Asset Disposal Strategy Scrutiny Commission ... - Lambeth Council
Asset Disposal Strategy Scrutiny Commission ... - Lambeth Council
Asset Disposal Strategy Scrutiny Commission ... - Lambeth Council
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Cabinet 7 February 2011<br />
Response to the <strong>Asset</strong> <strong>Disposal</strong> <strong>Strategy</strong> <strong>Commission</strong><br />
All Wards<br />
Cabinet Portfolio:<br />
Cabinet Member for Finance and<br />
Resources: <strong>Council</strong>lor Paul McGlone<br />
Report authorised by:<br />
Executive Director for Finance and<br />
Resources: Mike Suarez<br />
Executive summary<br />
In September 2010 the Finance <strong>Scrutiny</strong> Sub-Committee commenced a commission to<br />
examine the asset disposal strategy and to look at the future of office accommodation at<br />
the <strong>Council</strong> and any appropriate links with the asset disposal strategy and the<br />
investment strategy. The <strong>Commission</strong> has now completed its work and is presenting its<br />
findings for consideration by Finance <strong>Scrutiny</strong> Sub-Committee and Cabinet. The report<br />
contains a number of recommendations which, if implemented, will increase member<br />
oversight of and improve the <strong>Council</strong>’s approach to realising asset value to fund new<br />
capital spend.<br />
Summary of financial implications<br />
There are no direct financial implications arising as a result of this report. However, the<br />
effective implementation of the recommendations may lead to the realisation of higher<br />
values when the council disposes of surplus properties.<br />
Recommendations<br />
(1) To approve the report and recommendations of the <strong>Asset</strong> <strong>Disposal</strong> <strong>Strategy</strong><br />
<strong>Commission</strong>, subject to comments shown in the report.<br />
(2) To direct officers to implement the action plan in response to the commission’s<br />
recommendations.
Consultation<br />
Name of<br />
consultee<br />
Department or Organisation Date sent Date<br />
response<br />
received<br />
Comments<br />
appear in report<br />
para:<br />
Internal<br />
Jonathan Divisional Director Corporate 21.01.11 21.01.11 Throughout<br />
Williams<br />
Finance<br />
Mark Hynes Director, Governance & Democracy 25.01.11 25.01.11 Section 4<br />
Uzo Nwanze Head of <strong>Asset</strong> <strong>Strategy</strong> 21.01.11 24.01.11 Throughout<br />
Rachel Sharpe Divisional Director Housing 21.01.11 21.01.11 2.16.1<br />
Les Brown Divisional Director Planning 21.01.11 21.01.11 2.8.1 to 2.8.3<br />
Cllr Paul<br />
McGlone<br />
Cabinet Member for Finance and<br />
Resources<br />
21.01.11 21.01.11<br />
External<br />
None<br />
Report history<br />
Decision type:<br />
Key decision<br />
Key decision: reason<br />
EITHER a) expenditure or savings of £500,000 or<br />
more<br />
Authorised by Cabinet<br />
member:<br />
Date report<br />
drafted:<br />
OR/AND: b) proposal affects significantly two or<br />
more wards<br />
X<br />
Date report sent:<br />
Report deadline<br />
See above 21.01.11 27.01.11 17.01.11<br />
Report no.:<br />
Report author and contact for queries:<br />
249/10-11 Xavier Hinckson, Corporate Financial Consultant<br />
Background documents<br />
020 7926 9206 xhinckson@lambeth.gov.uk<br />
<strong>Asset</strong> <strong>Disposal</strong> <strong>Strategy</strong> <strong>Commission</strong> report – see appendices<br />
<strong>Asset</strong> <strong>Disposal</strong> <strong>Strategy</strong> <strong>Commission</strong> action plan – see appendices<br />
Appendices<br />
Appendix 1 – <strong>Asset</strong> <strong>Disposal</strong> <strong>Strategy</strong> <strong>Commission</strong> report<br />
Appendix 2 – <strong>Asset</strong> <strong>Disposal</strong> <strong>Strategy</strong> <strong>Commission</strong> report (exempt from disclosure)<br />
Appendix 3 – <strong>Asset</strong> <strong>Disposal</strong> <strong>Strategy</strong> <strong>Commission</strong> action plan<br />
Reason for Exemption from Disclosure<br />
The following appendix is exempt from disclosure by virtue of the following<br />
paragraphs of Schedule 12A to the Local Government Act 1972:<br />
3. Information relating to the financial or business affairs of a particular person.<br />
(Including the authority holding that information).
Response to the <strong>Asset</strong> <strong>Disposal</strong> <strong>Strategy</strong> <strong>Commission</strong><br />
1. Context<br />
1.1 Finance <strong>Scrutiny</strong> Sub-Committee established the <strong>Asset</strong> <strong>Disposal</strong> <strong>Strategy</strong><br />
<strong>Commission</strong> following its consideration of the <strong>Lambeth</strong> Emergency Budget report<br />
on 21 st July 2010. That report highlighted a funding gap of £23.5 million on the<br />
Capital Investment Programme and the need to dispose of surplus properties to<br />
generate receipts to close that gap. The commission was established to,<br />
“examine the asset disposal strategy…[and]…to look at the future of office<br />
accommodation at the <strong>Council</strong> and any appropriate links with the asset disposal<br />
strategy and the investment strategy.” 1<br />
1.2 The commission held two information gathering sessions during November 2010<br />
where officers from Corporate Finance and the Valuation and <strong>Asset</strong> Management<br />
Service (VAMS) presented information and answered members’ questions. The<br />
commission met twice subsequently to draft its report.<br />
1.3 The <strong>Commission</strong>’s report and is attached at Appendix 1. The key themes within<br />
the recommendations are the need to ensure that asset management decisionmaking<br />
is transparent, corporate (rather than departmental) and is designed to<br />
maximise value.<br />
1.4 The <strong>Commission</strong>’s report is due to be considered by Finance <strong>Scrutiny</strong> Sub-<br />
Committee on 27 January 2011 and any amendments to the recommendations<br />
and action plan will be reported to Cabinet.<br />
2. Proposals and reasons<br />
2.1 The commission’s report contained 16 recommendations that are attached as<br />
action plan at Appendix 2. The action plan outlines responses to these<br />
recommendations over the next two months. In summary, the action plan<br />
proposes the developments below:<br />
2.2 Recommendation A: Cross-departmental Cabinet Member to sit on SAMG<br />
2.2.1 The Strategic <strong>Asset</strong> Management Group (SAMG) is an officer group jointly<br />
chaired by the Executive Director of Finance and Resources and the Executive<br />
Director of Housing, Regeneration and Environment. Officers believe that<br />
reconstituting the Capital Programme Review Group with the Cabinet Member for<br />
Finance and Resources as its Chair will achieve the same aim, but preserve the<br />
delineation between officers and members and maintain clear accountability<br />
lines. The group's activity will be broadened from the implementation of<br />
investment decisions to encompass asset management strategy and disposals.<br />
Its name will change to the <strong>Asset</strong> Review Group (ARG) to reflect its broader<br />
responsibilities.<br />
1 London Borough of <strong>Lambeth</strong>, Minute No5 of meeting of Finance <strong>Scrutiny</strong> Sub-Committee, 21 st July 2010
2.3 Recommendation B: Ultimate disposal decision made at corporate centre<br />
2.3.1 The decision making framework will be amended to ensure that decisions on<br />
disposals are made on the basis of advice provided by the corporate officer-led<br />
SAMG and member-led ARG.<br />
2.4 Recommendation C: the primary questions for the retention of assets should be<br />
is a property owned by the council required?<br />
2.4.1 The decision making framework will be amended to ensure that decisions on<br />
retention or disposal flow from the questions: Is a property asset required to<br />
deliver the service that currently uses the operational building? And does the<br />
asset need to be owned by the council?<br />
2.5 Recommendation D: quantitative analysis should be weighted more heavily than<br />
qualitative analysis<br />
2.5.1 The decision making framework will be amended to ensure that the weighting of<br />
qualitative and quantitative criteria in the Operational Property Portfolio be<br />
reversed so that the qualitative data is weighted 40% and the quantitative 60%.<br />
2.6 Recommendation E: asset disposal decisions should be transparent<br />
2.6.1 The enhancements to the existing process noted in the responses to<br />
recommendations B, C and D will be captured in a process that can be clearly<br />
articulated to members and the public.<br />
2.7 Recommendation F: disposals are timed to ensure maximum return<br />
2.7.1 The revised disposal process will demonstrate that consideration has been given<br />
to the impact the timing of disposals has on returns. However, the ultimate<br />
decision will need to balance the urgency of the funding requirement (set out in<br />
the Capital Investment Pipeline) with maximising returns.<br />
2.8 Recommendation G: where disposals have failed to achieve reasonable value<br />
after marketing the council should apply for a change of planning use<br />
2.8.1 The Planning Division strongly advocates and supports the pro-active approach<br />
set out in the recommendation as the most effective way in establishing the best<br />
value and benefit to the <strong>Council</strong> in the disposal of sites. The approach to deciding<br />
planning applications is however, determined by law as set out in planning<br />
legislation and case law.<br />
2.8.2 The recommendation that the <strong>Council</strong> submit a planning application to change<br />
the use of a site to achieve a higher value would only be appropriate in certain<br />
circumstances. All planning applications need to be determined in line with<br />
planning legislation and case law and therefore this approach should only be<br />
progressed where a change of use is considered be in line with current planning<br />
policy or where other material considerations are relevant..<br />
2.8.3 The Government Planning Policy Statement 1 (The Planning System: General<br />
Principles) sets out that, “Local planning authorities must determine planning<br />
applications in accordance with the statutory Development Plan, unless material
considerations indicate otherwise……Where there are other material<br />
considerations, the Development Plan should be the starting point, and other<br />
material considerations should be taken into account in reaching a decision.”<br />
2.9 Recommendation H: prioritise the sale of high value offices<br />
2.9.1 The <strong>Council</strong>'s use of office space is currently being reviewed with a view to<br />
releasing significant funds<br />
2.10 Recommendation I: Corporate Landlord Model implementation timetable<br />
2.10.1 The "Corporate Landlord Model" is taken to mean the centralisation of property<br />
management and decision-making. Strategic decisions about the council’s asset<br />
portfolio are made corporately by the Strategic <strong>Asset</strong> Management Group, and<br />
planned maintenance is centrally coordinated. This is illustrated in the Capital<br />
Investment Programme by the establishment of a Planned Maintenance budget<br />
managed by VAMS (in the HRE department).<br />
2.11 Recommendation J: Clear and transparent decision-making in the budget setting<br />
process<br />
2.11.1 <strong>Council</strong> will be asked to approve the projects in both the Capital Investment<br />
Programme and the Capital Investment Pipeline at its budget setting meeting in<br />
February. The individual projects in both the Programme and the Pipeline will be<br />
detailed in the appendices to the budget report, providing members and the<br />
public with an unprecedented level of clarity and transparency. The Capital<br />
Investment Programme will be updated through the July Finance Review and a<br />
new mid-cycle Budget Update report in November, again increasing clarity,<br />
transparency and accountability.<br />
2.12 Recommendation K: HRA income from commercial portfolio<br />
2.12.1 The government is fundamentally reforming the housing finance system. The<br />
reforms will enable councils to retain the income from local rents, abolish the<br />
subsidy system and lead to the equalisation of housing debt across local<br />
authorities that provide housing services. It will therefore have a significant effect<br />
on <strong>Lambeth</strong>’s Housing Revenue Account. The HRE Resources division is<br />
modelling the impact of these proposals, which will need to be carefully<br />
considered to ensure that the HRA will remain stable and be able to support the<br />
delivery of housing services. Removing the income from the commercial portfolio<br />
before the stability of the HRA under the new system has been proven would be<br />
premature. Nevertheless, the principle behind this recommendation is accepted<br />
and may be implemented in the medium to long term.<br />
2.13 Recommendation L: timing of disposals of commercial properties reflects market<br />
conditions<br />
2.14 The revised disposal process will demonstrate that consideration has been given<br />
to the impact the timing of disposals has on returns. However, the ultimate<br />
decision will need to balance the urgency of the funding requirement (set out in<br />
the Capital Investment Pipeline) with maximising returns.
2.15 Recommendation M: shopkeepers’ ability to purchase commercial properties is<br />
protected<br />
2.15.1 Shopkeepers will be consulted as part of any disposal strategy for the<br />
commercial portfolio, including arrangements for them to purchase their<br />
properties.<br />
2.16 Recommendation N: Cabinet Housing <strong>Commission</strong> considers the<br />
appropriateness of the voids disposals policy<br />
2.16.1 The Housing <strong>Commission</strong> will consider policy on the sale of void properties in the<br />
context of addressing options for meeting the housing investment gap. The costvalue<br />
ratio formula for housing disposals has recently been updated but will be<br />
kept under review as necessary.<br />
2.17 Recommendation O: <strong>Disposal</strong>s monitoring reports are considered by Finance<br />
<strong>Scrutiny</strong> Sub-Committee<br />
2.17.1 Progress against annual disposals budgets is reported in the Finance Monitor.<br />
The Capital Investment Programme recommended to Cabinet is fully funded, so<br />
new disposals would be used to fund those projects set out in the Capital<br />
Investment Pipeline. The impact of receipts on the movement of projects from<br />
the Capital Investment Pipeline to the Capital Investment Programme would be<br />
articulated through the Finance Monitor, the July Finance Review and a new midcycle<br />
Budget Update report in November.<br />
2.18 Recommendation P: all possible capital financing options have been considered<br />
2.18.1 The budget report proposed to Cabinet includes revenue contributions to capital<br />
of £14.5 million over the three year budget period. Although the council has used<br />
the Private Finance Initiative as alternative financing solution, the main<br />
determinant of its viability is the availability of central government grant to pay the<br />
PFI contractor. The viability of Tax Increment Financing (TIF) will largely be<br />
determined by the potential of the investment to increase revenue from business<br />
rates. Its application to the maintenance of roads or the construction of schools,<br />
for instance, would be risky. Nevertheless, this is an area that will be monitored<br />
closely.<br />
2.18.2 The commission also cited the New Local Government Network report Capital<br />
Momentum – new financing options for locally driven capital investment and the<br />
alternatives it sets out for capital financing, such as investment through pension<br />
funds or municipal bonds. Such approaches would generate the cash for<br />
investment through new debt instruments. The capital financing issue the council<br />
faces is not its ability to access debt instruments, but the declining revenue<br />
streams available to pay for those instruments. This criticism also applies to sale<br />
and lease back arrangements, whose use should be judged on broader value for<br />
money criteria rather than purely as a source of capital funding.
3. Comments from Executive Director of Finance and Resources<br />
3.1 There are no direct financial implications arising from this report. However, a<br />
number of the proposals set out in the action plan will be captured in a revised<br />
<strong>Asset</strong> Management <strong>Strategy</strong> that will be submitted to Cabinet for consideration.<br />
4. Comments from Director of Governance and Democracy<br />
4.1 The <strong>Council</strong> has a fiduciary duty to the council tax payer to provide the<br />
management of its assets as efficiently and effectively as possible and to have in<br />
mind the best outcome for the <strong>Council</strong>’s area, in consideration of the <strong>Council</strong>’s<br />
wellbeing powers provided in section 2 of the Local Government Act 2000,<br />
including the use of or disposal of assets.<br />
4.2 Section 111 of the Local Government Act 1972 provides powers for a local<br />
authority to do anything (whether or not involving the expenditure, borrowing or<br />
lending of money or the acquisition or disposal of any property or rights) which is<br />
calculated to facilitate, or is conducive or incidental to, the discharge of any of<br />
their functions.<br />
4.3 By virtue of section 123, Local Government Act 1972, the <strong>Council</strong> is empowered<br />
to dispose of land held by it in any manner it wishes but, except with the consent<br />
of the Secretary of State, it may not do for a consideration less than the best that<br />
can reasonably be obtained (unless the disposal consists of a grant of a term not<br />
exceeding seven years). A General Consent was issued in 2003 allowing the<br />
disposal of property at an undervalue (of not more than £2 million) if the disposal<br />
is likely to contribute to the promotion or improvement of the social, economic or<br />
environmental well-being of the residents or some of the residents of the<br />
borough. This General consent only applies to non HRA properties.<br />
4.4 Section 21 of the Housing Act 1985 provides the <strong>Council</strong> with powers for the<br />
general management, regulation and control of its dwelling stock subject to<br />
Section 32 consent to dispose of land.<br />
4.5 Pursuant to section 32 and 34 of the Act and Section 25 of the Housing Act 1988<br />
the Secretary of State has issued general consents to dispose of land held for<br />
housing purposes which place conditions as to the terms of disposal.<br />
5. Organisational implications<br />
5.1 Risk management:<br />
The activities set out in the action plan may improve the council’s management of<br />
some of the risks associated with the disposal of surplus properties.<br />
5.2 Equalities impact assessment:<br />
The activities set out in the action plan will be captured in specific proposals that<br />
will be considered by cabinet. Equalities impact assessments will be undertaken<br />
for those specific proposals.
5.3 Community safety implications:<br />
There are no direct implications for community safety.<br />
5.4 Environmental implications:<br />
There are no direct environmental implications.<br />
5.5 Staffing and accommodation implications:<br />
There are no direct staffing and accommodation implications.<br />
6. Timetable for implementation<br />
6.1 The timetable for implementation is set out in the action plan attached at<br />
Appendix 2.<br />
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