Examination of Witnesses (Questions 420
- 439)
TUESDAY 8 DECEMBER 2009
RT HON
STEPHEN TIMMS
MP AND SARAH
MCCARTHY-FRY
MP
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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