In the past few weeks, a slew of national and local stories have been coming out relating to the £122bn of collective local authority debt and the attempts of councils – many under varying levels of central government intervention – to reduce it by flogging off local assets.
As this widespread coverage demonstrated, the level of local authority debt in England remains a compelling story of perceived moral and governance failure, with Ministry of Housing, Communities and Local Government spokespeople trotted out to helpfully remind journalists that councils are responsible for managing their own budgets, albeit with the recurrent caveat that the funding system is broken.
The breaking of that funding system involved the taking of a rather different tack from central government, with a ‘go forth and multiply' attitude to commercialisation resulting in a significant increase in local authority commercial investments over the 2010s, as revenue support dried up. Quite apart from encouraging councils to take on debt, the Government actually lent a decent chunk of it themselves via the Public Works Loan Board (PWLB). Not all of this debt is ‘bad debt'. Much is secured against assets to fund projects in a manner generally accepted as economic orthodoxy.
On a political level, it would also be extremely counterproductive for the Government to act as if the gradual degradation of the public realm and stripping away of community assets isn't a key driver of the dissatisfaction with politics and process that so depresses their polling numbers.
Nevertheless, across the era of commercial councils and into the era of capitalisation directions, we have seen an increase in the sale of local authority assets – IPPR estimated in 2023 that £15bn worth of local public assets had been sold since 2010. The results of this activity are being keenly felt in communities.
Given the scale of council indebtedness, talk of debt forgiveness, with all the moral hazard and public finance impacts such an approach would entail, looms large. Regardless of the argument around how to resolve the issue, it has to be said that many councils are in financial positions that no amount of library estate rationalisation is likely to address. The ongoing firesales at heavily indebted councils have so far done precious little to address structural deficits. Beyond the issue of whether or not this is a realistic strategy to reduce local government debt, we must also ask ourselves about the value of what we are losing and how well that loss can be quantified.
For one thing, the selling of local authority assets can be seen as undermining the Government's economic growth agenda – restricting councils' overall leverage by reducing their total assets, as well as constraining their ability to make long-term, strategic assessments of how their asset base can contribute to growth and regeneration, all in the name of short-term book balancing. There is also the crucial issue of social infrastructure – swept up in the category of council-owned property are many physical assets used to house things like community centres and local sports clubs, which have real upstream preventative value that strictly financial models struggle to capture.
On a political level, it would also be extremely counterproductive for the Government to act as if the gradual degradation of the public realm and stripping away of community assets isn't a key driver of the dissatisfaction with politics and process that so depresses their polling numbers.
While the community empowerment element of the English Devolution Bill goes some way to addressing this issue via the community Right to Buy, the measure is far from commensurate to the problem it is seeking to solve. Simply offloading these assets on communities does not guarantee their survival and, crucially, privileges residents, most typically in more affluent areas, with greater capacity to engage with such a process.
To stem the bleeding, a moratorium must be called on the sale of local assets, with the Government reviewing the impacts of the recent spate of divestiture on, firstly, the task of actually drawing down debt levels and, secondly, community cohesion and public service demand. Such a review would likely find that the social cost of pursuing such policies is far greater than the financial value. Beyond this, a better approach to valuing local assets must be developed, one that is attentive to their preventative qualities and impact on local life.
Joe Fyans is head of research at Localis
Localis will be discussing this issue with a panel of experts on 23 September. You can sign up at https://localis.org.uk/events/
