Report

by the Comptroller
and Auditor General

Cabinet Office, Ministry of Housing, Communities & Local Government, HM Treasury

Investigation into the government’s land disposal strategy and programmes

HC 2138 Session 2017–2019 2 May 2019

Our vision is to help the nation spend wisely.

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The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund, nationally and locally, have used their resources efficiently, effectively, and with economy. The C&AG does this through a range of outputs including value-for-money reports on matters of public interest; investigations to establish the underlying facts in circumstances where concerns have been raised by others or observed through our wider work; landscape reviews to aid transparency; and good-practice guides. Our work ensures that those responsible for the use of public money are held to account and helps government to improve public services, leading to audited savings of £741 million in 2017.

Report by the Comptroller and Auditor General

Ordered by the House of Commons
to be printed on 1 May 2019

This report has been prepared under Section 6 of the National Audit Act 1983 for presentation to the House of Commons in accordance with Section 9 of the Act

Sir Amyas Morse KCB
Comptroller and Auditor General
National Audit Office

1 May 2019

This investigation outlines the government’s strategy and objectives for managing land disposals as well as highlighting the progress made by departments on several key disposal programmes. This investigation also explains what happens to any sales proceeds from land disposals.

Investigations

We conduct investigations to establish the underlying facts in circumstances where concerns have been raised with us, or in response to intelligence that we have gathered through our wider work.

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007264 05/19 NAO

The National Audit Office study team consisted of:
Simon Banner and Callum Saunders, under the direction of Simon Reason.

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What this investigation is about

1 In 2016-17 the government estimated the total value of central government-owned land and property at £179 billion. The government has a policy to sell assets where it considers they no longer serve a public purpose, or that purpose can be more efficiently realised through its transfer to private or non-government hands. There are benefits from sales of surplus public land: proceeds can be reinvested in public services; and land sold may be developed for other purposes, particularly for the building of new homes. But there are also risks, for example government departments might sell land without first establishing a clear view of whether it might be needed to deliver future public services.

2 For land, the government has two main disposal targets:

Proceeds target: The government plans to “deliver £5 billion of receipts between 2015 and 2020 through the release of surplus public sector land and property across the UK”.1 The Cabinet Office is responsible for leading on progress toward this target.

Land for new homes target: Under its Public Land for Housing Programme, the government aims to “increase housing supply by releasing surplus public sector land for at least 160,000 homes” in England between 2015 and 2020.2 The requirement relates to the housing capacity of land released by 2020; the new homes may be built after this date. The Ministry of Housing, Communities & Local Government (MHCLG) is responsible for this programme. The target follows an earlier commitment to release enough land for 100,000 new homes between 2011 and 2015.

3 This investigation looks at the government’s strategy for land disposals and the performance against both targets. In July 2016 we reported that the land for new homes programme had made a slow start, with only 8% of the total target achieved in the first 10 months.3 The Committee of Public Accounts expressed concerns about slow progress in its November 2016 report.4 MHCLG has not published a progress update since February 2017, despite committing to doing so annually. MHCLG told us in early April that it intends to publish a progress report on the land for new homes target in the week commencing 29 April 2019. Owing to our publication date we were unable to review that progress report. We have not previously looked at progress against the government’s proceeds target.

4 We conducted our fieldwork between February and March 2019, analysing government data on sales and interviewing officials within government departments. We do not evaluate the effectiveness or value for money of the government’s land disposal strategy or the programmes. Our investigation does not include local authority land disposals, which do not contribute to either target. Our investigation focuses on:

the rationale, objectives and strategy for selling public land (Part One);

progress on the land disposals for new homes programme (Part Two); and

progress on the £5 billion proceeds programme, and the use of proceeds (Part Three).

1 HM Treasury, Spending Review and Autumn Statement 2015, November 2015.

2 See footnote 1.

3 Comptroller and Auditor General, Disposal of public land for new homes: a progress report, Session 2016-17, HC 510, National Audit Office, July 2016.

4 HC Committee of Public Accounts, Progress with the disposal of public land for new homes, Twenty-second Report of Session 2016-17, HC 634, November 2016.

Summary

Key findings

Background and strategy

1 The government’s approach to land disposals is contained within a wider strategy for managing the government estate. The Office of Government Property, part of the Cabinet Office, leads on the Government Estate Strategy (the Strategy), which sets out government’s aspirations for its estate. Four of the 11 programmes outlined in the Strategy have a land disposals element, for example the One Public Estate programme seeks to create more land for housing and help improve asset management. Each government department develops its own plans to deliver against the strategy, and there are a range of boards tasked with ensuring good governance. We have produced a simplified overview of the landscape in Figure 4 (paragraphs 1.3, 1.6, 1.7, 2.10, Figures 3 and 4).

2 Alongside the strategy, government has two specific land disposals targets, one to release sufficient land to build at least 160,000 homes and another to raise £5 billion in proceeds. The Ministry of Housing, Communities & Local Government (MHCLG) oversees progress towards delivery of the land for new homes target, and Cabinet Office manages the proceeds target. The government set targets for land-owning government departments at the 2015 Spending Review. In pursuing targets for land disposals, departments are responsible for the value for money of each transaction – ensuring individual sales are consistent with Managing Public Money and other government guidance. Some departments manage their land disposal activities through one or more other public bodies (paragraphs 1.2, 1.7, 1.8 and 1.11).

3 In setting the targets for new homes, the government had a limited evidence base. Our 2015 report on the first land disposals programme (2011–2015) found that the government had no supporting documentation or economic evidence behind its target of 100,000 homes. For the second programme, the government set its target of releasing enough land for at least 160,000 new homes during the 2015 Spending Review, with stretching targets for departments. Our 2016 progress report on the second programme found that departments would need to deliver more land for new homes in the remaining four years of the programme than they had achieved in any year of the previous programme (paragraphs 1.11 and 2.6).

Progress against the land for new homes target

4 MHCLG expects departments to have released enough land for around 65,000 homes by 2020 against a target of at least 160,000. By December 2018, land with a capacity for 38,166 homes had been released. By 2020, MHCLG expects that the programme will release enough land for 65,211 homes; this represents 41% of the target, a shortfall of land for 94,789 homes. In a 2017 review, the Infrastructure and Projects Authority said “an overwhelming number of interviewees” had told them the overall target would not be met by March 2020. The government currently does not expect to reach the 160,000 target until after 2025 (paragraphs 1.12 and 2.5).

5 MHCLG has identified several challenges to delivering the target. For many sites identified for disposal, public bodies are still using the land to provide services, and disposal depends on policy decisions. MHCLG told us that the disposal of some large, complex sites have been delayed due to planning issues, as without planning certainty sites disposals will not score against the programme target. In some cases, progress is hampered by departments not legally owning or controlling all the sites that could potentially count towards their targets (for example, sites owned by NHS foundation trusts). Some sites require decontamination before they can be sold. MHCLG has not quantified how many sites fall into each of these categories (paragraph 2.8).

6 MHCLG estimates that 40,500 homes have been “brought to market” under this, and previous programmes. MHCLG uses the term “brought to market” which includes homes that already existed on land released, in addition to homes newly built. MHCLG told us that of the 40,500 homes brought to market, 10% relate to pre-existing homes. We have not seen the supporting evidence for these figures. Land for 109,000 homes was released during the previous (2011–2015) programme. MHCLG estimates that by the end of March 2018, 37,800 homes have been brought to market on that land. A further 2,700 estimated homes have been brought to market on land released during the current (2015–2020) programme (paragraphs 2.2 and 2.9).

7 MHCLG has made limited improvement to the data it collects and publishes since the first programme. MHCLG commissioned the collection of data on the number of homes brought to market following a Committee of Public Accounts (the Committee) recommendation on the 2011–2015 programme. However, it does not (as the Committee requested) collect data on the number of affordable homes built and the number of homes made available to key workers. MHCLG told us that it has started to collect data on planned affordable homes but we have not seen these data. MHCLG considers it is for departments to collect data on homes for key workers. MHCLG has published its Programme Handbook of guidance to departments on releasing land for housing, and departments have published information on their estate strategies. Despite committing to do so, MHCLG had not published an annual report on the land for new homes programme between February 2017 and the start of our investigation, and has not published any information on new homes built under the entire programme, which the Committee asked for (paragraphs 1.6, 2.11, 2.13 and 2.15).

Progress against the government’s proceeds target

8 The government currently expects to achieve its £5 billion proceeds target by March 2020, with two transactions responsible for more than £1.8 billion of the total. Between April 2015 and March 2018, the programme had generated £2.48 billion from proceeds. The largest single sale by value during that period was the Old War Office, which the Ministry of Defence sold in 2016 for £357 million. Network Rail completed its sale the railways arches in February 2019, generating proceeds of £1.46 billion. Including the Network Rail sale means the government needs to generate a further £1.06 billion worth of proceeds in the final two years of the programme (paragraphs 3.2, 3.4 and Figure 9).

9 Our analysis shows that of the 1,500 or so sites released between April 2015 and March 2018, 176 (12%) were released for £1 or less. MHCLG released 160 of the 176 sites and told us that the main reasons were sites requiring buyers to incur costs of remediation (such as decontamination), narrow strips of land which had no other use and land with contractual conditions attached. Homes England told us that remediation costs were responsible for 51% of sites being disposed of for £1. Narrow strips of land and contractual conditions make up the remaining 29% and 20% respectively. We have not seen the supporting evidence for these figures. Most of the 176 sales involved small properties – 140 (82%) were smaller than two hectares – but five transactions involved sales of sites larger than 10 hectares. Homes England, which manages land disposals for MHCLG, has provided us with some information to explain these five sales (paragraphs 1.8, 3.5 and 3.6, Figure 13).

10 Cabinet Office has limited programme-level data. Departments collect information on individual sales, and it is their respective accounting officers’ responsibility to assure a transaction is value for money. The Cabinet Office publishes the data it receives from departments on individual disposals. It does not analyse data at the programme level to assess, for example, the types of buyers attracted to certain government properties, whether departments are selling land to the same buyer, and the use to which the land is subsequently put (paragraphs 1.7 and 3.9).

Use of proceeds

11 Departmental budgets were set on the assumption that departments could achieve their sale proceeds targets. Individual departments have targets for both proceeds and land for new homes that count towards the overall targets. At the 2015 Spending Review, HM Treasury and departments agreed targets for proceeds and then HM Treasury set budgets for the five years to 2020-21 net of these amounts. If their disposal proceeds are less than expected, departments face a shortfall in their budgets and they may need to amend or defer their spending plans. Departments we spoke to told us that any shortfalls have so far been manageable. HM Treasury told us that it has discretion to provide additional funding in these cases, although it would take into account how well a department had managed its resources, and any factors outside the department’s control (paragraphs 3.10 and 3.11).

12 There are insufficient data to say with certainty where the sale proceeds have been spent. As stated above, sales proceeds are expected to make up departmental income during the spending review period. It would be a concern if departments are selling land and property to support day-to-day running costs, rather than to invest in refurbishing existing assets or purchasing new ones. There is an expectation that receipts from land and property sales are reinvested unless HM Treasury agrees otherwise. The government has not collected aggregate data on how government as a whole has used proceeds from disposals, so we cannot say whether this is the case. We have these data for some individual transactions, for example, Network Rail kept the £1.46 billion proceeds from the sale of the railway arches, of which £500 million reduced its funding shortfall to March 2019, with the remaining proceeds used to reduce Network Rail’s expected borrowing from the Department for Transport (paragraphs 3.11 and 3.14).

Part One

Background and government’s strategy

Government’s land and property

1.1 Central government owns around £179 billion of land and property across the United Kingdom, about 43% of the total public sector estate (Figure 1). This is more than 16,800 land plots, representing 526 million square metres. The amount of land varies significantly by department, with the Department for Work & Pensions being the largest land-holder at 1.6 million square metres, see Appendix Two.5 Land and property is a significant public asset, which requires careful management to ensure it is used efficiently.

1.2 Government sees benefits in selling land that it no longer needs. Sales of sites can release land for new homes, and sale proceeds can be reinvested in public services. Government has a policy to retain only those publicly owned assets it considers are needed to meet public service obligations; Managing Public Money states that surplus land should be disposed of within three years,6 and surplus residential property within six months. Departments are accountable for the value for money of any asset sale, including land, in accordance with the Green Book.7

Strategy

1.3 The government does not have a stand-alone land disposals strategy. Instead it has a strategy for managing the entire government estate – the Government Estate Strategy (the Strategy), with land disposals forming a subset of this.8 The Office of Government Property (OGP), part of the Cabinet Office, is responsible for setting the Strategy, with government departments responsible for setting their own strategies aligned to it. The Cabinet Office publishes an annual ‘State of the Estate’ report describing how government is performing on key metrics including size of the estate, cost and utilisation of space. The government views land disposals as an integrated element of departments’ asset management rather than a distinct focus. Figure 2 summarises how the land disposal element of the Strategy interacts with departmental strategic objectives as well as the governance and reporting framework.

1.4 The Strategy describes how the government plans to make the most efficient and cost-effective use of the public sector estate and outlines eight high-level missions including, for example, ‘Excellent public services’.9 Of these eight missions, one relates directly to land disposal: government “will use the power of our estate to energise the housing market, create supportive infrastructure and release surplus land for house building and support development, including on brownfield land”.10

1.5 Eleven programmes support these missions. Figure 3 outlines the four programmes that directly support the land disposal mission. The ‘asset efficiency and unlocking land for housing’ programme is the only one supported by specific disposal targets.

1.6 Each department prepares a Single Departmental Plan annually, showing how they will deliver public services and other core objectives, and an annual Strategic Asset Management Plan showing how they will implement the Strategy. In 2016 the Committee of Public Accounts (the Committee) said departments should make public their estate strategies to demonstrate how they decide that land is surplus.11 Each department publishes its Single Departmental Plan and a summary of its Strategic Asset Management Plan.

Who is involved

1.7 The departments and agencies with key responsibilities in relation to land disposals are:

Cabinet Office and the OGP: The Cabinet Office has overall responsibility for the government estate. The OGP, a unit within the Cabinet Office, leads on government estate work and develops the Strategy to ensure that individual departmental estate strategies align with the government’s overarching strategy.

Ministry of Housing, Communities & Local Government (MHCLG) and Homes England: MHCLG leads on overseeing the Public Land for Housing Programme. It monitors progress and supports individual departments and arm’s-length bodies with their delivery plans. As the government’s land agency, Homes England (a non-departmental public body of MHCLG) has a distinct focus on land disposals. As well as being a major land owner, Homes England monitors and validates data on behalf of MHCLG. In addition to selling its own land for homes, Homes England uses its knowledge and works jointly with departments to help dispose of public land.

HM Treasury: In addition to setting the overall fiscal policy framework and leading on periodic government spending reviews, HM Treasury monitors and challenges the pace and performance of the two programmes. In some cases HM Treasury engages with departments around how proceeds from disposals are used.

Land-owning departments: Departments are responsible for their land and property disposals, and those of their agencies, in meeting their targets under the Public Land for Housing Programme. It is the responsibility of departments to ensure that their disposals represent value for money and comply with all relevant government rules and guidance.

Both MHCLG and Cabinet Office have roles in accelerating land disposals, identifying opportunities and overcoming barriers.

1.8 Responsibilities for delivery are spread across a wide range of bodies (Figure 4). Some departments have separate bodies responsible for managing the disposal of land and property, but the parent department retains overall accountability for delivery. For example, Homes England manages land sales for MHCLG; the Defence Infrastructure Organisation and NHS Property Services Limited perform similar roles for the Ministry of Defence and the Department of Health & Social Care respectively.12

1.9 Government said in 2016 that it expects local authorities to sell assets with a value of £11.7 billion by the end of this Parliament, with the disposal of land for housing a key part.13 In most cases it is not legal for local authorities to sell capital assets to fund their day-to-day spending, however there is now some flexibility to use capital receipts to meet the revenue costs of transformation programmes.14 This investigation covers central government programmes and does not cover local government ambitions and activities.

Two land programmes

1.10 The government has two main land disposals targets, which we cover in more detail in Parts Two and Three:

MHCLG is responsible for the government’s Public Land for Housing Programme “to increase housing supply by releasing surplus public sector land for at least 160,000 homes” between 2015 and 2020; and

Cabinet Office is responsible for the government’s target “to deliver £5 billion of receipts between 2015 and 2020 through the release of surplus public sector land and property across the UK”.

1.11 In both cases government has set targets for individual departments. The government decided centrally on the high-level proceeds and land for new homes targets and then sought to agree departmental contributions during the 2015 Spending Review process that were both achievable and stretching, through discussions between the lead departments (Cabinet Office and MHCLG), HM Treasury and individual departments. Our 2015 report said the government had no supporting documentation or economic evidence behind the quantum of the target of enough land for 100,000 new homes under the 2011–2015 programme.15

1.12 The two programmes are complementary in the sense that proceeds raised through disposals of land for the new homes programme count towards the overall £5 billion target. However, as the Infrastructure and Projects Authority identified in a review in 2017, departments face a tension between the targets, because a deal maximising building of homes might not maximise capital receipts.16 The government’s guidance to departments aims to help them manage these tensions, for example once a site is deemed surplus to government, an initial assessment is made to determine whether the site may be suitable for the land for housing programme. Ultimately the department’s Accounting Officer is responsible for ensuring each disposal represents value for money. Other disposals will count towards the £5 billion target if they meet the Cabinet Office’s criteria for inclusion.17 Network Rail’s sale of the railway arches was not originally included in the proceeds target, although it is now counted as it meets the Cabinet Office’s criteria.

5 The Office of Government Property told us that the Department for Work & Pensions has the largest estate through commercial leases rather than freehold ownership.

6 Managing Public Money is HM Treasury’s guidance to departments on “how to handle public funds”.

7 The Green Book is HM Treasury’s guidance for public bodies on how to appraise proposals before committing funds to a policy, programme or project.

8 The Government Estate Strategy was first published in 2013. The most recent version was published in July 2018.

9 The eight missions are: excellent public services; more land for housing; rebalancing the economy; strengthened expertise; great places to work; enhancing the heart of London; better asset management; and improved data and sustainability.

10 Cabinet Office, Government Estate Strategy, July 2018.

11 HC Committee of Public Accounts, Progress with the disposal of public land for new homes, Twenty-second Report of Session 2016-17, HC 634, November 2016.

12 NHS Property Services Limited (NHSPS) is not wholly responsible for selling land within the NHS estate. NHSPS is responsible for the disposal of land within its portfolio, which accounts for about 10% of the NHS estate. Land can be sold by NHS Trusts, Foundations Trusts and Community Health Partnerships.

13 Ministry of Housing, Communities & Local Government, Guidance on disposals of local authority assets, March 2016.

14 Ministry of Housing, Communities & Local Government, Statutory Guidance on the Flexible Use of Capital Receipts (updated), March 2016

15 Comptroller and Auditor General, Disposal of public land for new homes, Session 2015-16, HC 87, National Audit Office, June 2015.

16 In August 2017 the Infrastructure and Projects Authority carried out a review of MHCLG’s Public Land for Housing Programme 2015–2020, and twenty-four key programme participants were interviewed as part of this review.

17 The Cabinet Office Transparency Report for 2015-16 and 2016-17 (Appendix 1) defines the land disposals that score towards the £5 billion commitment as: the release of an interest in land or property within the UK by central government departments and arm’s-length bodies, including NHS Trusts and Foundation Trusts to others outside of government, including local authorities. The release of an interest that delivers a capital receipt may include freehold or leasehold land, entering land into a joint venture in return for equity shares, or the sale of a managing interest in a property function or organisation.

Part Two

Public Land for Housing Programme

Programme

2.1 The government says that its Public Land for Housing Programme forms an important part of its plans to reform the housing market and boost the supply of new homes. It is a key part of its plans to deliver 300,000 homes a year by the mid-2020s and to ensure the government estate is used efficiently.18

2.2 The first of these programmes was launched in 2011 when government announced its intention to “release enough public land to build as many as 100,000 new, much-needed homes and support as many as 25,000 jobs by 2015”. We reported on that programme in June 2015 and found that the government had disposed of enough land with a capacity for an estimated 109,590 homes by March 2015, although this had included an estimated 15,740 homes on land disposed of before the target was set.19

2.3 For the subsequent programme, in the 2015 Spending Review, government set a target to release enough land for at least 160,000 homes, an increase of 10,000 on a commitment it had previously made in December 2014, and 60,000 on the target set for the first programme.20 The target applies to the housing capacity of land disposed, not the number of homes built, by 2020.21

2.4 The Ministry of Housing, Communities & Local Government (MHCLG) is responsible for overseeing and monitoring this programme. The disposal targets (in housing units) for each major land-owning department were set at the 2015 Spending Review following discussions with MHCLG, supported by HM Treasury and the Cabinet Office (Figure 5). The Ministry of Defence has the largest target at 55,000 units. It is for those departments to sell individual sites, and they are accountable to Parliament for the value for money of any sale. In managing their estates, departments must balance their various objectives, and in doing so ensure that they do not prioritise short-term targets at the expense of other (possibly longer-term) strategic and operational objectives. For example, the Ministry of Defence is constrained in decisions about releasing land by wider considerations of where personnel are deployed. In our November 2018 report on the government’s planning and spending framework, we said there are occasions when we see value for money being compromised by the needs of short-term spending control, and called for integrated medium- and short-term planning activity, strongly policed and challenged for realism and deliverability by the HM Treasury spending teams, and supported by the Cabinet Office and the civil service functions.22

Performance

2.5 The government expects to fall well short of its target on releasing land for at least 160,000 new homes by 2020 and may not achieve it until beyond 2025. Between April 2015 and December 2018, government had released land with capacity for 38,166 potential homes (Figure 6). By programme end (March 2020), MHCLG anticipates departments will dispose of land for 65,211 homes, missing the target by 94,789 homes. On current projections, the government expects to have relesed enough land for 145,727 homes by 2025, still short of the 160,000 target to 2020. The Ministry of Defence and the Department for Transport have the greatest shortfall between their targets and projected sales (Figure 7).

2.6 We reported in 2016 on the early months of this programme, identifying slow initial progress against the 160,000 target.23 We noted that MHCLG’s forecasts showed that departments collectively would need to dispose of more sites in each of the remaining four years that they had in the highest-performing year of the 2011–2015 programme. We noted that over 50% of the estimated housing capacity identified was on sites considered “high risk”.24 In a 2017 review, the Infrastructure and Projects Authority said “an overwhelming number of interviewees” had told them the overall target would not be met by March 2020.25

2.7 In 2016 the Committee of Public Accounts (the Committee) noted that many sites identified by departments for future disposal were speculative, and many were still being used to deliver public services.26 It said all departments needed to identify capacity over their individual targets to create sufficient contingency in the programme to meet the overall commitment, without feeling pressurised to include sites for disposal if they think it is unlikely that homes will be built on these sites.

2.8 MHCLG has identified several key reasons why the 160,000 target will be missed (although it has not quantified how many sites fall into each of these categories), and told us it has taken all reasonable steps to address these obstacles and accelerate sales.

As the Committee highlighted in 2016, for many sites identified for disposal the public bodies are still using the land to provide services, and disposal depends on other policy decisions.

In some cases progress is hampered by departments not legally owning or controlling all of the sites that could potentially count towards their targets
(for example, sites that NHS foundation trusts own). A site cannot score against the programme commitment unless there is at least a conditional sale contract in place, and there is sufficient evidence of planning certainty that the site will be developed for housing.27 MHCLG told us that delays in obtaining planning permission have delayed the disposals of some large, complex sites.

Some sites require decontamination before they can be sold.

2.9 In its 2015 and 2016 reports, the Committee was also concerned about how these land sales had translated into new homes.28 It recommended that MHCLG should monitor the numbers of homes built. MHCLG has since commissioned the Ordnance Survey to collect these data on its behalf. By March 2018, MHCLG estimates that 37,876 homes have been “brought to market” on land released during the first programme, and around 2,700 homes on land released in the current programme (Figure 8).29 MHCLG uses the term “brought to market” which includes homes that already existed on land released, in addition to homes newly built. MHCLG told us that of the 40,500 homes brought to market, 4,279 relate to pre-existing homes. We have not seen the supporting evidence for these figures. This data includes houses brought to market on land released before 2011. Our 2015 report on the first land disposals programme (2011-2015) found that while MHCLG disposed of enough land by 2015 to meet the target of 100,000 homes, land released before 2011 was included in the total.30 Of the 37,876 homes brought to market under the first programme, 12,584 relate to land released before 2011.

Governance

2.10 MHCLG has governance structures overseeing the programme. It chairs cross-government groups, which scrutinise programme performance and tackle strategic issues, while at ministerial level the Housing Implementation Taskforce oversees activity on housing supply, including land disposals progress on addressing barriers. Figure 2 outlines governance arrangements for other programmes relevant to land disposals.

2.11 MHCLG’s Programme Handbook gives guidance to departments on what should count towards the target; roles and responsibilities; monitoring; and evidence and governance requirements. In 2016 the Committee noted that MHCLG had not yet published its Programme Handbook, despite previous commitments to do so.31 MHCLG published the Handbook in December 2016 (updated in August 2018).32

2.12 In 2016 the Committee recommended that all departments should outline the factors they will consider to ensure that each sale represents value for money.33 The government’s position on providing such assurance has not changed since its report. The government points to the National Property Controls (paragraph 3.8) and other measures, including:

departmental delivery plans: these must demonstrate how value for money is delivered and how assurance will be given to individual accounting officers, who must be satisfied that disposals represent value for money; and

HM Treasury guidance: Managing Public Money gives accounting officers the framework for decisions on land disposals, provided they are satisfied that they are achieving value for money for the Exchequer as a whole. HM Treasury’s Green Book guidance presents the techniques and issues to consider when undertaking assessments.

2.13 MHCLG has made limited improvements in collecting data on land released for new homes. On behalf of MHCLG, Homes England monitors public sector land disposals and validates performance data from departments, who are responsible for monitoring their own progress.34 In 2016 the Committee recommended that all departments should set out how they are identifying any wider benefits, including for staff and key workers, which contribute to the departments’ objectives. MHCLG still does not collect data on the number of affordable homes built and the number of homes made available to key workers through land disposals. MHCLG considers it is for departments to collect data on homes for key workers. MHCLG told us that data on planned affordable homes are not yet available due to the experimental nature of the monitoring work being carried out by the Ordnance Survey. This work is on going and MHCLG expects to have a clearer picture later in the year. MHCLG told us that it is collecting information, via the Ordnance Survey, on the number of planned affordable homes. This relates to the number of affordable homes expected to be built as specified in the planning documentation for each relevant site which local authorities publish.

2.14 In 2015 the Committee suggested that MHCLG should “review how it can increase transparency of agreed commercial terms for land disposals to provide greater assurance to the taxpayer that value for money has been achieved”.35 Following a cross-government review, in March 2017 the government set out how it would make the commercial terms of all government land and property sales more transparent.36

2.15 MHCLG committed to publishing annual reports on the land for new homes programme but did not do so between February 2017 and the start of our investigation, and does not publish any information on new homes. In 2016 the Committee noted that MHCLG had not yet published an annual report, and said that as a minimum, it should cover: the number and estimated capacity of sites released, details of sites identified for future disposal including their risk rating, sales proceeds, details of sites released (including postcodes), and construction of new homes by type and tenure.37 MHCLG published an annual report for the programme in February 2017, which covered some of those details. MHCLG told us in early April that it intends to publish a progress report on the land for new homes target in the week commencing 29 April 2019. Owing to our publication date we were unable to review that progress report. MHCLG has not published any information on numbers and types of new homes built for the entire programme.38

18 Ministry of Housing, Communities & Local Government, Public Land for Housing Programme 2015–2020: Programme Handbook for Departments and Arm’s-Length Bodies: Update, August 2018, page 5.

19 Comptroller and Auditor General, Disposal of public land for new homes, Session 2015-16, HC 87, National Audit Office, June 2015.

20 Ministry of Housing, Communities & Local Government, New measures will provide thousands of new homes, Press Release December 2014.

21 MHCLG told us that a site is ‘released’ or ‘disposed’ and therefore scores against the programme, at the point a conditional sale contract is in place, and there is sufficient evidence of planning certainty that the site will be developed for housing. A site that has been ‘released’ or ‘disposed’ does not necessarily mean the site has been sold, which requires an unconditional contract to be exchanged between the buyer and seller.

22 Comptroller and Auditor General, Improving government’s planning and spending framework, Session 2017–2019, HC 1679, National Audit Office, November 2018.

23 Comptroller and Auditor General, Disposal of public land for new homes: a progress report, Session 2016-17, HC 510, National Audit Office, July 2016.

24 Comptroller and Auditor General, Disposal of public land for new homes: a progress report, Session 2016-17, HC 510, National Audit Office, July 2016, paragraphs 13 and 14.

25 Infrastructure and Projects Authority, Public Sector Land – Critical Friend Review, August 2017 (unpublished).

26 HC Committee of Public Accounts, Progress with the disposal of public land for new homes, Twenty-second Report of Session 2016-17, HC 634, November 2016.

27 Comptroller and Auditor General, Disposal of public land for new homes: a progress report, Session 2016-17, HC 510, National Audit Office, July 2016, paragraph 2.11.

28 HC Committee of Public Accounts, Disposal of public land for new homes, Second Report of Session 2015-16, HC 289, September 2015; HC Committee of Public Accounts, Progress with the disposal of public land for new homes, Twenty-second Report of Session 2016-17, HC 634, November 2016.

29 The Ministry of Housing, Communities & Local Government told us that the data so far collected on the number of houses brought to market relates to 90% of the sites released through the Public Land for Housing Programme since 2011.

30 Comptroller and Auditor General, Disposal of public land for new homes, Session 2015-16, HC 87, National Audit Office, June 2015, paragraph 6.

31 See footnote 26.

32 Ministry of Housing, Communities & Local Government, Public Land for Housing Programme 2015–2020: Programme Handbook for Departments and Arm’s-Length Bodies: Update, August 2018.

33 See footnote 26.

34 See footnote 26.

35 HC Committee of Public Accounts, Disposal of public land for new homes, Second Report of Session 2015-16, HC 289, September 2015.

36 Cabinet Office, Making commercial terms of government land disposals more transparent, March 2017.

37 See footnote 26.

38 Ministry of Housing, Communities & Local Government’s Annual Report on the 2015–2020 Public Land for Housing Programme includes some data on the number of houses brought to market on sites released by MHCLG, outside of London, under the 2011–2015 programme.

Part Three

The target to raise £5 billion through disposals

Programme

3.1 The government plans “to deliver £5 billion of receipts between 2015 and 2020 through the release of surplus public sector land and property across the UK”. The Cabinet Office is responsible for managing this target, and sets, in conjunction with HM Treasury, delivery targets for individual departments.

Performance

3.2 The government currently expects to achieve its target of £5 billion in proceeds by 2020. Between April 2015 and March 2018, the government generated £2.48 billion in proceeds from the disposal of 1,488 sites (Figure 9). We have included in the table Network Rail’s sale of the railway arches as it is significant, although it falls outside the current reporting period. Figure 10 shows individual departments’ progress has varied considerably over time, in some cases owing to a small number of high-value sales. Once Network Rail’s sale of the railway arches has been included, the government needs to generate a further £1.06 billion worth of proceeds in the final two years of the programme to meet the target.

3.3 Figure 11 shows the geographic spread of the number of sales and associated proceeds.

3.4 Two individual sales make up a substantial proportion of the actual and expected proceeds. Network Rail’s sale of the railway arches for £1.46 billion, completed in February 2019, will also count towards the £5 billion target, although this is not included in Cabinet Office’s most recent published data. In 2016 the Ministry of Defence sold the Old War Office in London for £357 million. Figure 12 shows the five sales with the largest proceeds.

3.5 Our analysis of Cabinet Office data shows 176 sites were disposed for £1 or less. The Ministry of Housing, Communities & Local Government (MHCLG), through Homes England, disposed of 160 of the 176 sites. Departments can transfer a site that is difficult to sell to Homes England, provided that it is “developable and viable”.39 Therefore Homes England often takes on ‘hard to sell’ sites. Homes England told us that the main reasons for £1 disposals are:

sites where costs of remediation (for example, decontamination) are involved;

narrow strips of land which have no other use or value; and

the sale of a lease which contains a clause allowing the purchaser to buy the freehold for £1 after a set period or certain conditions have been met.

Homes England told us that remediation costs were responsible for 51% of sites being disposed of for £1. Narrow strips of land with no value and contractual conditions make up the remaining 29% and 20% respectively. We have not seen the supporting evidence for these figures.

3.6 From the data we do have, most of the sites disposed for £1 or less were small — of the 176 sales, 140 (82%) were smaller than two hectares. However, five transactions involved sales of sites larger than 10 hectares (Figure 13). MHCLG/Homes England provided us with some evidence explaining that these five sites were valued at £1 because an inherited contractual arrangement allowed for the freehold to be acquired for £1 (examples 1 and 2 in Figure 13), they had no commercial value (examples 3 and 5), or because of remediation costs (example 4).

Governance

3.7 The government has issued guidance for individual departments to follow when disposing of land. The Cabinet Office’s Guide for the Disposal of Surplus Land gives departments guidance on identifying surplus land, considerations around disposals, monitoring requirements and best practice in open market sales.40

3.8 The Office of Government Property (OGP), part of the Cabinet Office, monitors departmental progress towards the £5 billion proceeds target. It also operates National Property Controls, on behalf of HM Treasury, requiring relevant departments to seek OGP approval to dispose of freehold property interests. The OGP considers whether a decision to dispose is appropriate within the context of the department’s and wider estate strategies, and whether appropriate opportunity is given for disposal to Homes England for the land for new homes programme, or to the Education Funding Agency for the Free Schools programme.41

3.9 The Cabinet Office publishes annual Transparency Reports covering individual government land disposals. The Transparency Reports include various details of individual sales including location, sale proceeds and method of sale. The identity of the buyer is not included in the Transparency Reports. Details of land buyers are recorded with the Land Registry. The Cabinet Office does not analyse data at the programme level to assess, for example, the types of buyers attracted to certain government properties, whether departments are selling land to the same buyer, and the use to which the land is subsequently put.

What happens to proceeds

3.10 HM Treasury spending reviews set departmental budgets for a fixed period into the future. At the 2015 Spending Review departmental budgets were agreed for five years to 2020-21, net of any anticipated proceeds from asset disposals such as land sales.

3.11 HM Treasury’s budgeting rules state that, for land, there are four possible outcomes for proceeds following a sale. Figure 14 demonstrates how the rules apply:42

Option 1 – Departments can keep proceeds up to the amounts agreed at the Spending Review.

Option 2 – If a profit on disposal is generated the departments can retain a maximum of £20 million, or 5% above the expected value of the disposal, whichever is the lower. If proceeds exceed those limits, the surplus goes to HM Treasury.

Option 3 – Departments that are unable to generate the proceeds agreed at the Spending Review will have to operate with smaller budgets. HM Treasury may provide additional budget cover, however, this is not guaranteed. HM Treasury told us that it has discretion to provide additional funding in these cases, although it would take into account how well a department had managed its resources, and any factors outside the department’s control. Departments we spoke to told us that any shortfalls have so far been manageable.

Option 4 – For sales which were not anticipated at the Spending Review, departments can keep a maximum of 10% of the proceeds above the level envisaged for that year. The remaining 90% is released back to the Exchequer, subject to further discussions with HM Treasury.

3.12 In all the above cases, whether a department can retain the income depends on discussion with HM Treasury. Valid reasons can result in departments retaining all the unanticipated income without budget adjustments.

3.13 After it is determined whether the department retains proceeds or releases them to HM Treasury, their use can be grouped into three categories:

The department re-invests the proceeds (thereby increasing capital budgets).

The department uses the proceeds to fill funding gaps (supplementing revenue budgets).

Proceeds which go to HM Treasury can be used in various ways, including: paying-down public debt; funding capital investment elsewhere across government; and/or filling revenue spending gaps across government.

3.14 It is not clear to what extent land disposal proceeds fall into the three categories above. It would be a concern if departments are selling land and property to support day to day running costs, rather than to invest in refurbishing existing assets or purchasing new ones. There is an expectation that receipts from land and property sales are reinvested unless HM Treasury agrees otherwise. The government has not collected aggregate data on how proceeds from either programme have been used. When the proceeds are not released to HM Treasury, departments will hold information on how the individual disposal proceeds were used. For example, Network Rail kept the £1.46 billion proceeds from the sale of the railway arches, of which £500 million reduced its funding shortfall to March 2019, with the remaining proceeds used to reduce Network Rail’s expected borrowing from the Department for Transport (see Figure 18 in Appendix Three). However, where proceeds are not retained by departments and released to the Exchequer, it is not possible to trace how the proceeds are reallocated across government.

39 Ministry of Housing, Communities & Local Government, Public Land for Housing Programme 2015–2020, Programme Handbook for Departments and Arm’s Length Bodies August 2018: Update, August 2018.

40 Cabinet Office, Guide for the Disposal of Surplus Land, March 2017.

41 See footnote 38.

42 There are differing rules depending on the type of land sold (leasehold or freehold) and contractual clauses in the sale, for example if overage or clawback arrangements are included. In some cases, Spending Review agreements between HM Treasury and departments provide for alternative treatment of proceeds that differ from the rules here (see Figure 19).

Appendix One

Our investigative approach

Scope

1 We investigated the government’s commitments “to increase housing supply by releasing surplus public sector land for at least 160,000 homes between 2015 and 2020”, and “to deliver £5 billion of receipts between 2015 and 2020 through the release of surplus public sector land and property across the UK”. The scope was:

the government’s strategy for land disposals (Part One);

progress towards the land for new homes target (Part Two); and

progress towards the £5 billion proceeds target (Part Three).

Methods

2 In examining these issues, we drew on a variety of evidence sources. We reviewed:

the Government Estate Strategy and other programme documents related to land disposals;

government guidance to departments on sales of land, and the land for new homes Programme Handbook; and

reports on progress for both programmes.

We interviewed key individuals from:

Ministry of Housing, Communities & Local Government’s (MHCLG) and Homes England, with responsibilities for the land for new homes programme;

the Office of Government Property, part of Cabinet Office, with responsibilities for the £5 billion proceeds target;

HM Treasury, with responsibilities around budgeting, spending teams and use of proceeds; and

the Ministry of Defence, the Department for Health & Social Care, and the Ministry of Justice.

We also analysed data from the government’s Transparency Reports on land disposals, including geographic mapping of disposals.

3 In our report we refer to some limitations in the supporting evidence provided during our investigation. These limitations affect the following aspects of our work:

Homes brought to market (paragraphs 6 and 2.9): MHCLG undertook its own analysis to identify homes that already existed on land released. However, it has not provided us with further information to support the number of sites (4,279) identified. We were unable to seek further clarification in the time available.

Number of sites sold for £1 (paragraphs 9 and 3.5): MHCLG undertook its own analysis of the main reasons why it sold the 160 sites for £1 and provided us with the percentages that we report. However, it has not provided further information to support those percentages. We were unable to seek further clarification in the time available.

Data on planned affordable homes (paragraph 7): MHCLG told us that it has started to collect data, but it has not shared any of this data with us. In paragraph 2.13, we note that the department told us the data are not yet available due to the experimental nature of the Ordnance Survey’s monitoring work.

Current and expected disposals of public land with housing capacity (Figure 6) and by department (Figure 7): MHCLG told us that the number of expected housing units differs between the two Figures because where site transfers take place, Homes England can arrive at different forecasts compared to the transferring department. Figure 6 is based on Homes England’s estimates, and Figure 7 is based on transferring department’s estimates. We were unable to seek further clarification in the time available.

Progress against the government’s target of generating £5 billion in proceeds from land and property disposals by 2020 (Figure 9): The Cabinet Office’s raw data underlying its Transparency Reports includes items, such as contingent contract terms, which can make it unclear whether a site sale has taken place. In our analysis we have sought to exclude such items, arriving at a total of 1,488 sites. Cabinet Office used different methodologies to arrive at the total number of site sales that it reported in its Transparency Report for 2017-2018 (1,537). We were unable to obtain further clarification on the reasons for differences between the methodologies and totals in the time available.

Appendix Two

The size of the central government estate

1 Figure 15 shows that the Department for Work & Pensions had the largest estate out of all central government in March 2018. The total size of the estate in March 2018 was 7.7 million square metres, compared to 8.3 million in March 2015 and 10.7 million square metres in January 2010.43

43 Cabinet Office, State of the Estate in 2017-18, December 2018.

Appendix Three

Case studies

Appendix Four

The Committee of Public Accounts’ December 2016 recommendations and the government’s response44

44 The information in the above table are extracts from the Committee of Public Accounts’ December 2016 report, Progress with the disposal of public land for new homes and the government’s response. Throughout Appendix Four, the departments are referred to as their previous titles.

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