The MoD's pounds 2bn bombshell

Public-sector finance: the Government is under fire over plans to sell off 60,000 service homes.

The announcement of the terms for the sale of the Ministry of Defence's housing stock has met strong criticism. Housing professionals and the Opposition claim the Government will obtain large capital receipts for use as pre-election tax handouts but will commit future administrations to higher ongoing revenue overheads for the lease-back of many of the homes.

There are about 60,000 MoD married quarters on 800 sites within the sale, some in areas of high-value housing, including Westminster, but many in less sought-after areas, such as next to RAF bases in East Anglia. The largest concentration of service homes is in and around London. The portfolio, valued at pounds 2bn, is too large to be bought by any single organisation.

NatWest Markets is handling the disposal, but it is rumoured that the draft proposal was drawn up by David Hart, the controversial personal adviser to the Defence Secretary, Michael Portillo. Mr Hart advised the Government on handling the miners' strike, and is himself a property developer.

The sale is believed to have attracted interest from a range of organisations. Some of the largest housing associations, including Home, Housing 21, the Peabody Trust and Merseyside Improved Homes, investment bankers Kleinwort Benson, BZW, Merrill Lynch and Goldman Sachs, property companies Johnson Fry, John Laing and Heron, and building societies Halifax and Nationwide have all been linked to consortia keen to buy parts of the portfolio.

Property companies have an added incentive to buy into the MoD stock with the announcement that the Government will not, after all, allow them to bid for grants to build social housing.

The sale of MoD homes is extremely attractive to the Treasury, and to the Cabinet, because it is set to raise pounds 2bn without the high profile of other privatisations. It can be seen as running parallel to the sale of the Housing Corporation's mortgage portfolio, which is expected to raise pounds 1bn.

It is the longer-term revenue implications that have attracted criticism. The lease-back arrangement will commit the MoD to increase its future revenue overheads, in return for immediate capital sums that will go directly to the Treasury. The outline prospectus says the stock will generate a guaranteed pounds 100m rental income per year from the MoD alone. The MoD is to gain a profit-share in the most lucrative disposals, but this is unlikely to match its revenue commitment.

An MoD section, the Defence Housing Executive, will continue to manage the properties, to meet the costs of management, insurance, maintenance and repair, and will pay the rent on behalf of service personnel. A guaranteed number of properties will be leased back by the MoD, even if not required by it, at an agreed market rent.

The MoD stresses that it is not committed to a sale. A spokesperson says: "It is still early days for the structure of any deal. We are looking to complete later this year - but if the right terms don't come forward, there won't be a deal." Earlier attempts at transferring the housing stock to a newly formed association were abandoned on the Treasury's insistence when it became clear that the sale price would be inadequate.

The Labour Party is not critical of the principle of this privatisation - indeed, before Christmas it complained that the sale was not going through quickly enough - merely of the manner of it. "Creating capital receipts in return for future revenue overheads is one of the problems with the way the Government is implementing the Private Finance Initiative," said a Labour source.

Some in the private sector have their own concerns. The Council of Mortgage Lenders believes that the houses are being offered cheap, and could lead to a flood of properties hitting the market at knockdown prices, further deflating the housing market. A trial scheme of 100 homes sold at an RAF estate near Cardiff had 700 buyers competing for properties that were going for pounds 20,000 less than similar houses in the area.

The government-funded Empty Homes Agency and the Public Accounts Committee have complained about the 13,000 MoD homes lying empty, which led to a manifesto commitment by the Tory party at the last election for some of these properties to be brought into the social housing sector. The agency is disappointed that the terms of the sale make this unlikely to be fulfilled.

Bob Lawrence, chief executive of the Empty Homes Agency, says: "From discussions with property professionals, housing associations, mortgage lenders and the Forces themselves we can say that no one is really happy with the privatisation, which is sad because if ministers had implemented their manifesto commitments they would now be enjoying credit."

Antony Fletcher, chairman of the agency and former deputy chairman of the Government's Empty Homes Task Force, adds: "If the sale goes to a private-sector body, the chances of those in serious housing need getting some of these houses will be poor. Even if they do, the impact on housing benefit will be immense. This was a golden opportunity to release housing stock that the Government already owned. It could have done tremendous good in stress areas."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Tax Manager / Accountant

    £35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

    Ashdown Group: Contracts Executive - City of London

    £35000 - £37000 per annum + benefits: Ashdown Group: Contracts Executive - Cit...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree Group have been well esta...

    Recruitment Genius: Call Centre Debt Collector - Multiple Roles

    £21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

    Day In a Page

    Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

    Uganda's giants are flourishing once again

    After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
    The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

    After 350 years, the riddle of Britain's exploding fleet is finally solved

    Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
    Airbus has patented a jet that could fly from London to New York in one hour

    Airbus has patented a jet that could fly from London to New York in one hour

    The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
    Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

    Tate Sensorium

    New exhibition at Tate Britain invites art lovers to taste, smell and hear art
    10 best sun creams for kids

    10 best sun creams for kids

    Protect delicate and sensitive skin with products specially formulated for little ones
    Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

    Nice guy Finn is making up for lost time – and quickly

    He was man-of-the-match in the third Test following his recall to the England side
    Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

    Remember Ashton Agar?

    The No 11 that nearly toppled England
    Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

    US betrayal of old ally brings limited reward

    Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
    VIPs gather for opening of second Suez Canal - but doubts linger over security

    'A gift from Egypt to the rest of the world'

    VIPs gather for opening of second Suez Canal - but is it really needed?
    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
    The male menopause and intimations of mortality

    Aches, pains and an inkling of mortality

    So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
    Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

    'How can I possibly be on the list with these writers I have idolised?'

    Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
    Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

    Bettany Hughes interview

    The historian on how Socrates would have solved Greece's problems
    Art of the state: Pyongyang propaganda posters to be exhibited in China

    Art of the state

    Pyongyang propaganda posters to be exhibited in China
    Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

    Vegetarian food gets a makeover

    Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks