Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 28 JANUARY 1998
SIR RICHARD
MOTTRAM, KCB
20. So you must have some idea whether there
is going to be a difference.
(Sir Richard Mottram) The advice I have is that
there will not be a substantial difference compared with this
forecast.
21. So Savills' snapshot comes out as quite
accurate.
(Sir Richard Mottram) Yes. I do not know that
it was a snapshot, but a snapshot in time, yes.
22. But they did not do a detailed appraisal,
so to come out so close after your detailed appraisal is most
fortunate.
(Sir Richard Mottram) What we have been doing
is to start work on the upgrade programme, where it was clear
that there was a compelling case. The Defence Housing Executive
have conducted a survey of the whole estate. When we have the
results of that and analysed them we will know whether the £470
million is the right number. As of now, we have no reason to doubt
it.
23. You have given an indication that it
is in the same ballpark.
(Sir Richard Mottram) Yes.
24. When the houses become unoccupied and
are handed over to Annington, who decides the quality and who
decides the pricing of it.
(Sir Richard Mottram) When they are handed over
to Annington they have to be in a tenantable condition. I am afraid
I am not an expert on what defines tenantable condition but we
could give you advice on what comprises that.
25. I make the point that it is going obviously
to be in Annington's interest to have the property handed over
in the best possible condition with all bells and whistles shining
and ringing and pinging.
(Sir Richard Mottram) Yes; absolutely.
26. It is in your interest for it to be
handed over with the minimum amount of money being spent on it.
(Sir Richard Mottram) Correct.
27. What is the process of adjudicating
between these two irreconcilable positions?
(Sir Richard Mottram) The process of adjudicating
between these two irreconcilable positions is that it is not our
intention that we would be investing substantial sums of money
in properties we knew and were confident we were not going to
need in the medium term.
28. You had better let me have a note on
who adjudicates when the two do not agree.
(Sir Richard Mottram) We will give you a note
on the process of adjudication.[2]
29. This is actually quite significant and
can mean literally millions of pounds difference to the taxpayer.
(Sir Richard Mottram) The answer is that we do
not have estimates for future costs. We are beginning to release
properties now.
30. Let us move off that particular section
and on to a few general questions on the assumptions on scenario
five and pages 36 and 37. Why is it that you have made the assumption
that the department will be so much more inefficient if it were
doing things compared with other operators? For example, two years
to sell surplus properties but only one year for the private sector.
Half as much development gain from surplus sites and prospective
private sector owners and maintenance costs, etcetera. Why were
those assumptions made to be so dramatically different?
(Sir Richard Mottram) This goes back to a point
I was discussing earlier with the Chairman. The performance of
the department in this area had been mixed over the years. What
we were trying to do was not to get into a position where we were
assuming that all of a sudden we would dramatically and confidently
improve in every respect. We drew up a set of assumptions-you
have just picked out a couple of them-which are illustrated here
in relation to column five. Then, as you can see, we also modelled
different assumptions. Why did we choose scenario five as the
base case? Because we did not want to build into the investment
appraisal a set of significantly better performances in all of
these areas than we had achieved in the past. Nevertheless, I
personally think that some of these assumptions were pessimistic
and having invested in the Defence Housing Executive we would
certainly have hoped over time to do better. That is why, for
example, we were looking also at the results of other scenarios,
like number two which is a much better performance obviously.
31. The question which comes immediately
from this is that if scenario five was what you felt you were
achieving, should not appraisals done in the past, irrespective
of whether it was going to be disposed of or not, be compared
with the private sector so you could be operating more to private
sector efficiencies rather than allowing these dramatic differences
to be perpetuated?
(Sir Richard Mottram) Yes. One of the things which
we have been trying to do by introducing the Defence Housing Executive
is precisely to ensure that we had a more professional approach
to housing management. We do obviously have professionals in our
Defence Estates Organisation, but it was not necessarily the highest
priority task for some of the people who were managing the married
quarters or the thing they were expert in. We have tried to develop
a more professional organisation and over time our intention is
to seek to benchmark the performance of that organisation in all
respects against the best outside performers, including of course
other housing managers in the social sector, the local authority
sector, etcetera.
32. May I turn to another question asked
by the Chairman to which you responded and there was some remark
about constructive dialogue between the MOD and the Central Statistical
Office? When did the Central Statistical Office record its objections
to the proposals for a housing trust?
(Sir Richard Mottram) From memory, 1994, but I
will have to check that.[3]
33. When in 1994?
(Sir Richard Mottram) I do not know. May I let
you know?
34. Yes, if you could let me know, because
there is a natural concern that out of £9 million you spent
£7.6 million before reaching the point of saying, "Oh,
dear! This is not a goer. We should have abandoned it some time
ago". Is the truth of the matter not that you spent all this
time desperately looking for an in-house solution and were eventually
forced away from it?
(Sir Richard Mottram) No, I do not think that
is the truth of the matter. What it is true to say is that we
were looking for a solution which the Services were comfortable
with. To that extent they were probably more comfortable with
the housing trust solution than the one we eventually opted for
possibly.
35. My last question is on the vacancy rate
in the married quarters, ranging from 13 to 19 per cent. Were
any comparisons done with any other country which was running
a similar type of scheme? Were consultants brought in to try to
see whether those figures can be and could have been improved
irrespective of the fact that this particular sale has now thrown
all these figures into bold relief?
(Sir Richard Mottram) What I do not know the answer
to, and perhaps I could find out for you, is the comparative performance
of those other countries which have married quarters. May I look
into that?[4]
36. Yes. It seems to me that here we have
had an operation taking place which before the cold light of day,
that is some form of privatisation, was shone upon it, was operating
very inefficiently, costing a fortune in public money and seeing
at the same time the stock of properties deteriorating in quality.
(Sir Richard Mottram) Yes.
Mr Love
37. In your view does this sale represent
good value for money for the public purse?
(Sir Richard Mottram) The sale represents good
value for money on the basis set out in the report.
38. May I refer you to Figure 10 on page
36? I do not want to go over the questions which have been asked
about scenario five but you said in an earlier answer that you
felt that it lay somewhere between scenarios two and six.
(Sir Richard Mottram) Yes.
39. The department had spent over £7
million in investigating a housing trust solution and must have
gained a great deal of experience. You have told us today that
your maintenance costs are now reducing significantly. Why did
you choose scenario five? Was that not an extremely conservative
estimate of your position even at that time?
(Sir Richard Mottram) The basis on which we did
the investment appraisal was to look at seven of these scenarios
and our view was that one and seven were each implausible for
various reasons. We therefore felt that the right range for the
benchmark for the public sector comparator lay between numbers
two and six. The advice we gave to our Ministers was based on
this range and said that if one took a cautious view about the
department's performance in the light of what had been achieved
in the past, then scenario five would be appropriate. What we
were not saying to our Ministers was that this was a decision
which they could make on the basis of a single figure solution.
The answer is not that it was whatever it was for scenario five,
it was a very specific figure and this was clearly the benchmark
which should be used. We actually had a piece of advice which
was rather more nuanced.
2 Note: See Evidence, Appendix 1, page 30 (PAC 172). Back
3 Note:
See Evidence, Appendix 1, page 30 (PAC 172). Back
4 Note:
See Evidence, Appendix 1, page 30 (PAC 172). Back
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