The success or stagnation of the UK economy depends upon the strength or weakness of its cities. While comprising just 8 per cent of land, cities are home to 54 per cent of the population and 60 percent of jobs. Cities are home to a deep pool of land and property assets with highly diverse ownership that offers significant opportunities to cities and considerable challenges.
Local government leaders are the chief custodians of cities. The public assets they control give local authorities the leverage to play a leadership role among other public and private sector partners to drive local economic development. In every city, publicly-owned land and buildings are being used to lead, shape and unlock the housing, transport and commercial development required to realise long-term economic goals and improve the quality of place for citizens. By working closely with partners from across different sectors, the full potential of these assets can be realised.
But cities’ real economic footprints stretch beyond their administrative boundaries. Only 50 percent of people live and work in the same local authority. People’s lives within cities are not divided by a change in colour of street signs or lampposts, so crossing council boundaries means little to anyone commuting to work, going to the cinema, or visiting friends. Local leaders can achieve far more with their assets by working with their neighbours to align policy to the level at which the economy operates: the city or city region.
Local authorities are increasingly working together across boundaries to utilise their assets. Cities recognise the opportunities that collaboration brings for responding to the needs of local businesses and communities, and to deliver policy more efficiently. For example, Cambridge City and South Cambridgeshire councils are working together to align local plans to deliver the housing and commercial space needed to accommodate its rapidly growing economy and population. The new metro mayors elected earlier this year will be working with the local leaders in their combined authority to ensure the public sector assets in their cities can be best used to develop the housing, transport, and employment growth required and achieve the economic vision the mayors were elected on.
Partnerships also bring the experience and expertise in developing and using assets owned by other organisations to the table. This helps to deliver greater long-term returns and reduces the risks for councils, more than would be possible working alone. Local authorities are using their land and buildings in joint ventures with private sector developers to lever in their commercial experience, expertise and funding to deliver projects that fit local economic development priorities and bring in higher long-term returns than site disposal.
The opportunities for local authorities to use their assets in partnerships to shape city-wide economic development has been enhanced by the 2011 Localism Act and ultra-low borrowing from the Public Works Loan Board. This has allowed councils to become more entrepreneurial with their assets and raise revenue in new ways. Now, rather than having a set of prescribed powers, councils enjoy the same ‘general power of competence’ as an individual. Local authorities are free to do anything within the law. New forms of partnership to lever public assets to raise revenue, reform how public services are delivered and shape economic development are open to local government and have already been taken up by ambitious and entrepreneurial local leaders.
One thing that is explicitly ruled out in the Localism Act however, is the ability to set taxes so the greater freedom to borrow, invest and act must be set against the limited flexibility for local authorities to raise taxes in the face of increasing demand on services or falling income. Council tax is worth only 5 per cent of UK taxes and, without local referenda, councils cannot raise it by more than 2 per cent. This is in contrast to leaders in many other cities around the world. Within this relatively inflexible system, councils are increasingly managing public sector assets in ways that increase revenues.
The imperative to utilise public assets for commercial returns and to drive economic development has been heightened by the austerity programme implemented since 2010 by the Coalition and Conservative governments in response to the financial crisis. Local government funding has borne the brunt of cuts and budgets will continue to fall. Between 2009/10 and 2016/17, excluding grants for education, police and fire services, English council revenues fell by 26 per cent, from £59 billion to £44 billion in today’s prices1. This squeeze on funding from central government is set to continue. Driven by increasing social care costs, if they remain constant, local government faces a £5.8 billion funding gap by 2020.
The other major local source of revenue is business rates. Currently, councils retain £11.6 billion from business rates, or 12.4 per cent of total revenue expenditure.2 If proposals for councils to retain 100 per cent of business rates are pursued again after the election, it will strengthen the incentive for local authorities to use their assets to provide greater commercial revenues and develop a wider business base and rates income.
The greater freedom local authorities have in using revenue income over capital income adds to the incentive for authorities to hold onto, or improve, existing commercial assets and borrow to purchase or develop more. The ongoing commercial revenues that come with this, and the control over local economic development it gives authorities, means that purchasing new assets is preferred to the previous policy of disposing of assets for capital receipts.
The first report Delivering Change: making the most of public assets set out how to think about different types of publicly owned assets, and how they can each play a role in supporting local growth through refurbishing and repurposing, selling and acquiring.3 The asset types were:
- Liabilities: assets with little strategic benefit and/or low income generating potential – which sometimes incur a net cost to just hold onto.
- Financial assets: good income generating assets, through rental yields and/or their potential to generate business rates.
- Strategic assets: sites held or acquired for a strategic economic growth purpose where the investment decision is not driven by direct financial returns.
This report will build on the key elements of how cities and partners can work across sectors and boundaries to maximise the economic impact of their assets which were set out as recommendations at the end of that report:
- Economic growth strategy focused on core growth areas
- Good data on all local public sector assets
- Relationships across places and between organisations
- Commercial culture underpinned by leadership buy in and support
The aim of this report is to share the wide variety of approaches that local and combined authorities are already taking to making the most out of their assets by working in partnership. Expanding on the findings from the first report as well as from these case studies and a number of in-depth interviews, we have pulled out in detail the elements common to successful asset programmes: knowing what those assets are, how to fit them into a strong vision for the local economy and getting the most out of working with partners to realise that vision.
Much of this will be familiar to city leaders, but by drawing these lessons out clearly and sharing best practice, this report will be of use to all leaders looking to make the whole of their assets, public and private, greater than the sum of their parts.
Box 1: Mayors
Making more out of public and private assets is a core element of all the deals agreed between central government and local authorities for mayors. The mayors’ success or failure will depend on their ability to harness diverse public and private assets across their cities.
Each mayor elected on May 4th in Greater Manchester, Liverpool City Region, West of England, West Midlands, Tees Valley and Greater Cambridge and Peterborough is reviewing public and private assets across their city through a Land Commission or Joint Asset Board, and most will be setting a spatial strategy for the next 20 years to ensure that the economic vision makes the most out of those assets.
Mayors have powers over transport that will be important to connect and unlock significant public assets.
The mayors have a high profile and clear mandate from voters to help councils, government and the private sector make the most productive use of asset by looking at their strategic value to the city, rather than local authority.