£2bn scheme to privatise MoD homes

The Ministry of Defence is drawing up plans to privatise its entire stock of 70,000 homes next year in a scheme that may raise as much as £2bn.

The Independent has learnt that a blueprint for the transfer of armed forces housing has been drawn up by David Hart, former favourite confidant of Margaret Thatcher who now acts as an unpaid adviser to Malcolm Rifkind, Secretary of State for Defence.

It marks a radical departure from previous proposals to improve the management of MoD housing estates. It is understood that the ministry will shortly announce the appointment of merchant bankers, NatWest Markets, to work out the mechanics of the sale.Senior City sources have indicated that the MoD hopes to have finalised its plans by the end of this year and to put property freeholds on to the market at the beginning of next year.

The private sector will be given the opportunity to acquire the freeholds, but will, in most cases, be required to lease back the houses to the MoD.

One source said: "It is better to think of it as a joint venture than a privatisation.". The plan is intended to end the MoD's involvement in the housing market. "It is completely wrong that the taxpayer should, in effect, be involved in property speculation," the source said.

MoD sources confirmed the appointment of NatWest Markets, but would not be drawn on a timetable. They would only confirm that a "number of options" were being considered for the privatisation. They also indicated there was disquiet among service personnel at the idea of living in accommodation owned by private landlords.

Mr Hart, who is credited with helping to break the year-long miners' strike 10 years ago, was not available for comment yesterday.

The disclosure of NatWest Market's appointment and of the Hart sale plan come in the wake of a parliamentary answer yesterday in which the Government confirmed that it was transferring management of the properties to a Defence Housing Executive. This body, which may become the vehicle for the privatisation, was established after Mr Rifkind abandoned a project to create a housing trust to manage the properties.

The idea behind the trust was to allow private investors to take on responsibilities for managing the housing stock, but with the MoD retaining ownership of the property freeholds. This proved unpalatable to investors.

The Government has already admitted that the aborted scheme has cost the taxpayer more than £5m. In yesterday's answer, it confirmed that the two executives taken on to manage the scheme were to receive compensation of between £170,000 and £200,000 each.

Nicholas Soames, Minister for Defence Procurement, said in the written answer: "In addition, to the Defence Housing Executive initiative, we are continuing to consider alternative possibilities for transferring the married quarters estate to the private sector."

Labour reacted to the disclosure of the privatisation plans with demands for an immediate government statement. Dr David Clark, its defence spokesman, said: "We're completely opposed to it. It is economic madness. It removes the flexibility from the MoD to do what it wants with the houses. There will be security problems - some of the houses are in secure bases. We think that this is a question of raising money quickly." Dr Clark insisted that the right approach to the management of MoD housing was to create a housing trust.

Derek Fatchett, Labour MP for Leeds Central, who is among several MPs who asked the Government to clarify plans for MoD estates, added: "Privatisation along these lines is a major ideological departure for the MoD. It is almost a case of the Government handing MoD responsibilities to the private sector. There is a need for defence ministers to satisfy the public that there will be adequate facilities for staff and a proper regard for security."

Trust doomed, page 4