Examination of Witnesses (Questions 1
- 19)
MONDAY 30 OCTOBER 2000
MR KEVIN
TEBBIT, CMG, AIR
MARSHAL MALCOLM
PLEDGER AND
MR JOHN
WILSON
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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