Administration and expenditure of the Chancellor's departments, 2008-09 - Treasury Contents

Examination of Witnesses (Questions 420 - 439)



  Q420  Mr Todd: In an inquiry with the HMRC I asked a number of questions about the Mapeley contract on property. I said how, based on the extraordinary terms of the ability to return property to Mapeley for them to resolve its future, a tremendously good deal had been struck. The bit that I did not ask about—and that was my mistake but the NAO has remedied that—was from the other point of view, which was to examine the risk to Mapeley of such an aggressive programme of transfer of property. Have you examined that?

  Mr Timms: Yes. As you say, the NAO has just issued a report on this, and I think there is going to be a PAC hearing in January exploring the work that the NAO has done. But we certainly have been considering the issues that might arise with the Mapeley contract, including whether there is a risk to Mapeley and other contingencies that we need to think through. Our view is that we have obtained quite impressive value from the contract, for some of the reasons that you referred to when you commented on this before. The NAO has said in its new report that a number of things need to be done to ensure that we do secure the full value from that contract over its life. We accept that. We agree that there is work to be done, and officials will be commenting in detail on that at the PAC hearing in January.

  Q421  Mr Todd: The NAO has identified that the contract has cost £312 million more than forecast. There are a number of possible reasons for that. What is your perspective on that?

  Mr Timms: There have been a number of changes since the contract was signed. One of the issues, which I know the NAO picked up correctly, is that some of the flexibility for vacating space which was available early on in the contract was not in fact taken up. That is now being taken up. We believe that the department will have made full use of all the flexibility to vacate by the end of 2010-11.

  Q422  Mr Todd: So part of this is about timing.

  Mr Timms: I think it is, yes.

  Q423  Mr Todd: But then one goes back to the issue of Mapeley's capability to absorb a large amount of property being transferred back to it in a recession.

  Mr Timms: We are certainly aware of those challenges, which are indeed clear, and we are aware of the risks that they pose to Mapeley, and so HMRC has carried out quite a lot of work to understand the nature of the financial risks to Mapeley and how they can be addressed.

  Q424  Mr Todd: I think I am right in saying that this is much the largest contract Mapeley has. Is it?

  Mr Timms: They certainly have other contracts, but I imagine this will be the largest of them. It is worth underlining that that flexibility to vacate properties is a very important benefit of the contract.

  Q425  Mr Todd: It is.

  Mr Timms: As you pointed out when you commented on this before. Of course HMRC pays Mapeley a premium for that benefit.

  Q426  Mr Todd: Just to finish this, the obvious point is that this contract was struck at a very different time in the property market, and if you suddenly transfer a large chunk of the property at a point where its passing on to other tenants is, frankly, rather unlikely, it would not be very surprising if this stressed the contract to a very significant extent.

  Mr Timms: That possibility is the reason for the very substantial work that HMRC has done.

  Q427  Mr Todd: Could you share this work a little bit more with us in a note perhaps?

  Mr Timms: I would be very happy to see what we can provide.[3]

  Q428  John McFall: I think that is important, minister, because the NAO press release was very clear in saying that HMRC has not achieved value for money on the contract. It goes on to say that HMRC does not have an agreed way forward with Mapeley and if Mapeley were to default on the contract then HMRC could incur significant one-off and ongoing costs. Maybe the picture is not as rosy as you suggested at the beginning.

  Mr Timms: The message that I took from the NAO Report was that of the need to take a number of steps to make sure that over the full lifetime of the contract we achieve the full value-for-money benefits that it offers. The points the NAO made were entirely appropriate about that. There is work that needs to be done. I am equally confident we will be able to do it.

  Q429  John McFall: What is the obstacle to agreeing a way forward with Mapeley at this stage?

  Mr Timms: We have a contract with Mapeley and that contract is being observed.

  Q430  John McFall: The NAO was very clear that you do not have an agreed way forward.

  Mr Timms: We do have an agreed contract. I am not quite sure what the way forward they were referring to was.

  Q431  John McFall: They are talking about this vacations programme creating "areas of specific financial pressure for Mapeley, exacerbated by the economic downturn and falling property values" and "HMRC is now planning to vacate a significant number of its buildings by 2011." You do not have an agreed way forward, I presume, on that area, and if Mapeley were to default then you are going to find yourself with extra costs here.

  Mr Timms: We are proceeding in the terms of the contract. The contract is absolutely clear. HMRC is paying a premium to be able to have the flexibility that the contract offers. We are now taking use of that flexibility. We are aware that there could be pressures on Mapeley in the future and we are looking very carefully at what those pressures might be. In terms of having an agreed way forward, we are complying and Mapeley is complying with the terms of the contract.

  Q432  Chairman: Perhaps you could let us have a note, just to reassure us on that.

  Mr Timms: I would be happy to do that.[4]

  Q433  Chairman: Thank you. Could one of you help me with the way you assess these outcomes. Outcome 2(a) "Supporting low inflation" you describe as "met—ongoing" when in fact you missed the inflation target with three of the four quarters in 2008-09. What does "met—ongoing" mean?

  Sarah McCarthy-Fry: It is across the balance as a whole and looked at over the whole period.

  Q434  Chairman: But looking at it over the year, the target was missed in three out of four quarters, so how can it be met?

  Sarah McCarthy-Fry: I believe it is because we are looking at it across more than one year. Let me just check that one for you.

  Q435  Chairman: This is your Annual Report, you are reporting on the target, the target was missed in three out of four quarters, and you call it "met—ongoing".

  Sarah McCarthy-Fry: It is presumably because we got there at the end of the year. I am afraid I cannot go any further than that. I will have to come back to you on that one.[5]

  Q436  Chairman: Sure. Maybe you can come back with a better answer before we finish this morning.

  Sarah McCarthy-Fry: Yes, hopefully.

  Q437  Chairman: Would you like to reflect on that.

  Sarah McCarthy-Fry: Yes, I will.

  Chairman: Thank you.

  Q438  Jim Cousins: Pursuing that particular issue a little further, in the Annual Report two risks to the future delivery of the inflation target are set out. The nearer term one is the large negative output gap which is depressing prices and wages, and then further out is the lagging effect of the depreciation of sterling. Which of those two risks matters more to the Government?

  Sarah McCarthy-Fry: I would say that both risks matter to the Government, but obviously, as far as inflation is concerned, it is the responsibility of the MPC to keep within the inflation target. We can see that from their minutes when they have debated those risks.

  Q439  Jim Cousins: The large negative output gap would obviously point to low interest rates, whereas a concern about the lagging effects of the depreciation of sterling would point to higher interest rates. Do you not think that the MPC needs some guidance as to which of those risks the Government considers to be the more important?

  Sarah McCarthy-Fry: The MPC has a very clear remit. That was the whole purpose of making the Bank of England independent, that they would manage those risks. Their remit is to manage the inflation target. Those are both risks that they would have to take into account in their deliberations.

3   Ev 110 Back

4   Ev 110 Back

5   Ev 111 Back

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