Knives come out for Portillo over MoD sale

Minister expected to sound a partial retreat to avert a Government defeat in the Lords, writes Colin Brown

Michael Portillo is expected to sound a partial retreat over the sale of MoD homes today to limit the damage to his standing in the future leadership race with John Redwood.

The Secretary of State for Defence was preparing to offer a compromise to critics at a meeting of the Tory backbench defence committee today.

It could avert a Government defeat next week in the Lords with a Tory amendment to the Housing Bill to put the sale off for a year. Labour is planning to force a vote in the Commons after the Lords debate in order to embarrass the Government. But if Mr Portillo defuses the row, the rebels will be expected to back down.

Mr Portillo is believed to have accepted the case for assurances to be written into the contract for the sale of the 60,000 homes, so that tenants will not be forced to move from married quarters against their will.

The Prime Minister gave that assurance a week ago, but the junior defence minister, James Arbuthnot, was accused of reneging on John Major's pledge to the families when he said they might be offered "comparable" accommodation.

However Mr Redwood may still win the battle over defence homes. He was the first to suggest the compromise which Mr Portillo last night was believed to have accepted.

The fight over the sale of the MoD homes was seen as a struggle between Mr Redwood and Mr Portillo, the two pretenders for the right-wing crown, to win the leadership when Mr Major steps down.

Mr Portillo feared he was a target for a dirty tricks campaign by Redwood supporters, a charge denied by the Redwood camp. The whips have been accused of spreading propaganda in Mr Portillo's defence, claiming Julian Brazier, a Redwood supporter leading the Tory rebellion, was being used by the Redwood campaign. Mr Brazier last night denied those claims.

The allegations of a "get Portillo" campaign yesterday took a fresh turn after it was disclosed that the taxpayer would have to pay an undisclosed sweetener to a foreign company for the sale of MoD houses. Tony Blair, the Labour leader, sensing blood, clashed with Mr Major over the issue during Prime Minister's question time, warning it would be a bad deal for the taxpayer.

Senior Labour sources were informed all the four final bidders for the homes are foreign buyers. They are the Japanese Nomura Bank, the Dutch bank ING Barings and two American companies, Morgan Stanley and Lehman Brothers.

Mr Portillo has given assurances that a foreign buyer will not affect security on the bases, which has been heightened because of the renewed IRA bombing campaign and the Osnabruck mortar attack. But backbenchers are uneasy at foreign buyers taking over the MoD houses.

A 20-page glossy brochure for the sale, circulating in the City among potential bidders, guarantees the MoD will pay the buyer a specified amount for each year of the 25-year lease, or an aggregate rent, whichever is the higher.

The MoD confirmed last night that the taxpayer will pay the difference between the sum guaranteed to the buyer and the rents collected by the MoD from the servicemen and women. But it refused to disclose how much the sum will be.

The Labour sources have learned bidders are being told they will get a guaranteed rental which will be enough to service a debt of up to pounds 950m.

In addition they will be expected to inject equity of around pounds 600-700m on which they will get a return of about 10 to 12 per cent, about twice the level of current base rates.

Labour sources estimated that the returns could amount to pounds 165m a year, which could mean the successful bidder will have met the purchase price for the homes before half of the lease has expired. In addition, the buyer will get houses released for sale. David Clark, Labour's defence spokesman, said: "It's bad for the taxpayer and it's bad for the service men and women."

An MoD spokesman said: "Our first priority is to the servicemen and women. Our second priority is to the taxpayer. This will be a good deal for the taxpayer."