Examination of Witnesses (Questions 1-19)|
HSBC INFRASTRUCTURE LTD
WEDNESDAY 12 NOVEMBER 2003
Q1 Chairman: Good afternoon ladies
and gentlemen and welcome to the Committee of Public Accounts
where today we are looking at PFI, the new headquarters for the
Home Office. I do not know whether I should declare an interest,
but I live in Horseferry Road, so I see this building going up
every day of the week and it is therefore of particular interest
to me. We are all obviously impressed that the old three towers
have come down, but we are here to discover whether we are getting
value for money on the new building. We welcome Mr Gieve, who
is the Permanent Secretary at the Home Office. Would you introduce
your team at the table, please?
Mr Gieve: On my left, Margaret
Aldred, who is Director-General Resources and Performance in the
Home Office and oversees major projects and investments for the
whole group. To my right Olivier-Marie Racine, who was Director
of AGP, the company we are contracted with, and is now Chief Executive
of Bouygues Bâtiment International. To his right, Henry
de la Monneraye, who is the Chief Executive of AGP and next to
him Bryn Jones, who comes from HSBC and is also a director of
Q2 Chairman: Thank you very much;
you are all very welcome. May I start the questioning by referring
you to page 11 and Figure 3, where we discover that you are paying
an additional £6 million per annum on accommodation running
costs. How can you justify this?
Mr Gieve: The comparison here
is between what we paid in 2001-02, and what we were then estimating
we were going to pay under the PFI deal. The main case for change
has been that the £33 million was going up. The following
year it was nearly £45 million, this year it has gone down
again to £39 million, but we expect it to go up again next
year, depending on how much we have to pay on maintenance and
so on. Although it is £6 million more than the last financial
year when we signed the deal, we think it offers value for money
compared with what we would pay for staying in our current property
and refurbishing it.
Q3 Chairman: One of the main justifications
for moving into this expensive, brand new office block was that
you wanted to have all the staff in one building, was it not?
Mr Gieve: Yes, we thought we could
get all the staff in one office block.
Q4 Chairman: That is no longer the
case, is it?
Mr Gieve: That is right.
Q5 Chairman: You are thinking of
moving the entire Prison Service out, or, rather, not letting
them in. Is that right?
Mr Gieve: Yes, that is right.
Q6 Chairman: Where are you trying
to move them to?
Mr Gieve: We want to unify both
the Prison and Probation Service headquarters and we think the
rest of the London Home Office will fit in the new buildings.
Where are we moving them to? We are considering our options. In
the short-term one option is to leave them in Abell House and
Cleland House, which are very close to the Marsham Street building
and which are currently occupied by the Prison Service headquarters.
That provides one obvious short-term option. We are looking at
whether we can get better value for money either in central London
or outside London. As part of our review of the scope for relocation
under Sir Michael Lyons we are looking at that as well.
Q7 Chairman: We were told originally,
were we not, that one of the reasons why the Home Office did not
want to be located at the end of the Jubilee Lineand I
am rather sympathetic to your senior staff not wanting to be located
in docklands, but there we areone of the attractions, was
that you wanted to be in the same building. We now discover that
you cannot fit into the same building. Could you not have got
your planning a bit better? Could you not have worked out in advance
how to have a building which would actually house all your staff?
You now say "Don't worry, we'll move Prisons out", but
why were we not told this originally?
Mr Gieve: The Home Office has
changed, its tasks have changed, its numbers have gone up.
Q8 Chairman: Remind me how much they
have gone up by?
Mr Gieve: They have gone up from
roughly 3,500 in 1998 to around 4,900 this year. In 1998 when
we were making the original projections, we thought numbers were
going to fall; in fact they have not, they have gone up. In 2002,
before we actually signed the deal and reached financial close,
we had to consider whether it still made sense, given that we
were not all going to fit into this building. Should we still
go ahead with this? We did our calculations and we thought it
still offered, and we still think it offers, good value for money,
although it is true that not everyone will get in. The only other
thing I would say is that during those few years and no doubt
during the next few years, the numbers required in the Home Office
are likely to go up and down. For example, we have a major review
going on at present of our drugs policy and how we should deliver
that, we have a major review just coming to an end on corrections,
that is the structure and workings of prisons and probation. Both
of those are likely to have quite significant implications for
our central numbers, as, for example, the changes in machinery
of government had in 2001. We have had to plan for a degree of
Q9 Chairman: Sir Michael Lyons has
done a review of public sector relocation, has he not?
Mr Gieve: He is in the middle
Q10 Chairman: From what you know
about the review and the work which has been undertaken, do you
still think that these huge numbers of Home Office staff need
to be so close to ministers? We are talking about a building housing
3,000 people for the next 30 years. How many of your staff actually
have to deal with ministers, or how many of them are supporting
senior civil servants who are actually meeting ministers? Is it
300, 400, 500? It is not 3,000 is it? Do they all need to be in
Mr Gieve: We are examining that
as part of the Lyons' review and you are right that there are
some transactional services and so on which we can move out, especially
if we can get modern IT to work. I do not think it is a question
of a few hundred having to be in central London; it is not just
ministers they need to talk to, it is Parliament, other government
departments and so on. Looking 30 years ahead, I am certainly
not going to say we will always require 3,500 staff in central
London, but at the moment we are well above that. I could see
us contracting in central London, I expect that to happen over
a period of years, and we may go below 3,500. In that case, obviously
we will be able to pull other people into the building.
Q11 Chairman: When we had the old
Scottish Office in Dover House they had a lean, mean staff there,
perhaps 30, 40, 50 people. They served ministers perfectly adequately,
did they not, in central London while the bulk of the Scottish
Office staff were up in Edinburgh?
Mr Gieve: I think it was slightly
more than that. It is certainly true that the bulk of the Scottish
Office was in Scotland, but London is the capital of England and
Britain and we are in charge of England and Wales, so the equivalent
to the Scottish Office being in Edinburgh is our being in London.
Q12 Chairman: It would be quite interesting
to have a note from you, if I may, because you cannot answer us
in any detail now, on just how many staff do need to service ministers
and supporting staff of those senior civil servants or need to
talk to people here in Parliament.
Mr Gieve: Okay.
Q13 Chairman: Thank you very much.
What decision are you going to take on the remaining freehold
properties which you are going to get rid of now?
Mr Gieve: First of all, in the
short-term at any rate, we have to find accommodation over and
above 2 Marsham Street and keeping some of our freeholds is one
option to do that. However, we are also considering whether we
can sell them and find better value for money, either by renting
in central London or elsewhere. In due course I expect to dispose
of our freeholds.
Q14 Chairman: At the time a bidder
offered to take these properties off you, did he not?
Mr Gieve: Yes.
Q15 Chairman: Since then the market
has gone down, so you have lost out, have you not?
Mr Gieve: No.
Q16 Chairman: It would perhaps have
been a lot better if you had sold at the time when the bidder
made you a reasonable offer.
Mr Gieve: No, I do not think so.
The price we were offered by AGP was around £35 million.
At the time we thought the properties were worth over £50
million and by financial close we thought they were worth £68
million. That was the basis for that.
Q17 Chairman: What are they worth
Mr Gieve: We have not had valuations
since then, so far as I am aware, but I still think the price
would be above the price we were offered. Obviously we took that
risk. At the time we had to make the decision, there was quite
a clear gap between our valuation and the valuation we were being
Q18 Chairman: Do you think a refinancing
gain is likely on this deal?
Mr Gieve: It is difficult to say.
There is some subordinated debt, so in principle you could see
some refinancing. There may be a chance to refinance some of the
bond finance, although we got a good deal on that.
Q19 Chairman: This was quite unique
and I think it is what the Committee would be interested in. You
actually paid for this share of the refinancing gain, did you
Mr Gieve: Yes.
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