Government should follow Royal Mail sale with £40bn asset sell-off

The government should sell off £40bn of assets, says new Adam Smith Institute report (http://www.adamsmith.org/sites/default/files/research/files/CashInTheAtticPrint.pdf)

• The government owns around £600bn of assets, many of which do not need to be in the public sector
• A sale of less than a tenth of those holdings—the most peripheral and surplus items, including £23bn of real estate—would net £40bn to cut taxes temporarily or pay down the debt
• Holding onto given assets regardless of price is inefficient on a basic level; valuable assets are best allocated by the market

The government could fund temporary tax cuts worth £40bn or reduce the national debt by the same amount by selling off a fraction of its assets, according to a new Adam Smith Institute paper released today (Thursday October 8th). The report, Cash in the Attic (http://www.adamsmith.org/sites/default/files/research/files/CashInTheAtticPrint.pdf), shows the huge windfall that could be realised by releasing state-owned real estate and firms into the private sector. The government is estimated to own around £600bn of assets.

The report’s author, investment analyst and Adam Smith Institute senior fellow Nigel Hawkins, details how the government could bring in around £23bn from sales of excess real estate holdings and around £17bn from privatisations (excluding the bank stakes) by 2017-18.The report argues that useful resources are languishing in the public sector with no market assessment of their use to society.

Furthermore, the just-beginning re-privatisation of Lloyds TSB, as well as the sales of Royal Bank of Scotland, the government's stake in Urenco, and the Royal Mail, need to be a top priority, Hawkins says. The government should also part with a minority stake in Network Rail to raise around £7bn while still retaining control of the company.

Divestment of the Ministry of Defence’s estate would be another profitable area. Even a very limited approach to defence land sell-offs could raise £3bn, Hawkins says. In health, selling just 10% of Primary Care Trust assets would bring in £500m.

Along with these sales, agencies that already have plans to divest government assets—the Government Property Unity (GPU) and Defence Infrastructure Organisation (DIO) need to be pressured to meet their targets, the report argues.

Sam Bowman, Research Director of the Adam Smith Institute, said: “The government is sitting on hugely valuable resources that it should sell. The Royal Mail privatization is a good start, but going further would be win-win. Sell-offs of real estate and privatization of firms that the government doesn’t need to own would allow those resources to be used more productively by the private sector and net the Treasury some much-needed cash to fund temporary tax cuts to stimulate investment and job creation in the private sector.

“The £40bn of assets that we have identified as being ready for sale are just the tip of the iceberg. We need a slim, efficient government that is as cost-conscious as any business would be. It might be too soon to start planning to move government buildings to an industrial estate in Slough, but that’s what we should be aiming for.”

For further comment or to arrange an interview with the report's author or an Adam Smith Institute spokesperson, please email media@adamsmith.org.

Help to Buy scheme will worsen Britain's housing crisis

Help to Buy scheme will worsen Britain's housing crisis, says new Adam Smith Institute paper

• The government’s Help to Buy scheme will drive up house prices by increasing demand for but not supply of housing – it will not improve overall access
• Help to Buy risks taxpayers’ money with no guarantee of a return
• By subsidising homebuyers and introducing the possibility of socialising lender losses, Help to Buy risks recreating the perverse incentives that led to the 2000s-era US housing bubble

The government’s Help to Buy scheme, which offers government-backed equity loans to house buyers and mortgage guarantees to banks, will distort the housing market, risk taxpayers’ money with no promise of a return, and introduce into the UK housing market the same perverse incentives that led to the US subprime mortgage crisis, argues a new paper by the Adam Smith Institute, released today (Monday, September 2nd).

The report, Burning Down the House (available to download here: http://www.adamsmith.org/sites/default/files/research/files/burningdownthehouseWEB.pdf), argues that without measures to increase supply by liberalising planning laws, the Help to Buy scheme will simply drive up house prices, making housing no more accessible overall. Indeed, users of Help to Buy benefit at the expense of those who fail to use the subsidy scheme; the policy is like putting a platform under the buyer while also raising the bottom rung on the housing ladder.

If already badly-off people are less likely to access the scheme, it could have a particularly hard effect on the poor, the report says, a group who already lose out badly—the UK's extreme restrictions on housing supply have been calculated to add 3.5 percentage points to the GINI coefficient measure of inequality.

According to the report, a preferred alternative would be liberalising a hostile regulatory environment which inhibits the construction of additional housing supply—allowing houses to be built in more places, and slashing regulation on doing so. According to official statistics, only about 10% of the UK is built on, and of that the biggest fraction is gardens. If we want to control runaway house prices and give first-timers a chance to get on the ladder, we need to allow more houses to be built.

"It is crazy for the government to stoke demand even more without addressing supply and claim that this will help the housing market," said the Institute's Research Director Sam Bowman. "Making taxpayer-subsidised handouts to homebuyers will only drive further house prices up, risking a bubble, improving access for a select few but making housing even more unaffordable for most people."

"On the other hand, radical liberalisation of the planning system has the potential to drive massive economic growth, drastically reduce housing costs for the badly-off, and give millions more a chance to own property of their own. "

"Deregulation is a way of addressing the housing supply shortage while avoiding recourse to public fiscal intervention,” commented Preston Byrne, the Institute’s Legal Fellow. "If the Government is serious about finding a long-term solution to the housing crisis, it's time to take a hard look in the mirror and examine the role existing planning regimes – both local and national – play in regulating and inhibiting new housing construction.”

This paper is available to download here: http://www.adamsmith.org/sites/default/files/research/files/burningdownthehouseWEB.pdf

The Adam Smith Institute is a independent libertarian think tank based in London. For further comment or to arrange an interview about this paper, please contact Sam Bowman at 075-9682-6323 or email media@adamsmith.org