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Unfortunately, I was not aware of the events which occurred last year while I was working overseas. Apparently, the scheme collapsed for various reasons, among them the fact that the MoD felt unable to relinquish the freeholds. Since the Committee stage the penny has dropped for me. I have now realised what it is all about: pound notes or, rather, coins, and quite a lot of them; in fact, £1.2 billion worth.
My difficulties are threefold. First, the Government want to conduct a sale and leaseback of a very long term asset, the married quarters estate. I suggest that it is an unwise course of action as it will create problems for the future in order to make a short term gain. Will the noble Earl the Minister say what the difference is between the sale and leaseback of the married quarters estate and the sale and leaseback of the MoD main building, for example? Where does all this sale and leaseback business stop?
The main building would be much more attractive to a developer or a financier as there would be less risk and it would not be so complicated a matter to administer. There is no question of the requirement not continuing for government buildings near Parliament.
My second difficulty is that the proposal will do precisely nothing to improve the management of the estate. In fact, the Minister for Defence Procurement in another place wrote, in The Times, I think:
The Defence Housing Executive will still be the old MoD weighted down and hampered by archaic procurement and management procedures. The Minister also said that despite all this money it would still take five to seven years to get the married quarters estate up to the required standard. The Government have always extolled the virtues of private management, and I strongly support that policy. But the proposed arrangement will not introduce any private management or maintenance of the married quarters estate.
The figure of £100 million sounds an awful lot of money but it is allocated over five years and spread over possibly 40,000 houses. That works out at an average of just £500 per house. I am sure that the noble Earl the Minister will point out that it is additional money. Even so, it is not a lot of additional money.
My final difficulty centres on the economics of the sale and leaseback. I am not an expert on high finance nor have I read the article in The Times today, but when the figures are analysed they do not look very attractive. If I make a ghastly error I shall be grateful if noble Lords point it out. I have made no attempt to discount the net present values. Of the 60,000 houses making up
Financial institutions do not give out rather large cheques without charging interest and obtaining a return on their investments. If we consider an exceedingly modest rate of return of 8 per cent., the MoD will still have to pay £50 million per annum or £250 million over the first five years of the scheme. However, we must not forget that the MoD will still receive £100 million over the same five years in order to upgrade the estate.
There is one financial merit for the Government. They will effectively be able to borrow more than £1 billion without it appearing on the public sector borrowing requirement. But there is real scope for leasing wasting assets such as vehicles and plant and the MoD already does so to an extent. That avoids tying up large amounts of capital. Fortunately, I have no intention of wearying your Lordships with that point as I intend to deal with it during tomorrow's debate.
It is not good enough to oppose a policy which is designed to address well understood problems without suggesting an alternative policy. My guess is that the rent paid by the services goes direct to our dear friends at the Treasury. If the rental income was paid directly to a defence housing agency, it would probably have an income of at least £48 million per annum. On top of that, it would be able to sell redundant properties so that in fact it could quite likely remit funds back to the Treasury after having made satisfactory progress against agreed targets for upgrading the estate.
If the MoD police force can become a defence agency--and I have misgivings about that--why can we not have a defence housing agency? The Minister may quote legal difficulties but this Bill provides him with an ideal vehicle for making any changes required. I urge your Lordships to support the amendment and to allow the other place to have another look at the matter.
Baroness Hogg: My Lords, I should like to start by craving your Lordships' indulgence because this is the first time that I have spoken at this stage of a Bill and I apologise in advance for any failures of etiquette which I may commit. I wish to apologise immediately for not being here at the start of the debate, owing to traffic.
Nevertheless, I have the courage to rise because in the four years that I spent in Whitehall, I watched officials and Ministers wrestling with, and failing to come to a resolution on, this particular problem. They started from the premise, as we all do, that the present situation is not at all satisfactory. It contains insufficient incentives to proper, good management of the housing stock, leading to an excessive carriage on the estate of empty properties, which is not only economically inefficient but unpleasant for those living in the area.
It is a complicated scheme. Of course, that enables a number of your Lordships to quarrel with particular elements within it. However, one of the reasons that it is complicated is precisely to provide extra reassurance to service families who are inevitably concerned to follow through all the possible implications of the change.
As I say, I believe that the Secretary of State is to be congratulated on arriving at a resolution and securing from the Treasury a sum of money for the improvement of service housing. I say with the very greatest respect--I use that phrase with more genuine honesty than I have often heard it used in your Lordships' House--to the noble and gallant Lord, Lord Bramall, that if one really considers that securing £100 million from the Treasury is small beer, one might just possibly reinforce some of the Treasury's opposite prejudices about the attitudes of the Ministry of Defence to money. Therefore, I hope to persuade at least some of your Lordships to support the Secretary of State and this scheme.
Lord Swinfen: My Lords, my name is to the amendment and therefore I shall speak in its favour. I shall declare an interest, as I did in Committee. Two of my daughters are married to serving officers and one is a serving officer herself. They occupy MoD service property. But I have no interest of my own.
As I understand it, the position is that the MoD will continue to be responsible for the maintenance of the properties and their upgrading. It will not be undertaken by the purchaser of the estate. Therefore, the position in relation to maintenance and upgrading will basically remain the same and in the same hands.
This is a matter which concerns the quality of that maintenance and upgrading and the quality of the management. I know that the Defence Housing Executive has been set up recently but I believe that it involves the same people who were dealing with those matters before. It is a case of more change, staying in the same place.
I understand that the MoD will rent the property from the purchaser at open market rents. I do not know whether or not the figures in The Times today which are suggested for the years ahead are accurate. None of us has any way of knowing that. But as sure as eggs are eggs, the rent will rise.
The amount paid for their quarters is determined by the Armed Forces Pay Review body. That will probably be below market rents. Therefore, if there is no improved management, there will be a gap that the MoD
I should like to take up one point made by my noble friend Lord Trefgarne. He said that no one buys properties with communal heating systems. I am afraid that that is not correct. Properties have been sold on the open market which have communal heating systems and other communal facilities also. Any decent solicitor should be able to draw up a workable agreement by which all the purchasers can abide.
What concerns me is that the purchaser of the estate will have the right to take back on notice to the Ministry of Defence pieces of the estate that he would like to develop or redevelop. When taking advice on that, he will hire experts from the property market. Why let the purchaser do that? Why does not the MoD hire exactly the same experts and make a profit for the MoD and for the country? If you have an opportunity to make money on your property, why do you give that away at a lower figure to someone else who will not pay you funds which will leave them out of pocket at the end of the day? They will not give everyone a Christmas present. They are in it for purely commercial reasons and will wish to make a profit. The bigger the profit the better. Not all sites will be ripe for redevelopment now. Some may be suitable in two years, five years or 20 years. But the MoD will have lost the opportunity.
Along with the agreement for sale, which is normally very simple, I understand that there will be side agreements designed for the protection of the services. But I have not heard anything which prevents the original purchaser selling on the estate as a whole or parts of that estate. It is at that stage that the side agreements get left behind and the services are without protection. I say that because the MoD would not be party to the agreement of that sell-on and, therefore, would not be able to play a part.
In Committee, my noble friend Lord Howe was asked a question about the time when the lease comes to an end; namely, would the services, if they needed the property at that stage, be able to keep it on? He said yes, and that he was relying on the Landlord and Tenant Act. I am not a lawyer but, as I understand it, that Act gives residential occupiers of tenanted property the right to extend their lease. The MoD will not be the residential occupier in such circumstances; the servicemen are the residential occupiers.
Moreover, in commercial property the Landlord and Tenant Act gives tenants the right to extend their lease when it comes to an end. But, again, the MoD is not a commercial tenant in the meaning of the Act as I understand it. I feel that we should send this to the Commons and let them have a look at it again.
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