Much attention is currently focussed on the government’s defence spending plans, as it must be. Against the background of various conflicts globally, defence is increasingly recognised as an area of public spending that has to be increased.
It is also an area where UK competence in successfully making the large investments needed is questionable. The evidence inevitably seems to lead in the direction of concluding that procurement skills in the UK defence sector are severely lacking.
A new report from the National Audit Office has highlighted the loss of some £14.5 billion in a single transaction by the Ministry of Defence when it tried to outsource provision of accommodation for servicemen and women and their families. Putting that previously well publicised farrago right involved the MoD buying back the 36,000 properties that were sold to Annington Property Ltd in 1996 and leased back to the taxpayer.
In 2018 NAO reported that as a result of the 1996 deal, the MoD had lost out on billions of pounds in asset value. In December 2024, the MoD announced that it had agreed to repurchase over 36,000 SFA properties from Annington Homes at a cost of £6 billion. It said this deal would save the taxpayer billions of pounds in rent and allow it to undertake a major redevelopment of the estate.
The new NAO report examines the process by which the MoD bought these homes back. The report estimates that the public purse is some £14.5 billion worse off as a result of the original sale and leaseback deal. But at least, says the NAO, the repurchase deal put a stop to what would have been billions of pounds of further lost value had the MoD allowed the Annington arrangements to continue. A key to the success was tapping into financial expertise at UK Government Investments (UKGI), a government consultancy owned by the Treasury.
The 2024 deal to repurchase was the lowest cost of the options considered in a process that was largely handled effectively, the report says. So lessons have been learned but the NAO stresses that challenges remain for the MoD, including delivering on the 2025 Defence Housing Strategy which requires MoD to become a property developer, regeneration organisation and a housing service. But, the report says, unsurprisingly, it doesn’t have the necessary expertise or capacity.
The NAO says the MoD should seek to learn from others in government about the different models for bringing in the private finance and private sector expertise that will be needed to deliver its plans, and the benefits and risks of the different approaches. It must also finalise its long-term funding plans for the defence housing estate and establish the Defence Housing Service with the powers and autonomy it requires to deliver the planned reform efficiently, among other things.
The process that led to the MoD repurchase shows that at least sometimes there is a damage limiting way out of the mess. The value of using the expertise available from bodies like UKGI should be recognised before the mess starts.
Nick Barrett
Editor