Ministry of Defence more than £4bn worse off after ‘overcautious’ property deal, say watchdog
The UK’s armed forces are £4.2bn worse off than they would have been were it not for an "overcautious" property deal struck more than 20 years ago.
The decision in 1996 to sell 55,000 military houses to Annington Property Ltd and lease them back had ended up being “a great deal for the landlord”, according to the National Audit Office (NAO).
It said the MoD was "overcautious" when it assumed at the time that house prices would rise at 1% a year. They have since risen by 3.9% a year.
“The NAO has found that, mainly due to actual house price increases since the sale, the [MoD] is £2.2 billion to £4.2 billion worse off over the first 21 years of the contract than if it had retained the estate,” the report says.
It added that the £1.66bn sale offered low rent for the first 25 years of the 200-year deal, but that since some homes have been surrendered the department now pays £178m a year for the 39,000 left over.
And it says that despite the Government’s belief that rent should fall when the discounted rate expires in 2021, indications from the company are that it could rise by £84m per year.
Sir Amyas Morse, head of the NAO, said the arrangement with Annington had already “cost the public sector a great deal in capital growth and it has been a great deal for the landlord”.
Labour MP Meg Hillier, who chairs the Public Accounts Committee, branded the original sale “a rotten deal for the taxpayer”, adding: “There is a risk that when rents come up for renewal the next deal with be even worse.”
The revelation comes as Defence Secretary Gavin Williamson faces separate criticism for breaking his department out of the national security capability review, so as to bid for greater funding.
The announcement by Downing Street that defence cash would be looked at separately was seen as a major victory for the new Cabinet minister.
But former national security adviser Lord Ricketts said it contradicted recent moves for departments that dealt with defence and security issues to be more joined up.
“I can imagine the politics behind it but I think it’s a backward step to separate out defence and deal with it separately from other national security issues,” he told a group of MPs and peers.
Former CCHQ director Robert Hannigan said the decision did not seem “very coherent”.
Elsewhere, Mr Williamson is said to have ordered the removal of European Union flags from the MoD’s headquarters to restore “British pride”.
An insider told the Sun: “Gavin said he saw no reason why they should waste any time on delaying the removal of the EU flags."