INTRODUCTION
AND SUMMARY
OF CONCLUSIONS
AND RECOMMENDATIONS
1. In April 1996 the newly formed executive
agency, Property Advisers to the Civil Estate (PACE), assumed
responsibility for disposing of some 830,000 square metres of
surplus leasehold and freehold accommodation in 384 Government
properties. This surplus accommodation, largely offices, and over
one and a half times the size of the Canary Wharf office development,
cost the Exchequer about £132 million in 1996-97.[1]
2. On the basis of a report by the Comptroller
and Auditor General we took evidence from PACE on how such a large
amount of vacant office space came about and what they were doing
to dispose of it.
3. We think it wholly unacceptable that
the volume of vacant office space owned by the Government more
than doubled to 962,000 square metres in the four years to March
1996; that over the six years to that date the net cost of keeping
this property empty was more than £500 million; and that
it will cost a further £260 million to dispose of the remaining
empty accommodation. These are very large amounts to spend on
a programme from which the taxpayer has derived no benefit. We
note PACE's evidence that this situation arose because the Civil
Service was shrinking at a time when the property market was depressed,
thus making the disposal of vacant property difficult. We do not
see these factors as justification for such a serious waste of
public money.
4. Departments should have recognised that
property markets do not continue rising indefinitely and should
have foreseen that there were unacceptable financial risks in
embarking on a round of acquiring new properties before disposing
of the old ones. The trends towards a smaller Civil Service and
the consequential implications for reduced needs for office accommodation
also should have been obvious. These general conclusions are underpinned
by the findings below relating to specific shortcomings in the
management of Government property over the period.
On the accumulation of vacant property
(i) We are particularly concerned that, from
1990 to 1994, departments were free to hand back unwanted accommodation
to Property Holdings at six months' notice and without financial
penalty and move to different accommodation. This arrangement
had been introduced at a time when the market was buoyant; few
difficulties were expected in securing the disposal of property
no longer needed (paragraph 17).
(ii) However, it should have been clear that
this arrangement gave departments no incentive to take the wider
Exchequer interest into account, particularly when the property
market turned sour from the early 1990s. In our view the six-months
rule should have been abolished as soon as its disadvantages had
become clear, more should have been done to bring home to departments
the implications of their property decisions for the Exchequer,
and departments should have been made fully accountable for their
actions in this area of their business (paragraph 18).
(iii) Little was effectively done to address
these issues until an Efficiency Unit scrutiny was put in hand
in 1993. We are disturbed that it was not until April 1996 that
the Efficiency Unit's scrutiny recommendations were put fully
into effect. We are particularly concerned that departments were
given notice that the six-months rule was to cease after September
1994; it was all too predictable that this announcement would
encourage them to notify surrenders of a considerable number of
properties since the opportunity to transfer the liability to
others would thereafter be denied to them (paragraph 19).
On the disposal of vacant property
(iv) PACE are confident that they will have
disposed of the vast majority of their empty properties by the
year 2000. We note PACE's intention to involve a private sector
partner in the disposal process as inventive. The Agency has not
moved particularly quickly, however, and we are concerned that
it has taken over two years from the time this approach was recommended
to the placing of an advertisement in the European Journal (paragraph
36).
(v) 80 per cent of their remaining portfolio
consists of leased properties, some of which have rents in excess
of current market values; it can be expensive to negotiate the
surrender of such leases since the landlord is likely to require
a sizeable premium; PACE expect to ask for funds for such deals
since receipts from freehold sales are drying up (paragraph 37).
(vi) Looking to the future we consider it important
for PACE to play a more effective role in the co-ordination of
property transactions across Government and in the provision of
advice to departments than any of the parties have so far played.
We agree with the view of PACE that it would be far better for
government departments to use existing accommodation than to take
on new accommodation at an extra cost to the Exchequer (paragraph
38).
(vii) PACE and the Treasury take the view that
it is for departments rather than them to take account of the
cost of benefits to the Exchequer when taking decisions on accommodation
and that, in doing so, departments should not take a narrow view
limited to departmental interests. On the evidence so far there
are few grounds for saying that departments have taken such a
wider view of value for money (paragraph 39).
(viii) We recommend that in future departments
considering changes in their accommodation should always consider
existing vacant property on PACE's books as an option; and we
expect the Treasury to ensure that guidance on investment appraisal
is particularly rigorous on the assessment costs and benefits
of moving to other accommodation when there is government property
standing empty (paragraph 40).
(ix) We would like to see a targeted programme
for PACE setting out the Agency's disposal strategy, and we will
wish to monitor their performance against this programme (paragraph
41).
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