The Ministry of Defence’s decision to sell 55,000 homes for service families to a private company and lease them back has long been acknowledged as a poor move, but a new report from MPs on parliament’s Public Accounts Committee has warned the deal could be about to get much worse.
It said that a rent review due in 2021 could see the rebalancing of a 58% “downwards adjustment” that is currently in force, making it even harder for the department to keep within its challenging spending targets.
The PAC report says MPs are “not convinced” the MoD and its Defence Infrastructure Organisation arm have the “strategy, capability or information required” to negotiate effectively with Annington Property, which they said had “unbroken knowledge of the estate going back to the 1990s”.
The PAC said Annington was currently getting an annual return of 13.4% from the deal and that because of rent payments and the loss of house-price gains the department was between £2.2bn and £4.2bn worse off than it would have been if the sell-off had not happened.
The committee also said it was “scandalous” that, 22 years into the deal with Annington – signed for “up to 200 years” – there were roughly 10,000 unoccupied service family homes, a figure “roughly the same” as in 1997 but against the backdrop of a national housing shortage. The report said the MoD was still paying rent on the vacant properties, and gave an annual cost of £7,807 to rent, manage and maintain each property.
It suggested that one reason that more unused homes were not surrendered back to Annington for sale or rent appeared to be an average cost of £12,000 to make them habitable for reuse under the terms of the deal.
PAC chair Meg Hillier said the impact of different outcomes from the rent negotiations was “not at all clear”, and neither was the way the negotiations would fit into the MoD’s wider estate strategy at a time when the DIO is also restructuring its operations.
"Taxpayers have lost billions as a result of this appalling deal and there could be worse to come if the MoD fares poorly in rent negotiations,” she said.
“The uncertainty over those negotiations is a further slap in the face for those Forces families who, for far too long, have endured poor standards of subsidised accommodation.
“At this critical time it is difficult to see how restructuring the Defence Infrastructure Organisation will do anything other than undermine the MoD’s efforts to prepare.
“The MoD needs to move quickly to shore up its negotiating position and bring some overdue coherence to its estate strategy.”
Hiller said one of the MoD’s priorities had to be setting out plans for reducing the number of empty properties held onto to a more “acceptable” level. The report suggested reducing the proportion of voids to 10% within the next three years.
Other recommendations included a call to the government to confirm that all its future deals will “contain effective protections for the taxpayer that were noticeably absent in this sale”.
MPs also said they expected Annington to honour commitments given to the committee on letting or selling surplus MoD homes to the public on an affordable basis.
They said the firm had indicated it would split sales two thirds towards first-time buyers and one third to service personnel.
An MoD spokesman said the department had a dedicated team working to prepare for the upcoming negotiations with Annington and believed it had “strong grounds” to retain current rent levels.
In relation to empty properties, the spokesman said it was necessary for “a percentage” of stock needs to be empty between occupancies to allow for essential maintenance to take place before new tenants move in.
“Military personnel also move around the country regularly and a certain number of houses need to be kept in reserve to accommodate them,” he said.
The MoD said that of the 40,000 Service personnel living in its houses, some 16,000 moved every year for operational reasons.
It added that vacant properties were sub-let on the private rental market where it was appropriate, or in conjunction with other public sector bodies.