Unlocking the potential

3 Sep 09
Planned capital funding is set to be halved. So how can public bodies break out of their silos, and make the most of the £21bn available? John Tizard and Robert Hill have some ideas
By John Tizard and John Hill

03 September 2009

Planned capital funding is set to be halved. So how can public bodies break out of their silos, and make the most of the £21bn available? John Tizard and Robert Hill have some ideas

The collapse of the banking system was like an earthquake. It toppled countless businesses and sent deep tremors through the whole of society. The public sector will feel the ­aftershocks in the coming years. But capital ­finance has already taken a big hit.

The net spend of £21bn of capital funding available in 2013/14 is half the amount originally planned. We will be back down to investing roughly the same amount of our national wealth in renewing the capital fabric as we did in 1997, when Labour took over from the Conservatives.

The squeeze will be even tighter than it appears to be because a lot of the £21bn is already earmarked for the Building Schools for the Future scheme and hospital rebuilding projects.

But it is not just a lack of funding that is driving public agencies to look afresh at how they use, develop and plan their property and equipment portfolios. Perhaps the biggest additional factor is the pressure to find financial savings. Over the next ten years the Treasury is expecting public services to generate £20bn from selling surplus assets and to cut the costs of running properties by £5bn a year.

At the same time personalisation and public service reform policy is increasing pressure to co-locate and integrate functions so that the public can enjoy more of a one-stop service. Also, service users are increasingly becoming entitled to use public money to ‘buy’ non-state provided services.

The ‘place’ agenda and reforms to the planning system are challenging public agencies to respond in an integrated way to the needs of localities and neighbourhoods.

In addition, the public sector has a huge job to do to make its capital stock more energy efficient as part of a policy of cutting carbon emissions by 34% by 2020.

In our discussion paper Capital futures we argue that these pressures should be driving public agencies to work together in each area to share buildings, pool resources and jointly plan their capital programmes.

On the plus side, it is relatively easy to point to good examples of imaginative capital schemes supporting cross-cutting co-located services, but they rarely form part of an integrated local capital strategy. As participants at a seminar we ran put it: joint working between local agencies on capital resources tends to be ‘tactical rather than strategic’. That finding is also reflected in the recent Audit Commission study into the use of council assets, Room for improvement.

In London, for example, primary care trusts are developing medium-term strategies for moving more care out of the acute sector. Police commanders face severe budget pressures while needing to stay in close touch with their communities. And London boroughs have the task of squeezing the most out of capital allocations for social housing, implementing BSF and aligning their economic development and service delivery plans with their Local ­Development Framework.

It is a statement of the blindingly obvious to say that it makes sense for agencies to co-operate rather than work separately, but it is the exception rather than the rule for this to be happening. So why is this – not just in London but also in other parts of the country?

There are a number of reasons. First, Whitehall’s silo-based approach to allocating funding and holding agencies to account does not make it easy for them to work together. Initiatives and funding streams that promote collaboration and co-location tend to be add-ons rather than mainstream approaches.

Second, there are a host of technical challenges that constrain the joint management of capital resources. Different services have to contend with different technical rules. The length of Private Finance Initiative contracts limits flexibility and the autonomy that colleges, schools, universities and foundation hospitals have over their own assets makes it harder to develop an integrated plan. Local Strategic Partnerships have no statutory locus or powers if they are to play a growing role in managing large sums of public money. There are two separate delivery vehicles for joint capital ventures – Liftcos (part of the Local Improvement Finance Trust Schemes) and Local Education Partnerships, although there has been some limited use of both for procuring wider community assets.

Arguably, though, the biggest obstacle is cultural. There is a lack of political will and local leadership to surmount the challenges. Too often, chief executives and directors shelter behind Whitehall rules as an excuse for not working more collaboratively to establish a single capital plan for their area that maximises the use of all sources of funding. Council leaders often want to hold on to what they regard as ‘our buildings’ and do not see estate management as an opportunity for community leadership. The cultural problem is also seen in a reluctance to make the most of private sector practices.

In Capital futures we propose that central government should make a number of policy changes, such as:
  1. aligning the capital regimes of different services
  2. changing the emphasis of Local Area Agreements so that they better reflect local needs and priorities linked to a unified local capital strategy
  3. making the Audit Commission’s ‘Use of Resources’ judgement a joint as well as an institutional assessment
  4. establishing new legal vehicles for localities to commission joint capital programmes, and
  5. introducing incentives to use capital ­assets more efficiently

Capital futures also proposes linking capital funding to redevelopment by, for example, adopting tax increment financing – a mechanism for using expected future increases in revenues to finance current infrastructure improvements.

One good way of kick-starting progress on this agenda would be to extend Total Place to encompass a Total Capital programme. This would provide an incentive and a mechanism for local agencies and leaders to map and strategically assess their combined use of assets. It would also provide the basis for better use of the planning system, via Local Development Frameworks, to help realise combined local priorities.

There are the beginnings of local action on this agenda. Worcestershire County Council and Bromsgrove District Council identified 16 public buildings in the centre of Bromsgrove and realised that there was scope to rationalise them. This enabled them to utilise the most economic, most accessible and best energy ­efficient ones, and to co-locate services and people. This in turn has triggered a county-wide strategy as part of the Total Place pilot. Property asset management also forms part of Kent’s Total Place approach.

Tower Hamlets in London and Blackburn are using their partnership boards and structures to work on rationalising assets across the public sector in their areas. It is significant that in both these localities they are building from a base of having strong joint working ­arrangements and relationships.

Arguably the most transformative change would come from the public sector aligning its capital programmes and use of assets to its service strategies. Strategic commissioning to identify needs should lead the process – with strategic decisions on how to provide the service and deploy assets and capital resources being based on those needs. Property ­management should not dictate service decisions.

Public agencies should also be much more open to the role that private companies, the voluntary sector and community organisations can play in providing premises and managing facilities. Too often the public sector response to implementing a service priority is to presume it has to build or own the assets and ­property associated with the delivery programme.

Sometimes that is the right way to go. But the private sector is often much more open to leasing premises and equipment. This can enable services to get going or change direction more quickly (without waiting for big capital allocations to become available) and, by building in appropriate break clauses in leases, can ensure flexibility if service priorities change. Why not, for example, base a health facility in a retail complex where the public already goes? Likewise the potential for community groups to own or manage local facilities is vastly ­underexploited.

The future prosperity of the nation requires that we have a modern and efficient infrastructure. None of us wants to go back to the decades of neglect that characterised public services in the 1980s and 1990s. But with funding becoming much tighter we cannot go on as we are. So new thinking, fresh policies and greater innovation have to be the way forward.

We shall be using the ideas in Capital futures as the basis for continuing to work with central and local government and local agencies on a better partnership approach to local asset ­management. We hope that others will respond.

John Tizard is  director of the Centre for Public Service Partnerships at the University of Birmingham and Robert Hill is an associate at the Centre and a former adviser to prime minister Tony Blair

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