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Wednesday, 26 February

Can Local Government's £2.5billion'‘Surplus' Assets be Put to Better Use?

In 2012/13, the local government estate was worth an estimated £169.8billion (net book value). Although the value of the estate has shrunk by nearly a third since 2004/05, the Audit Commission is highlighting that within it are around £2.5billion of ‘surplus’ assets.

A typical local authority building is pictured.

The Commission is calling on councils to ensure they have a strategic approach to managing these assets in order to get the best value for money they can from this portion of the local government estate.

The International Financial Reporting Standards, fully implemented in 2010/11, required local authorities to account separately for some property assets as ‘surplus’. Although ‘surplus’ property is treated as ‘operational’ in the accounts, councils do not use it to provide or support services. Nor is it ‘non-operational’, for example, held as an investment to generate rental income. It is also not likely to be sold in the coming year, as such assets are classified as ‘assets held for sale’. ’Surplus’ assets are potentially worth nearly five times that of ‘assets held for sale’ which, in 2012/13 were valued at £500 million NBV.

Audit Commission Chairman, Jeremy Newman comments: "To be clear, we are neither advocating that local government starts a wholesale sell-off of their land and property nor are we suggesting councils shouldn’t spend money on buying assets or on investment to improve their existing property. What we are highlighting is a group of assets that do not provide immediate benefit to local communities but still require councils to spend money on maintaining them. These assets have potential value for councils. While not all such land or buildings may be sellable, councils should consider how much value they gain from surplus assets and how this could be increased.

"I urge councils to use the data held in the Commission’s ‘Value for Money (VFM) Profiles Tool’, such as spending on and value of land and property assets and ‘surplus’ assets, alongside their unique and detailed local knowledge, to regularly review if their estate is fit-for-purpose."

The Audit Commission’s briefing: Managing Council Property Assets Using Data from the VFM Profiles’ advocates that councils should be active and strategic managers of their estates – understanding property markets and asking questions about the properties they own or lease. It prompts councils to consider whether assets are in the right place, whether they should keep, sell, or transfer them, and how much they should invest in building, buying and maintaining property. Local authorities need to balance the value realised through sales of surplus assets, against the costs of owning and maintaining them. They need to consider the timing of any sales in the light of market conditions and their medium- to long-term financial strategies. A key question they should ask themselves is: 'Is our use of space efficient?' The data from the government’s capital outturn return series does not provide information about floor space, occupancy levels or occupancy costs. Nor does it provide for maintenance and running costs. While councils should have this data for their own property portfolios, they are not collected and published for all councils, limiting benchmarking. It would be helpful if they could compare the effect of that investment on efficiency with others. It would also help the public to hold them to account for their decisions. Not being able to do so represents a serious gap in the data.

Informed decisions require an appreciation of the different ways in which councils can value land and property. The briefing explains that to determine if there is scope to release value from their estate, councils may need to obtain alternative valuations for an asset, which may differ considerably between a current and a potential future use.

With the local government estate shrinking it is vital that councils understand the range of properties in their portfolio and that they regularly and systematically review them. They also need to link the management of this valuable resource to the wider strategic ambitions of their authority. For example, if stimulating city centre regeneration is a key objective, are these properties working to aid that goal?

Councils need to be mindful of the high costs that can be incurred through occupying buildings. In 2012/13, English councils spent an estimated £5.6 billion – about 4 per cent of all revenue spending in that year – on premises-related expenditure[5].

Jeremy Newman, concludes: "Councils should ask themselves – do we have an appropriate estate? In order to extract the most value from their assets, councils should not sit on valuable land and buildings that can be better used as a resource to support their wider service and strategic objectives. This might mean selling or transferring them, or investing in them to make them fit for purpose. Ultimately, councils know their population and their associated needs. They require the freedom to choose the approach to managing these assets that best suits their needs. The ‘VFM Profiles Tool’ can play a part in helping inform the decisions needed to deliver the best local outcomes."

Article written by Brian Shillibeer

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