Select Committee on Defence Minutes of Evidence


Examination of Wintesses (Questions 40-59)

VICE ADMIRAL TIMOTHY LAURENCE MVO, ADC, MR DAVID OLNEY, MR BILL CLARK OBE AND MR MIKE MARTINDALE

15 MAY 2007

  Q40  Mr Jenkins: So the Government shares. In the early release of the lease the Government has a share?

  Vice Admiral Laurence: Yes, they benefit from the sale of the land if Annington sells it on.

  Q41  Mr Jenkins: That is outside your jurisdiction and we would have to ask the Treasury for that?

  Vice Admiral Laurence: Indeed.

  Q42  Chairman: The Treasury has got more of a hold over the Ministry of Defence?

  Vice Admiral Laurence: That was the deal.

  Q43  Willie Rennie: This deal, by way of the share going back to the Treasury in 2012, does that mean there is an incentive to ship off the houses before 2012? Is there a rush before that period in order for you to get a share of the value?

  Vice Admiral Laurence: We have not regarded it as being an incentive for us to sell. Certainly though it does not hold us back from selling, if you like. If it was the opposite arrangement we might be discouraged from selling, but we are not. As I said earlier, when we discover we have got houses that are in the wrong place, are in a poor condition and are not right for our people then we are quite happy to sell them.

  Q44  Willie Rennie: There is no pressure at all? You would not find that round about 2011 a whole lot of houses get shipped off?

  Vice Admiral Laurence: I would hope not, but I think the pressure to give our people the best accommodation is much stronger. The balance is really how much accommodation we need. The Germany factor we talked about earlier is probably the biggest determinant in that.

  Q45  Willie Rennie: Could you see after 2012 a few houses being sold off?

  Vice Admiral Laurence: Again, the calculation for us is essentially: do we want them; and do we want to pay the rent on them, and the cost of maintaining them? If we do need them we will go on doing those things, but as soon as we do not need them and we cannot foresee a future use them there is absolutely no point in us maintaining them.

  Q46  Willie Rennie: Does the Treasury put any pressure on you?

  Vice Admiral Laurence: I have not received any pressure from the Treasury.

  Mr Clark: There are not targets.

  Q47  Mr Jones: Apart from wanting to provide good accommodation, what is the incentive to improve these properties if you do not actually own them or, as Willie Rennie said, would not be able to sell them at a future date?

  Vice Admiral Laurence: There is one incentive. Over and above the incentive of doing the right thing for our people which is by far the strongest, the other incentive is that when we hand houses back to Annington for disposal they have to be at a minimum agreed standard of condition. If we allow them to drop below that it costs us to put them right before we can release them.

  Q48  Mr Jones: Would it not be cheaper, even at this point, to actually buy this contract back, because it is going to be a bad deal in the long-term, is it not, after 2012 when you do not get any sale asset?

  Vice Admiral Laurence: I know what my answer to that would be, but I will ask my Finance Director to answer that.

  Mr Martindale: I think we have not done an investment appraisal to decide whether the price that Annington would ask is the right price compared with the long-term liabilities we may have. I think Annington's price would be massively in excess of the cash they paid the Ministry of Defence in 1996. I think affordability might be a bigger challenge rather than anything else. Could the Ministry of Defence find that sort of sum of money? In essence, however, Annington can place no pressure upon us to release houses for any other reason. It is entirely our decision to release any houses to them. We only release houses which have no defence purpose. It would strike us as perhaps not a deal we would have done now, in that we maintain maintenance responsibility; if we were doing the deal today we would probably transfer that to the landlord. In a sense, the transaction was in 1996 for very good reasons.

  Q49  Mr Jenkins: When you said you handed back the property and it must be to a minimum standard, is that minimum standard higher than Service personnel are living in in some other parts of the Estate? Are you spending money to get rid of property, rather than spending it on the living conditions?

  Vice Admiral Laurence: I do not think so.

  Mr Olney: I think it would be fair to say that is possibly the case for those living in the very lowest accommodation, which are very few. We have to bring it up to what is called "good tenantable repair". That means that the heating systems work; the wiring systems work; that the decoration is there. It is as though someone could move into a house.

  Q50  Mr Jenkins: We are spending money on bringing accommodation up to a decent standard to hand over and out of the Estate, and this is probably a better standard than people are living in on the Estate. I find that perverse. I understand your problem.

  Mr Olney: I cannot say hand on heart that every single Service person is living in accommodation which is better than that which we would hand over. I cannot say that hand on heart. The vast majority will be living in accommodation which is as good as accommodation we hand over.

  Q51  Chairman: Can you say what proportion of Service personnel is living in accommodation which is not in as good tenantable repair?

  Vice Admiral Laurence: That is a difficult question to answer. If you would like us to have a think about that, we can certainly do that and come back to you on that.[4]

  Chairman: I think it would be helpful to know, because if the second largest landowner in the country has a proportion of people living in accommodation which is, by that definition, substandard we need to know about it, particularly if it is people who are fighting and dying for us.

  Q52  Mr Holloway: Returning to Robert Key's list of things which were cancelled or deferred, are we seriously saying we are spending money bringing up to the required standard properties to be handed back to Ferrari-driving residents, like the residents of Sevenoaks, and yet we have got people coming back from Iraq and Afghanistan, in some cases staying in stuff that is deeply substandard? I find that quite bizarre.

  Vice Admiral Laurence: Let me just try and bring some rationality to this. The situation is that if we discover that there are properties we no longer need, and they may well have been properties that have been empty for three or four years, perhaps longer, and we want to get rid of them, there is a balance of investment to be taken. On the one hand at the moment we are paying rent for them; and, secondly, we are paying money to maintain them. So there is an outgoing attached to it. We might reach a judgment that that is no longer required and we want to get rid of them, but before we hand them back to Annington we have to spend a certain amount of money dealing with perhaps some defects that would not meet the contract. That is a relatively small amount of money and it is an investment we have to make in order to reduce the liability of having these houses.

  Q53  Mr Holloway: Do we leave properties empty that belong to the taxpayer without realising any money for them?

  Vice Admiral Laurence: In some cases it might happen, because the site might have been earmarked for a unit returning from Germany. The Army might have been asking us to, "Hang on to that for the moment because we want it". Our instincts in Defence Estates are that whenever a site is vacated to dispose of it; but there are occasions where the customers say, "No, please hang on to it. We might need it", and there is a difficult balance there.

  Q54  Mr Jones: One of the big incentives when I was a councillor was the figure you had to look at every month for the number voids you had. Could you provide us with a figure, because I think it is an important point, where you are paying rent on empty properties? Could you provide us with a detailed breakdown; that would be helpful?[5]

  Vice Admiral Laurence: The number of voids is an issue we track very, very closely indeed. In fact, we answer questions on that quite regularly. It is a figure which, in my view, is too high; I would like to reduce it. One of the factors in this difficulty of reducing it is the uncertainty about future accommodation and trying to balance whether we want to hang on to accommodation because we might need it, or sell it and then find in five years' time we need it.

  Q55  Mr Jones: The committee could perhaps meet every month. It used to be a very telling fact in the city council, when they had the voids figure before the housing committee every month, to have public exposure to this. It might be an idea to keep publishing this on a monthly basis, which might then concentrate people's minds to get the void levels down—it certainly did on most councils.

  Mr Clark: We actually have a key target to hold something around the 10% mark. That is what is called a management margin, which is a void, which we are above and reported that in the annual accounts when we were an Agency, and will report in the 2006-2007 Accounts. There are reasons for being above some of which, as the Chief Executive has said, are because we are holding them at the customers' request and holding sites for possible future deployments; and some are also classed as voids, for example awaiting modernisation, awaiting allocation, or awaiting disposal. We can provide that information quite readily.

  Mr Hamilton: I find it rather difficult, there are three MPs sitting here who used to be on local authority councils and therefore know about housing issues, and Kevan is quite right it is one you have got to keep on top of all the time.

  Chairman: I was once a chairman of a housing committee.

  Mr Hamilton: I am sorry, Chairman. I am not used to knowing about many Tories, that is the problem!

  Q56  Chairman: In your comparison, Mr Clark, could say how that voids figure compares with the average of local authorities in the country, because it sounds a very, very high figure?

  Mr Martindale: If I could just help the Committee's understanding. Part of the reason we have this 10% margin as Bill explained is that we have 20,000 move-outs and move-ins every year due to the transferring military forces around the country, which I think you will find in most local authorities the number is much smaller in terms of the number of people who move. The Army occupancy of a house is only, say, six months on average, which is why we need so many "voids" as a standard minimum requirement, just to accommodate the move-ins and move-outs as we move the Armed Forces around.

  Q57  Mr Holloway: With hindsight do you think that what has happened here has been unsatisfactory and, if so, what lessons have you learned for the future?

  Vice Admiral Laurence: In what respect?

  Q58  Mr Holloway: The whole Annington Homes thing we have been discussing for the last half an hour.

  Vice Admiral Laurence: As I say, as a financial deal I think with the benefit of hindsight we probably would have done it in a different way; but I do not think the way we managed the housing stock is unsatisfactory. I think it is a perfectly satisfactory arrangement albeit I would like to do it better.

  Q59  Mr Holloway: How did you find the financial deal unsatisfactory?

  Vice Admiral Laurence: I just think with the benefit of hindsight had we held on to the property and gone down the route we have gone down for contractual management we might have found, in the longer term for the public benefit, we would have financially benefited; again, with the benefit of hindsight. At the time the deal looked a good one. We put it on the market; the highest bidder won the deal and there were plenty of bidders for it; and it looked the right thing to do.


4   See Ev 30 Back

5   See Ev 30 Back


 
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