Asset sales have become the “biggest commercial activity” for local authorities amid financial sustainability worries, council finance professionals have stated.
At a webinar on the state of local government finance, hosted by Pixel Financial Management, Greg Stride, senior researcher at the Local Government Information Unit (LGiU), highlighted that local authorities are under a “worrying” amount of financial strain.
Stride explained that a recent survey by LGiU revealed that 9% of council respondents were likely to issue a section 114 notice in 2024/25, while 51% stated that they were likely to in the next five years.
This has caused many local authorities to turn to one-off, short-term measures, such as reserves and asset sales, to fund service demands, Stride said, with 21% of councils suggesting that they are looking to dispose of assets in 2024.
“Asset sales were the largest type of commercial activity, which I know is not exactly a type of commercial activity, but it is if you’re selling off into private hands.
“This is very different from last year, where we saw things like housing developments being more popular than asset sales, and now it is the most popular form of commercial activity that came up [in the survey],” Stride said.
Last year, research by the Institute for Public Policy Research (IPPR) and IPPR North revealed that an estimated 75,000 council assets have been sold since 2010, which are worth around £15bn.
The LGiU report suggested that the change in emphasis away from investment and towards asset sales is “evidence of an unsustainable financial system” in local government.
Additional analysis of councils’ accounts also shows the increase in local authority asset sales, Dan Bates, director at LGimprove explained, with the capital adjustment account or equity stake of councils “reducing, reducing, reducing”.
Dwindling reserves
Bates explained that local authorities’ reserves are also at “fairly unsustainable levels”, and that “if this continues could result in the 9% of councils issuing section 114 notices”. He pointed out that this is particularly relevant for unitary and metropolitan authorities, who “can’t sustain a drop [in reserves] for another year”.
Bates also highlighted that Housing Revenue Account (HRA) councils have “suffered larger reductions in general fund usable reserves”.
“It used to be that having a HRA was quite good for your financial health but I’ve spoken to a number of authorities recently, who suggest that’s not the case anymore,” Bates said.
According to LGiU’s report, 97% of councils believe that multi-year financial settlements would have a “positive impact” on local authorities’ finances.
However, Adrian Jenkins, founder and chief analyst at Pixel Financial Management, explained that this is only expected to come after the next spending review, anticipated in 2026/27.
Debt changes
The webinar also picked up on the highly reported issue of local authority debt, with several national media organisations putting a spotlight on the subject in recent months.
Alongside this, recent research has suggested that local authorities are being pushed into a deepening “debt crisis”.
However, Bates stated that while debt is a “problem”, this is only the case “for a minority of councils”, with debt gearing for the majority of councils “falling”. Debt gearing refers to the ratio of an authority’s debt relative to its equity.
“What we find is that debt capital health is getting better at HRA authorities as they are paying their debt down from 30-year plans,” he explained.
Bates stated that the authorities who should be worried about debt are the 19 who have received exceptional financial support (EFS) from the government.
“The problem with exceptional financial support is the short-sighted nature of it.
“We can see that debt gearing for the majority of authorities is lowering, which is starting to reduce debt to manageable levels, but for those EFS councils, it is going up.
“Getting debt out at 5% plus the 1% premium, having to pay that back over 20 years through MRP and service that 5% or 6% debt at a time when they’re really struggling just doesn’t feel sustainable,” Bates stressed.
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