Government must scrap prohibitive policies on council use of public assets

2 Dec 15

New plans to let local authorities keep receipts from sales of assets are welcome, but don’t go far enough in helping leaders make the most of their assets

Much of the debate around last week’s Spending Review has focused on how the steep cuts to local government funding will affect different places across the country – which is no surprise given the tough challenges ahead for local leaders in dealing with a 56% reduction in central government funding over the next few years.

However, another important Spending Review announcement which has gone largely under the radar, but which could have big implications for local government finances, is the plan to allow local leaders to keep 100% of receipts from the sale of public assets.

The policy is a key part of the government’s vision of local authorities becoming more self-funded, with the Chancellor arguing that councils should generate more money for public services themselves by selling off “surplus assets”, and by taking a more efficient approach to asset management. The hope is that alongside the new powers to retain business rates and raise a 2% council tax precept, the policy will give local leaders more flexibility to negotiate the tough financial climate ahead.

But as a new Centre for Cities report suggests, the government’s focus on the short-term gains of selling public assets overlooks the diverse ways that local leaders are already using assets to support long-term economic growth – and fails to address the big policy barriers that are preventing local leaders from taking a more strategic approach to managing their assets over the long term.

The report, ‘Delivering Change: making the most of public assets’ found that the combined impact of the recession and funding cuts has made public assets an increasingly important tool for councils across the country, spurring leaders to take a range of innovative approaches in generating income and revenue from assets.

In Eastleigh, for example, the local council has taken advantage of low property values and low interest rates to develop a commercial portfolio worth over £2.5m a year in income, which it is using to support city centre regeneration and jobs.

Other places are using their assets to lead development and to address specific needs within their local community. Camden Council, for example, is using publicly owned land and property to address the shortage of affordable housing in the areas. By investing in building new homes (funded by selling parts of those developments and other outdated assets), the council has been able to develop the first new council housing in the borough in 30 years, as well as regenerating existing estates.

Yet despite these examples, and the new freedom provided in the Spending Review, there remain a number of major disincentives and barriers to local authorities in getting the best possible use of their assets.

One such disincentive is the way stamp duty is applied to the transfer of assets between public bodies. If, for example, local authorities want to create a public property company to manage assets from different local bodies more effectively, stamp duty is charged when they transfer assets to the property company, and then again if those assets are sold off. Scrapping the payment of tax in the first instance could make the difference for local authorities looking to take a more strategic approach in working with other public organisations to get the best value from their assets.

There are also other national policy frameworks which currently create perverse outcomes when it comes to managing local public assets. Take permitted developments rights, for example, which can financially incentivise leaders to prioritise housing over and above any other use locally. In some places, this may make sense, but local authorities – who should be seen as the long term guardians of their place – should have the control and flexibility to shape the mix of developments in their area as they see fit.

In a time of ever-shrinking council budgets, it’s more important than ever that local authorities have the powers, tools and incentives they need to use their assets effectively to generate long-term growth and fund public services. The move to give local leaders the receipts from assets sales is a step in the right direction, but national policy-makers must also remove the other policy barriers that are stopping local leaders from taking full advantage of their assets at their disposal. Getting these reforms right will be crucial in ensuring that local authorities can manage the tough funding environment ahead, and have the best chance of thriving in the years to come.

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