At Wednesday’s spending review, Chancellor George Osborne somehow managed to announce that his plan for deficit reduction is on track, escape embarrassment over a major u-turn on tax credits, and avoid cuts as deep as expected.
But, in a move that almost no-one has mentioned, Osborne has come up with a sneaky way to cut the budgets of government departments through the back-door — and in the process raise extra cash to make his budget work.
In a move announced as part of the Autumn Statement, Osborne is set to start charging government departments rent, in an attempt to raise around £1 billion ($1.5 billion) a year over the course of the next parliament. So instead of explicitly cutting budgets, he is essentially making ministers hand money back to the government, which will effectively become a landlord.
It’s a worrying development for ministers running government departments in posh offices in central London, as it thought that some departments may be forced to move out of the centre of town as a result of the rental costs, according to the Financial Times. Budgets are already squeezed.
Many of the most important and historic government departments, including the Treasury, the Department for Business, Innovation, and Skills, and the Home Office are based within a stone’s throw of the Palace of Westminster.
Introducing rent on these buildings could force the departments out of central London, and into outlying areas of the capital, as costs are pushed up.
Estimates published by the FT suggest that under the new plans George Osborne’s own Treasury department, based on Horse Guards, will be charged around £30 million ($45.1 million) per year in rent, while the Department of Work and Pensions, could rack up a bill of nearly £800 million ($1.2 billion) in the next six years, with costs pushed by the huge number of jobcentres it owns. The FT floats the idea of Croydon and Stratford as potential relocation sites.
Rental costs for offices in London are approaching a similar level to those seen before the financial crisis, and according to data from Carter Jones, office space in the most popular areas with government departments, mainly Victoria and Westminster, can cost upwards of £70 ($105) per square foot per year. Offices in places like Stratford can cost as little as half of that, according to Carter Jones.
Up until now it has been the responsibility of ministers to maintain their department’s buildings, but that control will now be taken away and put into the hands of a new authority, the Government Property Unit, a subsidiary of the Cabinet Office. It is set to be established in 2017. The unit will take control of most government buildings by 2021, and act as a landlord, charging the market rate for rentals.
Not all government properties will be made to pay rent. Those owned by the Ministry of Defence, and by local councils will not be charged rent.
The new rental costs are part of a wider plan by the Chancellor to raise around £4.5 billion ($6.8 billion) by selling parts of the government’s roughly £260 billion ($391 billion) property empire. The money will be reinvested in building new homes, the government has said.
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