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Committee reports on the efficiency of central government office property

31 August 2012

The Commons Public Accounts Committee publishes its 11th Report of Session 2012-13, 'Improving the efficiency of central government office property,' as HC 288 on Friday 31 August

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"Central government offices cost the taxpayer around £1.8 billion a year to run. Progress has been made in recent years to drive costs down, but a more ambitious approach could deliver much bigger savings: more than £800 million a year by 2020.
Much will depend on the management of the estate being much more tightly controlled from the centre rather than leaving individual departments to their own devices.
The Government Property Unit needs greater clout to mandate action across Whitehall. The Unit should lead from the front, ensuring government plans are centralised and making use of the government’s buying power to negotiate better terms with major landlords on a standardised basis, rather than departments doing it building by building.
Savings up to now have largely been achieved by departments working alone. If savings are to be maximised in future, departments will need financial incentives to work together to share space and sell excess property.
Until property is seen by departments as a cost as well as an asset, the vast potential savings will not be realised.
There are two other areas where the Unit should show far greater leadership. Many public sector buildings belong to local government so the Unit should maximise opportunities for local public sector bodies, such as local authorities and the NHS, to share space with central government.
Secondly, consolidating the government office estate will inevitably lead to the mothballing of unused buildings.  Holding on to empty buildings is clearly wasteful and can lead to urban blight. The Government has been lamentably slow in delivering on its commitment to make more properties available to small businesses. It should also get on with selling buildings, rather than holding on in the hope of a future rise in property prices."

Margaret Hodge was speaking as the Committee published its 11th Report of this Session which, on the basis of evidence from the Cabinet Office and the Department for Business, Innovation and Skills, examined plans to improve the efficiency of the central government office estate.

Central government office estate comprises over 5 million m2 of space and costs around £1.8 billion a year to run. Rationalisation of the estate therefore offers the public sector the chance to secure significant efficiency savings. From 2004 to 2010, central government departments have made savings of around £100 million each year on the cost of offices, largely by moving from traditional cellular offices to open-plan spaces and by improving use of space through approaches such as hot-desking. However, despite the improvements in recent years, government’s use of space is still relatively inefficient compared to the private sector. Delivering further savings is likely to get progressively more challenging, but if government can be more ambitious in its approach, then we estimate that they could achieve over £800 million a year in further savings by 2020.

The Government Property Unit was established in 2010 to accelerate efficiency savings from the estate, but it has not provided the leadership necessary to deliver an effective cross-government approach. It did not win the support of departments, and in particular the Treasury, for its initial plan to centralise control of the office estate. Since then, despite much talk, it has yet to establish a vision for the estate that all departments can agree upon. Until property is seen by departments as a cost rather than an asset, the vast potential savings will not be realised.

The Unit has instead fallen back on the role of coordinating departments’ efforts to exit buildings as leases expire. This reliance on the pattern of lease breaks risks missing the opportunity to more fundamentally change the way government uses its offices, and also risks leaving departments without the modern and flexible space that future ways of working may require. Instead of creating a framework for the better use of property across Government, the Unit has focussed on a small number of high profile mergers.

Departments operate in financial silos which do not encourage them to work together and share space in a way that would benefit the Exchequer as a whole. The current approach to departmental budgeting means that the costs and risks of space-sharing can fall prohibitively to a single department unless cost sharing arrangements can be agreed. Relatively few such deals have happened. The Unit needs to make it in the interests of departments to work together and, to do so, it needs the support of the Treasury, which so far has been far too passive in waiting for others to propose a solution.

In this report, we also highlight three further areas where the Unit needs to show far greater leadership to realise the potential for further savings. First, the bulk of public sector estate belongs to local government and the Unit needs to ensure that central and local government work more collaboratively. Second, the Unit needs to centralise property ownership and start to negotiate terms with major landlords on a more standardised basis, rather than relying on departments to negotiate separately building by building. Finally, consolidating the estate will inevitably lead to the mothballing of buildings. We acknowledge the current market conditions are making it difficult to re-let surplus space, but it is clearly a waste for buildings to stand empty, so the government needs to accelerate its plans for sales. There is no point in the Government simply holding property in the hope of a future rise in property prices.

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