Asset disposal shouldn’t be a fire sale

This article originally appeared on British Politics and Policy, part of LSE Blogs at the London School of Economics.

In late January reports emerged that Westminster is quietly pushing forward plans to loosen budget rules for councils, enabling them to sell off their assets in order to fund front-line services like adult social care, children’s safeguarding and waste collection. While, on the face of it, this looks to be a welcome gift for the many councils currently facing bankruptcy, this change in the rules is potentially fraught with risk.

The danger is that – desperate to raise cash – councils will enter a fire sale of their assets to the highest bidders, fuelling the extraction of wealth from land and assets with the potential to create public value. What needs to happen instead is for councils to be given the opportunity to pass on their assets in a manner that supports the local community and economy, while also raising necessary funds.

Since 1988, it has been illegal for local authorities’ expenditure to exceed their income in any particular year. If a local authority does spend more – as has become more frequent since austerity and the cost-of-living crisis – they must issue what is known as a 114 notice and all spending beyond statutory services must cease. That means no services and funding towards activities such as sustainability, libraries, sports and leisure and no discretionary relief from council tax and small business grants. Six local authorities have issued section 114 notices since 2021 and an increasing number report that they are on the precipice of doing the same.

“Assets held in public hands are particularly good at generating community wealth because ownership gives local authorities the ability to use them to directly support progressive local economic development.”

Obviously, no local authority wants these conditions imposed but the financial situation for many is dire. Since 2010, central government grants to local government have been cut by nearly 40 per cent in real terms and now nearly 80 per cent of local government finance is raised through council tax and retained business rates. In a cost-of-living crisis, this means that councils are highly restricted in their ability to plug the gap left by the reduction in central government funding. One thing most councils do have is their assets – their land and buildings – but, until now, they have been restricted in their ability to top up their coffers by selling them because the rules have stated that funds from the sale of assets cannot be used to fund frontline spending. These are the restrictions the government is proposing be lifted.

On the face of it, this is a boon for hard-pressed councils and the communities they serve. So why should we be concerned? Because who owns the land and assets in a place can have an important shaping effect – for good or ill – on the health of local economies. Harnessed with purpose and progressive intent, land and assets can be a key lever to support the growth of community wealth. For example, land and assets can be used to establish a municipal energy company to supply the locality with affordable clean energy while providing councils with an income, as seen in Gateshead City Council, or shopping centres held in council ownership can select retail tenants based on their ability to provide fair employment to local people, as seen in Salford.

Assets held in public hands are particularly good at generating community wealth because ownership gives local authorities the ability to use them to directly support progressive local economic development – as seen in Salford and Gateshead – rather than more indirectly through regulation. This means that public value, rather than the needs of the market or distant shareholders, can be placed at the forefront of decision-making on how land and assets are used and operated. At the Centre for Local Economic Strategies (CLES), we have worked with  councils across the UK to develop these approaches to socially just uses of land and assets.

“Rather than selling land and assets to the private sector, councils could look instead to ensure they remain in local control by selling directly to plurally owned organisations, such as co-operatives.”

But as land and assets change hands from the public into the private sector, so too does the power to use them to support good jobs, the growth of locally-owned businesses and the retention of wealth for communities. It has been estimated that approximately £400bn of public land has been sold to the private sector since 1979, with scarcely any obligation (such as for the provision of affordable housing or local employment activity) placed on the new owners regarding the use of that land.

Stuck between the rock of section 114 notices and the hard place of public asset stripping, what can councils do when they need the cash to run their full set of services, but don’t want to forgo their assets? First, they should embed social value considerations into sales. This means that, if the sale of council owned land or assets is absolutely necessary, councils should consider how they can mitigate against wealth extraction by asking potential owners to demonstrate their commitment to the local community. This could be through, for example, using the land or asset for the provision of democratic, non-for-profit community-led housing, affordable workspaces for local business or asking the organisation to make contributions to targeted local recruitment on the Real Living Wage. This would require councils to go further than their existing mechanisms to place conditions on developers.

Second, rather than selling land and assets to the private sector, councils could look instead to ensure they remain in local control by selling directly to plurally owned organisations, such as co-operatives. Community ownership has been increasingly recognised for its contributions to the economy – adding an estimated £220m in contributions to GVA nationally and supporting local economies with £150m of local spend. In recognition of the positive effects associated with democratic governance structures on employment and income inequalities, councils should also ensure that these models of ownership are on the table for any land or asset sale. This means that if a social enterprise or worker co-operative wishes to purchase, they should be prioritised as a contributor to progressive local economic development and councils should ensure that land and assets can be brought into an operational state, without landing them with unaffordable maintenance bills. .

This is not pie in the sky thinking – there are numerous examples of local authorities transferring assets into plural ownership, like the Leighton Street traveller site in Preston. Here, the local authority went beyond their statutory function to provide funding for the set-up costs and training  for the co-operative. While the Labour Party’s proposed Community Right to Buy policy holds promise to support this activity, local authorities must be supported with the resources and funding necessary to work with communities most in need of taking control of their local land and assets.

However, regardless of who they sell to, councils selling off their land and assets to get the resources they need is a simply short-term fix to a long-standing problem. Selling off assets to the highest bidder – which, in most cases, will be the private sector – also sacrifices a multitude of future benefits that could come from councils either retaining their property or from selling them to plurally owned organisations that will return some value back to the community. Ensuring the community gets the best from such sales, of course, will need yet more resources – the very thing that councils lack.