Anthony Browne is MP for South Cambridgeshire, the Chair of the Conservative backbench Treasury Committee and a member of the Treasury Select Committee.
The UK is staring into a fiscal black hole. In three days, Jeremy Hunt will outline his plan to tackle the estimated £50 billion shortfall in the Autumn Statement. Charting a course between a return to 2010 austerity, with taxation at its highest for 70 years, is an unenviable choice.
As the Chancellor has made clear, it is time for hard decisions. It is also time for fresh thinking. Is there anything we are not doing that we should be doing that would help? Yes – most certainly. We are doing virtually nothing to make the most of our most valuable assets: the land and property that the public sector owns.
Before I come to the big picture, let me give you a small example. When I worked for the Mayor of London, one of my responsibilities was for the Royal Parks, whose managers forever pleaded for central government to give them more of your money. But the chair of the Park’s charitable arm, coming from a business background, noticed that the parks had huge numbers of highly valuable buildings in prime London locations that were either lying empty or given free to staff.
So he undertook a programme to renovate them and rent the buildings out, and suddenly the Royal Parks had a massive new income stream, relieving the pressure on the taxpayer. Generations of civil servants running the parks had just never thought to do that, because they were trained to ask taxpayers for more money.
Publicly owned assets – including operational (utilities), transportation (airports, ports, and the underground), and real estate (buildings, land) – represent the largest segment of the world’s wealth. The IMF estimates that these assets are worth twice the value of global GDP. For comparison, the value of the world’s publicly listed companies is worth $90 trillion – equivalent to global GDP, and thus half the value of the publicly owned assets. But while publicly listed companies face significant scrutiny from investors and professional bodies ensuring they give good value, public commercial assets are rarely thought about.
These public assets are often neglected. Their value is also usually under-reported. Public bodies do not tend to keep accurate records of what they own and when they do, they are recorded at negligible historical or book costs. This land is derelict, so it must be valueless, goes the lazy thinking. The assets are represented as being close to valueless and, consequently, they are ignored.
Alternatively, you can recognise these assets at fair market value and look to earn an appropriate yield. The IMF – which has been pushing this agenda – calculates that this could boost global GDP by an extraordinary 3 per cent a year.
When we are staring at a fiscal black hole, we need to make the most of our assets. When I was at City Hall, we had vast land holdings in London that the previous regime had just kept unused. On a smaller scale, I recall a prime retail site within a tube station sat empty for five years under TFL’s management. I was told of a council-owned bowling green being closed and sitting empty for years at a time. This is not just a waste of opportunity, but of public money.
It is not as though nothing is done. Various government bodies do try and generate revenue from their properties. Clearly, some have other purposes and can’t be used commercially. But there is no systematic attempt to get the most value from public assets.
There is a two-step process to boosting revenue from these assets. Firstly, you need to create an asset register, which scopes out all the assets owned by the public sector, and determines their fair market value. William the Conqueror achieved this with the Doomsday Book. We no longer have to rely on men on horseback equipped with quills riding across the country. Modern technology makes it a simple and desk-bound process.
Secondly, you need to create a public wealth fund to transfer the assets over to. The fund will manage the assets in the public interest and be arm’s length from the public body. Obviously, public ownership is a very complex structure with competing objectives, and many assets could not be transferred – but many could.
There are advantages to using a public wealth fund structure. Governments are often driven by election cycles, making it difficult to execute long-term strategic plans. Whilst they are good at achieving policy objectives, they often lack the internal asset management skills and experience that are common in the private sector. Ultimately, it solves the problem of government bodies lacking a commercial mindset.
To be clear, it is not privatisation: the assets remain in public hands. It is an evolution from the binary public/private argument to a hybrid arrangement. The public wealth fund can make strategic decisions about its assets. Some assets might not be needed to deliver public services and can be sold to fund further investment in other assets. Returns will be sent to the Treasury to fund public spending on services.
It is easy to think of reasons not to do this, but the arguments are compelling – as are the examples from around the world. In Hong Kong, the transit company MTR managed to build a whole subway system the size of New York City’s through internally generated revenue. They did this by purchasing land around the stations from the Government and developing it alongside the network. MTR continues to generate funds for new projects as well as for operations and maintenance without additional government spending. If a similar philosophy had been considered with Crossrail or HS2 then we might not have got mired down in arguments over cost and the business cases would have been much stronger.
In Singapore, they created a public wealth fund in 1974 – Temasek. It consolidated a range of commercial assets including real estate, utilities, and state-owned enterprises. It was a vehicle for separating the regulatory and policymaking functions of government from that of a shareholder of commercial entities. Since its inception it has delivered 15 per cent annual returns and helped make Singapore one of the best cities to live in the world.
The concept of public wealth funds is not new, but it does not sit within the boundaries of regular public finance discussions. Given success elsewhere, it seems worth trialling at a local level. The setting up of an urban wealth fund could be an effective way for the mayors of cities like London, Birmingham, or Manchester to make a name for themselves as public policy innovators. Cities like Hamburg and Copenhagen have trod this path and it has enabled them to invest in new housing, schools, cultural facilities, and workplaces.
If there is a substantial proof of concept, it should be rolled out nationally. For too long, we have focused on debt levels rather than net worth. This is misleading and has created an anti-investment bias that has hampered economic growth. If the Government focusses on net worth it has an incentive to accumulate productive assets rather than just spend on consumption.
The best way to achieve this is by identifying and valuing our public commercial assets fairly. There are few policies that do not require additional spending or borrowing that have the potential to deliver such a profound windfall. It is time for fresh thinking.