ANNEX A: THE DISPOSAL OF PUBLIC SECTOR ASSETS.
The Scottish Public Finance Manual (SPFM) governs the disposal of public sector assets by Scottish Government (SG) departments, SG executive agencies, non-ministerial executive agencies and SG sponsored bodies.18
An explanation of the requirements for these bodies when disposing of public sector assets at less than market value is reproduced from the SPFM below:
"Assets sold on the open market should normally be disposed of at market value as defined in the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards, but reflecting special value and the effect of any voluntary conditions imposed by the seller. The extent to which assets are disposed of at less than market value, whichever definition is being used, would constitute a gift and may have State Aid implications.
Disposals of assets at less than market value must be approved in advance by Ministers, taking account of advice from the SG's Finance Directorate, SG's State Aid Unit and, where appropriate, the SG's Property Advice Division. Any loss on disposal (i.e. the extent to which the proceeds from a disposal were less than the net book value of the asset) by a body within the SG's resource budgeting boundary would score against that body's resource budget and result in a corresponding reduction in its spending power."19
The reasons for these requirements are:
- The SG is obliged to operate within EU competition law, therefore, any transaction which could be construed as state support for a domestic body or company should be checked to ensure that it is compliant.
- HM Treasury set out the accounting framework for UK Central Government in the Financial Reporting Manual which is based on the principals underlying the International Financial Reporting Standards (IFRS). Where an asset is sold at less than the value disclosed in the accounts then the loss is charged against the Statement of Comprehensive Net Expenditure i.e. a cost to the selling department. These principals apply to all Central Government bodies, the NHS, Agencies and NDPB's.
- Accounting treatment aside, it should be borne in mind that publically held assets are being disposed of. Accordingly a full business case addressing the costs and benefits of the disposal should be provided to support the proposal.
The requirements on local government for disposing of public sector assets at less than market value are different. The disposal of local authority assets (excluding housing land) is regulated by section 74 of the Local Government (Scotland) Act 1973 ('the 1973 Act'). This requires local authorities to sell land for the best consideration that can reasonably be obtained ('best consideration').
In determining the best consideration, the local authority must obtain a valuation report from a suitably qualified valuer. The valuer should take into account the requirements of the latest edition of the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards.20
However, following amendments to section 74 of the 1973 Act by section 11 of the Local Government in Scotland Act 2003, regulations were brought forward that set out the circumstances in which a local authority could dispose of land for less than best consideration.
Under the Disposal of Land by Local Authorities (Scotland) Regulations 2010 a local authority can dispose of an asset for less than best consideration where the local authority consider the disposal is reasonable and the disposal is likely to promote or improve the economic development or regeneration, health, social well-being or environmental well-being of the whole or part of the local authority area. 21
The reasons for these requirements are:
- Local Government is also obliged to operate within EU competition law therefore any transaction which could be construed as state support for a domestic body or company should be checked to ensure that it is compliant.
- The accounting framework for UK Local Government is set out in the Code of Practice on Local Authority Accounting in the UK, also based on the IFRS. Where an asset is sold at less than the value disclosed in the accounts then the loss is charged against the Comprehensive Income and Expenditure Statement i.e. a cost to the local authority. A statutory intervention to the accounts permits this cost to be set aside and the actual capital receipt made available to fund further capital investment. Any reduction in the capital receipt is a cost to the local authority as it results in a reduction in the value of the capital receipt it would otherwise have achieved and therefore its ability to provide further capital investment in the community.
- A local authority may dispose of an asset at less than best consideration but, before deciding in favour of such disposal, must appraise and compare the costs, benefits and drawbacks of the proposal. This will also include the loss of the capital receipt and the capital investment opportunity forgone.