Council property ‘could be better used’, says Audit Commission

4 Jun 14
The Audit Commission has urged councils to ensure they implement a strategic approach to asset and property management after finding £2.5bn of the local government estate could be put to better use.

By Richard Johnstone | 5 June 2014

The Audit Commission has urged councils to ensure they implement a strategic approach to asset and property management after finding £2.5bn of the local government estate could be put to better use.

Jeremy Newman- Image supplied

After examining council accounts, the commission’s Managing council property assets report found that in 2012/13, the local government estatewas worth an estimated £169.8bn on net book value (NBV). This is defined as the value of an asset to the council, taking depreciation into account.

Although the value has fallen by nearly a third since 2004/05, the commission said there remained £2.5bn of assets deemed ‘surplus’ by councils.

Under International Financial Reporting Standards, local authorities are required to account separately for property assets deemed surplus, the commission said.

Although these assets are treated as operational in the accounts, they are not used to provide services, such as schools, libraries, social care day centres, and housing, the report stated. They are also not classed as non-operational holdings that, for example, are held as an investment to generate rental income, or classified as assets held for sale. Examples could include assets that could be needed for future developments, or land where the council has judged the market to not be suitable for a disposal.

According to the commission’s analysis, the amount deemed surplus was potentially worth nearly five times more than assets held for sale, which was valued at £500m on NBV in 2012/13.

Commission chair Jeremy Newman said the report was not advocating a wholesale sell-off of local government land and property, but highlighting assets which do not provide immediate benefit to communities yet still require money to be spent, such as on maintenance.
‘These assets have potential value for councils,’ he added. ‘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.’

As the local government estate was shrinking due to spending cuts and programmes to rationalise the public sector estate, it was vital councils understood the properties in their portfolio and regularly reviewed them.

Town halls also need to link the management of this valuable resource to the wider strategic ambitions of their authority, Newman added

‘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.’

However, CIPFA’s assistant director of local government finance Alison Scott said highlighting ‘surplus assets’ did not present an accurate picture of how local authorities manage their assets.

‘The reality is that at any one time local authorities will be holding a range of assets for future use or to make sure that they can achieve the best value possible for them in the longer term,’ she added.

Peter Fleming, chair of the LGA’s improvement and innovation board, noted that local authorities manage more than £200bn worth of assets, so £2.5bn represented only 1.25% of the total.

He echoed CIPFA, saying there were reasons why councils hold on to assets. ‘Over recent years local authorities have been reviewing the way they deliver services and use assets, both in response to austerity but also to deal with increasing pressures on services. In many places, for example, this includes the need to find additional land for new school buildings,’ said Fleming.

‘The market for surplus property has been depressed during the recession and it has not necessarily been a good time for councils to be selling off surplus assets. Some councils will also be holding assets pending redevelopment schemes. Local authorities will continue to make surplus assets available for other beneficial public uses or for market when they can.’

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