Cash-strapped councils to be told to sell property worth billions to stay afloat

The Government is set to urge councils to launch a firesale of billions of pounds worth of property assets to cover debts and fund local services rather than rely on further taxpayer bailouts, i understands.

Following a recent consultation with English councils, the Department of Levelling Up, Housing and Communities (DLUHC) has concluded that the some of the £23.2bn of property assets owned by councils should be sold following a Government consultation with the sector during January.

However, industry insiders have claimed that selling property assets in a slow market will lead to councils potentially losing money on taxpayer funded investments.

The Government move comes as councils are facing a £4bn funding gap and have imposed £100-plus council tax rises to cover vital services in the 2024/25 financial year.

Dozens of councils are now looking to make cuts in areas such as child services, adult care and environmental campaigns to save costs, as well as hiking council charges such as parking fees and altering bin collections.

Following the consultation, the ministers are minded to “encourage” councils to cash in assets that do not offer an immediate benefit to their communities.

The Government has already lifted a ban on selling assets to cover day-today spending for nineteen cash-strapped English councils, and it is understood all councils will soon be able to offload property to cover budget deficits.

The nineteen permitted to sell assets so far include Birmingham, Woking, Thurrock, Slough, Nottingham and Croydon in London – six of the eight English councils that have effectively declared bankruptcy.

While ministers are not recommending the sale of buildings such as leisure centres and libraries, councils cannot completely rule out such local amenities being sold off to developers as they scramble to fund key services.

Other assets including development land, retail centres, industrial parks and offices look set to be prioritised for fire sales to pay off debts and ensure the continuation of vital public services.

The consultation report states: “The intent is to encourage divestment of assets held only for revenue and not for delivering the objectives of the local authority, and providing additional incentives to recognise that local authorities selling such assets will likely be foregoing future revenue income.”

The Government move to push councils into considering firesales follows analysis by i that found several local authorities in England consistently sold assets substantially below market value, which has led to accusations that councils are failing taxpayers.

The report also suggests that “local authorities may use the investment asset proceeds to fund financial pressures” and to increase reserves for future use.

As part of the consultation, every council in England was asked to provide valuations of any property assets it owns.

A spokesman for DLUHC told i: “We have engaged with the sector over options to allow councils greater financial flexibilities whilst ensuring every penny of taxpayer money is well-spent, and are carefully considering what proportionate safeguards are needed.”

Some councils are already selling property assets to cover vast debts and spending deficits.

Birmingham City Council is one of many councils in recent years to have issued a section 144 notice, which means it is effectively bankrupt.

After declaring its financial woes last September, the UK’s largest local authority embarked on a sale of £750m of assets.

Since 2017, eight councils have issued Section 114 notices, including two separate notices from Northamptonshire and three from Croydon.

However, industry insiders suggest that selling property assets in a market where values have been falling would not only fail to deliver maximum returns for councils, but is also not a longer term fix to the council funding crisis.

Council property deals turn sour

Birmingham City Council announced last year that it is essentially bankrupt (Photo: Getty Images)

Councils up and down the country have already embarked on property asset sales in order to stay afloat with many more expected to follow suit.

In February, bust Birmingham City Council revealed its second auction to sell off around £750m of property assets to help reduce its debt and pay back a £1.2bn government loan.

Like Birmingham, Nottingham City Council also went under last year, and it is seeking to raise £73m from property sales over the next three years.

Southampton City Council, which has requested additional cash support from the Government to avoid going bust, has embarked on an asset disposal programme that could raise up to £85m.

Last July, Wirral Council also embarked on a property sales programme that it hopes will raise around enough cash to pay back a £12m loan of emergency government funding received in 2021.

West Berkshire District Council is weighing up the sale of assets from it £62m property portfolio to help pay off an overspend for the current financial year of around £8.7m.

Woking Borough council, which issued a Section 114 notice effectively declaring itself bankrupt earlier last June, is seeking the sale of non-income producing assets among its £300m to £350m of property assets.

The cash will be used increase to bridge a £10m a year budget gap and to help pay down its £2.6bn of debt.

Commenting before the five-week local election purdah period began, Jonathan Carr-West, chief executive of the Local Government Information Unit (LGIU) said: “Our research would suggest that asset sales – which at best offer a one-off cash injection – will not help councils with their long-term systemic funding issues.

“The assets a council has to sell are unrelated to their funding needs, which are often driven by service pressures in social care, environmental and waste spending or homelessness.”

Instead, Mr Carr-West suggested the Government should consider solutions such as introducing multi-year financial settlements for councils, reopening the fair funding review to make sure funding matches needs and avoiding councils having statutory responsibilities beyond what they can afford, and exploring changes to local taxation such as introducing new more flexible local taxes.

Also speaking to i before the local election purdah period, Cllr Sir Stephen Houghton, chair of the Special Interest Group of Municipal Authorities (SIGOMA), added: “The sale of capital assets to pay for day-to-day spending is not sustainable and is in many ways a bridging loan than will pass the costs to future taxpayers and defer problems of underfunding and growing funding gaps to future years.

“There is also a risk that valuable publicly owned assets could be sold below market value.”

As i analysis shows, councils such as Middlesbrough and Bolton have committed to recent sales that critics claim were completed at a discount to their true values.

Cllr Hougton continued: “The long-term solution to the funding crisis in local government is a fair and sustainable settlement for councils that closes the funding gap and distributes funding on a needs-basis.”

The spokesman for DLUHC added: “Councils are ultimately responsible for their own finances, but we stand ready to talk to any council concerned about its financial position.