MoD is ‘up to £4.2bn worse off after selling off homes’

THE Ministry of Defence is up to £4.2bn worse off after selling tens of thousands of military homes two decades ago, Whitehall’s spending watchdog has said.

In 1996, the MoD sold more than 55,000 service family homes across 770 sites to Annington Property Limited in return for a £1.66bn upfront cash lump sum.

Of these, 2,195 properties were in Wales – spread across Cardiff, Brawdy, Haverfordwest, Brecon, Castlemartin, Chepstow, Crickhowell, St Athan, and Valley on Anglesey.

The MoD has since rented them back on 200- year underleases, and is paying more than £178m a year for the remaining 39,000 properties, a National Audit Office (NAO) report has discovered.

The NAO said it also found that mainly due to actual house price increases over the first 21 years of the contract, the MoD is £2.2bn to £4.2bn worse off over that period than if it had retained the estate.

The report states that although the house price and rent increases could not be foreseen, the MoD’s assumptions at the time of sale were “overcautious”.

It indicates how the MoD business case model assumed house price increases of 1% per year excluding inflation – with a 3.9% increase, excluding inflation, now the actual figure.

Amyas Morse, head of the National Audit Office, said the sale and leaseback deal was “based upon pessimistic views of the future growth in property values”.

Mr Morse also highlighted how there was a “mitigating feature that the rents charged to the military families who lived there were restricted for the first 20 years”.

“This has cost the public sector a great deal in capital growth, and it has been a great deal for the landlord,” Mr Morse said.

“In 2021 the period of restricted rents is over. The question is now whether the landlord will get a very large rent increase on top of the very substantial capital gains they have already received.”

The NAO report noted how the returns to Annington Property Limited have been “significant”.

But from 2021 the way in which the rents are calculated are set to change – with contrasting beliefs from both the MoD and Annington Property Limited on what should occur.

While the MoD thinks there are a number of reasons why rents should fall, the company is looking to a rise of £84m a year, the NAO said.

The decision will set the rent assessments criteria for the next 175 years of the contracts.

According to the NAO, the MoD has “started to prepare for the site-bysite rent reviews but has not yet begun contingency planning” or assessed alternatives.

The report’s findings come amid a £20bn black hole in the defence budget over the next 10 years, and widespread speculation of cuts to personnel and equipment in a bid to try to save cash.

Meg Hillier, chairwoman of the Public Accounts Committee, said the sale of the 55,000 homes has “turned out to be a rotten deal for the taxpayer”.

“There is a risk that when rents come up for renewal the next deal will be even worse,” she added.

The NAO report also highlights how the deal “did not generate the improvements in the management of the estate that families who live in the properties would have hoped for”.

It also said the MoD is required to return surplus properties to the company in a “good tenantable repair and decorative order” – but since 2004, doing this has cost on average £11,369 per surrendered unit.

An MoD spokesman said: “The NAO supported the Annington deal in 1997 and is clear that the surge in house prices could not have been predicted.

“We have a team working on renegotiating the deal, and believe that rent prices should continue to fall to secure value for money for taxpayers.”