Select Committee on Public Accounts Minutes of Evidence

Examination of witnesses (Questions 100 - 119)



  100. Can I assume, therefore, that you have you severed all links completely with KPMG?
  (Sir Michael Peat) Yes.

  101. I was about to suggest that we got the Prince in to do the auditing instead. Okay, that is very helpful. Reverting back to these issues about grace and favour flats, can I ask you how many of these grace and favour flats you have now got in operation?
  (Sir Michael Peat) They are not grace and favour, they are flats occupied by staff and pensioners, the large majority of whom pay rent. We have 236 occupied as of today.

  102. So how many of them pay any rent at all out of the 236?
  (Sir Michael Peat) Out of the 236, including the pensioners, about 216 pay rent. Ten staff do not pay rent and I think it is about ten pensioners do not pay rent but I would have to check. It is near enough 216.

  103. Why do they not pay rent?
  (Sir Michael Peat) Because they entered into their contracts of employment before the Household assumed responsibility for property services and introduced the new system.

  104. Right. I understand that a certain number pay six per cent income as rent and another lot pay 16 per cent, is that correct?
  (Sir Michael Peat) Yes.

  105. Is there another figure of 28 per cent?
  (Sir Michael Peat) No. The 28 per cent is just a factor of 16.7, it is to do with tax.

  106. So why do some pay six per cent and some 16 per cent?
  (Sir Michael Peat) Because, again, they entered into their contracts before 1991 when we assumed responsibility.

  107. Who did?
  (Sir Michael Peat) Those who pay six per cent.

  108. So six per cent is pre-1991 and 16 is post-1991?
  (Sir Michael Peat) Yes.

  109. And is 16 per cent reasonable? It is a strange way to do rent. As Mr Williams said it is a socialist way in some senses, it is based on income as opposed to value, 16 per cent whether you have got a high or a low income, or have they all got high incomes?
  (Sir Michael Peat) It was a formula initially set by the Treasury to apply to public servants. It is a formula that takes into account mortgage interest rates, private rental rates, housing association rates. It is a composite formula that the Treasury calculated initially at one-sixth or 16.7 per cent. When we recalculate the formula it moves in line with how rents move, and how interest rates move. As it happens, so far it has remained pretty close to 16.7 per cent in that they have moved approximately in line with salaries, but it could change.

  110. In terms of getting a market return on state assets, as it were, would it be better to manage them by renting them out in the market or would that be completely impossible in terms of security issues?
  (Sir Michael Peat) Yes. For some of them, not all of the 236 properties, you could get a lot more than the amount you get from 16.7 per cent, but because of security reasons and the fact that they are Royal Palaces, we do not rent out within the security cordon - but we do rent out outside the security cordon.

  111. You do?
  (Sir Michael Peat) Yes.

  112. Are some of these outside that security cordon?
  (Sir Michael Peat) Yes, and as soon as they become available we rent them out.

  113. To normal people?
  (Sir Michael Peat) Yes.

  114. That is interesting. How much more rent do you get for them? (Sir Michael Peat) For some of them in London we get a lot more rent.

  115. So you are looking at this commercially?
  (Sir Michael Peat) Yes.

  116. And the income from those rents goes where?
  (Sir Michael Peat) To offset the grant-in-aid.

  117. Okay, that is good. Is there a situation within the security perimeter where there is a pool of people who are in theory eligible to rent these in the sense that they have been vetted and do you try to market these at a higher rent to those people?
  (Sir Michael Peat) Yes, we do. We rent a couple. We try to get people who are security cleared, like from the Ministry of Defence, service officers and people like that, and we have rented two flats to the Ministry of Defence within the security cordon and they pay rent for them.

  118. That is not based on 16 per cent or anything?
  (Sir Michael Peat) No. Unfortunately, because they are not as well off as some people outside, they do not necessarily pay a huge amount but we get as much from the Ministry of Defence as we can. It is always a bit of a negotiation.

  119. How many flats have you got outside the cordon and inside the cordon that you have got other arrangements for than the 236?
  (Sir Michael Peat) We are presently renting out 12 commercially outside the security cordons and hopefully that will go up to 17 fairly soon. There is a theoretical maximum of about 30 that we would like to move towards as people retire or go.

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