Select Committee on Public Accounts Minutes of Evidence


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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