale. Barnsley, for example, reported last July that it has an ‘unsustainable number of buildings’ which cost £30 million each year to maintain.
Authorities have also long been selling off assets – often out of necessity but also as part of a sensible asset management strategy. The Institute for Public Policy and Research estimates, for example, that since 2010 authorities have sold off thousands of assets returning £1.2 billion each year. Bradford is already selling off £60 million of assets to address its deficit. Bournemouth is selling off sites occupied by services that support children and carers. More asset sales are expected, whether the government introduces new measures or not. Precedent suggests that children’s centres, town halls, recycling centres, public toilets, libraries, and subsidised cafes that support vulnerable are at risk of closure.
Greater flexibility over how the proceeds from the sale of assets can be spent, if adopted cautiously, is a proportionate risk and may help authorities in the short-term. Yet this logic is the product of the government’s opposition to investing more in public services – which would be the most straightforward lever it could deploy. And as the pressure on authorities is now most acute, and given they can only sell assets once, the risk is that the government’s proposed measures create short-term relief which erodes authorities’ resilience in the medium- or long-term.
The government recognises that in normal circumstances this approach is neither ‘prudent [n]or sustainable’. Indeed, there is an irony in the government investing in ‘much-loved local assets’ at risk of closure via the Community Ownership Fund, while at the same time encouraging authorities to sell off theirs.
There are a series of shortcomings with the government’s proposals which require further consideration. First, it costs authorities to sell assets – from the remediation of sites to employing consultants to market them – so it might require authorities to invest more in assets in the first instance.
Second, it may not be the right time to sell assets: authorities have invested heavily in commercial property on high streets, but the market hasn’t fully recovered as investors continue to weigh up their value post-pandemic, meaning authorities risk selling on unfavourable terms.
Third, selling assets can take time and the income may not be available to authorities when it is most needed.
Fourth, selling assets does not encourage authorities to reduce pressure on services in the medium-term, since it encourages a one-time-use quick fix.
Fifth, there is no certainty that authorities will realise the savings they may have to negotiate with the government in order to access new flexibilities – and similar efficiency plans, such as the Department for Education’s Safety Valve programme, have not been able to reduce the financial pressure to the extent the government envisaged.
And sixth, assets may already be fulfilling productive uses, such as supporting the social and human capital of communities. In some cases, they are instrumental to boosting civic pride, which remains one of the missions enshrined in the government’s Levelling Up White Paper. Selling assets does not always mean services will cease – staff, for example, may simply relocate – but sometimes it’s a precursor to cancelling services and at other times it could displace pressure in a way that requires costlier interventions elsewhere across the public sector.
At root, the government’s failure to make additional investment available for authorities means they may have no other option but to sell assets, even if it’s not in their long-term interests.
This approach has parallels with 2010. Lord Pickles, then Secretary of State for Communities and Local Government, encouraged authorities to use their reserves to manage short-term pressure. In the Local Government Finance Settlement in 2022 – and again this week at the LGA’s Finance Conference – the government reiterated this. Assets, similar to reserves, can only be used once.
A further parallel can be drawn from Margaret Thatcher’s premiership, when public sector infrastructure was sold as Right to Buy was introduced in 1980 and when buses were deregulated in 1985. Four decades later, authorities are now purchasing properties they were once required to sell and metro mayors are re-introducing bus refranchising.
If caution is not exercised, in another four decades authorities could be purchasing the civic assets they’ve had to sell to stay afloat.
By Jack Shaw, Affiliate Researcher, Bennett Institute for Public Policy, University of Cambridge.