Policy reference Policy product type LGiU essential policy briefing Published date 09/07/2009. Overview

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1 Page 1 of 5 Room for Improvement: Strategic asset management in local government Policy reference Policy product type LGiU essential policy briefing Published date Author Laura Wilkes This covers England Overview Published by the Audit Commission, this report aims to help councillors, chief executives, directors of resources, and finance and property managers understand how a more strategic approach to asset management could secure better value for taxpayers money. The report examines progress, considers barriers and challenges to strategic asset management and outlines a way forward for councils to develop a strategic approach. The Audit Commission conducted surveys and gathered case studies in order to inform the report. The report suggests that councils and the government need to consider the best use of property assets in difficult economic circumstances; should they spend or should they save? Building the right information base for making decisions will equip councils to survive the recession and exploit the opportunities that it may present. This briefing will cover each of the report s five sections, before providing detailed comment at the conclusion. Briefing in full Introduction In March 2008, English councils owned property valued in their accounts at 250 billion. This report aims to help councils approach asset management in a strategic way. In the context of this report, strategic means being based on a plan or thought-through analysis of the whole of a council s obligations, ambitions and budget. This is the Audit Commission s third report on the subject of asset management, and is not primarily concerned with housing or education needs, therefore does not consider housing or schools capital. Chapter 2: Expectations of the local government estate Expectations are that councils should create a more efficient estate: the government expects capital receipts and revenue savings from better asset management However, the report notes the two potentially conflicting expectations that have been placed on local government by the centre: assets need to be seen as a resource that consumes scarce capital, therefore they should be used as efficiently as possible with surplus assets disposed of to yield receipts and reduce running costs; property assets also have the potential to enable councils to pursue wider objectives, such as regeneration, and encouraging community activity.

2 Page 2 of 5 The report suggests that although these objectives can be well aligned, they can come into conflict. The Quirk Review 2007 noted that councils should think of transferring property to community groups, and led to the government establishing the Asset Transfer Unit (ATU) to promote transferring property to community groups. Property affects staff who deliver council services. The survey for this report demonstrated that many councils felt their property was old and in poor condition, therefore rationalising would improve productivity and improve working conditions. Chapter 3: The changing local government estate Chapter 3 describes the changes to the local government estate since the Audit Commission s 2000 report Hot Property. Property assets valued at 140 billion in 2000 had risen to 250 billion in 2008 although the report noted that this has probably declined in recent months. Potential for disposals and savings Hot Property recommended that councils dispose of assets that do not meet core service objectives or fail to make an adequate return on investment. Since 2000, councils across the UK have done this, although it did not necessarily lead to net reductions in holdings or savings. The surveys found that the proceeds of office property asset sales have been reinvested in council property, with councils spending more on offices than they raised from sales. Regarding savings, the surveys demonstrate that only a quarter of councils surveyed had numerical targets for savings; a surprising number the report notes, given the consistently expressed importance of making savings from asset disposal. Progress towards strategic management Given that property should be regarded as a strategic resource, the number of councils reaching a level 4 (a strategic approach) in the Use of Resources key line of enquiry (KLOE) is only 7 per cent. The report notes that although there has been a steady increase in performance on this KLOE, it is slower that most other aspects of financial management. Collaboration The report observes that managing assets strategically implies sharing information with other public bodies that deliver services in the area; a strategic approach implies colocation. Sharing property with partners could make a substantial contribution towards efficiency targets. It is considered that the development of Local Strategic Partnerships (LSPs) and Local Area Agreements (LAAs) will help to promote asset sharing. However, the survey reported that only half of respondents said that the LSP promoted property sharing; few are yet to adopt a strategic approach. Community asset transfer The Quirk review set out the benefits of transferring assets to community groups and the government has urged councils to do so. However, the survey found that although some councils were enthusiastic about community transfer, others were more concerned with the risks and difficulties of doing so. Emerging from the survey was that when councils did transfer, they preferred to retain ownership of the property through leases and licenses, as this enabled them to retain control of the asset.

3 Page 3 of 5 Chapter 4: Barriers and challenges Data and benchmarking: councils don t know enough about their assets to support a strategic approach Councils lack information and data: the size of their holdings, the numbers of staff occupying buildings, what they are worth and the physical condition that they are in. This has hindered benchmarking, which depends on a critical mass of participants contributing comprehensive and reliable data. Accounting: policies may be based on misleading or out of date information as data available is not fit for purpose The only national data relating to councils property assets is based on the values reported on councils balance sheets, yet they have weaknesses as management information for a number of reasons. This means that this data is not suitable to compare assets across councils and it is not a good basis for thinking strategically about assets themselves. Poor data will hamper collaboration: councils do not know about their partners estates A number of barriers were cited in the survey as reasons for councils not collaborating with partners; willingness to compromise, cultural barriers between organisations, poor relationships and different political agendas name a few. The report suggests that a strategic approach to collaboration would give attention to the transfer of assets to community groups. However councils are worried about the risks involved, such as whether voluntary and community groups can manage property well enough due to their potential lack of capacity and stability in the sector. This may prevent councils transferring buildings. Councils lack of resources, expertise and finance prevent them from adopting a strategic approach to asset management Use of Resources assessments find that asset management plans are weak and often do not include quantified information about the estate and its use. Government frameworks and rules can both constrain or empower councils The report is critical of the government, stating that it has not taken opportunities to encourage efficiency in asset management; for example no explicit reference was made to property when councils were invited to bid for unitary status. Overall, the report notes that although individual measures by the government should not be taken as criticism, when taken together they have signalled that property savings were not the highest priority, therefore it is not surprising that councils prioritised investment to improve, over receipts and savings. The recession has led to falling property values and a stalled market: capital receipts will be cut in the downturn The report suggests that in order to survive the downturn and prepare for an upturn, councils may wish to: plan for a reduction in service levels in anticipation of big cuts in public sector spending; invest in property, taking advantage of lower prices and greater supply; boost community use of assets. However, the best course of action will depend on local circumstances.

4 Page 4 of 5 Chapter 5: Improving the estate Even during turbulent market conditions, the Audit Commission suggests that councils need to: raise the profile of asset management; search for innovative ways of providing services; review holdings; and improve basic management procedures. Yet, in order to gain success, councils will need to invest in some of the barriers identified in chapter 4. Investing in partnership and collaboration should be considered; there are no legal or structural obstacles to joint management of land and property. The key, the paper notes, is that LSPs should treat land and property as a shared strategic resource, which will enable councils to play a broader community leadership role. Rationalisation is not the only objective of councils property management, yet, with revenues set to fall, councils will have an incentive to find opportunities to rationalise further, seeking capital receipts and revenue savings. Central government also has a role; and suggestions from the Audit Commission include: revisions to the capital financing regime; better aligning of planning and capital finance regimes of different public services; changing capital accounting rules; and encouraging more explicit and stretching targets. Comment This is a welcome report and provides a good insight into how strategic property management has progressed in local government since the Audit Commission s 2000 report. It does however raise some important (and unanswered) questions about how councils may move forward. Expectation has been placed upon local government to create efficiencies in both capital receipts and revenue savings, and whilst some councils have achieved this, it is clear that the Audit Commission thinks councils (and partners) still have some way to go. Namely, the Commission reports that in the areas of disposals and savings, strategic management, collaboration, and community asset transfer councils need to be going further than they are at the moment. When looking at moving forward and how to improve estates, the report notes that councils need to invest in the challenges and barriers outlined in chapter 4. Easier said than done perhaps, especially given that the report can not spell out exactly how councils can address these, and where the resources to do so will come from. Furthermore, some of the barriers are not new to local authorities; partnership working will continue to be challenging for councils and takes time to develop and mature. Despite the emphasis on rationalisation of estates and making efficiency savings, the report does suggest that during the economic downturn, one solution could be to invest in property - something of a contradiction in the context of this report possibly. And whilst this may be a good idea in theory, it is unlikely that many councils will be able to take such a suggestion seriously in practice precisely because of the downturn.

5 Page 5 of 5 The report also suggest ways that the government may help to move the agenda forward; one being to encourage more explicit and stretching targets through reviewing or negotiating LAAs. The term explicit unfortunately sounds like more central prescription; something that is not popular with local authorities and may do more to hamper local flexibility and innovation than move the agenda forward. Similarly, it is unlikely that authorities will warm to the idea of additional LAA negotiation. The Commission concludes by commenting that during these economic circumstances, councils should consider whether they should spend or save. The report however, does not have the answer. Only local circumstances and political direction will prove to be the deciding factor. One answer however, is that in order to make these tough decisions, councils will need to equip themselves with enough information and data to understand local circumstances. Usefully, the report highlights what sort of data and information this should be, and councils may wish to use this as a starting point. External links Room for Improvement Strategic asset management in local government: report Downloads Related briefings Related events