The National Audit Office has estimated that the Ministry of Defence is around £14.5 billion worse off than it would have been had it not sold its Service Family Accommodation estate to Annington Property Ltd in 1996, with the repurchase of the estate in 2024 having put a stop to what would have been billions of pounds of further lost value, the spending watchdog stated in a new report.
The report, published by the Comptroller and Auditor General and released under embargo ahead of its full appearance on 26 June, sets out the background to the 2024 deal, the repurchase agreement itself, and the plans for the future provision of service family accommodation. It examines the process by which the Ministry of Defence bought back the 36,000 homes for service families that had been sold to Annington in 1996 and subsequently leased back at substantial cost to the taxpayer over the years that followed.
The estimate that the public purse is £14.5 billion worse off as a result of the 1996 sale reflects the gap between what the taxpayer received from the original transaction and what was subsequently paid out in rent over nearly three decades, set against the value the estate has come to hold. According to the NAO, the 2024 deal to repurchase the estate was the lowest cost of the options considered, and the process by which it was concluded was largely handled effectively.
Gareth Davies, the head of the NAO, said the repurchase had avoided further lost value and now created the opportunity to deliver the ambitions of the 2025 Defence Housing Strategy. “Repurchasing MoD’s service family accommodation has avoided further lost value and now provides the opportunity to deliver the ambitions of the Defence Housing Strategy,” he said, as quoted in the report. “The MoD’s experience remains a cautionary tale about the risks to long-term value for money that are inherent in sale and leaseback transactions.”
The Annington deal has long been one of the most heavily scrutinised privatisations of the past three decades. The 1996 sale, concluded by the John Major government in the closing period of its time in office, saw the Ministry of Defence transfer the freehold of 57,400 service family homes to Annington for around £1.66 billion, with the properties simultaneously leased back to the department under a 999-year arrangement that included rent reviews tied to market values. The intention at the time was to dispose of an asset that was generating little direct return for the Ministry of Defence while securing capital that could be redirected to other purposes, but the long-term effect was to leave the taxpayer paying rising rents to a private landlord on properties that successive governments came to regard as essential national infrastructure.
Successive rent review rounds steadily compounded the problem, with Annington benefiting from the long-term appreciation of residential property values across the United Kingdom while the Ministry of Defence absorbed the cost. A 2018 NAO report on the same arrangement had already raised concerns about the long-term value of the deal to the taxpayer, with a subsequent dispute between the two parties over the application of rent review mechanisms running through the courts and into international arbitration. The 2024 repurchase finally extricated the department from the arrangement, restoring the freehold of the estate to the Ministry of Defence at a cost of around £6 billion and clearing the way for a fundamental rethink of how military housing is provided.
The 2025 Defence Housing Strategy, published last year, set out a framework in which the Ministry of Defence will become a property developer, a regeneration organisation and a housing service, taking direct responsibility for the management of the estate, its refurbishment and the building of new homes where required. The NAO report finds that the department does not yet have the necessary expertise or capacity to deliver on those ambitions, and that the success of the strategy will depend on the department’s ability to build out that capability quickly.
The watchdog makes a series of recommendations to the Ministry of Defence. It says the department should seek to learn from others in government about the different models for bringing in the private finance and private sector expertise required to deliver its plans, and the benefits and risks of the different approaches. The NAO also recommends that the department finalise its long-term funding plans for the defence housing estate, establish the new Defence Housing Service with the powers and autonomy it requires to deliver the planned reform efficiently, and prepare and publish a summary of its plans and timeline for the refurbishment and rebuilding of the housing estate and the release of land for housebuilding.
The report also notes that some £9 billion is now available for the Ministry of Defence to invest in service family accommodation as a result of the repurchase, with value for money ultimately depending on the department making the most of that opportunity.
Perhaps Micheal Portillo would like to explain. I met the man when he was defence minister and was driving the peace dividend. Unsurprisingly he came across arrogant beond belief.
He’s too busy on the trains in bright red trousers.
He likes a bit of chuff chuff.
Was always going to be the case. Not surprised the government of the day keeps falling into the same trap.
I said so at the time when OC Admin Wing at Waddington and had to be ordered to comply. I made sure we excluded all the unnecessary land in the transfer. Portillo should now be summoned to Parliament to explain his arrogance and nonsense as well as the then Perm Sec who did not seek a Ministerial Direction as I recall.
Unfortunately the privatisation of key national infrastructure and sell off of government assets from the mid 1980s to about 2018 has cost this nation and is probably not going to be seen in a good light from history. The dogma that the market is good at everything is as destructive as the dogma of communism.. some things are better managed and overseen in the public interest and other are better left to the market. The most fundamental test should be 1) is it a natural monopoly And 2) is it something we have no choice in purchasing.. if the answer to these two questions is yes then the market should not be allowed anywhere near it. If the answer to one of those questions is yes then it needs to be highly regulated if the answer to both of those questions is no then let the market do it.
Unfortunately Neo liberal dogma is the market is always better.. even if there is not market and you have to purchase it.
The problem is people following dogma of any kind, instead of reasoning out any decision on a case by case basis from the facts and first principles.
Outsourcers use debt to offset against tax liability and other legal avoidance, the 5 to 15% alleged savings can be lost by offshoring and low tax revenues. However they do provide legal brown envelopes for after dinner speaking.
Indeed, it is quite baffling as to how this was allowed to happen without scrutiny by parliament, who (I would have hoped) should have publicly raised their concerns.
Shocking really how one or rwo persons on govt can decide to just sell off national assets . Under the bonnet the vibe seems to be a kot of the Milirairy is now privatused from training to maintenece
‘…the department should seek to learn from others in government about the different models for bringing in the private finance and private sector expertise…’
Of great concern if not a great surprise to discover that the MoD did not seek to learn in an area where a great deal of experience would have quite obviously been available in other departments.
Yet another example of the seemingly perpetual narrow minded, cloistered, silo’d nature of Whitehall.
Systemic reform is required.
Example of PFI, 13 billion of PFI hospitals are going to cost the NHS 80 billion, seems the expertise is used to extract money from tax payer.
NAO should be given the powers to scrutinise past decisions made by ministers that result in huge losses to the taxpayer, with the possible sanction of partial or full withdrawal of their parliamentary pension.
Might make future ministers more cautious in pushing forward novel financial ideas.
This report rather ignores the state of housing when it was sold. Significant capital investment was needed, the only reason why the estate is worth anything at was because private capital investment
Wrong. It was nasty PE making money.
Hoop! MOD kept the poured concrete slums at Rowner, but sold off all its high quality brick built 50’s housing stock.
Rising house prices were the main driver, min maintenance was done, poor quality repairs were raised in the house of commons.
Sold off the best and most saleable MQ housing, kept the crap for service personnel.
I often comment about the incompetency of the MOD and I hope no one disagrees. Okay blame the minister, but what advice did he receive ? If you include sailors salaries/pensions you are talking 12 more astute sub’s . Defence needs to be taken away from government as the current muppets in charge demonstrate. Their involvement should be do we have nukes or not. I trust our military much more than the politicians. They still do not understand it’d no longer about what’s the minimum we can spend, but what we NEED no matter the cost. Mohammed will have to do 2 jobs to feed his 4 wife’s and 11 kids because that 60k he gets needs to be spent on defence.
The Ministry of Defence sold 57,400 married quarters to Annington Homes in 1996, but has only bought back 36,000. That is an insufficient number. The yardstick was that about 50% of service personnel are married so 36,000 would only be sufficient if our regular armed forces totalled about 72,000. Yes I know that single women with child or children can get SFA and so can those in a Civil Partnership and now cohabiting heterosexual couples can apply…but the broad order is what I am saying. There must be long waits for Quarters.
The sale to Annington Homes was disastrous – it was supposed to hive off a ‘non-core’ activity but strangely MoD retained control of and funding for property maintenance, as I understand it, and they did that badly. The properties were sold far too cheaply in 1996. MoD has now had to pay top prices to get just some of them back.
How many other contracted-out/privatisation/PFI deals done by MoD are similarly bad?
It was a corrosive choice pursued made by an arrogant minister who thought that bringing an extra billion to the general election bribe pot would make a difference to the result, even though it was clear that the government had run out of meaningful ideas.
With 20:20 hindsight the biggest farce for the way the public sector assets have been treated over the last three decades is the fiction that commercial approaches to accounting were appropriate. Weak minded politicians and the support function were happy to promote ‘Efficiency’ as that sounds sensible. But in the accounting sense it reflects value extraction from assets. The aim for a ministry of defence should to deter the use of force against our interests if possible, and to destroy the threat as quickly as practical if deterrence has failed. Not extract value from its assets.
A focus on the other two ‘E’s, Effectiveness and Economy would have served the nation far better. Decide what has to exist to be effective and then work at getting to that place as cheaply as practical.
Rising house prices were the main driver, min maintenance was done, poor quality repairs were raised in the house of commons.