MoD homes sale attacked as shameful

The taxpayer got a raw deal when the Conservative government sold 57,000 service married quarters for up to pounds 139m less than they were worth in pursuit of short-term financial gain, according to a damning report by the Government's financial watchdog, the National Audit Office, published today.

Bruce George MP, now chairman of the House of Commons Defence Committee, will investigate "the most shameful and stupid decision" of the last government, in the autumn.

The NAO report on the sale of the 57,000 houses to the Annington group of companies, led by the Japanese bank Nomura, for pounds 1,662m reveals that the price charged was between pounds 77m and pounds 139m below the value of retaining them. Furthermore, the MoD has had to pay to lease them back, pay rent on them, and is responsible for maintenance and improvements, as well as the administrative cost and responsibility of allocating them to service families.

"I find it difficult to express coherently my continuing anger at the sale which was deeply insulting to servicemen and women," Mr George said. "It was insensitive, stupid and financially and politically motivated to gain resources for the general election. As time goes on this persistent folly will be more and more revealed."

Menzies Campbell, the Liberal Democrat defence spokesman, said: "This damning report shows that the privatisation of service housing was the sale of the century. The NAO has found that crucial assumptions upon which the terms of sale were based are fundamentally flawed and as a result the public purse is a lot lighter than it should be."

The NAO calculated that the sale of married quarters would have benefited the taxpayer if the services had only needed to occupy half of them and if property values had only increased at 0.2 per cent a year - whereas they are currently increasing by about 10 per cent. The net result is a loss to the taxpayer of up to pounds 139 m.

The report is highly critical of the way the handover was managed. After the establishment of the Defence Housing executive in April 1995, it "became the Department's main point of contact. They maintained responsibility for directing the maintenance and upgrading of those houses leased back from Annington, the identification of surplus quarters, works services [to separate houses being sold off] and allocation of specific houses to individual service families."

Meanwhile the Annington Group will make a return on its investment of 7.5 percent per year, in addition to profits from redeveloping sites the services do not need.

However, the report says the sale succeeded in transferring four fifths of the married quarters estate to the private sector and provided funds of pounds 100m to upgrade sub-standard quarters over the next five to seven years. It also says the sale itself was well managed and brought in more money than the MoD's advisers had expected.

National Audit Office, The Sale of the Ministry of Defence's Married Quarters Estate, HC 239. 22 August 1997