Opinion: Should we be selling state assets to reduce debt and create jobs?

One of the unexpected by-products of the controversial privatisations of the 1980s was the discovery of shockingly poor real estate management by state bodies – a rare glimpse of a problem only brought to the surface when the need for proper balance sheets arose.

UK government departments and agencies have since been shown to exhibit appalling asset management, as any sweep through Public Accounts Committee (PAC) or National Audit Office (NAO) reports will demonstrate – stories of unused land & buildings, ‘forgotten’ landholdings, leases on punitive terms, opaque sale of land at below market prices. Government departments also own very large quantities of smaller parcels of land, or parcels which can be separated from larger areas and better utilised. State asset managers tend to regard these as too numerous to bother with.

My thesis is twofold.

First, that there are many more salable real estate assets controlled directly or indirectly by the state than the formal data would suggest.  Sale or ‘release’ of such underused assets provides sorely-needed funds.The sale of urban and industrial land can help commercial firms find premises or provide land for housing, and help boost the depressed construction industry. However, new primary legislation may be required to prevent concealment, and ensure a proper market price. (Secret sale of state land without open competitive process, is, after all, blatant theft from the public). In addition, to prevent corruption, the price and terms of sale should be made public – there are no grounds for ‘commercial confidentiality’ here.

Second, that reforms related to state-owned or controlled real estate should form part of a broader set of reforms designed to prevent waste of state assets more generally – for example when using complex contracted ‘quasi-privatisations’ like PFI, management contracts or combination concession-lease-franchise arrangements, which seem to suffer from deliberate obfuscation.

I particularly recall a PAC meeting in January 2003 where discussed in one session alone were hundreds of empty properties in Liverpool, a shocking deal over the building that houses the Treasury, (which cost an estimated £1.7 billion), an MoD office refurbishment that allegedly cost three times the cost of a new building (costing ‘one million pounds per room’) – all in one session.

Questions over the treatment of land assets have been raised with respect to the MoD, the Highways Agency, Building Schools for the Future, the Qinetiq privatisation, the infamous PRIME and Trillium deals, the BBC and several tales of woe from the FCO in foreign countries. In February 2010 after 15 years of reform the NAO said of FCO real estate management that it, “still needs to get the basics right”!

PAC and NAO reports have also been severely critical of the handful of state organisations formed specially for the purpose of ‘managing’ government real estate. Indeed, patterns of questionable transactions suggest that the ‘fudge and incompetence’ maybe more deliberate than it appears.

In response to such problems in 2009 yet another new body was launched – the Government Property Unit, but this has been resisted at every turn.  In a recent session of Public Accounts Committee (13th June 2012) on a report by the Comptroller General,  the PAC Chair said of the Government Property Unit: “The unit appears to lack authority. It appears to have taken forever to get off the ground. It appears to have awful problems, with people not even being able to sit in the same place because they cannot use the IT systems, which seems so ruddy basic it is depressing.. It appears to have a very bad relationship with the Treasury…”

The benefits to the nation of getting to grips with this problem are huge. However, the Lib Dems in the Coalition will need to be made of stern stuff if they are to defeat the obfuscation and implement the political reforms needed.

* Paul Reynolds works with multilateral organisations as an independent adviser on international relations, economics, and senior governance.

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6 Comments

  • The key challenge facing those who promote the selling of state assets hasn’t changed since the 1980’s, namely the creation of new state assets, otherwise it is just a cash cow gained from a one-off sale.

    Yes correctly used state assets can have massive economic and community impact, however this doesn’t necessary mean that they have to be sold. Urban and industrial land already in public/state ownership can be used for community purposes at costs that make many things viable, this can include providing low cost premises for smaller and community-based commercial firms. A good example of farsighted and enlightened usage of public ownership of land is Milton Keynes: All the (state-owned) landscaping and parkland is maintained, along with the annual fireworks display through the rents gained from the public ownership of various business premises across the city.

    Also we shouldn’t always be in too much of a hurry to re-use “unused land & buildings”; for example it is largely because of poor estate management that Bletchley Park remained (largely) intact and so could be saved for the nation.

  • Paul Reynolds 23rd Jun '12 - 1:11pm

    Very useful comments. I would plead ‘logic’ here. Addressing a problem of unused commercial land and buildings under indirect or direct state control does not imply that all state assets should be sold, nor that all such proprties should be sold regardless of the consequences. In addition the unnecessary waste of hundreds of millions of tax pounds in opaque property deals is not excusable via similar cases of waste somewhere in the private sector – and after all, finance raised can be used to pay for tailor-made community facilities.

    A key question is why real estate transactions by public bodies has to be so opaque. One wonders what is being hidden here.

  • david thorpe 25th Jun '12 - 12:18pm

    Paul,

    Excellent article.
    Perivate scetor firms have to file accounts and ;ist assets, so of course they dont forget them, also private firms like to make profits, funnily enough, so they tend not to forget sources of revenue that often.
    As Liberals we should not wish to see resources underused rthat could be used for the benefit of the people, which is whats happening now.

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