Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 1-19)



  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 AGP.

  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 Line—and I am rather sympathetic to your senior staff not wanting to be located in docklands, but there we are—one 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 uncertainty.

  Q9  Chairman: Sir Michael Lyons has done a review of public sector relocation, has he not?

  Mr Gieve: He is in the middle of it.

  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 central London?

  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.[1]

  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 now?

  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 offered.

  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 not?

  Mr Gieve: Yes.

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