Examination of Witnesses (Questions 280
- 296)
WEDNESDAY 28 JANUARY 1998
SIR RICHARD
MOTTRAM, KCB
280. Yet again a very good deal. May I switch
quickly to Treasury and this fascinating division into two tranches.
I do not remember a situation where the Treasury has come along
and said they do not want the money up front, they do not want
it now, they are willing to take it slowly. I wish the Inland
Revenue would say that, perhaps you would have a word with them,
and I can keep the interest as well while I hold it. Are there
many precedents for this? Do you remember any occasions when they
did this?
(Mr Mortimer) Yes.
281. Tell me when you have done it before.
(Mr Mortimer) I think there have been quite a
few precedents.
282. Where you have insisted on it, not
where it has happened. Where it has not happened at the request
of the person at the other end: where it has actually been Treasury
who have insisted that they do not want the money all at once,
they want it in bits and pieces.
(Mr Mortimer) In relation to the sale of the rolling
stock companies there was a deferred consideration which Treasury
requested.
283. Was there? I am sure the House would
like to know about that.
(Mr Mortimer) It is certainly the case that in
privatisations, for example such as BT, shares were sold off in
instalments so that money came in over a period of time.
284. Yes, but that has been part of a deal
which has been put forward by the purchaser. This is not. According
to this it was at the Treasury's insistence. It says it in the
report so you must have agreed it.
(Mr Mortimer) In the case of BT, for example,
the arrangement whereby the money came in instalments was not
at the request of the purchaser. I do accept that the Treasury
was keen to have this money deferred in two financial years. That
reflected the Government's public expenditure priorities and the
desirability of smoothing the impact of the sale.
285. I will come onto that in a second.
I am just asking whether you can think of a precedent. The reality
is that you cannot, not where you have been so generous as not
only to go to people but not even to make sure that you get the
interest reimbursed. You are not sure you have had it in terms
of benefit in the price because you would not allow them to get
a check price on a single payment tender and a split tender so
no-one knows. You would not allow it. It was precluded. It says
it in the report which you agreed.
(Mr Mortimer) I am not sure whether the Treasury
ruled out an offer with all the money paid up-front but it is
true that we wanted the money in two instalments and, as Sir Richard
mentioned earlier, the bidders were advised by extremely sophisticated
financial experts and with simple reasoning it is to be expected
that they would take into account in their bids the financial
benefit of the deferred payments.
286. With respect, £700 million is
a pimple on the back of the PSBR, is it not? The idea that the
whole of public finances and the Government achieving its public
expenditure and PSBR commitment all de pended on splitting £1.6
billion into two tranches beggars all belief.
(Mr Mortimer) It is certainly the case when governments
are considering budgets there are various questions which normally
arise about when policies, whether taxation or public expenditure,
are changed. This was one of various decisions which needed to
be taken.
287. I do not want to waste time on the
convolu tions here. You can put in a detailed justification of
this decision to us, including a detailed explanation of how you
think you got adequate recompense for it or what checks you have
made to ensure that you got the benefit of the otherwise foregone
interest. [20]Coming
back to the Ministerial decision, as I gather it went all the
way to the Prime Minister I can understand why perhaps there was
no Accounting Officer's letter-careers could be foreshortened
rather rapidly. Did I not hear you say it went as far as the Prime
Minister?
(Sir Richard Mottram) Yes, that is what I did
say.
288. One of the arguments put forward in
the document is that Ministers-and you repeated this- felt that
housing and accommodation are not core activities. This is quite
an interesting one which I just want to explore slightly. Are
barracks regarded as a core activity? Soldiers have to be where
you want them, do they not? You have to have somewhere to put
them. You cannot park them on the streets in cardboard boxes with
all the other people in the cardboard boxes; that would get untidy.
(Sir Richard Mottram) If I were being very precise,
what I should have said, because paragraph 3.28 is very precise,
was "... the ownership of property did not form a core element
of Defence business". If I were being precise, the point
which I would make is that of course it is a core responsibility
of the Ministry of Defence both to ensure we have the barracks
and to ensure that we have available the Service housing we believe
we need to underpin our operational tasks.
289. You have not sold many generals' houses
lately, have you?
(Sir Richard Mottram) We have sold a few generals'
houses.
290. Have you?
(Sir Richard Mottram) Yes, we have indeed.
291. I should be interested to hear about
those as well, but not now.
(Sir Richard Mottram) The distinction we are therefore
drawing is between our need to ensure these things are provided
and the view of whether we have to own them. It would of course
be true-just as true for this Government as the last Government-that
the Government does not have a view that it needs to own all these
assets. We are, for example, looking at a number of private finance
deals under the present Government in relation to the provision
of barracks, in relation to the provision of Service housing,
in relation to all sorts of things. The distinction is whether
we consider the Government has to own these assets in order to
have confidence that they are available for the purposes which
are indeed defence purposes. The previous Government's clear view
was that this was not their policy.
Mr Williams: As always, it has been
a pleasure exchanging thoughts with you. Thank you.
Chairman
292. I do not know whether you wanted a
brochure for one of these generals' houses. May I ask that the
Treasury includes in the note for which Mr Williams asked the
assessed effect on the price of the two tranches and also why,
for example, if all you wanted to do was what in effect was a
financial exercise to get PSBR numbers managed, why they had to
be 12 months apart and why not on 1 and 6 April, for example?[21]
(Mr Mortimer) The first tranche was
paid in November and the second tranche was paid on 1 April.
293. That is actually how you did it?.
(Sir Richard Mottram) The first tranche was governed
by when we could complete the sale. It was the second tranche
which was specified.
294. That is useful. If you could incorporate
the logic behind that into the note that would be helpful, I am
sure. I have one or two notes to ask for, but before I do that
may I ask the C&AG whether the Committee could have an expansion
of the assessment which is already in here, in part at least,
of the expected rate of return of the project to Annington, including
some assessment of the potential development? I should like to
see the theoretical scope for clawback and in that I should like
to see a sensitivity analysis of different expected movements
in rents and valuations and different behaviour by Annington in
timing terms because clearly the differential clawback rates over
time will have an impact on the public purse and it may well be
that the combination of a compound growth in the valuation and
the clawback makes it extremely sensible for Annington, for example,
to have a sales spree in the fifteenth or sixteenth year. I think
we have to look at that in our assessment. Could the Committee
have that?[22]
(Sir John Bourn) Yes, I should be
glad to let you have that.
295. There are two last notes which I should
like. Firstly, I intervened earlier really just to make sure we
did not have a misunderstanding over this question of half of
occupied Service homes being sub-standard. I asked Mr Davies for
a rather more precise version of his question which I will ask
you to answer in writing. The question is: what percentage of
the housing stock is occupied and what percentage of homes occupied
is in need of repair? [23]He
would like that breakdown by repair type for vacant and occupied
housing. That is to get a better assessment of what is meant by
this. If that is possible I should be grateful.
(Sir Richard Mottram) Yes. We are now dealing
with two things: repair and upgrade. We will deal with both.
296. I should be grateful if you would do
that, in part to answer the question but in part to avoid a misunderstanding
about what this really means. The other question I should like
answered in writing is an explanation of why the sell-off was
not done in smaller tranches, either on a regional basis or a
time basis [24]
or whatever. You have argued throughout that the market has maximised
your return and your procedures have done that but the market
may be different if it is handled in a different way and you would
have more competitors possibly under those circumstances. I should
be very grateful for a note on that one if it were possible.
(Sir Richard Mottram) My argument about the market
was in relation to the structure of the sale as laid down here.
I can indeed give you that assessment.
Chairman: Of course; we should be
grateful for that. All that remains is for me to thank you for
coming today. I am very glad you are at the Ministry of Defence:
you have done a very good defensive job, if I may say so. Thank
you.
20 Note: See Evidence, Appendix 2, page 38 (PAC 173). Back
21 Note:
See Evidence, Appendix 2, page 38 (PAC 172). Back
22 Note:
See Evidence, Appendix 3, page 43 (PAC 315). Back
23 Note:
See Evidence, Appendix 1, page 30 (PAC 172). Back
24 Note:
See Evidence, Appendix 1, page 30 (PAC 172). Back
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