Public Accounts Committee
Oral evidence: Armed forces housing and Annington Homes, HC 98
Thursday 10 September 2026
Ordered by the House of Commons to be published on 10 September 2026.
Members present: Sir Geoffrey Clifton-Brown (Chair); Chris Kane; Rupert Lowe; Tristan Osborne; Blake Stephenson; Matt Turmaine.
Gareth Davies, Comptroller and Auditor General, National Audit Office, and Marnya Jain, Alternate Treasury Officer of Accounts, were in attendance.
Questions 1 - 59
Witnesses
I: Jeremy Pocklington CB, Permanent Secretary, Ministry of Defence; Aneen Blackmore, Director General, Finance, Ministry of Defence; Mike Green, Chief Executive, Defence Infrastructure Organisation; David Brewer, Chief Operating Officer, Defence Infrastructure Organisation; Rupert Pearce, National Armaments Director.
Report by the Comptroller and Auditor General
The repurchase of the service family accommodation estate (HC 29)
Examination of witnesses
Witnesses: Jeremy Pocklington, Aneen Blackmore, Mike Green, David Brewer and Rupert Pearce.
Chair: Welcome to this session of the Public Accounts Committee on Thursday 10 September 2026. Today we are examining armed forces housing and the Ministry of Defence’s repurchase of service family accommodation from Annington Homes. In 1996, the MOD sold around 55,000 houses to Annington Homes for £1.7 billion. The NAO estimates that by 2024 the deal had left the Government £14.5 billion worse off.
The MOD has bought back more than 36,000 homes at a cost of £6 billion, ending an expensive arrangement, but not undoing nearly three decades of poor value and weakened control over a vital part of the defence estate. The repurchase and the MOD’s proposed £9 billion defence housing strategy offer a major opportunity to repair and refurbish service family accommodation, but success will critically depend on the MOD building capacity and expertise to achieve that. This morning we will examine how the MOD plans to use this opportunity to improve military housing, and what lessons Government must learn before selling public assets for short-term gain.
We have a very senior cast this morning and I am very grateful to everybody for sparing time to come to see us. Would you like to introduce yourselves?
Jeremy Pocklington: I am Jeremy Pocklington, the permanent secretary at the Ministry of Defence.
Chair: You are very welcome again.
Rupert Pearce: Good morning. I am Rupert Pearce. I am the National Armaments Director, responsible for the National Armaments Director Group, in which is located in the Defence Infrastructure Organisation, run by Mike. It will be the place where we locate the Defence Housing Service.
Mike Green: Good morning. My name is Mike Green. I am the chief executive of the Defence Infrastructure Organisation and the director general of infrastructure in the MOD.
Chair: Aneen, you have been before the Committee many times before; welcome back. Would you like to introduce yourself?
Aneen Blackmore: Good morning. I am Aneen Blackmore, director general of finance at the Ministry of Defence.
Chair: And finally, but by no means least, David.
David Brewer: Good morning. Working for Mike, I was the MOD lead official on the Annington buy-back deal and on the work we have been doing to prepare for the Defence Housing Service.
Chair: It is very good to see you.
Q1 Tristan Osborne: The defence of our country is the most critical responsibility of Government. Our troops serve for our country, potentially putting their lives on the line. That is deep in our country’s mindset and we have a profound sense of responsibility for those people. This deal, in my view, has let those people down, not only by its outcomes in terms of the financial liabilities, but by the state of the housing they were put in. My questions are about how we ended up in that deal in the first place and the lessons we need to learn. My colleagues will follow up on it.
I have read the 2018 NAO Report and recent Government announcements around poor value for money. The original contract was signed with that homes company backed by Terra Firma Capital Partners and other financial institutions. How did we end up with such a poor contract, which left such a liability on the taxpayer and let down our troops?
Jeremy Pocklington: I want to draw an important distinction between what you are talking about, which is the 1996 deal, and the repurchase deal, which is the focus of the 2026 Report and which I think is a good deal. The Department is praised in that Report and I begin by thanking all the civil servants and public servants involved in the repurchase of the homes. It is a very significant success. There is a lot to do to learn lessons from it for the future, for the Defence Housing Service.
I strongly agree with you on the importance of housing. Housing matters because every service family deserves a safe, secure and well-maintained home. I entirely agree. Our armed forces face unique challenges, such as frequent redeployments. My colleagues, Mike and David, can talk more about that. We in the Department deal with 15,000 moves a year. Obviously, our troops are also frequently deployed, so there are periods of separation and school changes. Defence has unique characteristics, and we need to ensure that housing supports life, rather than creating stress. That will improve our military capability, and I completely agree with that.
The 1996 deal was not a good deal, and it is not a deal that the Department would make today. Looking back 30 years is not straightforward, and my focus has been on the repurchase and the future, but it is really important to emphasise to the Committee that the Department would not approach this issue in the same way now.
Judging the 1996 deal is exceptionally hard. One thing the Report is clear on is the fact that the objectives of that deal were different and reflected the priorities of the Government at the time. Yes, it was partly about securing funds for the upgrade, but in truth, only a fraction or small amount of the proceeds were used for that. It was a sale-and-leaseback deal to secure value through a competitive process. I think that was the primary objective, and a lot of things flow from that.
I apologise for the length of this opening answer, but I think the most important lesson is the importance of Government taking a long-term view of the stewardship of a national asset. That is how I feel, and I know it is how the Defence Secretary feels about this issue. That needs to be the most important thing, rather than short-term pressures.
Colleagues can reflect on the details, but there is something about really understanding the value of what you are selling and the assumptions underlying it. The world looked very different in 1996 from how it looks today; the focus then would have been on the peace dividend. Looking back, I also reflect that it is really important to think about human behaviours and the incentives created by the deal. It is very hard to judge these things 30 years later—obviously, everyone involved has long since moved on. My focus has been on understanding the lessons from the repurchase and the future.
Q2 Tristan Osborne: I appreciate that response, but part of understanding how we have ended up losing such huge sums of public money is understanding the original deal and what lessons can be learned. I appreciate that you have given some answer to that, but fundamentally, there has been a delay in us coming back to the original contract and looking again at this issue. The 2018 NAO Report was produced almost 22 years after the original deal, for instance.
Who negotiated the original contract? At the time, did this long 999-year lease not seem unreasonable? I appreciate that some might have considered that to be unreasonable even at the time, so who was involved in the original contract negotiations? How have we ended up with this liability, meaning that we now have to go through, in effect, a nationalisation of this asset?
Jeremy Pocklington: It was a long-term sale and leaseback. I completely agree that it was a poor deal undertaken by the Ministry of Defence, and it is not a deal that we would undertake today.
What would be my other reflections? The sorts of financial appraisal, the skills and the approach that are brought to these things are very different today from in 1996. I joined the civil service in 1997, but you are looking at a world in 1996 where you did not have expert advice across Government from UK Government Investments; it was before the Shareholder Executive was created, and before the Major Projects Authority—now NISTA—and Infrastructure UK were created. Approaches to financial appraisal were very different then.
Your next question is why we could not get after this sooner. Part of the answer is that there was a contract that needed to be managed. The Report sets out very clearly—my colleagues know this in a lot of detail—that the Department had to turn quite a weak contractual position into a favourable position. That was the process from 2019 through to 2024, so it was relatively soon after the Report you referred to was published. The key elements are about strengthening the position through the cases of enfranchisement and the negotiation on rent. The original contract, in theory, was a return to market rent after 25 years.
Thirdly—and crucially; this made a real difference—was the change in lease accounting rules through IFRS 16. For those who are sceptical that accounting is important and drives decisions—I know this Committee is not sceptical of that—this repurchase deal is living proof of the importance of good accounting rules. They shifted the contractual position, and a more complete reflection of our future liabilities was on our balance sheets—and ultimately hit public sector net debt, as I understand it. That meant that the repurchase did not increase sector net debt by the full amount.
My colleagues can talk more about enfranchisement and the shift in rent. Unfortunately, in my career, I have spent a lot of time on accounting rules and fiscal rules, so I can see the benefit of that as well. The situation changed. My impression is that quite skilful work was done, but I say that as someone who was not involved. They were using advisers, there was good work from civil servants and public servants, and strong support from Ministers in successive Administrations. The now Chancellor played a leading role when he was in the Department and provided the political direction that is needed to drive progress.
The shift from 2019 to about 2024 was key in turning that quite weak position under the contract to a very favourable position, and key to unlocking the deal and driving value—the value that is recorded in the Report. Ultimately, we acquired homes for £6 billion that were valued on Annington’s balance sheet at £10.1 billion. You have read the Report.
Q3 Tristan Osborne: I will ask one final question and then pass it on. The 2018 NAO Report highlighted that there was a lot to learn about that contract. The head of the National Audit Office at the time said that, “This has cost the public sector a great deal in capital growth”. Subsequent to that, the MOD agreed to take on responsibility for the cost of maintenance.
You agreed a contract previously which the NAO subsequently highlighted as being poor in terms of stewardship, but then you took on additional responsibility for revenue maintenance of the estate, and the benefit went to Annington Homes. What consideration process led to that decision, given that at that point and just prior we knew some of the liability we were getting as taxpayers from a potentially poor contract arrangement?
Mike Green: I think maintenance was always in there, so I don’t think that is the case. I think the original deal had that in.
Rupert Pearce: That is why the rental level is below market, to reflect the ongoing role of MOD in maintenance. But that created the reverse incentive that caused some of the toxicity in the deal.
Q4 Tristan Osborne: Can I just push back? Paragraph 1.7 of the NAO Report says “The value of any investment that the MoD made to improve the standard of accommodation would pass to Annington in the form of either increased rents or increased value”. Can you clarify whether that happened?
Mike Green: If we do up a house, it is a better house and they charge us more rent for it. There are some anomalies in the detail of the deal that are just not good; you are correct. There was the hand-back situation, which was not good. There was the situation where we didn’t own the house yet we were responsible for maintenance, which is unusual.
There were assumptions around the increase in value each year of the houses, which is the big problem in losing value, being around 1% or less. I Googled it on the way in this morning. House prices are rising between 6% and 9% every year. There are some huge modelling assumptions in your questioning that could not be made today, because the Macpherson review after the west coast main line set out how civil servants are to model things—independent peer review, openness and all those kinds of things. It would not happen today.
Jeremy Pocklington: Just to clarify, my understanding is that the “arrangements” in paragraph 1.7 of the NAO Report refers to the arrangements established in the original 1996 deal rather than a change in 2018. That may be the cause of the confusion.
Tristan Osborne: Okay, that’s fine.
Chair: That is my understanding, too, Permanent Secretary. To correct one thing you said there, Mike, house prices do not always go up continuously—look at the present situation.
Mike Green: Over time!
Q5 Chair: Jeremy, this Committee is often very critical of a lot of things, not least your Ministry. Where your Ministry has got it right is this repurchase deal, which is a good deal. I reran the numbers last night—it is a good deal—so everybody who was involved deserves to be congratulated.
Jeremy Pocklington: Thank you.
Q6 Chris Kane: I concur. Jeremy, I know that 1996 was a long time ago—it was before you were there—but you have the role that of ensuring that the lessons we have learned are baked in. You said that approaches to financial appraisal were very different then, but then you referred to the toxicity of the deal, so even by 1996 standards, it feels like this deal was particularly bad. Are you confident that you have got under the skin of that very different line of approaches to financial appraisal? Have you learned the lessons of that specific deal? Can the Committee be confident that what specifically went wrong here has minimised the opportunities and chances of it going wrong in the future?
Jeremy Pocklington: The sophistication of the analysis and use of expert advisers is different from in 1996. I have already indicated some examples of that. It is about understanding the value of assets and understanding underlying assumptions and sometimes hidden assumptions in a deal. It is also about doing more to model uncertainty. Ensuring checks and balances in the system of government enables richer discussion and conversation. Often, Government is accused of being slow, but sometimes that is because it is making time for those discussions. Often experts are brought in from the outside—Mr Lowe is here, for example. These external experts are about having people with relevant expertise to help us to assess these deals. I will be honest with the Committee and admit that I have not read the advice from 1996, and I am wary of looking into it too far. To some extent, how bad it looks is how it looks now.
Q7 Chris Kane: The military is very good at looking to history to learn lessons for the future, and it can look very far into history to learn lessons. It is perhaps a fair challenge to you that the MOD can do that.
Jeremy Pocklington: I think I have already indicated several lessons.
Q8 Chris Kane: Can we talk about the time it took—from 1996 until 2019—for the MOD to start looking at how to improve the terms of the deal? We will look at that going forward, but it is important to spend a little more time looking at a couple aspects of the period then. Why did it take so long—nearly 25 years?
Jeremy Pocklington: I reflected on that question when preparing for this hearing. It is obviously a deal we would not do now—I have indicated some lessons. Overall the period from 2019, following the 2018 Report, was handled exceptionally well. We can talk about that and debate that. The question I have is whether more could have been done before 2019, and it is quite hard to judge that—a lot of other things were happening at the time. The key difference, though, is that the accounting rule changes really unlock this in government—the shift to IFRS really does unlock this. The other thing I would say—we have already alluded to this fact—is that we were in a weaker negotiating position before 2019. One of my colleagues might want to add to that, because it is a good question.
Mike Green: It takes two people to negotiate, and if the answer is in how to bring Annington Homes to the table, there are several key things. First, on enfranchisement, we went to court a couple of times and did well. Going forward, we could have been locked in legalese for years—these are big sums of money and no one would want to lose. What the court case, the changes in IFRS 16 and the renegotiation of the rent did over that period you describe were to give us the opportunity to bring Annington Homes to the table for a proper conversation about the way forward, so that is why we did what we did then.
Q9 Chris Kane: That means that at some point after 1996, the Department was aware that it was a bad deal and it started to look for ways to pick at and challenge it. It would be important for the Committee to know whether that started happening in 1997 and it took 20 years to find a way through, or not until summer 2018 did someone say, “Oh my God, this is terrible. How did we get to this?”
Mike Green: The two previous NAO Reports are clear, the first more gently and the second much clearer that there is work to be done. I was not around at the time—to be clear—but I do not see that the negotiating position would have been strong enough to bring people to the table before. An alignment of the three things enabled us to have a great conversation and sort this out.
Q10 Chris Kane: Jeremy, one of the things that you said earlier to Tris was that one of the lessons is that taking a long-term view is important, but you followed that up by saying, “But it is very hard to look 30 years into the future.” That inherent tension between the two statements, which I agree with, is very difficult to deal with. You have the responsibility of dealing with it, but I think you can look towards one side of what you said or the other. If you look towards, “It is very hard to look 30 years into the future”, and your predecessor 30 years ago was saying that, that might explain how we got into this; but if you say that we should take a long-term view, with all that that involves—
Jeremy Pocklington: We should absolutely take a long-term view. I think I was trying to say that it is hard to look into the mind of the decision taker 30 years in the past; I was not saying that today we should not be looking 30 years into the future—of course we should—
Q11 Chris Kane: Your assessment is that he was not taking a long-term view.
Jeremy Pocklington: I think that the objectives that were set essentially led to a more short-term approach than should have been taken. That is partly driven by the objectives that were set, so there is another lesson there. Again, these things often come to the Committee, but our job is to maximise value for money and the outcomes for the objectives that have been set, and there is another really important lesson here around this. I think that a long-term objective that is focused on stewardship of national assets is important.
Chris Kane: I echo what the Chair said, that it is important that we are about to start talking about a good contract—what looks like a good contract, so I hope that does not come back to bite me in 30 years’ time when people are sitting in this Committee then—and I know you take this lesson-learning piece seriously. It can be easy to be defensive when we are asking these questions, but that does seem particularly bad, which is what I think the Committee is reflecting on. That is just a comment from me.
Q12 Tristan Osborne: I appreciate your answers about the 2019 position. The assets that we acquired as part of this deal were in quite a poor state—as referred to in paragraph 14 of the Report—partly because essential maintenance was only conducted to a safe and legal standard. I also appreciate that we celebrate that the deal had us purchasing the asset at a significantly reduced valuation compared with what the seller was looking for. There are two parts to my question. We paid a significant amount of money on the original contract to this private provider, and the asset that we have now had to repurchase on behalf of the state is in a suboptimal condition, hence the reason why we have to improve it, so why has it taken till 2024 for the MOD to exit the deal?
Jeremy Pocklington: I am not sure that I have very much more to answer on that, I am afraid—
Chair: I think it has already been answered.
Jeremy Pocklington: I feel it has been asked and answered to the best of my ability, but maybe David has something to add.
Chair: Unless anybody has anything to add, there is no point repeating what we have already said.
David Brewer: There are a couple of points. One is the way the deal was structured, and you are both right that the commercial consequences are a consequence of the detail of how it was drafted, how it worked and how the various clauses worked together. The way it is structured, the level of losses was increasing exponentially. You can see, if you track through the various NAO Reports, that the scale of loss was increasing really rapidly in a relatively short period of time. In real terms, it went up from about a £5.5 billion loss in 2018; six years later, they were talking about the equivalent figure being an £8.5 billion loss. You can see that that was really ratcheting up, and as we rolled forward into the future, the losses as a consequence of the deal were continuing on a really steep upward trajectory, so there was a real imperative to act at the point in time that we did.
Then, as colleagues have said, in order to secure a decent deal when we were buying it back, we had to create commercial leverage. That commercial leverage did not exist earlier; it was a consequence of a series of really carefully calculated steps that created the conditions where a buy-back was deliverable. If we had not done that, we would have been buying these homes back at many billions of pounds more, with a much stronger counterparty, and we would have been sat in front of this Committee with you saying, “Well, why did you pay twice as much as you should have done to buy these homes back in 2018?”.
Q13 Matt Turmaine: Moving on to the condition of the accommodation, Mr Pocklington, can I ask what you are doing to resolve the MoD’s negligent approach to maintenance and upkeep of the military homes that we have seen over the past 30 years?
Jeremy Pocklington: It is a priority. That is one of the reasons why we are creating the Defence Housing Service: to ensure that we provide the quality of homes that our service personnel rightly expect from the Department. The thing I would say is that work is already underway. Last year, we refurbished and decorated 1,250 homes. The quality of the service we are offering has already improved. One thing that struck me while preparing for the Committee was the number of active complaints that we have regarding the quality of homes. On 1 July there were 60 or 66—in the 60s—active complaints; in November 2022, there were 4,200 complaints, so the service has improved.
The other thing I would point to is survey data on satisfaction with military homes. That has increased by 12 percentage points over the past year to 75% of families now saying that they are satisfied, and that is across the entirety of housing provided by the Department. That is actually higher than the national average for civilian landlords by four percentage points. Obviously, I would like it to be higher still, and I expect higher standards for our service personnel, but we are getting after this. There is more that we need to do, but it is a priority for the Department because when it is not good enough, it is not good enough. We have all seen examples of housing that is not yet of the standard we need, and that is why we need this long-term plan to get after it.
Mike Green: I joined in 2022 and was surprised at the condition of the forces housing and what we were doing. I think we have had a previous hearing on this with the Defence Committee. It is fair to say that we were not in control of the things we were taking care of. We had a non-compliance issue and a damp and mould issue—we were issuing houses with damp and mould. We changed all that. We have turned all that around. I think, at worst, we had just over 4,000 cases of houses with severe damp and mould. All that is gone; we have dealt with that. We have dealt with the compliance issues.
The few non-compliance issues that we have now tend to be failure to get access into a house. We have worked really hard on that. We have got to a position where the remaining houses are not resistant to modern life. We have single-brick or single-pane windows, so damp and mould are generated a lot. Our houses generate probably between six and eight calls per house per year to our help desk, whereas for an equivalent housing association it is probably three. I am generalising, but that is the scale of change that we are looking at. The only way now to fix it is for our houses to get a boost, which is the point of creating the Defence Housing Service to deal with it.
If you think about how people use the houses and the price of energy, nobody opens the windows and people dry their clothes in the houses. Understanding the use of the house and making houses properly to resist the way they will be used going forward is what we need to do now. That is the point of the Defence Housing Service.
Rupert Pearce: I would quickly add one other point, which is a philosophical one. This is about moving from a reactive approach to a proactive long-term mindset, which is a very different approach. It allows us to engage in the structured, thoughtful steps that Mike has just talked about. That is why making this part of a 10-year programme in the DIP is so important. I think one of the problems we have had in the past is that we did not maintain something until it failed. That, by definition, is a reactive and often costly approach to life. I think we can move forward in a more efficient and effective way by having this long-term programme and putting specialist skills to work in that programme.
Q14 Matt Turmaine: The three of you have communicated points that touch on my other questions. That “fix on fail” point, or however the Report describes it, is not a great approach. I appreciate that progress is being made and that things have got better. I have a constituent who has an example of this. There are a couple of points that I would like to come back to. On the satisfaction levels, Mr Pocklington, the supporting material that has been provided by the NAO shows that we have satisfaction levels currently at 52% with regard to the SFA, which is not amazing. Equally, in terms of the response to requests for maintenance for the current accommodation, satisfaction levels are 39% versus 45% for dissatisfied. For the quality of the repair work being done, there are dissatisfied rates of 49% and satisfaction of just 33%. There is clearly some way still to go, isn’t there, to get to an acceptable level?
Mike Green: The simple answer is yes. We are on a journey. We have fixed the big things in front of us. We are working with lots of people to get better, but the core component of the houses that we own are not great. We go out to them a lot and we fix them a lot to drive the things that you are talking about. The Defence Housing Service thing that we need to carry out over 10 years is to put ourselves in a different position for the next 50 years or however long it is. I am a great believer in doing it efficiently, which is what we are planning to do. I am a great believer in doing it properly. When you look at the housing stock and find things like vents that do not lead anywhere, single brick walls and no cavity insulation, I am not surprised that our houses need a lot of love. We have under-invested in them for the best part of 40 or 50 years, and that needs to change. It comes back to the effect on the family, because it does affect families, and I am sure we would agree that our wonderful service personnel deserve better. That is the intention.
Q15 Matt Turmaine: I acknowledge that progress is being made and things are improving. What is your assessment of the overall quality of the estate now? There are examples where things have been improved, but where are you on the estate as a whole?
Mike Green: We know that nine out of 10 houses need some serious attention. Near enough all—90% or something—meet a decent homes standard, but that standard is perhaps not as aspirational as you or I would like, to be frank. The plan is to sort out the building blocks of what we use to house our service personnel, and hopefully to turn them from tolerable to aspirational.
David Brewer: I can add a little colour to that. On the estate overall, most of these houses were built either immediately post war or through into the early 1970s, so their inherent build quality standards—the inherent design and the inherent construction—are of their age. As we know, they have also not been particularly well maintained subsequently. Well over half of the estate is below an EPC standard of D in energy efficiency.
If you compare this estate with, for example, most regulated housing providers, we are starting from an inherently worse place. We end up doing about 250,000 reactive repair tasks across the estate in a year, as that poor quality of housing and its condition drives a huge amount of reactive work. Every single example of a reactive repair is disruption to a service family just trying to get on and enjoy their homes peacefully.
That is why we need this sustained, long-term programme to address the fundamentals and the underlying quality of the properties. While we are getting on with that, we must also get much better at dealing with the reactive repairs and the service for people in those homes. We are tackling both of those things in parallel.
Mike Green: There is a “lessons learned” thing here, which we touched on earlier. If you look back to the original deal and think about the human behaviour that followed, doing up someone else’s house to their benefit is inherently not what you would want to do, so we have neglected these houses. As I said, we have put right the things in front of us, but there is now a major thing to do to sort out the building blocks.
Q16 Matt Turmaine: That is great. I do not want to keep dragging us back to 1996, but how much of this is a legacy of that 1996 arrangement, in which the responsibility for maintenance was taken on by the MOD?
Mike Green: It is difficult to say. I think a lot of it, but I have no idea how the MOD budgeted money for housing over the subsequent 30 years. It could be that we have spent a lot of money on the houses and did them up well, but there is an inherent behaviour not to do that. Running through the whole military estate, not just housing, is the fact that our infrastructure is in poor condition.
Q17 Matt Turmaine: A last question from me for the time being. When would we expect service personnel and families to be able to move into the refurbished properties?
David Brewer: It is a 10-year programme to get the whole estate up to standard. We are actually doing two things with that programme: we are trying to not only fix the condition of the homes but make sure that we have the right homes in the right locations. One of the other consequences of the Annington deal was that we ended up not being able to move our homes around, so we could not sell and buy homes where we needed them. There is a big mismatch between where we need houses of certain sizes, and where we have houses. That is another important factor unlocked by the deal.
We will see people moving into better quality homes progressively throughout the period of 10 years. The Defence Housing Service will publish the plan to do that in its first year of operation, and we are doing quite a lot of the planning and analysis that sits behind that now.
At the same time as we are doing those fundamental repairs, much more quickly than that everybody will be seeing an improvement in the standard of the repair service, as well as the standard that we prepare homes to when families move in. We have between 10,000 and 15,000 families moving home each year, and we are trying to ratchet up the standards. People will feel a benefit quickly, but really tackling the underlying problems will take the whole of that 10-year period.
Q18 Chair: Mike, I do not want to be unkind, but you have been in place since 2022. The Committee has been very critical of these housing survey figures for many years, and it is not good enough. If we want to recruit and retain our service personnel, I would suggest to you, David, that we need to do something about this much quicker than in 10 years.
When we went to Marham, for example, to look at the F-35s, we found that people who had been on Operation Highmast to Japan came back and were immediately sent off to the Gulf. We saw that in some cases their families were living in substandard houses. Modern families will not put up with that length of tour and that level of housing.
To give you an example, Matt has cited the worst figures, but the figures on how people regard the current service family accommodation are worse today than they were in 2012: 52% are satisfied, compared with 56% in 2012, and 33% are dissatisfied, compared with 29% in 2012. If I ran a business and over half my customers were dissatisfied with my product, I would not be in business very long. I think, Permanent Secretary and Mike, that there is a degree of complacency about the condition of this housing. Why can the MOD not produce a published minimum standard for single living accommodation? You have to do that for social housing.
Mike Green: You are right: I have been in place since 2022. I walked into quite a storm around damp and mould, compliance and all those things. We have fixed all those things. We have bought back Annington Homes. We have put together a plan to launch the Defence Housing Service, financed it and got money to do it. I understand your point about the 10 years. We are effectively rebuilding 50,000 houses, and at the same time hope to develop some others. I wish I could tell you there is a quick fix.
It is not that we have not been doing anything. Last year we tackled the worst 1,000 houses. We will do something similar this year. We have largely fixed the service. I used to work in retail construction, and I really like to view these people as our customers. That was not the case before. We are working really hard to change that.
I actually think it has changed significantly. The conditions now allow us to fix it, which has not been the case for 40 or 50 years. I hear what you say, and that’s fine, but it is my intention to fix this over the next 10 years for the following 50, which we have failed to do for the previous 50.
Q19 Chair: I suppose some of this revolves around money, so perhaps we could sort out the money aspect of it. As I understand it, Aneen, the deal to repurchase the Annington houses at £6 billion was granted to you by the Treasury on the condition that £9 billion was spent on refurbishment and repair over 10 years. If that is the case, how much is going to be spent in this Parliament?
Aneen Blackmore: We touched on this when we were last in front of the Committee. You are absolutely right to refer to our £9.2 billion commitment for service family accommodation over 10 years. As we talked about, that was absolutely protected through the DIP process. It is a core priority for us for all the reasons we have set out today, which the Committee is familiar with. As part of the DIP process, we considered a variety of priorities and critical capabilities to ensure that we had a balanced plan, and we needed to reprofile around £800 million from this Parliament into next Parliament.
I can assure the Committee that alongside that we were really clear that we wanted to prioritise a real-terms increase so that we were really getting after the immediate problems and supporting defence housing services. Our plan for this year is a real-terms increase on last year. The plan for next year is another real-terms increase. The plan for the year after that is another real-terms increase. We are really not complacent. We know how important this is to our service personnel and more broadly so that we can optimise our estate and drive even greater value for money for it, but we needed to balance it in the wider plan.
Q20 Chair: Can you clear up a bit of confusion over the figures? As I understand it, the original allocation was £1.5 million to be spent in this Parliament. You have deferred £0.8 billion. I think that figure is in the public domain, but I am not sure about the £1.5 billion in this Parliament. That means you are only going to spend £0.7 billion in this Parliament. It sounds as though you are a long way short of getting anywhere near the £9.2 billion in 10 years.
Aneen Blackmore: I think there is a risk of confusion between the service family accommodation budget and the single living accommodation budget. The £1.5 billion relates to the additional increase that we were looking to spend. We set out in the DIP that we are planning to spend £2.7 billion on service family accommodation over the next four years. That already includes some of the reprofiling that we needed to do to ensure that we balanced the broader programme, given the pressures that we have in defence, but, as I said, we absolutely were protecting the £9.2 billion over the 10 years—we need to do that; we will continue to do that—and we were absolutely ensuring that, alongside that, we were continuing to drive real-terms increases, so that we continue to make the progress that we wanted to make.
Q21 Chair: Sorry, I am being confused by sophistry. How much are you going to spend in this Parliament, full stop, on all defence housing accommodation? Is that £2.7 billion over four years? This Parliament only has another three years to run, so how much will you be spending in this Parliament?
Aneen Blackmore: On housing in totality, I would need to write to the Committee, because that gets into the single living accommodation figures, which I do not have in front of me. I would need to write to confirm that. On the service family accommodation, for the four years going forward, it is £2.7 billion. Obviously, this Parliament includes a prior year on that as well.
Chair: You have had two years of it.
Aneen Blackmore: Yes; that is only looking forward. But I can confirm that we are continuing to build in real-terms increases.
Q22 Chair: It should be relatively simple. How much are we going to spend, in this financial year, on defence housing? If you are deferring £0.8 billion, how much are you actually going to spend in this financial year? It will come out in the accounts eventually, so how much are you proposing to spend? You must have a budget.
Aneen Blackmore: We absolutely do have a budget. Because housing is much broader than the service family accommodation, I would need to write to give you a full set of what we would include. That includes single living accommodation and it would include some of our defence optimisation budget as well.
Jeremy Pocklington: Sir Geoffrey, you wrote to me about two days ago, asking for this information and for a reply later this month. We will write; we will reply. You have asked the question, and it is a perfectly fair question. It is in different places in our budgets in the Department, because you are including single living accommodation as well as service family accommodation, so I will reply on the deadline that you have asked me to.
Q23 Chair: Rupert, good morning. We have not heard from you this morning, so now is your opportunity. How is it that if this was not defence housing, there would be a social housing standard? Why shouldn’t defence housing have the same standard?
Rupert Pearce: I do not disagree with that in principle. What we have to do is deliver standards that are going to attract and retain our top-quality armed forces and also recognise, as Jeremy said very eloquently earlier, the very unusual nature of service life—the peripatetic nature of it and the fact that families are separated, sometimes for long periods of time. Philosophically, where standards will need to flex and differ is where they have to reflect the operational necessities of life in the armed forces. But absent that, it is obviously our intention to offer people the same standards they could get in commercial life—in normal life; otherwise, how are we going to attract people into the armed forces?
Q24 Chair: But if we take David’s point that you have a 10-year programme, isn’t that too long? You want to recruit people and retain them. We are in a desperate state at the moment with needing to recruit more people. Housing is integrally linked with that. Isn’t 10 years far too long?
Rupert Pearce: Well, you could say that about the DIP as a whole, about investment across the reinvigoration of our armed forces’ capabilities, and about our broader infrastructure, which Mike has talked about and is also not in a state we would like. Housing is part of that. It is a question of balancing all those priorities, Sir Geoffrey. It is not an easy task, and we don’t have a lot of time to get after it, either.
David Brewer: Forgive me if I gave the impression that we were waiting for 10 years before this would be fixed.
Chair: No, didn’t get that impression; I got that you were having a 10-year programme. I am just saying that you need to think about that, because I think it is too long.
David Brewer: There are a few bits that go with that. We are prioritising improving condition over capacity, so we are bringing in the condition improvements as early as possible in that programme. We are improving all the houses as we go through and improving the service throughout the whole of that period of time. As we have touched on, we are targeting the worst properties first. So the scale of the problem that we are challenging will be eaten into progressively through that period, and we will see significant improvements across the estate much earlier than in 10 years.
Rupert Pearce: It is a combination of factors as well. Ultimately, our ambition is gated by the 24 hours in the day and the amount of money that we can put to work, particularly at the front end of this process, to get ahead of events. That is part of a resource allocation in terms of the overall pot and what we prioritise.
Obviously, at one level we want to have the best possible service family accommodation and single living accommodation for the brave men and women in our armed forces, and we need to get to “good” as quickly as possible. But we also have a series of other objectives, which you know well because we have talked about them in this room before. They include re-equipping our armed forces to deter and to fight and win; leading in NATO; rebuilding our supply chain for warfighting readiness and resilience—indeed, the whole of society needs to get ready for the possible onset of war; and creating an innovation engine, which requires a lot of time and attention, to make sure that we infuse our capabilities with innovation at the pace of relevance and, indeed, lead on that. All those things cost money, and we only have so much money and so much time. We are trying to get ahead of this one as fast as we can.
It is not just about us and our resources, of course. As you have heard from what we have said about the Defence Housing Service, we are looking to collaborate with the private sector, infuse our capabilities with more skills and bring money and resources in from potential parters. We bring that all to bear through the Defence Housing Service and its plan. The front end of this should allow us to accelerate, but it is too early to make promises on that at this stage. But speed is everything.
Q25 Chair: I want to move on from this, but I want to say one thing. Unlike almost anybody else, defence personnel have to be tied to this housing, on the whole, for a variety of reasons—they need to be near to where they will be called, and they move about a lot. Therefore, we owe it to them to produce the highest possible standards. I accept what Mike Green says: the standards of housing that everybody expects today are very different from what they were 10 years ago. You have got rid of mould—fine—but they actually expect a better standard of insulation, heating and everything else nowadays.
Mike Green: Can I come in on that point?
Chair: I really want to move on, unless it is very important.
Mike Green: I want to reassure you on your complacency point. It took us two years to do the biggest property deal of its type in the UK with Annington Homes and get it done. It has taken us a while to get all the money in the DIP, and assigned in consultation with Ministers and so on. We have a plan, we are in the process of setting up an arm’s length body to deliver it, and we will deliver it. It does take time and money to fix 40 years of neglect. We are not complacent, and I agree with you on our service personnel.
Rupert Pearce: There are not many programmes in the DIP that are larger than this one. That demonstrates how important we consider this. We are nothing without our people. We need our people to be comfortable and happy, and we need their families to be well settled and looked after and to feel appreciated.
To add to what Jeremy said earlier, it is not just about the serving men and women; their families make huge sacrifices to be part of the family that is the Ministry of Defence as well. We need to keep that close in everything we do.
Chair: I indicated that in my earlier comments about the long tours of service done by some of our servicemen.
I am in error: I should have declared my interest as a chartered surveyor. I do not think I will make anything out of this whole business, but some of my fellow chartered surveyors might, so I need to declare that interest, which is registered in my Members’ interests.
Q26 Matt Turmaine: I want to talk about your ambitions for improving the accommodation within this Parliament. Obviously, you have great ambitions and want to see as much of it done as possible. Can you talk a little bit about what those ambitions are? For example, have you set specific targets for how much of it you are going to get through?
David Brewer: We had a profile that sat behind the DIP submission. That was built on a look across the whole of the estate. We are currently going through a much more detailed bottom-up view of what we need to do in which locations. We have divided the country up into 65 zones, and for each of those zones we are doing a vigorous analysis of how many homes we have of each size, how many homes we need of each size, what conditions those properties are in, and what the most economic mechanism is to get to the end point that we need.
We have various tools we can use. We can spend money on refurbishment, we can sell properties and replace them, and we can build properties on our own land. We can make a series of different interventions to tackle the problem. The planning around SPC 27 that we are working through now is us pulling together that bottom-up plan. I cannot give you the specifics of how many new homes will be provided and how many homes will be refurbished, but you can see that the run rate at the moment is about 1,000 substantial improvements per annum. I expect that to double during the period we are running through.
Alongside that substantial investment in improving the properties, all of our properties that are prepared for move-in will be prepared to a higher standard. As we touched on earlier, that is between 10,000 and 15,000 properties a year. There will be these twin things running: substantial refurbishments running at an order of 2,000 a year, and a general lifting of standards across the whole of the estate.
Q27 Matt Turmaine: You have pre-empted the next part of my question, which was about the modelling around making sure you have the right accommodation for the needs of the service personnel. You said that is part of the plan that you are pulling together at the moment; is it looking good?
Rupert Pearce: If you look at the defence housing strategy, you will see, as David said, that the minor problems are that we have the wrong houses of the wrong size and the wrong shape in the wrong place, but apart from that it is perfect. The big challenge is to replan, as David said.
David Brewer: As well as building a really good plan, we know that things will change over that period of time. One of the challenges we identified with the Annington deal was that it was rigid—it didn’t flex. Because we have set the estate up differently, we are now in a position where, as well as working to a plan, we own the properties, so when things change, we can sell them if they are in the wrong locations and we can buy properties in other locations. We have a much more flexible system. So we have both a good plan and an ability to veer and haul as needed.
Another thing worth touching on, which we agreed as part of the implementation of the housing strategy, is that a new planning designation for military affordable housing has been published in the NPPF. One of the things that allows us to do is to both build and buy section 106 affordable housing. Again, that means we have another tool in our armoury to go and get the homes for the military at better value.
Q28 Matt Turmaine: That’s great; thank you very much. Would you be happy to share some of the details around that plan once you have finished pulling it together?
David Brewer: We will, and part of the requirement of the strategy is that we will publish that regularly. As the Defence Housing Service gets into full operation, it will publish its plans and an annual report on its performance—both the delivery of the improvements and the day-to-day service standards. We are intending to get much more transparent as we work through into the new governance and operational arrangements.
Jeremy Pocklington: This is obviously going through the Armed Forces Bill that is currently going through Parliament. I think it has just completed Lords Committee.
Q29 Chair: Are you able to clarify, David, how many houses you are thinking about buying on the open market from 106 arrangements?
David Brewer: Not at the moment, Sir Geoffrey. As we work through the replanning process—as we look at the economics of the various different interventions—we are finding that more of the homes will probably be refurbished, rather than bought. Obviously, the details of that depend on the housing market and the cost of refurbishment. It is something we are keeping under constant review, but at the moment I cannot give you the section 106 figure.
Q30 Chair: Given that those will be new houses, is the strategy to buy up those new houses and then sell off some of the older houses that need a lot of money spending on them?
David Brewer: Where that makes sense, absolutely. That is part of the economic appraisal we were doing. We talk about replacing homes as one of the interventions, and that is one of the tools in our armoury.
Q31 Rupert Lowe: I have a question a bit later that may be for Jeremy, but Jeremy may also come into this one. My question is probably for Rupert and Mike, actually. I am keen to drill down on what actions you are taking to effectively support the Government’s commitment to build more homes on surplus land and how much land you intend to actually release for that development.
Rupert Pearce: I will start at 20,000-foot level and hand over to Mike for more detail. Part of the DIP settlement was a Treasury condition on this point exactly. That was for us to have a commitment and a condition to deliver 100,000 homes for the general population. Part of the DHS plan is to work assiduously over the next 10 years to free up those homes and the land for those homes. It is very much part of the programme; it is the other side of it. On the one hand, the highest priority is obviously to get our service personnel into appropriate family accommodation, but part of the exercise is also to free up up to 100,000 homes to make our commitment to the need for new homes in the UK.
Q32 Rupert Lowe: Are those homes for the open British market, or are they in any way related to the issue around whatever you want to call them—asylum seekers, refugees or economic migrants? Is there any conflation with your programme there?
Rupert Pearce: No, I don’t believe so.
Q33 Rupert Lowe: None at all?
Mike Green: At the moment, the intention is to build 100,000 houses. In the meantime, with what will happen with devolution and local authorities and so on, there are choices; we may well choose to retain them and rent them out or put them on the open market at the right time. If you are a housing developer, you are not going to drop 100,000 houses all at once, because you will lose money.
Q34 Rupert Lowe: Jeremy, can you commit to the fact that there is no conflation of what you are doing and the crisis we have—whatever you want to define it as.
Jeremy Pocklington: As my colleagues have set out, the policy objective is to build 100,000 homes, either for military use or for the private market. That is the policy objective we have set out. The details of the strategy are ultimately a matter for the plan, which the Defence Housing Service will be obliged under law to publish in the first year of its operation. There is a separate question about the use of existing accommodation—Mr Green may want to provide a brief factual overview—but it is not really the focus of this hearing.
Q35 Rupert Lowe: Is that the existing accommodation? Having looked at this, you have about 47,700 service family accommodation units, as far as I could see. It looks like only 38,300 of them are currently occupied. Is that about right?
Rupert Pearce: Roughly 20% of all—
Q36 Rupert Lowe: Are you talking about those vacant properties? Is that what you are talking about now?
Mike Green: Not specifically. The people we have put in a limited number in some of our houses tend to be Afghan—
Q37 Rupert Lowe: I know that you have some Afghans in some of your houses. How many have you got Afghans in?
Mike Green: It is getting less and less, because we put them in for three years and they are moving out. I do not the exact number because it changes every day—
Q38 Rupert Lowe: You do not know the number.
Mike Green: I do not. I am happy to write to you, Mr Lowe, but I do not know off the top of my head.
Jeremy Pocklington: Often, the voids are being prepared and awaiting the arrival of people. The voids are about 20% at the moment, and I think that we would consider 10% to be the optimal number of voids. There will always be voids in the system, because it is a system of 15,000 moves a year.
Q39 Rupert Lowe: I am just keen to see total transparency. If there will be any spillover between the two issues, I think that the taxpayer needs to know about it. Otherwise, you never know which cup the dice are under.
Mike Green: I am not aware that that is the case, but policy changes—
Q40 Rupert Lowe: I have another question for you. Have you got any contracts with Clearsprings Ready Homes?
Jeremy Pocklington: I am afraid that I do not know the answer to that. I was not—
Rupert Lowe: I would like to know, because I have done a bit of work on these people. I do not know how much due diligence you have done. I am aware that you do stuff with Mears and Serco as a Government. I have done a bit of research, and from the publicly available information, Clearsprings seems to be a private company—given your history of the ’96 issue, I think you should be looking at this—controlled by a chap called Graham King. I think that it deserves some due diligence—
Q41 Chair: Order. I think you have made your point. Jeremy has said that he does not know of any contracts.
Rupert Lowe: No, he did not say that. He did not want to answer the question.
Mike Green: I have not heard of Clearsprings, if that is—
Q42 Chair: If there is anything you can tell us, drop us a note.
Jeremy Pocklington: I will do that, Chair.
Chair: Sorry to cut you off, Rupert, but we have time—
Rupert Lowe: It is important.
Chair: I know, but we have to stick to the subject.
Rupert Pearce: Just to confirm the position on Afghans as well, I understand that the position is virtually zero. The data I have is that in December we formally closed the final transitional site on the defence estate for the Afghan resettlement programme. So I do not think that we will see very many Afghans—
Q43 Rupert Lowe: There were about 100, I think. But maybe that has dropped now.
Rupert Pearce: It is falling all the time.
Chair: Thank you, Rupert, for that clarification. Is there anything on Annington Homes as such that you want to ask?
Rupert Lowe: I shall wait until my final question, Geoffrey.
Chair: Right. Well, we shall wait for that.
Q44 Blake Stephenson: Thank you very much, Chair. My first question is for you, Jeremy. Do you agree with the statement that the MOD currently has “little experience or expertise” to operate as a property developer, a regeneration organisation and a housing support service?
Jeremy Pocklington: The importance of building the expertise that we need is why we are setting up the Defence Housing Service. That will provide the ability for us to focus and to have the variety of expertise, whether in development, operating or ensuring that our customers—service personnel themselves and their families—get a high-quality service.
How I would characterise it is that we are building that process at the moment. We have a chair, Natalie Elphicke; we are just about to go out to recruit for non-execs for the Defence Housing Service; and we want to make sure that we have a strong board with the right expertise.
However, we are also recruiting people now for the Defence Housing Service, including the commercial experts we need, who are people with operational expertise, construction expertise, or expertise in acquisition in housing policy issues that I know are important to this Committee. We are going to need a balanced leadership team, but ultimately we need to build a customer-focused housing service and property company.
Q45 Blake Stephenson: So you do not have the skills now, but—
Jeremy Pocklington: As I say, we are building. We have recruited more since the Report—
Q46 Blake Stephenson: But the vehicle is the Defence Housing Service.
Mike Green: There are two parts to your skills point. One was development, and we wholly admit that they are skills we need to acquire, along with housing services, which we do; we are the third biggest housing provider in the UK. So in housing services we fix things—we do things. Yes, we do have the skills—
Q47 Blake Stephenson: You have a lot of experience and expertise in housing support service?
Mike Green: Yes.
Q48 Blake Stephenson: On that point, I think you are at odds with the NAO Report. The NAO Report highlighted—paragraph 3.12, if you want to take a look—that you currently have “little experience or expertise” in housing support services. Let’s focus on that one for the time being. Perhaps, Mr Green, you want to outline—
Mike Green: We are the third biggest housing provider in the UK now. Now, we do not always do it well; historically, we have had under-investment as we go. Since 2022, we are getting better and better. We have a lot of work to do, but, without wishing to say that we are perfect—we are not—we have struggled for funding to fix things. We are in the process of doing that.
In housing services—I define housing services as maintenance, as all of those kinds of things, as cutting trees, whatever it may be—we have a lot of experience. Maybe we do not always have the money. On development, I completely agree with you that those are skills we have to acquire.
Q49 Blake Stephenson: Looking forward to the Defence Housing Service, what funding will be required, how large that organisation will be, and how you will create and develop the skills needed, could you just walk us through your thoughts there and say how you are going to ensure that it is properly funded and sufficiently independent and has the skills to deliver what the strategy requires?
Jeremy Pocklington: This is work in progress. We are establishing the Defence Housing Service at the moment. It is operating in shadow form. Establishing it formally depends on Royal Assent for the Armed Forces Bill, so I do not want to prejudge what is ultimately a decision for Parliament. If possible, however, we aim to establish it on 1 April next year. We will only do that if we can do so safely, if we can protect public money, and if it is also in the interests of service personnel.
We will then set out the arrangements through a framework document and the governance that you would expect to see of a non-departmental public body; the Committee will be familiar with that. Ultimately, though, these are ultimately policy questions for Ministers. Obviously, we have a relatively new Government, so I need to reserve their position to take policy advice and policy decisions on that.
On the issue of funding, often the key issue is what happens to receipts from sales. As part of the overall agreement, the Ministry of Defence has access to those receipts from the sales. Obviously, the precise details and arrangements for that are policy decisions for Ministers.
The next question that often comes is that of borrowing. Those familiar with the legislation will know that the Defence Housing Service will legally be able to borrow, but there are no plans for it to be able to borrow to fund military housing. What is in our minds is external finance, including borrowing, may perhaps be used to support commercial activities—things like joint venture arrangements. This will require agreement with the Treasury, though, so that is not agreed, but the concept that there may occasions when that is appropriate is what is behind that provision in the legislation.
Q50 Blake Stephenson: Thank you for that.
I have a question for Rupert. I visited the site in Abbey Wood in Bristol some time ago. It is a great facility and you have a really great team down there—I want to congratulate you on that.
Rupert Pearce: Thank you.
Blake Stephenson: You outlined earlier the challenges that you are facing with the National Armaments Directorate. I wrote down two things that you said. There is only so much money—which is always true—and speed is everything.
We are in the midst of a political argument at the moment about when we are going to get to 3% of GDP or 3.5% of GDP funding for the armed forces. I do not want you to stray into policy, obviously, but, in that context, are you comfortable that you are going to get the funding you need to get this Defence Housing Service off the ground in the way that you will need to, subject of course to the Armed Forces Bill and all the other dependencies?
Rupert Pearce: Yes, I am.
Q51 Blake Stephenson: You are?
Rupert Pearce: Yes. I am very confident that the DIP has the full support of our Government. It has been agreed. We are now moving into the delivery phase, taking the money and the programmes and turning them into a plan for action, to get out of the door quickly with our new programmes and activities, of which the Defence Housing Service is a very important component. Yes, David and I would agree that the money there allows us to fully fund our ambitions. Now, we are obviously working through those ambitions in the context of the Defence Housing Service plan, which will be liberated by the Armed Forces Bill going through. I think we feel very good about what we are going to get after.
David Brewer: We are extremely confident. We have got really clear plans for what is needed to get the organisation up and running with the right levels of professional capability. That is included in the funding profile in the DIP.
Rupert Pearce: We are very grateful for Government’s willingness to establish the Defence Housing Service as an NDPB, which allows it to do some of the things that Jeremy talked about. It allows it to partner more effectively. It allows it to be more dynamic. I think it will allow us to attract the right skills and capabilities as well.
It should be a dynamic, fast-moving, energetic organisation at MOD. That is what we want to help empower. Then we can come back to you at regular intervals with full transparency, and show a new level of progress.
Q52 Blake Stephenson: We will look forward to future hearings to see whether it is the success that you are planning for it to be, and I sincerely hope that it is.
Rupert Pearce: That scrutiny is really important in terms of making sure that we do not only look inward on this. We are open to new ideas and constructive challenge.
Q53 Blake Stephenson: We have spent a lot of time in this Committee today talking about 1996, but it is important that we look to the future as well and make sure that we fix things; we are going to get on to some lessons learned.
Before I finish, I want to move on to the support that the MOD drew on from UK Government Investments. This was a positive story in the NAO Report, which is good. The purchase price of £6 billion was a good outcome in the Report—I am not going to comment on whether it is a good outcome, but the NAO says that that is a good outcome to the negotiations, and was arrived at using a process in which you drew quite heavily on support from UKGI.
I am loath to have one Department provide advice to another Department within Government, but theoretically and hypothetically, if you were to give some advice to other Departments, what would you say they should do in terms of using the expertise at UKGI to improve contract negotiations elsewhere within Government? I think that is probably for Jeremy and then Mike, perhaps.
Jeremy Pocklington: First, I think UKGI provided invaluable support in this process. Robert Razzell and the team played a really important role as part of the team. My advice—I say this as someone who has been on the board of UKGI in the past—is that they should be involved early in thinking about the policy. Creating a sense of team is the key thing, so that they are part of the discussions and can help shape them. They bring a lot of expertise.
The thing that also helped here is that it was a good cross-Government team. It also involved the Treasury working very collaboratively, with clear political direction. UKGI bring very specific skills and expertise, and I have seen in many jobs the value that they can bring.
Mike Green: I have a life mantra: “Trust your expert, mate.” UKGI were brilliant, and I would call out Robert Razzell as being fabulous in a conversation where decimal points matter a lot. We deal with such big numbers, and that gives us as negotiators the confidence that we are doing the right thing. Robert and the team were brilliant at saying, “You are doing the right thing.” They were brilliant at having conversations with us and, on behalf of us, with the Treasury, and saying, “This is a good deal. It is the right thing to do. Here is the negotiating band that you have. Go and do the deal.” I can’t praise them highly enough. Dealing with such big numbers makes us all nervous, and we need to know we are getting it right.
Q54 Blake Stephenson: To what extent did you rely on external expertise, aside from UKGI?
Mike Green: Not much. We had a lot of legal expertise in the enfranchisement court cases. We had the transactional legal people writing out the deal—“Here are the deeds for all the houses.” As I am sure you can imagine, the depth of documentation for the best part of 40,000 houses was a lot. In terms of advice, it was mainly UKGI and the Treasury.
Rupert Pearce: Rest assured that we are looking to institutionalise that kind of support as we move forward. You will appreciate that the National Armaments Director Group has a big commercial role to play in many areas. Our relationship with UKGI continues to be very strong. Indeed, with the defence investment unit being set up as part of national armaments defence innovation, we are essentially creating a little corporate finance boutique to crowd private capital into our programmes and our supply chain, and to manage the dozens of PFIs that we are rolling out of and into new arrangements. We are embedding UKGI inside that as secondees and as a bridge into the rest of UKGI. The relationship with them is very good.
As Jeremy and Mike said, getting them in early is the key. As with all experts, the earlier you get them into a process, the more they can help you shape it, instead of saying, “No,” or, “If only you’d asked me earlier.” That is of critical importance.
David Brewer: Can I add one specific point about the learning from the buy-back transaction? It is not just who you involve but how you involve them. Rather than farming out bits of work to expert consultants, letting them write a report, taking it back in house and having a bit of ping-pong, we built a single integrated team. We had strong commercial capability in our organisation, and we were leading that team, but we were pulling in advisers. We had people at the heart of the process who knew when they needed to ask for help and when they did not because they had that commercial knowledge. That is exactly mirrored, in the way that Rupert just described, in how we are setting up the relationship with UKGI. There is a specific piece of learning from the way that the buy-back was done.
Mike Green: What we did not do is important, too. We did not go and get a large investment bank and give them £100 million to give us lots of advice. That is where UKGI were brilliant.
Q55 Blake Stephenson: If you were bold enough to do so, Jeremy, would you invite your colleagues across Government to do exactly what you have done in order to improve contract negotiations in the future?
Jeremy Pocklington: Very much so.
Q56 Chair: Rupert, there is one bit of the defence housing strategy that really concerns me. You have excellent private sector expertise. You will know that the development sector are the sharpest knives in the book. The idea of having a state housing development service fills me with absolute horror. Joint ventures, partnerships and stakes are one thing, but to actually go into the field and compete against the private developers is different. You know from your private sector expertise that once you depart from your core activities—the MOD has a core activity. This will be a huge distraction and potentially an enormous loss of public money.
Rupert Pearce: I do not want to project forwards to what the outcome will be, because obviously we are hoping to manage public money very wisely and be successful in what we are doing, but I agree with you in principle. I want to see the Defence Housing Service partner with developers in a way that allows us to leverage those sharp elbows for common good, as opposed to trying to go toe to toe with them and thinking that we can bring in that expertise on our own. It is much more of a partnership model as we look to spin out. David, what is your view?
David Brewer: Exactly that: we have no intention of going out and competing with other developers to run these things ourselves. We have a few examples where we have already successfully moved forward in partnership with private developers. The Waterbeach development with Urban&Civic is a really significant and financially successful development. That has been done absolutely in partnership. We know what we bring to the party and we know when we need to bring in others.
We have obviously been talking to the market; we have been talking to all the major house builders and developers. There is clearly an incredible synergy between the work on military housing and the opportunity to develop surplus military land, because those two can work together. A lot of the major house builders have said to us, “If we can get involved with you in partnership on your commercial development activities, we can help you access our buying power for the doors, windows, kitchens and bathrooms that you need to refurbish your military home.” Those two things are really supporting each other and working in tandem.
Chair: Thank you for that reassurance.
Q57 Rupert Lowe: This one is probably for you, Jeremy. If you boil down the Report, the key paragraph is when the NAO says that £14.5 billion is “the amount by which we estimate the Ministry of Defence (MoD) was worse off, by 2024, than if it had not sold the service family accommodation (SFA) estate in 1996.” That is the key issue because, again, it is about the poor taxpayer.
I can see what happened in ’96; I think we have elegantly discussed it. Quite rightly, Jeremy, it is not something you are responsible for, and well done for trying to tidy up the mess, but tidying up the mess begs the question: how do we avoid a future mess that we have to tidy up? The logic in ’96 seemed to be to deceive people about how much it was costing to run the estate by paying a reduced rent, getting a deficient contract and ending up with the mess we have.
Do you think, on balance, it is a bad idea to try to round-trip the taxpayer and effectively conflate current cost with cutting costs in the short term and ending up with a bullet payment in the long term? Again, I like transparency and clarity. This muddied the waters, and it was a case of the Government doing a deal with the private sector. Is it a bad idea to do deals like that, and is the private sector too quick for the public sector?
Jeremy Pocklington: The 1996 deal was a poor deal. Our latest estimate is that the repurchase we have talked about today saves the Ministry of Defence £7.7 billion over 10 years. This is a success story that we are talking about.
Q58 Rupert Lowe: We have said “Well done” on that.
Jeremy Pocklington: One of the challenges with the 1996 deal is that too much focus was put on short-term financial return, so I am agreeing with the essence of your point. That was driven by the objectives that were set. Actually, the price paid was the value secured through a competitive process but, with what we know now, that was a very bad deal.
In terms of being wary about the private sector and the speed of the private sector, I do not want to make any comment about the partner involved in this deal—I think you are asking a generic question. For the record, I have been informed by colleagues that they behaved professionally in that process from 2019 in the negotiations that followed. But did they want to maximise their return? Of course they did.
Your broader point is right that Government need to be very careful about the incentives they create and the behaviours that result from transactions such as this. That is why there is often such a prize in aligning incentives rather than having divergent incentives.
Q59 Rupert Lowe: I run multiple contracting businesses, and if I see a contract that looks so bad, I question whether or not there has been some form of fraud or misfeasance. You will find that if a contract looks too good to be true, there is usually a reason why. Do you have a process whereby you lift the drains if you end up finding you have had your face handed to you by somebody you have done a contract with?
Jeremy Pocklington: We of course scrutinise and seek to learn lessons as a Department. We obviously want to continuously improve as a Department. This deal has been audited on multiple occasions by the NAO, so I do not want to provide any further comment on the issues you have raised in relation to this deal.
Chair: Thank you, Jeremy. Of course, the answer to some part of your question, Rupert, is that this Committee has done an entire inquiry on fraud and error in the MOD and we know very well what its systems are to try to check that contractors are actually invoicing for what they have carried out.
Does anybody have any further questions? Right, I thank our witnesses very much indeed. You all ought to be congratulated, in one way or another, on sorting out this problem that you had. Let’s hope you can go forward and produce as quick a result for the standard of defence housing as possible, because it is a priority if we want to recruit and retain our servicemen, and we owe it to their families. We are asking them to undertake long tours of duties and move constantly, so we owe it to them to produce decent housing.
Thank you all very much. The uncorrected version of our transcript will be available in the next few days. I am absolutely certain that we will produce a Report with recommendations, which we hope you will study carefully. We are grateful for your time.