As the government considers responses to a consultation on Land Registry privatisation, Clare Harman Clark makes a case for keeping the public option on the table
The government recently consulted on a series of proposals for the privatisation of Land Registry (LR). The Department for Business, Innovation and Skills (BIS) explained that its “preferred option” for LR is one where by 2017 all its core statutory functions are transferred out of government and into a private sector operator (“NewCo”). This amounts to a subcontracting of its services: the sale of the right to use and commercially exploit its sensitive – and lucrative – data while controlling access to it.
There is nothing new about the risk of a private sector shift – similar plans were mooted under the coalition government in 2014, until they were threatened by strikes and roundly blocked by the then business minister Vince Cable – but the threat is now very real. BIS’ solution addresses its basic assumption that “there is no compelling case for keeping an asset in public ownership” and while its experts consider consultation responses, it is worth reminding ourselves why this issue really matters.
History of the Land Registry
Registration is legally required. The first Land Registry office opened in Lincoln’s Inn Fields on 15 October 1862 for the registration of freehold and long leaseholds. The idea caught on slowly but, in 1897, the Land Transfer Act introduced an element of compulsion and both the Law of Property Act and the Land Registration Act in 1925 triggered wider scale registration. Slowly but surely, the laborious process of typing and processing certification (“titles”) spread throughout the nation. The register became public in December 1990 and the notification of transactions is broadly required every time there is a change of ownership or the grant of other property rights.
LR is now one of the largest property databases in Europe. It records the ownership of 87% of properties in England and Wales – well over 24m titles. It underpins assets with an estimated value of £4tn (including £1tn in lending). And it is, for now at least, a non-ministerial government department run by Graham Farrant as chief land registrar and chief executive.
Its accurate and effective record keeping is vital to all parts of an economy committed to transparency, stability, flexibility and anti-corruption. Theodore Ruoff, chief land registrar in 1963, distilled land registration into three fundamental principles: mirror (a complete and accurate reflection of material facts); curtain (the redaction of sensitive data); and insurance (compensation for users who rely on errors). These remain the pillars of a system that benefits owners and investors: enabling the benchmarking of prices; countering tax evasion by requiring stamp duty land tax evidence; protecting family law by recording assets; and guarding against fraud. (Rather ironically, The Times reported that all the potential NewCo bidders have business links to tax havens or secretive offshore jurisdictions.)
Such is its importance that LR is underwritten by government. The state-backed indemnity ensures that anyone who suffers loss because of an error or omission can seek compensation. The consultation anticipates that “substantially all of the economic benefits and risks of ownership would be transferred to the private sector,” but, ultimately and importantly, the insurance risk will forever stay with the taxpayer. So, on the basis that the greatest risk of the register is staying put, is there an economic imperative on selling the rest of it?
Crunching the numbers
The consultation explained that the government’s first priority is to “maximise upfront proceeds for the exchequer” and the sale is expected to help the chancellor shave somewhere in the region of £1.2bn off the nation’s debt (or, as the consultation itself opaquely suggested, “enable other investment for the benefit of taxpayers”). So far so good, but analysing LR’s value properly means factoring in its net contribution of long-term, sustainable income to the treasury. In 2014/15, for example, it handed over £19m and a special £100m dividend. Over the last decade, LR has generated average pre-dividend surpluses of £47m. On the calculations of the New Economics Foundation, the “upfront” gain is effectively amortised in just 25 years of business-as-usual.
For an organisation engaged in recording transactions, there will clearly be income fluctuations mirroring market activity, and LR suffered during the recession. Even so, it does not cost the taxpayer. It receives no government funding and is required, by virtue of its status as a “trading fund”, to ensure that its income covers its expenditure. In practice, LR is self-financing, using its registration services and search fees to cover its overheads. It also generates a modest income from additional non-statutory activities (for example, selling pricing data to Zoopla) and its long-term outlook remains positive. As BIS itself confirms: “As the organisation becomes more digital, so the potential value of the data increases.”
It is a natural monopoly and BIS is keen to extend its commercial reach into “the collection of additional, non-statutory data, [the] development of further registers… and [the] expansion of consultancy services.” The Competition and Markets Authority is charged with policing abuses of monopoly positions and has gone on record expressing concerns about the weakening of competition “despite the best efforts of oversight bodies”.
But when it comes to setting its fees, LR is not in the business of making money or satisfying shareholders. The average registration fee in 2014/15 was just £83. It supports the government’s open data agenda, providing some datasets free of charge and other details for a nominal fee of £3. Unlike those state assets where privatisation is a natural end goal (such as RBS), injecting an unnatural dose of corporate focus on profits or margins is to misunderstand what this institution does and what it represents.
Lastly on the figures, BIS anticipates paying NewCo an ongoing service fee for carrying out its statutory registration responsibilities. Government will then be saddled with the task of policing its service contract. Proactive supervision of its day-to-day working, a kind of half-hearted regulation, sounds costly. Even bearing in mind that BIS believes it would be “counterproductive to be too restrictive in controlling how NewCo delivers land registration”, at the very least it requires a new public office of individuals with contract management and land registration expertise. And, at present, there is a shortage of experts in the actual business of registration.
Efficiency and innovation
LR’s 4,500 staff, located across its 14 offices nationwide, face an uncertain future, having weathered various storms of closures and mergers in the past decade. BIS sees them being transferred (along with other tangible assets that NewCo cherry-picks) to the private sector, to be dealt with more “efficiently”. The consultation indicates that the government could choose to pass part of NewCo “to the workforce,” in a reassuringly John Lewis-style model. However, there is little indication that this will come to pass.
LR does need to modernise and BIS argues that without privatisation there would be no “incentivisation to drive transformation”. But it is unfair to accuse LR of failing to innovate. Since electronic records first arrived in the Plymouth office in 1986, the programme of digitisation continues to increase efficiency. The organisation has been responsible for the award-winning MapSearch and Property Alert IT services. Moving forward, BIS could tinker with the trading fund status to allow for funds to be ring-fenced for further innovation and reinvestment.
A closed consultation
Concerns have been raised about the form and tenor of the consultation.
Six of the consultation’s 10 questions required a simple yes/no response and some were posed in such a way that it was hard to answer without running the risk of rubber stamping BIS’ preferred option. Take question 5: “Do you agree that the suggested safeguards should be included in any model?” Even the most hardened opponent to privatisation could not fail to respond “yes”, given the alternative was “no” to safeguards. It is not comforting to suppose that following any statistical analysis, BIS will likely present its preferred private ownership model with “approved” safeguards.
BIS presupposes an inevitable sell-off and the consultation focused on alternative methods of transfer to the private sector; variations on a theme of achieving the same goal. No genuine consideration was evident for the status quo option, or the possibility of rejigging the trading fund status, because this “would not meet the clear requirement of maximising capital receipt.” In no sense was the public policy issue addressed and, in response, more than 300,000 people were galvanised to petition.
Parliamentary scrutiny has been given to the topic, and, according to BIS: “Land Registry is at a critical point in its existence.” Many would say it is fighting for its very survival.
Clare Harman Clark is a senior associate at Russell-Cooke
