MoD sets sights on £700m target.

When the last soldier marches out of the historic Duke of York’s Headquarters in London’s Chelsea, #66m will be released from the sale. The money will fund frontline military capabilities. Asset disposals like this have become a favourite way for the Ministry of Defence to raise money in a time when the armed forces are scaling down after the end of the Cold War. Realising surplus assets such as land and property can be a highly profitable exercise as the Chelsea barracks example shows. Aside from the initial sale, further payments will be due when the site is vacated – primarily in 2003 – resulting in a total receipt of #94m. And next year the old Millbank Hospital next to the Tate Gallery in London will be sold. Such sales are the responsibility of Defence Estates, the estates management arm of the Ministry of Defence. Headed by chief executive Ian Andrews, Defence Estates has been told to realise #700m from receipts by March 2002 and has that figure well in its sights. The Chelsea sell-off is the latest and largest land disposal following a rationalisation of MoD estate holdings in London. This flows from the Strategic Defence Review that reassessed the MoD’s requirements and the scope for further surplus property disposals. Andrews says: ‘This sale is excellent news for the taxpayer. It shows our commitment to the rationalisation of the estate – we only hold what we need – and most importantly the release of resources to fund additional military capability.’ And now the MoD has marched into the record books with receipts from asset disposal of almost #290m. Defence minister Dr Lewis Moonie said of the disposal: ‘This is excellent news for the MoD, the taxpayer and estate developers. I stress that MoD only retains land that is essential. This allows the money from the disposals to be rechannelled into supporting MoD’s main business – to defend the UK and its people. ‘#287m represents the highest value of property ever sold by MoD in a single year. We are managing our assets to provide the best for the MoD.’ Defence Estates and Andrews are determined the estate should be no larger than it has to be. Andrews describes his #700m receipts target as ‘an enormous challenge’ but one which it is vital to meet if the forces are to continue to meet operational requirements. ‘We have taken #287m of receipts this year. But we are not going to maintain that level of receipts for every. Increasingly we will need to invest to divest or spend money in the short term to create opportunities that we will need for the future,’ Andrews says. Yet asset disposal has not always been so successful (see box). A National Audit Office investigation almost three years ago revealed many assets were sold at knock-down prices and their true value never realised. It is not a mistake Andrews expects to repeat. ‘Everything we are doing now is consistent with the recommendations they made and we are developing with these (with the NAO),’ he says. ‘I have absolutely no doubt that we have got excellent value for the taxpayer and for all the property we have disposed of. I am very confident that full value of those assets has been gained this time.’ With Whitehall moving to commercial accounting systems, transparency should be much greater in future. Resource accounting will flag up for the first time what the cost of owning and sitting on assets is. It will also give managers a different perspective of these costs. And it is those costs which the MoD will continue to seek to drive down. As Andrews explains: ‘If our estate is consuming too much resource then it needs to be sold. That is what resource accounting is all about.’ CONCERN RAISED OVER DOCKYARD SALE Public sector financial experts and MPs have previously expressed deep concern about the accounting practices used in the sale of the Royal dockyards at Devonport and Rosyth to their operators. In April last year, Public Accounts Committee members said they were ‘deeply sceptical’ whether the taxpayer would benefit from the purchase of the yard by Devonport Management and Babcock Rosyth Defence. MPs were concerned that DML at Devonport obtained agreement from the MoD to take the dockyard assets into their balance sheet at a value of #33m higher than the consideration paid. The fixed assets were sold to DML for #40m but the fixed-asset value was agreed at #73m. The PAC report published at the time said: ‘One reason given to us by the department was that such an accounting treatment would enable the new owners to fund their future capital expenditure through higher depreciation. Yet, by the department’s own assessment the company over-estimated the capital spending requirement.’ One public sector commentator said the dockyards were effectively sold at a knock-down price. Aside from these disposals the MoD has come under fire for having its accounts qualified by the National Audit Office for the third year in succession after a fraud worth nearly a half a million pounds was discovered.

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