Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 180 - 193)



  180. Let me pursue the interesting question you just raised. That is, that once the property has been demolished, if another property has been put in its place are you still paying a ghost rent on the demolished property?
  (Mr Wilson) No.

  181. Could you give us your projection of, if I might put it this way, dead ghosts rather than to-be-resuscitated ghosts? Presumably when this contract was entered into, somebody took a view as to the number of ghost properties that there would be during the life of the contract. At £2,500 per ghost property, as the Chairman worked out earlier, for 650 properties, which I understand is the current ghost level, that is £1.625 million per annum. What I think we want to find out is how long do you keep on paying that £2,500 per property? Is it for 30 years? Is it for 99 years? Is it for the 999 years of the lease? A quarter of a million pounds for a 99-year lease is expensive if you are buying a property in central London.
  (Mr Tebbit) I do not think it is going to be £2,500. That would include the maintenance and there will be no maintenance.

  182. That was the figure you gave earlier.
  (Mr Tebbit) That was including maintenance charges as well as rent to Annington Homes. When there is nothing on the site, you deduct the maintenance charges, so it would not be £2,500. As I understand it, it lasts for 25 years.

  183. Right. Could I ask for a very full note to be provided to the Committee on the projections of ghost properties and the payments that will evolve over the life of the contract as a whole?
  (Mr Tebbit) I am happy to do the best we can. It will require judgments about the future, not just clear facts about the costs of upgrading something[12].

  Mr Gardiner: I am sure the MoD assessments will be as accurate as they always are.

Mr Love

  184. I am looking for some reassurance. Can I make the assumption, which I think is implicit in the Report, that the uncertainty of the Defence Review is now coming to an end. Thinking of your argument so far, with these 6,500 properties you now have ready for sale—and I choose your words rather than my own—"the radical reduction", as you call it, the number of empty properties standing vacant for half a year or a year, that you have produced as of August this year, should it give this Committee some reassurance that the chart in Figure 6 shows a continuing increase in the gross numbers and that the percentage of vacant properties will be coming to an end?
  (Mr Tebbit) Yes.

  185. I have to say, certainly as one of the Committee members, I need more reassurance as to why we should accept that is likely to happen.
  (Mr Tebbit) The reason I think you should accept it is likely to happen is because our disposals are currently running at twice or three times previous levels; that we have a much better system in place for establishing our core requirements as opposed to our surplus requirements; that this is shown by the sharp reduction in the number of properties which are vacant and sitting on our hands for a long period of time; that we have every interest in minimising vacant and unused properties because it is bad for defence not just, as it were, for the Committee's interests. The future that I gave of a figure of around 40,000 with about 4,000 as a management margin is the best I can give the Committee as a target, but it is better than previous targets in that it is built up from individual area forecasts, not given as a top-down general statement. It was right that the first thing for DHE to do was to work on this disposal question and get down the number of unnecessary vacant properties. They are now moving to the next stage of managing the whole thing more efficiently and there is a lot of work in there, implementing the NAO recommendations which will do that. Apart from the odd discussion we had about an area which has not been agreed in terms of simplifying dilapidations, we have basically agreed and accepted the recommendations in this report—some of them were things we were doing as well—and they do provide a much more effective system of managing the estate in the future. We have no interest whatsoever in hanging on to property.

  186. I accept that, however, if we look back to the previous reports in the 1990s, Figure 6, on each of the occasions in the past, even the occasion when we were discussing the disposal and we were given the assurance there was no interest in the Department to keep this level of vacancies, it has continued to increase. It does seem to me you have given us figures which predict what you will sell to the end of 2001, that is the 6,500 properties. Could I ask that we as a Committee receive a report, a very brief report, on both the level of vacancies and the percentage of vacancies, the number of sales and the number of disposals to the Defence Agency, so we can be kept abreast of how these figures are developing over that period when you suggest it is likely to reduce? I am only suggesting we do that up to the end of 2001 because that is the timescale in which you are suggesting to us these improvements will be made.
  (Mr Tebbit) I said that those were the targets. I am happy to let you know how well we have done on that point. Some of the information I have given you has been a moving picture. There is reassurance in the data I have given you and the data I up-dated the Committee with before this meeting. There is continuous evidence of progress. You are looking sceptical but some of these are facts.

  187. No. I accept that having 6,500 properties available for sale is an improvement. I accept that reducing the number of properties standing vacant for very long periods of time, as you have done, or as the figures show, is a very big improvement. What I am looking for is significant improvement in the number of properties vacant and the percentage of the estate. Mr Rendel made it clear earlier on that you could actually sell those properties but still find yourself with an increasing percentage.
  (Mr Tebbit) If demand fell through the floor.

  188. I do think we need reassurance. Members of this Committee have a very great deal to read but I do think they would find it of some interest to have some figures up to the end of 2001 so we could see what you have said you will achieve at this Committee today actually comes about.
  (Mr Tebbit) I would be happy to give you an account of progress against targets. As you will appreciate, this is a risk management business and if demand falls more sharply then the figures will not be achieved as I have said. What I would like to do is give you the figures in some detail so you can see the different categories we are dealing with, because it is also modernisation which is in a growth area as well so we are expecting to improve on that too. I would be very happy to give you a progress report.

  Mr Love: I would only stress brief again.

  189. If you were starting afresh, would you want to correct the flow in the original contract and bring in a cost-effective speedy arbitration system for resolving disputes on dilapidations?
  (Mr Tebbit) That is a wife-beating question, is it not? I do not know the answer to that. Provided we can get through the six-month period, I am perfectly content with that as protecting the taxpayers' interest. What bothers me is when we run into real difficulties about separating utilities from the Service base, as it were, and making them available for the private sale, and problems about access and roads. When we get into those difficulties, that means a disposal can take longer. That is why I am not absolutely certain that we will achieve targets exactly to the timescale we are setting ourselves. They will be achieved; the question is how quickly.

Mr Williams

  190. I have a slight confusion. This is my final question, and I do not want an immediate answer, but perhaps you could put it in writing for us. In answer to Mr Love, you slightly amended the answer you had given me of 79 million as being rent, you said that is rent and maintenance.
  (Mr Tebbit) We were talking about a different figure of dilapidation. Let me just say, the rent paid to Annington's last year was £109 million.

  191. Can I ask you then, were you told by the NAO that it is costing the Department £175 million a year net and the income you receive from Service families? Can we have the gross figure, the £175 million costs plus the actual income you receive from the Service families, so we can see what your outgoings are? That money is used to pay rent from you to the company, management costs, maintenance costs and upgrade costs. Can you break the new gross figure down into those four constituent parts, please?

  (Mr Tebbit) The rent to Annington was £110 million. This is financial year 1998-9912. The receipts from the people in the houses were £79 million. There were other receipts from other people of £5 million. There was a net expenditure of £175 million. Work that we put as the maintenance cost was 149. We had a receipt for £79 million and another receipt for £5 million, which was the net expenditure of £175 million.

13 Note by Witness: As noted earlier, the rent paid to Annington was £109 million financial year 1999-2000.

  192. Can you break those down?
  (Mr Tebbit) We do not seek to break even on this, because there was a valid cost of being able to move our people around.

  193. It is purely a matter of us having all of the figures so there can be no confusion.
  (Mr Tebbit) In 1999-2000 the rent was £109 million, the work on the properties was £158 million, there were £79 million receipts from Service men and £5.5 million other receipts, which was a net expenditure of £182 million.

  Mr Williams: Thank you very much, gentlemen. It has dragged on slightly longer than any of us anticipated. It has been rather interesting. We appreciate the evidence you have given. Thank you very much.

12   Note by Witness: See Appendix 1, p 23. Back

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