Social work and end-of-life care

Social work is important in end-of-life care

NHS property changes: less good working environment and less money than they think

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One of the interesting features of change in the NHS that most social workers probably don’t think about is the way in which property is being reorganised. But we need to. One reason is that it is one of the ways in which the government hopes to extract money from the NHS – and we ought to know and worry about that.

And another reason is that it may have a serious impact on the place where we do our work. A recent National Audit Office report on using the government’s property more efficiently reported that the cost of running the government’s estate was reduced by about £100m in the years 2004-10, and by £212m in 2010-12.

Now look at these figures:

13.2 m2 – current average amount of space per person across the government’s office estate

10.0 m2 – Operational Efficiency Programme’s recommended average amount of space per person for government office buildings

8.0 m2 – Government’s aim for the amount of space per person for new and refurbished office buildings.

£830m – potential further reduction in annual costs if a space standard of 10 m2 per person is achieved.

Link to the NAO Report.

Citation: Cabinet Office (2012) Improving the efficiency of central government office property. London: National Audit Office.

Nobody can complain about the government wanting to use space more efficiently, but there is an effect. The government intends to save lotsadosh by cutting back on the amount of space occupied by staff as well as cutting back on the number of staff. If your job survives, not only will you be running round like a blue-arsed fly, you won’t have so far to run. And note that the sum for the money saved is only the recommended amount: the government aims to go much further than that.

We saw the results in a recent pleased announcement by the Cabinet Office and the Department for International Development. DFID is moving in with the Cabinet Office from its present property next to Buckingham Palace, making a very prestigious property available for the government’s friends in property development to turn into multi-million pound apartments or a luxury hotel. It will also give lotsadosh to Westminster Council, another favoured friend of the Conservatives in government.

Announcement of savings from DFID move.

Actually, people in the property business are only too well aware of what anyone employed by government knows, that their working environment is mainly old-fashioned, run-down and inefficient. A recent press report suggests that government estimates of potential gains from property sales are over-optimistic because the property is so poor.

Press report suggesting that government hopes for gains are over-optimistic.

So it’s actually more difficult than the government tells us to make lotsadosh from fiddling around with property.

Now apply this to the NHS.

The first thing you have to know is that, in 2011, the NHS set up a property company – known as NHS Property Services Limited (PropCo) – to manage centrally the property of the NHS. In the past, when there has been a reorganisation, NHS property has been passed on locally to whichever organisation is running the continuing service. Not so this time, plans have been announced to transfer a lot of property to Propco, which will manage it more ‘efficiently’. This is about making savings on the government’s balance sheet: the financial benefits will go back to the Treasury, not to local services. All property is being evaluated and if it’s not needed for local services, it will go to Propco. This will wipe out one more way of getting local services out of a financial hole and finding the money to improve them if there is a chance. It will not affect property currently in use for clinical services, but it will remove property flexibility for local services.

A legal commentary says:

NHS Propco is expected to be the recipient of the majority of the existing NHS estate. Looking at existing numbers of employees working in estates and facilities departments of the current SHAs and PCTs, NHS Propco will inherit 2,000-2,500 people – somewhat of a behemoth in property company terms. Commentators also note it can expect to receive assets valued upwards of £4 billion from the PCTs and SHAs placing it on a par with property owning companies such as Land Securities and British Land.

Link to an article on the new property arrangements.

You have to doubt that all this will be as wonderful as the government says, partly because a lot of this property is likely to be irredeemably naff. But to understand a bit more, you have to know about Propcos and Opcos, because the NHS is not the only organisation to have Propcos. For this I turn to a recent article in the Real Estate Gazette (don’t I get around in the service of better information for social workers and others involved with end-of-life care?).

Link to article on Propcos and Opcos

You’re probably vaguely aware of the concept of sale and leaseback, even if you’re not sure how it works. Sale and leaseback involves an organisation that owns the property in which it provides its services (an Opco, short for operating company) selling that property to a company that specialises in managing property (a Propco) and then paying that company rent. Many of your local chainstores are run in this way. The division of responsibility means that managers of the shop can get on with what they know about, which is selling you stuff, rather than worrying about repairing the drains, which the Propco people understand.

But the great glory of this is that there is also a financial manipulation. The Opco gets a cash sum to feed into its business (or increase the managers’ bonuses) and the Propco gets a property. Because property is a nice solid valuable item, they can use it as collateral for a loan, which allows them to spend money buying other properties and developing their empire. The interest on the loan is paid for by the rent the Opco pays for the shop. Even if the Propco and the Opco are divisions of the same company, the arrangement still helps both, because they are financed for their separate activities, and not as one with mixed responsibilities.

But what happens when there is a financial and/or property crash? We know the answer to this, because we’ve been having both over the past few years. You get a Southern Cross situation; that is the residential care homes organisation that ran into difficulties because it could no longer pay the rents on its properties, because local authorities and the NHS squeezed the price they would pay for patients in nursing and care homes and would pay for fewer patients. Patients who paid for themselves also had financing problems and were less amenable to paying high prices. The Opco (Southern Cross) can’t pay the rent, but the Propco can’t reduce the rent because it was assuming that the rent would pay the interest on the loans they had to get financing to buy the properties in the first place. Also, the value of the property reduces and the Propco can only sell it at a lower price.

Transfer this account to arrangements for getting money out of NHS property. All the government’s clever schemes to get healthcrae staff into small local community practices are likely to leave a surplus of hospital property. It is not very saleable. After all, who wants to by an out-of-date hospital or clinic? Because when the market is on the upswing, you could get loans could convert it to nice saleable housing, it had some value. Now we’re in a recession so nobody would want to buy it and convert it and anyway they can’t get the loans to do so.

All of which tells you that the government may be being optimistic about getting much out of the value of surplus NHS property and they’re going to reduce the financial and service flexibility at the local level by running a big expensive property company at a time when making money out of property is quite difficult.

So NHS staff are going to get a poorer work environment and less flexibility in their immediate employer, and the government is probably not going to get as much of a saving as they think, even though they’re going to do their best to sell the family silver (sorry property) to pay off their debts, leaving the NHS with less property flexibility in the future. You can only sell it once.


Written by Malcolm Payne

15 November 2012 at 11:35 am

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