Muddle behind plan to sell off MoD homes

Failure of initiative to set up property management trust leads ministry to draw up scheme for wholesale privatisation. Tim Kelsey reports

The Ministry of Defence has struggled for several years with the management of its housing stock. But yesterday it was revealed that a scheme is under way to privatise all its property - worth up to £2bn.

The MoD owns about 70,000 quarters in Britain - some attractive and highly valued, others remote and poorly maintained. It has always wanted to puts its housing under private-sector management, recognising that it is not an efficient estates manager. One Whitehall source candidly admitted yesterday that until recently the MoD neither knew precisely how many houses it owned, nor how much it was spending on maintenance.

However, the ministry wanted to keep some control. It had hoped to persuade the private sector to take on the responsibilities of management without giving it full ownership. It was ready to sell leaseholds but not the freeholds.

The collapse of the initiative to set up a housing trust reflected the private sector's unwillingness to invest under those circumstances. Abandoning the scheme has been a severe embarrassment to the Government, according to well-placed Whitehall sources. One said yesterday: "It was a monumental cock-up and should never have happened."

The Labour Party still believes this is the course the MoD should take, but says the Government has failed properly to think through the proposals.

The collapse of the trust is thought to have left a shortfall of about £500m in the defence budget for 1995-1996. For the immediate future, the housing stock will be managed by a publicly funded Defence Housing Executive.

Alongside the trust initiative, the MoD has been selling off small parcels of empty properties. According to a recent parliamentary statement, about 3,080 have already been sold. The most recent sale was of 93 at a Royal Air Force base near Doncaster valued at around £17,000 each, which included provision for restoration.

It is understood that the plans for wholesale privatisation, which will put an end to piecemeal sales, will include a premium on house valuations. Analysts agree that revenue raised could be more than £2bn.

A banking source closely involved with the project said that the MoD was working on estimates lower than that. "But of course, nobody at this stage knows," he said.

The Independent has learnt that the plans, believed to be the work of David Hart, unpaid adviser to Malcolm Rifkind, Secretary of State for Defence, have provoked alarm in some quarters of the ministry.

One source said yesterday: "There has been a worry among service families that privatisation could mean a worse deal in the future. It might mean better housing maintenance in the short term but there are fears for the future."

The failure of the housing trust has apparently enabled Mr Hart to push the idea for privatisation through the MoD. The plans for a trust grew out of a task force set up in 1991 to look at service housing. At the end of 1993, the Government announced plans to set up a trust and management and consultants were appointed to transfer married quarters to the trust.

Mike Robinson, former chief executive of Bristol City Council, and Mark Taylor, who had worked in the construction industry, were recruited on three-year contracts to be chairman and finance director respectively of the trust.

But last November, Mr Rif-kind cancelled the plans. In parliamentary answers yesterday, the Government confirmed that it was contractually obliged to pay about £200,000 in severance to Mr Robinson and £170,000 to Mr Taylor.

The Government has admitted that £5.4m was spent on the scheme: £3.3m on management and other consultants, £1.1m on internal costs, and £930,000 on legal advice.

In yesterday's answers, Nicholas Soames, Minister of State for Defence Procurement, said: "The trust proposals had to be abandoned when it was concluded that the proposed new body could not properly be classified to the private sector, and would not therefore be able to gain access to private-sector capital to fund its operations and improve the housing stock." The stumbling block was the MoD insisting on retaining the freeholds.

A senior Whitehall source said: "The scheme was doomed from the start . . . the MoD cannot manage the stock itself. It is what the private sector is good at and that is the point of the proposed privatisation." He claimed that the MoD had been spending five times as much as necessary on maintenance.

City sources close to the new project said that the privatisation was designed to appeal to institutions and, possibly, to corporate investors.