LGR finance essentials: Understanding how assets are transferred to the new unitary councils through LGR

On 5 February 2025, the Minister of State for Local Government and English Devolution wrote to all councils in two-tier areas and small neighbouring unitary authorities to formally invite proposals for local government reorganisation (LGR). The Government’s intention is that simpler local government structures can lead to better outcomes for residents, improved local accountability and savings which can then be reinvested in public services. 

The process of LGR is complex and these finance essentials guides have been developed for chief finance officers, elected members and LGR programme teams, to aid the development and implementation of local LGR programmes. They are informed by discussions with councils which have recently been through LGR. They aim to provide practical and realistic advice on key areas where financial issues will need to be considered. 

This guidance focuses on the importance of understanding each council’s existing assets, the purpose they are held for, and maintaining accurate records throughout the LGR process. It also considers the implications for future capital programme plans.

All councils have different types of assets including tangible/ physical assets (such as buildings, fleet, equipment) and intangible assets (for example. software and IT licences). In the case of fixed assets, where they are located is likely to be the main consideration in determining which new unitary council they transfer to, but for other assets such as equipment and intangibles different allocation principles may need to be applied.

This guidance note explores those options. Importantly the allocation principles need to be agreed by the shadow councils pre vesting day. 

The NAO report Managing Central Government Property identified that in 2020 the Local Government Estate was valued at £283 billion (57 per cent of the total public sector land and buildings).  The scale of each council’s asset base will vary according to need, but for example in a in a typical market town it is common for there to be ten or more public buildings being used to deliver different services.

Councils may hold assets for a number of purposes including operational, commercial and investment objectives. They may also hold assets which are now surplus to requirements/pending disposal. 

As part of the LGR process each existing predecessor council’s assets will need to be clearly identified and allocated to the new successor council/s. 

Additionally, all predecessor council/s will have ongoing capital programmes to create new assets, maintain/ enhance existing assets and/or change the use of existing assets to support delivery of their existing council plan priorities. 

As part of setting the year one budget shadow councils will be required to approve a capital strategy and programme for each new unitary council and hence the existing capital programmes will need to be reviewed. 

It is important to recognise that during a time of significant change, assets can be used to support place-shaping and transformation of services by new unitary council/s. It is likely that some asset rationalisation will form part of the plan to achieve efficiencies through the LGR process. This creates opportunities to think imaginatively about how best to use the overall asset base within a geographical area, eg to support children’s or adults’ services to reduce dependency on the private sector provision, or to support local housing need/ temporary accommodation demand. Any assets deemed surplus to requirements may provide a source of capital receipts to enable further investment in services.

As part of the LGR programme the implementation team should consider the options available to the new unitary council/s and work with predecessor councils so that decisions pre-vesting day are not made at the expense of longer-term strategic opportunities. This guide looks at the role of Section 24 directions in supporting this. It is also important that the existing and the new shadow councils engage with the wider public sector in each area to ensure that local partners and stakeholders are aware of the potential impact of the LGR programme. This can also help shape opportunities to use property assets effectively using One Public Estate principles.

This guide covers the following key areas in more detail:

• 1. Asset management strategies 
• 2 . Asset data
• 3. Agreeing disaggregation and aggregation principles for existing assets 
• 4. Capital strategies 
• 5. Disaggregation/ aggregation of capital programmes 
• 6. Section 24 directions.

Predecessor councils are likely to have existing asset management strategies that set out the how their council land and property portfolio supports delivery of the council’s priorities, and what model is being used to deliver that strategy, for example a corporate landlord model where assets are managed and maintained centrally in response to local service needs and requirements.

As part of the LGR process each shadow council will need to develop and approve a new asset management strategy which aligns with the new unitary council’s plans and is deliverable within the funding envelope agreed as part of the year one revenue budget and capital programme. 

The shadow councils’ appetite for public service reform/transformation (ie the role the wider public estate might need to play in future place-shaping considerations including housing, regeneration, health and wellbeing hubs etc) will be significant in determining which property decisions can be taken and when.

Consideration should also be given to how assets are (or might) be used to maintain a community focus as part of a 'locality' approach. This may include ‘community asset transfers’ whereby ownership and responsibility is transferred to town and parish councils or other community bodies.  Each predecessor council should have their own community asset transfer policy in line with the Local Government Act 1972 General Disposals Consent 2003. Each new unitary council will also need to approve their own asset transfer policy as part of the LGR process. 

Disposal of assets

Where assets are identified as being surplus to requirements, the opportunity to dispose should be subject to an options appraisal, assessing the merits of re-purposing as well as disposing, through transfer or sale. It is also timely to think about the related governance requirements.

• How will decisions be made whether to retain and re-purpose surplus assets (potentially achieving revenue budget savings) or to dispose? 
• Where assets are identified as surplus, will the existing council arrange disposal, or will they transfer eg through a Community Asset Transfer?
• Where assets are sold, is there an agreed hierarchy for the use of capital receipts (eg debt write-off, repayment of Extraordinary Financial Support, investment into new assets via capital programme).

It should also be considered how any ‘opportunity cost’ tied up in unwanted capital assets could be used as a source of capital receipts as part of the development of the capital strategy for the new unitary council/s. It may be possible in some circumstances to use capital receipts to fund wider transformational costs associated with LGR and/or to repay any Exceptional Financial Support.
Ensuring that operational asset management can be effectively maintained by predecessor councils is also critical to enable the new unitary council/s to operate on a safe and legal basis from day one, and to allow the new council/s the ability to maximise potential opportunities for their assets in future. Compliance activity including repairs and building maintenance will need to continue in the period up to vesting day. Facilities management capacity should be maintained, with an initial focus on planning for the logistics of day one, including an operational plan for each individual site.  
 

As part of the LGR implementation programme councils will need to share data and intelligence on their assets. Assurance over the integrity of asset data is important. Ensuring a ‘clean’ data set as early as possible should be a priority, drawing on the knowledge and experience of existing council officers to try and address any gaps.

The shadow council/s should be aware of which asset management system each predecessor council uses to map, monitor and manage assets, including compliance systems for managing the risk of asbestos, legionella etc. Consideration should be given to any key dates for renewal of licences and contracts and how and when data may need to be migrated to a new shared system, alongside any risks that may pose to ongoing service provision. Consideration should also be given as to whether there any assets shared with other organisations that require specific planning regarding future operational licences/ contracts (eg with health partners)

Key information to capture is likely to include:

• Core data – eg location, type, and function of all assets (tangible and intangible). It should be clear whether assets are owned/leased, on what basis, by which councils and for what purpose eg do the predecessor council/s have an investment portfolio and if so, is the purpose and value of each asset clearly stated?
• Operational information – eg condition, capacity, utilisation, and compliance data, running costs.
• Asset valuation data – balance sheet (book) values will be used as part of the annual closedown process to produce the statement of accounts but other valuations such as those used for insurance purposes and/or alternative use values may be helpful in aiding future decisions on assets.
• Operational service risks – understanding of which assets are critical to current operations and where these are geographically located. There is likely to be some assets that generate cross-border operational issues between the new unitary councils that will need to be resolved pre vesting day eg fleet/waste depots / transfer stations/ residential homes. Where are the most significant liabilities in respect of the assets eg Reinforced Autoclaved Aerated Concrete (RAAC) and/or backlog maintenance issues?
• Intangible assets – an understanding of the contractual arrangements/ licence terms and how they support safe and legal delivery of services post vesting day.

For physical assets with a fixed location, such as land and buildings, it is likely that these will transfer to the new unitary council/s on a geographical basis linked to the proposed service delivery models. Where district/unitary councils are merging into a new unitary council/s then the geographical allocation may be quite straight forward, however where a county council or existing unitary council is being split it is likely to be more complex. In these circumstances it may be helpful to use the principles outlined below as a guide:

Operational assets – transfer on a geographical basis. 

Assets under construction – transfer on a geographical basis linked to the service delivery models they support. 

Investment assets – transfer based on a geographical basis ensuring that the associated income streams are incorporated into the funding envelope for that authority. 

Surplus assets – transfer on a geographical basis.

Assets held for sale as at vesting day – either disaggregate on a geographical basis or where the sale process is already ongoing then it can be agreed that the asset transfers to one of the new unitary councils but an appropriate split of the capital receipts received is then applied. 

Community / heritage assets – transfer on a geographical basis.

PFI / PPP assets that are fixed in location - transfer on a geographical basis linked to the proposed service delivery models with both balance sheet and revenue cost implications transferring. Where service delivery needs to be maintained across more than one new unitary council then back to back legal agreements for service delivery and continuity will need to be developed. 

Vehicle, plant, furniture and equipment and intangible assets – transfer on a geographical basis if this can be identified or seek agreement to split on an equitable basis to support the current and/or proposed service delivery models. This can be complex to agree so early work on identifying these assets and mapping their use against existing service delivery models is recommended as negotiation and a pragmatic approach may be needed. For example, for fleet services, and in particular depots, new unitary councils will need to ensure that an effective service is maintained post vesting day whilst recognising that the geographical location of the depots may result in the need for shared service arrangements or shared access arrangements so that service delivery isn’t affected. Where there is a potential unequitable split between the geographic allocations then a compensatory financial adjustment elsewhere in the ‘allocations’ may be needed or a two year non-commercial sharing arrangement in order to support safe and legal delivery from vesting day. 

HRA assets - transfer based on a geographical basis.

All predecessor councils will have existing approved capital strategies in place. These will set out the framework of how capital expenditure, capital financing and treasury management activity contributes to the provision of local services and, importantly, will highlight the associated risks in respect of delivering these capital programmes. 

Shadow council/s will need to approve a new capital strategy and capital programme as part of the overall budget setting process for the new unitary council/s. This allows the new shadow councils to start to determine their priorities for capital investment in respect of delivering on the new Council Plan and that could result in a change in focus within the capital programme.  

In respect of ‘non treasury’ commercial investments separate advice and guidance on how to treat these through LGR will be required. The new shadow councils/s will need to determine their risk appetite and agree any shareholder arrangements before vesting day. This is a complex area and needs to be thought about in the early stages of implementation planning. 

The following section discusses potential approaches to the disaggregation/ aggregation of the capital programmes and associated financing.

Decisions on how the capital programme can support a new unitary council’s vision and priorities will help determine which elements of the existing capital programmes should continue and can be delivered. Other relevant considerations will include the contractual positions on existing projects, value for money considerations, community expectations and funding availability. 

As with existing assets, the overarching principle for disaggregating capital programmes across new unitary councils will be the geography of where the investment will be delivered. Corporate maintenance and highways maintenance programmes etc will also need to be disaggregated between the new unitary councils, where relevant.

Where district and/or existing unitary councils are being fully merged into a new unitary council/s then the entirety of the existing capital programme schemes can be aggregated into the new unitary council’s capital programme. 

As part of the due diligence leading up to vesting day it is recommended that all schemes and projects within existing capital programmes are reviewed before being adopted by the shadow council/s. The LGR implementation programme team should review the robustness of each initial business case, the decision making process, how effectively the project and programme management is working and obtain assurance that each scheme remains fully funded. 

Deliverability of existing plans will be a key risk, especially where grant or funding conditions determine a specific timescale for use of the funding. Novation of any existing contracts, frameworks etc will need to be achieved prior to vesting day. 

If there are capital schemes or projects still in business case development the shadow councils should agree at an early stage which projects should continue, and which could/should be stopped or delayed. Existing predecessor councils retain full responsibility for delivery of capital investment up until vesting day; however, they should work closely with the new shadow council/s to ensure that they don’t fetter the ability of the new unitary council/s to deliver their vision and priorities, and that they can continue to satisfy best value requirements. 

Financing the capital programme

All capital programmes should be fully funded and there should be a clear breakdown of the financing that is being used to support all capital investment. 

Any general capital grants will need to be disaggregated across the new unitary councils using the formulae that is being used by the relevant government department to allocate the funding for that financial year. This may require additional data being provided and modelled in order to present back to the department a proposed allocation methodology. 

Where a capital grant is ringfenced for a specific project then the funding should automatically transfer to the new unitary council/s delivering that scheme. However, if a predecessor council is the accountable body for a particular scheme, then a formal decision will be required by the shadow council to agree that the new unitary council will take on the accountable body status for that scheme. 

Capital receipts should be disaggregated based on the existing allocation of funding to the capital schemes. Often the original business case and decision making will have been determined on the basis of use of those capital receipts to finance the scheme and hence should transfer with the scheme

Prudential borrowing should also be disaggregated based on the existing allocation of funding to the capital schemes, since as above individual business cases will usually have been agreed on the assumption of borrowing to finance the schemes.

The new unitary council/s will however be able to subsequently amend their capital financing strategies once the initial disaggregation/ aggregation methodology has been agreed and implemented, post vesting day.

A Structural Changes Order (SCO) legally outlines the terms of the reorganisation (eg abolishing existing two-tier councils and establishing new unitary councils)."

The SCO usually includes general transitional duties that establish a common requirement for both current and shadow councils to consult and co-operate with one another to secure the economic, effective, efficient and timely transfer of council’s functions, property, rights, and liabilities."

For previous rounds of LGR the Secretary of State has set out that the bodies with these general transitional duties should have a say on agreements to be entered into by the councils affected by the SCO, including in consideration of whether those agreements will be in the best interests of the new councils or the residents of the areas they serve, and ensuring agreements do not undermine or diminish the benefits or savings anticipated as a result of unitarisation or which may have an effect on the financial position of the new councils.

Once an SCO has been made, government can also decide to direct the new authority to give them a role in decision taking within the predecessor councils (a Section 24 direction). The power to issue this direction comes from Sections 24-29 of the Local Government and Public Involvement in Health Act 2007."

The direction ensures that the decisions made during the transition period are in the best long-term interests of the entire area and the new authority, rather than just the soon-to-be-abolished councils. It prevents predecessor councils from making significant financial decisions, such as selling assets or entering into large contracts, which could disadvantage the successor unitary authority. 

The direction typically requires the existing (predecessor) councils to obtain written consent from a specified person (usually a representative of the incoming successor council or a government-appointed commissioner) for material matters, including:

• disposal of land or assets above a certain value (commonly £100,000)
• entering into significant capital contracts (eg more than £1 million)
• entering into significant non-capital contracts (eg more than £100,000  whole-life cost).

Relying on a Section 24 direction to enforce good financial governance is not ideal and it should be seen as a safety net. As part of LGR programmes early visibility of both the assets register and future capital investment plans of existing predecessor councils should be a priority for members and officers. Informed discussion and debate on how these fit with the new unitary council/s vision and priorities is required to inform robust decision making.

Regardless of the agreed governance route for decision making the government have clearly stated that it is essential that councils continue to deliver their ‘business as usual’ services and adhere to their statutory duties until reorganisation is complete. This includes the Best Value Duty (Section 26 of the Local Government Act 1999). The Secretary of State reinforced this in a letter to Chief Executives, Leaders and key stakeholders on the LGR process, and associated note on Financial decisions before local government reorganisation.

This stated that it was essential that decision regarding ongoing service delivery and the medium term financial strategy of existing councils should not compromise the future sustainability of new councils. This will include decisions on capital investment and the acquisition and disposal of assets. 
 

Council assets are an important tool for place-shaping and can enable transformation of services by new unitary councils. Adequate consideration should therefore be given to how asset strategies can support service transformation within the overall corporate vision for new unitary councils eg to reduce dependency on private equity funded social care provision or to supporting housing need/temporary accommodation.

Surplus assets may also provide an opportunity to generate capital receipts that can be used to support corporate priorities, such as directed disposals to meet identified local general or specialised housing needs.

This is also an opportunity to consider the role of property assets and service delivery models in wider public service reform, through engagement with the wider public sector colleagues especially with health and blue light services using One Public Estate principles.

Councils have significant assets which need to be well managed during the transition and prepared for transfer in a clear and structured way.  Time spent planning for this at an early stage with service leads (eg estates, fleet, IT managers) alongside financial and legal input will deliver a significant head start from vesting day and should help avoid last minute service critical delivery issues.

• Invest time early in the process to understand how reorganisation requirements will affect assets, as this can be complex and may hamper progress in the long run. Aim to understand the soft intelligence and background to predecessor councils’ asset strategies, to benefit future negotiations.
• Ensure a good understanding of the condition, capacity, utilisation of each asset, as well as any legal compliance requirements, as this will be helpful in making informed decisions about future asset strategies.
• Consider the workforce strategy to minimise risk of corporate memory loss through staff turnover prior to vesting day (for example agreeing that key colleagues can continue their contracts for a period post vesting day can prove very helpful to ensure a smooth handover) and where possible ensure critical roles such as the Director of Assets are filled well in advance to allow proper planning and execution.
• There will be some inevitable turbulence during the transitional period, but it is important that organisational leaders continue to adhere to professional principles and be able to demonstrate sound judgement during this time.
• The new unitary councils will be best served if there is a solid foundation from predecessor councils.  Existing councils should plan to “end well” and adhere to financial governance requirements (including closure of accounts, capital programmes and audit) throughout this period and to avoid prioritising “legacy projects” of the predecessor councils which would not have been prioritised under normal circumstances.
• Where possible, obtain agreements in advance of vesting day, especially for more complex arrangements eg PFIs, as these contracts require legal clarity on future ownership and how service delivery is maintained and contracted. 

LGR support: Asset management: On 17 December 2025, the Local Government Association (LGA) hosted a session designed to help councils to manage their assets safely and effectively through local government reorganisation. As councils await their LGR decisions, now is the time for councils to prioritise and plan their asset management.