Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)



Mr Williams

  1. May I welcome our witnesses: Kevin Tebbit, yet again; Air Marshal Pledger, I do not think I have had the pleasure of meeting you before, you are very welcome; Mr Wilson you are very welcome. I congratulate you on achieving a better turnout than we have. Unfortunately our Chairman is not here, his train got as far as Doncaster and was then turned back. No one thought of asking if you could lend a helicopter to get him down in time for the meeting. The meeting today is on managing the reductions in the number of vacant family quarters. Can we just look at the rather anonymous developments that seem to have taken place in the pattern of vacancies against the number of actual premises? In 1991 there were 11,200 vacancies out of a total of 75,000, or one in seven. One in seven were vacant. Now the vacancies have risen by 3,000, to 14,300 despite the fact that there has been a fall in the total number of premises to 61,000. How has that come about? Why was there one in seven previously vacant and now virtually one in four vacant?

  (Mr Tebbit) I think the short answer to that is two factors. Firstly, a sustained decline in demand for quarters by the population in the Armed Forces, which in recent years has been at about a 4 per cent a year decline, 2,000 families per year, which has meant that the number of surplus properties has risen proportionate to the total stock. Secondly, due to planning uncertainties throughout the period arising from successive Defence Reviews, where it has not been clear precisely how many people and what type of units would be where. That only came to an end in terms of the Strategic Defence Review in the middle of 1998. We are still coping with the consequences of deployment arising from those reviews. What we are doing to counteract that is slightly masked by the Report, because the numbers you are quoting to me were total numbers. Our disposal rates are now rising very rapidly. Our target for this year, up to March 2001, is to dispose of 6,500 properties—through Annington Homes mainly—and that will reduce this proportionate size of vacant homes quite significantly. It will bring it down, on the figures you are looking at, from the 23 per cent you see in this Report—which, of course, was compiled over a year ago now—to about 18 per cent. We intend to reduce that margin further, quickly and certainly, to a sustainable level, which we believe will be achieved. Around ten per cent of our core requirements will be the management margin. We have a picture of change from the period that you are seeing there and continued plans for change in the future.

  2. At the initial hearing, when the actual deal was set up with new owners, the Committee was somewhat critical as to whether it had been value for money or not. Looking at it now three or four years on, one does see that the risk is borne entirely by the Department. Is it not the case that there is no risk to them at all and all of the risk has been to yourselves?
  (Mr Tebbit) The risk to them, of course, is in disposing of the properties once we hand them over to them. They are obliged to take properties which we release once we have completed the process of agreement, the so-called dilapidation process. To that extent they are still taking the risk because they have to sell the properties they receive into the market.

  3. The Committee was somewhat sceptical as to whether there had been value-for-money initially. In the meantime, with a turnaround in the market, they also had the benefit of the revival of the market, therefore capital gains, with you meeting dilapidation costs. They are on quite a good little deal, are they not?
  (Mr Tebbit) The deal was struck back in 1996. I think my predecessor testified before the Committee and said it was "value-for-money" in relation to the policies of the Government of the day. £1.66 billion[1] was received in revenue. It is quite difficult to draw a balance sheet. Other factors obviously come into play as well. The existence of Annington Homes has sharpened up the commercial approach that we have been taking. So many factors have come into play since 1996 that it is difficult to draw up a balance sheet purely in relation to that sale.

  4. Insofar as there is a balance sheet, things have obviously moved adversely as far as you are concerned, the number of vacancies has gone up and the value of property has gone up. Both have worked in favour fortuitously of the purchaser. When you pass them back to them they can dispose of them. I also note that they sometimes redevelop them. Do they then qualify for public grants to—
  (Mr Tebbit) I do not think so. If land is being used for redevelopment the terms under which the—

  5. To redevelop the houses?
  (Mr Tebbit) To redevelop the houses themselves? Generally they sell them on as received. If they are going to redevelop an area rather than sell on the houses, slightly different rules apply. In the main they sell them straight on as quickly as they can.

  6. We understand the difficulties that are faced, with problems of the contractual and manning levels, and so on. There is also the change in taste, is there not, that these Service personnel increasingly prefer to make their own arrangements? What are the key factors that influence that, do you think?
  (Mr Tebbit) Demand has fallen by about 4 per cent a year in recent years. That is partly a function of people tending to get married later in life than before. It is partly a judgment, I think, individuals make about the importance of getting a house in the market, with property values rising. That has been a factor, perhaps slightly less strongly now than it was a year ago. The basic need for this sort of housing remains strong. We do not provide housing simply as a benefit, we provide it for operational reasons. The main underlying reason why we still need it is that we still have 22,000 family moves each year in the Armed Forces. The operational need to move people around is still very high. That provides an underpinning. But you are correct, the general social trends have been to reduce the demand for family housing.

  7. Has the major impact of the strategic redeployment of the Forces worked its way through? Insofar as it has impact, do you expect the possible development of a European Defence Force to add in any way to the uncertainties in the future?
  (Mr Tebbit) I am not sure the European developments would change this issue very much. We had about 60 different changes arising from the Defence Review, of which around 15 or 16 are still going through. It is not possible to be absolutely certain of future requirements in terms of individual locations. You have to do risk management for some of these issues. The big things which have not been completed yet are the reorganisation of our Defence Logistics Organisation, which is about 41,000 people in the whole of the logistics area. That is a big area within the three Services together. We are in the middle of a Defence Education and Training Review, which not only looks at how we train and educate people but also where we do it in terms of establishments. That could also throw up some changes. We are still working through the consequences of our joint force structures, where we brought together the Air Force and the Army in the main, and the Navy to some extent, in joint helicopter units and joint fast jet units. We have still not finally settled on which stations they co-locate, and which ones are released. There are about 16 different studies of that kind which are still going through. We are getting more stable, but we are not quite there yet.

  8. Incidentally, can I say to your colleagues, feel free if you wish to add anything. We want to hear anything you have to say.
  (Mr Tebbit) Mr Chairman, I have asked them to chip in if I have not said enough or I am wrong.

  9. As long as they understand we would welcome that. The individual Services are still finding it extremely difficult to give you meaningful forecasts, how does that really affect your target? The 13 per cent target is way out of date anyhow but even when it was set the 13 per cent vacancy rate was seen as a pragmatic best guess, and, as I say, all the changes we have referred to have actually taken place since then. On what basis do you think you will be able to devise a more meaningful, firmed-up target, and when?
  (Mr Tebbit) Just two points quickly. Firstly, the 13 per cent target, or what we would define as the 13 per cent target, is very quickly realisable, and we would expect to achieve 13 per cent in terms of realistic percentages—and I will explain what I mean by that—by next spring. The reason I say that is because the figures you have here include all of the properties we have in disposal and, frankly, once we have decided to hand them over to Annington Homes we do not really regard them as sitting empty on our hands. The time is the time it takes to go through the dilapidations process with Annington and get them sold. This is why, as I said, we are already close to the 13 per cent. In terms of getting beyond that, we now have long-term housing plans devised on a much more sophisticated basis than before. Because it was a year ago when the report was written, and it was written when we were in the middle of changes ourselves, the recommendations here have largely been incorporated and adopted. So the long-term housing plans we have now are built up sector by sector, bottom-up from each area, rather than just a top-down guess. They build into them a forecast the Services have of where they think they are going to be over the next four years. As I say, in some areas you cannot be precise but we can do risk management about that. They take into account surveys conducted about people's preferences and what we generally think about trends. On that basis we do have a fairly clear view of where we want to be, and the working assumption at the moment is that we hope to get down to a core stock of housing of about 40,000, with a 10 per cent management margin above that in stable state by about 2005.

  10. I noticed that you are paying about £11 million a year for renting housing outside your stock. Once again, I appreciate why you need to do that, and I am told there are about 700 families in such accommodation.
  (Mr Tebbit) Yes.

  11. Is that going to be an increasing phenomenon, that as you cut down on your own stock and with the type of changes which are taking place you may have to do this more in the future?
  (Mr Tebbit) It has been pretty stable at that type of percentage for a few years now. Perhaps I could ask Air Marshal Pledger when he thinks it is going to change. What I would say is that as accounting officer I want to make sure that when that happens it only happens when it is cost effective and value for money; that is to say where we can see a short-term need for that sort of accommodation but not a long-term need. If there is a long-term requirement, we should be building houses to meet it, usually through PFI these days because we do not have capital ourselves to do that.

  12. You have anticipated where I was going, because it is costing you over £15,000 a year a unit on average, and that clearly is not a very sustainable position.
  (Mr Tebbit) It certainly is not. It is a £12 to £15,000 cost a year.

  13. Over £15,000 I make it. Would you like to add anything, Air Marshal?
  (Air Marshal Pledger) Only to say that SSFA[2], which is the substitute SFA, is really the last resort when these other mechanisms have not proven their worth. So it is a financial structuring but predominantly the last resort. Can I just go back to some of the risks we are taking in reducing the margins you have been talking about? The identification and indeed the placement into disposal of 6,500 this year will require considerable turbulence on the families which are affected. We are going to have to move about 25 per cent in mid-tour, which of course is something we have tried to balance given that the SFAs are there to preserve our operational effectiveness. So there is a risk in what we are doing in collapsing the numbers in the way which has been described, and SSFA is one of the means of dealing with that risk down-stream.

  14. One of the gains of bringing our troops back from Germany is that we do not need to keep accommodation there for them, but one of the down-sides of taking an area-wide role in the European context is that you may in this country be needing to rent less but you are going to find you are going to be out in the theatre needing to rent.
  (Mr Tebbit) I do not think that is going to change it very much because that would tend to be for temporary deployments for a few weeks or a few months, and in those cases what would happen is more or less what happens now; people will be detached from their family and their home and they will go off on deployed duty and come back to their accommodation, whether private or family quarters. So I think that is more likely to be the trend with the European Defence Initiative rather than people moving permanently, as it were, back on to the Continent.

  15. Looking back over the years of this agreement and bearing in mind the number of houses has gone down and the number of vacancies has risen and we are paying about £39 million a year for those vacancies, can you point to any effective benefit managerially that has actually arisen from the process of selling the stock off?
  (Mr Tebbit) Yes. Firstly, I must just comment on the description about the £39 million. I would say that the actual non-cost-effective element in the vacant properties that you are talking about would be closer to about £11 million on that basis, because costed into that £39 million are the houses which are in disposal; they are, as far as we are concerned, leaving us. Some of the others are in other use; we have about 2,000 of those properties included in that figure which are being used for social purposes or not used as family quarters but used as welfare offices and that sort of thing. So the actual dead money in that figure of vacancies you quoted there we would calculate at about £11 million. I can take you through the way the figures stack up if you like but it is more or less described in the report. So the first point, and I am happy to expand it if you want me to, is that I would see about £11 million of that as being money we should not be needing to incur rather than £39 million. Whether that represents value for money in relation to the overall Annington sale is very hard to say. As I say, we got £1.66 billion[3] from them as a receipt, so it depends how well we manage really and that is where the Agency is having to go, it is having to implement much more effective and efficient management processes to balance supply and demand.

  16. Could you give us a brief note amplifying the £11 million figure?
  (Mr Tebbit) I would be happy to[4]. I would be happy to describe it now if you have time, Mr Chairman.

  Mr Williams: No, a note will do.

Mr Gardiner

  17. Mr Tebbit, I want to pick up on some of the things that the Chairman was pushing you on. I felt he was being generous to you when he said that £39 million was being spent on empty properties. I calculated it to be £43 million on empty properties plus, of course, the £27 million that is being spent on the improvement of those going back to Annington Homes. The figure I would use would be in the region of £70 million. So that I am not confusing the issue, this is in paragraph 1.16. Let me get to what I think is the point here. You talked about other uses for the property, such as welfare accommodation and so on. Do you disagree, then, with the word that is used in paragraph four of the Report, where it talks about, "properties being misappropriated"?
  (Mr Tebbit) Yes, I do.

  18. This is an agreed Report, is it not?
  (Mr Tebbit) I disagree with the emphasis you are placing on it. The implication is that they should not be used in that way. In the technical term one may use that phrase, but I would not agree they are not being put to good value.

  19. Technically these houses have been misappropriated. None of us are going to say it is not a fit and proper use for the Services to have welfare units, but the point is that that should not be chargeable to this particular budget head. Therefore when you are talking about funds, which is what this Committee is concerned with, it is money that is improperly being allocated from this budget head, is it not?
  (Mr Tebbit) Let me just say, they are still being put to cost-effective use, that is what I meant. What I meant was that in the case of those properties which are in this category—I expect there are about 1,000 all told in this category—in each case it has been necessary for the Agency and the Armed Forces to validate that they are being used most effectively for this purpose. If we were to build a cre"che or find some other way of providing a welfare office, it would be more expensive than using these properties. That is why I meant "being misappropriated" is not quite a phrase that covers the whole context of those properties.

1   Note by Witness: The proceeds from the sale were £1.662 billion. Back

2   Note by Witness: The term SSFA stands for "Substitute Service Family Accommodation", ie housing obtained through the private rental market for individual, entitled families where an appropriate Service house is not available in the area. Back

3   Note by Witness: The proceeds from the sale were £1.662 billion. Back

4   Note by Witness: The witness referred to the number of properties being used for other Defence-related uses as 2,000, at a cost of some £4 million in rent and maintenance. This is additional to the £39 million". See Appendix 1 p 23 (PAC/280). Back

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