Gove’s plan to sell off council assets sparks controversy

842 words, 4 minutes read time.

In a bid to address the financial challenges faced by English councils, the Department for Levelling Up, Housing, and Communities, led by Michael Gove, is contemplating plans to encourage the sale of publicly owned assets, including historic buildings. This move is aimed at helping councils cope with budget shortfalls, estimated to be as high as £23 billion. While the government asserts that the intention is to facilitate the sale of assets held solely for revenue purposes, critics warn of potential drawbacks and label it a short-term solution.

Under the proposed plans, councils would gain greater flexibility to utilize funds generated from asset disposals to alleviate budgetary pressures. The government aims to exclude buildings or locations crucial for the local authority’s objectives from potential sales. A consultation process with town hall officials is underway, with estimates indicating that councils hold “investment properties” valued at £23.2 billion that could be sold without requiring government approval.

Some councils have made poor investment choices which have made their problems worse and along with others face financial meltdown. To give two examples, Warrington and Birmingham:

Warrington

Warrington invested £10m in a retail, leisure and office property in Birmingham, but the company behind the development defaulted on a major loan and had to sell the asset to pay off a £108.5m debt. Warrington only received £1.4m from the sale, losing £8.6m on its original investment2. This added to the council’s debt of £1.8bn, which was already a concern for the government.

Birmingham

Birmingham faced a huge equal pay claim bill of £750m, which it could not afford to pay without borrowing money or selling assets. The council also had to deal with the impact of Covid-19 and a decade of austerity on its finances. The council owned a range of assets, such as Birmingham Airport, the Library of Birmingham, and Alexander Stadium, which could be potential sources of income or savings. The declaration of bankruptcy by Birmingham Council should have been a wake-up call.

Despite the government’s intentions, critics express reservations about the potential negative consequences of a widespread asset sale. These concerns can be summarised as follows:

It is a short-term and unsustainable solution that does not address the underlying causes of the funding crisis, such as the need for proper taxation and fair distribution of resources.

It could lead to a “fire sale” of public assets at a low price, especially in a depressed property market, and deprive councils of future income and opportunities for development1.

It could harm the provision and quality of public services and local heritage, as councils may be forced to close or reduce libraries, leisure centres, parks, museums and other cultural facilities.

It could undermine the principle of local democracy and accountability, as councils may lose control and ownership of their assets and become more dependent on central government decisions.

The chief executive of the Chartered Institute of Public Finance and Accounting, Rob Whiteman, for example, welcomes the increased flexibility but considers it a temporary solution that does not address the underlying financial pressures on councils. He emphasizes the need for proper funding through taxation instead of relying on asset disposal.

Property experts caution that the current economic climate, marked by stagnant growth and higher borrowing costs, may not be conducive to achieving optimal returns from asset sales. The timing, they argue, might be unfavourable for councils looking to offload properties, as potential buyers may exploit market conditions to negotiate lower prices.

The proposed flexibility in asset sales could potentially aid councils in unwinding risky investments made through taxpayer-funded borrowing. However, concerns persist that the values of many assets acquired in recent years have depreciated, with a 20% drop in capital values since mid-2022, according to figures from Capital Economics. There is also apprehension that beloved community buildings, including libraries and civic halls, may be listed for sale.

Analysis by the IPPR thinktank reveals that English councils have sold approximately 75,000 public assets, valued at £15 billion, since 2010 to address budget shortfalls. Critics argue that this approach offers only temporary relief and is not sustainable in the long run.

While the government asserts that it aims to provide councils with greater financial flexibility, concerns about the potential consequences of a widespread asset sale persist. Critics argue that the proposed solution is akin to a “sticking plaster” and call for a more comprehensive and sustainable approach to address the financial challenges faced by local authorities.

The Morning Star newspaper on February 1, 2024 devoted an editorial to this subject. Sadly I find it difficult to disagree with their conclusion.

“Tweaking the rules to make it easier for them to sell assets does not offer more flexibility, since these sales will be forced to meet statutory responsibilities.”

“When the assets run out, the next stage will be to claim those statutory responsibilities are no longer ones this country can afford: further restricting access to essential services to those who can pay.”

By Pat Harrington

Picture credit
By michael ely, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=3881016