Simon Johnson, director of financial and strategic advisory at Capita Symonds, explains why the £35bn asset sale announced last Thursday signals a key change in government thinking on property:

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Numbers are confusing us all just now. When we see £35bn we know it’s important. But why?

There are two big numbers – public debt and the public deficit. All the focus is on the public deficit. Public debt will have to wait – it is simply so large we can only cope with it in the long term. So when we do hear £35bn and public debt we can be justifiably unimpressed.

Nevertheless, the £35bn is important for two reasons – we are selling the family silver and we are moving to a more efficient public property portfolio.

The government owns a number of businesses, such as the Tote, which provide it with an annual income stream. They can also be sold off into the market, translating the potential value of these businesses into one off capital receipts. In value for money terms, this portfolio will only be sold when market conditions are favourable and that is not likely to be in the next few years. Therefore, in the short term, the £35bn sell-off is something of a “non-announcement”.

Nevertheless, this selling of the family silver is highly significant.

There is of course a counter argument that says these ‘valuable’ government businesses should be used to generate higher annual returns. The government could simply invest in these businesses to generate higher returns and better value.

But in an age of new models of engagement, the government is obviously taking a more commercialised approach to the management of its assts. The family silver is something you normally hold on to – the country is after all still a ‘going concern’.

The underlying shift to a more efficient public property portfolio is important – it has been going on for some time with some strong leadership from the OGC. What we need in times of falling funding is the public sector to use its property assets efficiently. Some departments have embraced this challenge but the public sector as a whole has a long way to go to achieving modern working techniques and environments.

It also demonstrates how government has finally woken up to the fact that central and local government deliver services in the same areas to the same people. The Total Place initiative is arguably complicating the basic efficiency point that if you have a common purpose then collaborate and at the very least collocate.

What local and central bodies need is to save money in their annual budgets over the next three years. Total Place as a broad concept will create a collaborative agenda. As part of that agenda we need to peel off a common approach to the public sector estate and begin working on accessing the efficiencies as soon as we can.

The sell-off of property assets expected to come from this improvement in usage, coordination of services and much greater outsourcing.

However, a sell-off may not be what actually happens. The public sector needs revenue resources and the property portfolio may well be more valuable as an income generator that a source of capital.

The attention of the public sector will and must focus on efficiency, be it in terms of usage or return from their asset holdings. The headline £35bn sell-off is a small part of what is in fact a major shift in government attitude towards property.

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