Local Authorities To Cut Costs Not Corners

Tuesday, 23 March 2010

Latest research by leading property consultant GVA Grimley reveals the extent of the challenges faced by local authorities as it looks to use property assets more efficiently to cut costs.


GVA Grimley therefore believes that no stone can be left unturned in creating a watertight asset management strategy to optimise efficiency.


In its paper, entitled "Cutting Costs Not Corners", GVA Grimley predicts that due to severe financial cuts to public services, the operational property directly occupied by the local public sector could reduce by as much as 50% over the next decade. The challenge therefore will be to deliver unprecedented change within constrained budgets while continuing to protect frontline services.


John Keyes, northern director at GVA Grimley, comments: "Public service providers will ultimately need to do more with less. In too many cases, public sector assets have been poorly managed. Therefore at the same time as reducing property portfolios, major opportunities exist to create more efficient estates over the medium term, to reduce operational costs and carbon footprints. In the short term and beyond, well considered commercial strategies can generate sizeable cash savings."


He continues: "Time is of the essence. Given the relatively illiquid nature of property, ambitious strategies need to be put in place now if the unprecedented reform agenda for public sector property is to be met."


The speed of change required to meet the impending cuts and the ways in which to achieve this presents perhaps the greatest challenge of all. According to figures from the Institute of Fiscal Studies (IFS), both revenue and capital funding will be severely hit over the next few years, a major reverse from a relative period of plenty over the last decade.


While revenue funding will be relatively stable in real terms, this represents a major reduction for many service departments when debt repayment and increasing benefit payments are taken into account. Capital funding will fall dramatically in real terms by some 18% per annum over the next three years in contrast to a year on year growth of some 14% over the last decade.


The critical importance of property efficiency across the sector has never been higher on the political agenda. The Operational Efficiency Programme driven by the government has identified potential running cost savings of £1.5 billion per annum and capital receipts of £20 billion over a 10 year period.


At a local level, property needs will be reduced as the financial cuts impact staffing levels particularly on labour intensive services.


Some non-statutory services will cease altogether. More will be commissioned from private and third sector organisations as a route to reducing costs. More flexible working will be introduced, not just to save property costs, but as a route to efficiency and greater productivity. Home working will grow and hot-desking will become mainstream - demand for a different type of accommodation will increase to provide facilities such as "touch down" services and highly IT friendly environments. Outsourcing of service delivery, especially back office functions, will escalate. While none of these trends are new, the pace of change will accelerate dramatically and in combination they will have significant effects.


Asked if this could be an insurmountable challenge, John Keyes responds: "The public sector property asset management issues to be addressed are highly complex and there are many key questions that need addressing in order to make the transition as painless as possible.


John Keyes adds: "The challenges grow for local authorities where they are seeking to continue to deliver development and regeneration projects and objectives. Here property assets can play a key role, especially in partnership structures with the private sector and through devices such as Local Asset Backed Vehicles."


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