Examination of Witnesses (Questions 160
- 179)
WEDNESDAY 28 JANUARY 1998
SIR RICHARD
MOTTRAM, KCB
160. What is the average house? How many
bedrooms does it have?
(Sir Richard Mottram) It would be three.
161. For a three-bedroomed house you are
assuming the cost of rent and maintenance to be just over £50.
(Sir Richard Mottram) Yes.
162. It is not surprising you run into disrepair
then, is it? I cannot believe, from my experience of managing
housing stock, not just my own but social housing, that you can
from £50 a week maintain a house and get a reasonable rent
in terms of the actual value of that house. From everything that
is said it just does not seem to stack up. I cannot imagine a
landlord, social landlord or private landlord, assuming £50
per week without subsidy. There is no subsidy on that, is there?
(Sir Richard Mottram) There is a subsidy. When
one thinks about this calculation it consists of two elements.
One is the rent which we are paying, which is just over £2,000
and that is a heavily discounted rent because of the nature of
the sale. The rent is not a market rent; it is 58 per cent discounted.
The maintenance I am quoting is maintenance when the property
is empty. When the property is not empty it is more.
163. You mentioned these different categories
of empty houses. What is the average length of time you leave
those houses you are ready to rent empty?
(Sir Richard Mottram) I do not know. May we give
you an answer to that?[12]
Chairman
164. I would not want you to get a headline
which you did not mean and was not true. The phrase used was that
half of occupied Service homes are sub-standard.
(Sir Richard Mottram) No, what I said was that
half of them were not Grade 1.
Chairman: That is not quite the same
thing, is it? Just so we are clear because there are journalists
in the room.
Mr Hope
165. Taking it as the representative of
the Committee of Public Accounts, what I do find completely strange
is that you believe this to have been an effective process maximising
revenue to the exchequer. Yet if you sum it all up, essentially
you spent £7.6 million on a failed housing trust scheme,
spent £12.6 million selling this property, undersold the
estate, in the view of the NAO, to the tune of £77 million
to £139 million--
(Sir Richard Mottram) Where does it say that?
166. Paragraph 3.15 b)--retained liabilities
of £470 million on the stock, spending more money, some £23
million extra on external advisers than we might otherwise have
done and, if analysts are right in the financial press, Annington
look likely to make £200 million profit over the next five
years as a result. Now we hear, as a result, the sum total of
all of that is that half of the properties are not even up to
the Grade 1 standard one might expect. If you sum it up in that
way, which I have just done, frankly this does not look like a
very effective piece of value for money management by the MOD.
(Sir Richard Mottram) You have to be a bit careful
about what you are quoting either as what I said or what the NAO
said. In paragraph 3.15 b) the NAO do not say that we undersold
the estate by between £77 million and £139 million.
That is just not what they say.
167. "... the sale price achieved
was £77 million to £139 million less than the assessed
value of continued Departmental ownership and management".
(Sir Richard Mottram) On one of the three benchmarks
that we used.
168. I am intrigued by this. We have had
a long debate about these benchmarks. At one point you described
the situation as having no data upon which to make models, therefore
you made assumptions. You then drew up a model and you had six
of them, each of them producing a negative return to the taxpayer
above that graph. As a result of using those benchmarks we have
a self- fulfilling prophecy where you are always going to prove
you were right by your first assumptions. At no time really do
those scenarios in effect create a process which brings us a proper
assessment of the value. It has been the NAO who have managed
to arrive at that value and have proved to us that we did not
get value for money.
(Sir Richard Mottram) This just is not true. The
position we are in is that we applied three different benchmarks.
These three different benchmarks are all in the NAO's report.
All three benchmarks are based on work commissioned by, run by,
organised by, assessed by, the Ministry of Defence. All these
three benchmarks, all of which were relevant to this sale, as
the report recognises, were put before Ministry of Defence Ministers.
Ministry of Defence Ministers, in the context of their policy
objectives, took the decision to sell these houses. You can say
that in your opinion you only want to use one of those benchmarks.
That is not what the report says. The report says there were three
benchmarks and all are valid.
169. We still have a situation where we
have a deficit of between £77 and £139 million.
(Sir Richard Mottram) On the basis of this one
benchmark.
170. And a very effective benchmark it appears
to be, making a very obvious point which I am surprised was not
something which the department took into account when it was making
these decisions.
(Sir Richard Mottram) It was an answer generated
by the department as part of taking the decision, so of course
it was something we took into account.
171. It seems to me that you have created
your own benchmarks to satisfy what were already your original
assumptions. I am not convinced by the argument. If I were on
the board of directors of Annington, I have bought it cheaply,
thank you very much, I have minimum liabilities because you have
retained nearly £0.5 billion of liabilities for the upkeep
and maintenance and I have guaranteed minimum rent payments. Frankly
it is a licence to print money.
(Sir Richard Mottram) It cannot be because this
was a competitive sale. If Annington were buying it cheaply, no
doubt the other competitors would have offered more than Annington
were offering.
172. We have had this in the past where,
under PFI, in other areas we have been told that all the original
analysis meant that this was fine and properly thought through
and then two or three years later, in every instance, we seem
to have found that the private sector are just carrying their
money bags to the bank, thank you very much. We are not impressed
by looking back at the advice which people were given at the time,
which then seemed to be totally disproved three or four years
later on. We are taking a number of lessons about that into some
wider debates about future PFI initiatives. May I turn to the
issue of the £2,739 rent and maintenance which you are giving
to Annington for empty properties.
(Sir Richard Mottram) We are not giving all that
money to Annington. We are giving £2,000 and whatever to
Annington and we are paying the maintenance.
173. Are you actually spending that maintenance
on those properties?
(Sir Richard Mottram) Yes; on average we are.
The average rent we are paying is £2,015.88 to Annington.
On average we are spending £723 on the maintenance of properties
which are not let and we are spending £1,445 on the maintenance
on the properties which are let; that is our expenditure.
174. Do we know whether Annington are using
any of the money you are giving to them on vacant properties to
improve the quality of those properties?
(Sir Richard Mottram) We are not giving them money.
We are paying them a rent.
175. We have handed them some property,
with no obligations on their part to do anything with it other
than just bank it.
(Sir Richard Mottram) We have sold them a property
and it is obviously in their interests either to let it out or
to sell it.
176. We are keeping no checks, no monitoring
of what Annington are doing to ensure that we are getting best
value for money from that resource.
(Sir Richard Mottram) In so far as we have leased
houses to Annington on these very long leases and we have decided
to terminate those and transfer ownership to them, they are responsible.
177. That is £470 million of liability
on 63,000 homes, is it?
(Sir Richard Mottram) Yes.
178. For England and Wales.
(Sir Richard Mottram) It is 65,413 for Great Britain.
Just to be clear. That therefore includes homes we have not sold
to Annington. The total stock is 65,413 for Great Britain.
179. That is the liability upon which we
have £470 million worth of liabilities, whoever did that
assessment. That is the stock upon which we have £470 million
worth of maintenance backlog.
(Sir Richard Mottram) They are not liabilities.
No, they are not backlog either. They include some backlog. We
have a forward programme of investment in improving the quality
of those properties. That benefit will come to us. It is spread
over seven years. We propose to spend £470 million on it.
It is not a liability.
12 Note: See Evidence, Appendix 1, page 30 (PAC 172). Back
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