A National Audit Office report reveals that the MoD is paying £178 million a year to rent properties it sold and now leases back.
The MoD sold more than 55,000 service family homes across 770 sites to Annington Property Limited in 1996 in return for a £1.66 billion upfront cash lump sum.
The National Audit Office report says that the MoD has since rented them back on 200-year underleases, and is paying more than £178 million a year for the remaining 39,000 properties.
The report indicates how the MoD business case assumed house price increases of 1% per year with a 3.9% increase, excluding inflation, now the actual figure.
“The MoD’s sale of service family accommodation in 1996 has turned out to be a rotten deal for the taxpayer”
– Meg Hillier, Public Accounts Committee chairwoman
Amyas Morse, head of the National Audit Office, said the sale and leaseback deal was “based upon pessimistic views of the future growth in property values.”
Mr Morse also highlighted how there was a “mitigating feature that the rents charged to the military families who lived there were restricted for the first 20 years. This has cost the public sector a great deal in capital growth, and it has been a great deal for the landlord.
In 2021 the period of restricted rents is over. The question is now whether the landlord will get a very large rent increase on top of the very substantial capital gains they have already received.”
An MoD spokesman said:
“The NAO supported the Annington deal in 1997 and is clear that the surge in house prices could not have been predicted.
We have a team working on renegotiating the deal, and believe that rent prices should continue to fall to secure value for money for taxpayers.”