The Ministry of Defence will spend almost £6bn from its contingencies fund to pay for the reversal of the notorious privatisation of tens of thousands of homes used for service personnel in the 1990s, MPs have been told.
Defence secretary John Healey told MPs yesterday that advances of £5.99bn from the fund would be used to expedite the deal with Annington Property, ahead of parliamentary approval for a supplementary estimate to cover the buyback of 36,347 homes included in the deal.
Healey announced last month that an agreement had been reached to end what he described as "one of the most notorious privatisations of the 1990s, with the balance of risk and reward skewed heavily against the public sector".
Yesterday, he issued a ministerial statement saying that exiting the MoD's arrangements with Annington represented "excellent value for money" and would open up the "once in a generation" opportunity for a new military housing strategy.
Healey said the MoD would seek parliamentary approval for additional capital spending of £1.67bn and additional cash of £4.29bn in a supplementary estimate.
"The agreed purchase price is nearly £6bn; however, eliminating the liabilities associated with the leases creates budgetary headroom to partially fund this purchase, meaning that the public expenditure impact of this measure, and the impact on public sector net debt, is confined to £1.7bn," he said. "The ONS have agreed this fiscal impact approach. Funding for the deal is being provided by HMT. The Treasury scored additional funding to the reserve at Autumn Budget for this purpose."
In 1996, John Major's Conservative government entered into a 200-year sale-and-leaseback deal that transferred 55,000 service-family homes to Annington in return for £1.66bn – an average of £27,000 each. The arrangement, which still requires the MoD to cover the cost of maintaining the properties and to pay for empty homes, was described as "appalling" in 2018, by then-chair of the Public Accounts Committee Meg Hillier.
Hiller's comments were based on a National Audit Office report that said the deal had been entered into based on "over-cautious" assumptions for the growth in property values and that subsequent house-price increases had cost the MoD up to £4.2bn alone.
Around 18,000 of the original 55,000 homes have been fully transferred to Annington. The MoD currently pays £230m a year in rent for the remainder.
An MoD estimate last month put the cost so far of the original deal at around £8bn based on rent paid to Annington over the past 28 years and the properties permanently surrendered to the company – minus the original purchase price. The department said the cost of continuing with the current arrangements over the next decade would be a further £5.9bn and that Annington would also have taken full ownership of more homes, with a value of £1.3bn, over that period.
In addition to its poor value for money, the 1996 deal also served as a block on the MoD's ability to redevelop the sites and left military families living in 1950s and 1960s-built housing now described by Healey as being "in a dire state".
The deal announced last month was enabled by a High Court case begun under the Sunak government.
The MoD has said a new military housing strategy will be published this year and will feature an action plan to deliver on the "opportunities unlocked" by the return of the properties previously sold to Annington.
"The strategy will help to deliver a generational renewal of military housing, new opportunities for forces homeownership, and better use of MoD land to support the delivery of affordable homes for families across Britain," it said.