UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 852-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

TREASURY COMMITTEE

(TREASURY SUB-COMMITTEE)

ESTATE MANAGEMENT IN THE CHANCELLOR'S DEPARTMENTS

Wednesday 25 June 2008

MS LOUISE TULETT, MR MIKE BURT and MR PAUL KING

Evidence heard in Public Questions 1 - 133

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Treasury Committee

(Treasury Sub-Committee)

on Wednesday 25 June 2008

Members present

Mr Michael Fallon, in the Chair

Nick Ainger

Mr Colin Breed

Jim Cousins

John McFall

John Thurso

Sir Peter Viggers

________________

Memoranda submitted by HMT, NAO and PCS

Examination of Witnesses

Witnesses: Ms Louise Tulett, HM Treasury, Group Director, Finance, Procurement & Operations, Mr Mike Burt, Office of Government Commerce, Director, Government Estate Transformation, and Mr Paul King, HM Revenue & Customs, Director, Estates & Support Services, gave evidence.

Q1 Chairman: Louise Tulett, welcome back to the Sub-Committee. Could you introduce yourself and your team formally, please?

Ms Tulett: Louise Tulett, Director of Finance and Operations from HM Treasury and responsible for the Estates, Paul King, who is from HMRC, and Mike Burt from OGC.

Q2 Chairman: Thank you. Perhaps we could begin with the recent National Audit Office report on the efficiency of the use of property. The Treasury was identified as having the highest accommodation costs per person and the highest allocation of space per person. Why was that?

Ms Tulett: We are actually rationalising that, so since the report was published we have actually had a 20% improvement in our space usage and we believe there is capacity for another 10% increase in the number of workstations within the building. We will then also look at whether we can further improve the density by desk sharing and other efficiency measures. The stats in the NAO report were 2005/6 and we have moved on quite a long way since then.

Q3 Chairman: But if you have only increased by 20% you are nowhere near the Department of Children, Schools and Families, whose accommodation costs were a fifth of yours and where officials only seem to occupy 13 square metres, whereas Treasury officials seem to luxuriate in 21.9 square metres each?

Ms Tulett: Actually, at the moment our current stats are that we are in 15 square metres each and the cap for the building we believe to be a figure of 1725, which would put us at something around 13 square metres per workstation. We would then have to move towards desk sharing to improve efficiency. There is a capacity limit within the building for health and safety, but also we have a dimension of the net internal area versus the net useable area, which means we lose about 25% because of the inherent nature of the building.

Q4 Chairman: But value for money is your guiding principle. Should you not be leading by example here?

Ms Tulett: We are trying to improve, as I say, our efficiency. The costs actually per square metre are in line with the London average. We are a headquarters building. We are a Grade II star listed building with Heritage compliance requirements and we also have a degree of security requirements consistent with having ministerial offices. So whilst, yes, we are an expensive building, there are some factors which the NAO did recognise are actually justifiable around that.

Q5 Chairman: But all the other government departments have ministerial offices.

Ms Tulett: They do indeed. We, of course, have a very small portfolio, so we are heavily weighted towards the headquarters building in London, but since the report has been written we have actually reduced our total amount of office space by some 3,000 square metres by disposing of Thistle Street in Edinburgh and also by decamping the OGC presence in Trevelyan House across integral SCARDs, thus improving our occupancy rate of the building. That has resulted in a £23.4 million cash receipt to the consolidated fund and has also reduced our running costs on buildings by some £3 million a year.

Q6 Chairman: How many more staff would you have to move into your buildings to take them up to capacity?

Ms Tulett: To take it up to capacity about 130 and we are actively seeking sub-tenants to take up the spare capacity. As I say, we would actually then look to see whether we could do some workstation sharing measures, such as they have done in other departments to further improve our efficiency.

Q7 Chairman: You are seeking tenants from other departments, are you?

Ms Tulett: We are indeed, yes.

Q8 Chairman: Is that likely?

Ms Tulett: It is. We are in the advanced stages of negotiating with some potential sub-tenants, which would in itself liberate other buildings across the Government estate which could then perhaps be disposed of. So there is quite a complex string of events that we are trying to bring off here.

Q9 Chairman: Are these divisions or small bits of other major departments, or are they executive agencies?

Ms Tulett: Executive agencies in particular, GAD being one of them. We are negotiating with them as to whether it makes good business sense for them to move into our building and we are using our colleagues in OGC to help broker some of those moves with OGC's broader responsibilities for rationalisation of the Government estate.

Q10 Chairman: GAD is in Holborn, as I recall. Is your accommodation cheaper than Holborn?

Ms Tulett: We are looking at the total business case there about them moving out of what is a fairly large building and whether moving them into our building actually provides total efficiency gains across the piece.

Q11 Chairman: Could I ask you about the High Performing Property initiative of the OGC? Can you explain why only five of the 16 departments met the first major milestone?

Ms Tulett: Could I defer to Mr Burt to answer those questions?

Mr Burt: All departments have actually delivered asset management strategies as part of the Comprehensive Spending Review. A number of departments were having to cope with machinery and Government changes - I am thinking particularly of the Home Office and the Ministry of Justice - which meant that they were not able to deliver their Asset Management Plans to time. We are actually talking directly to departments. We are supporting them in delivering their Asset Management Plans and they will now all be delivered by September.

Q12 Chairman: There were nine departments involved in Whitehall restructuring. There were Justice, Children, Schools and Families and Innovation in Universities. That is three.

Mr Burt: And the Home Office.

Q13 Chairman: That is four. Why did nine not meet the hurdle?

Mr Burt: I think there were some difficulties which departments had in translating their strategies into detailed plans and in many respects the target date of December could be seen to be aspirational in the sense that there was more difficulty the departments had than we were envisaging. But they are now all on track to deliver by September, if not earlier, and we will have the full set by then.

Q14 Chairman: So is September a target or is it an aspiration?

Mr Burt: No, September is a target and I have a commitment from all the property champions that those who have not already delivered will deliver by September.

Q15 Chairman: What power do you have if they do not?

Mr Burt: We are able to talk to them direct.

Q16 Chairman: To talk to them?

Mr Burt: Yes. We have a property champion steering group which meets every six months. We use that to monitor progress and we will use that mechanism to ensure that they are delivering.

Q17 Chairman: But I asked you what power you had to make them deliver.

Mr Burt: We do not have a direct power over departments. We have mandated certain things on the High Performing Property initiative, such as benchmarking and the use of the property database, but a lot of what is happening on this front, because we have devolved accountability for running their estates, is a dialogue, if you like, between ourselves and the departments to ensure that they deliver, rather than a power over them if they do not deliver.

Q18 Nick Ainger: Following the announcements in relation to the Workforce Change programme, 230 offices are going to be affected by this with the proposal to close 140 of them in the more rural parts of England and Wales. The effect of this will be that there will be very large areas of England and Wales which will have no HMRC presence, or if they do it will be extremely limited. These are places like Shropshire (just one office in Telford), Warwickshire (one office in Coventry), Staffordshire (one office in Stoke), Herefordshire (nothing), the Isle of Wight (no presence at all), in Wales there will be huge areas, Radnorshire, Montgomeryshire, Breconshire, with no office at all, the whole of the South Wales industrial valleys with no office at all and the county of Pembrokeshire with no office at all. Did you take into account when recommending the closure of those offices the environmental impact it would have with staff having to travel considerable distances to the newly relocated offices and also the customers who are served by those offices? Did you also take into account the costs to HMRC of actually paying staff to travel considerable distances?

Ms Tulett: I will ask Paul King to answer that.

Mr King: I think there are two elements to that. Yes, we are probably closing those offices you referred to. Those are not, obviously, public-facing offices, they are where our staff work in local offices, so it is not going to impact on local services, it is more the national services which will be impacted. In terms of the closures and whether we took assessments of the environmental impacts and cost impacts, yes, we did, and the impact on our own staff as well. That is part of what Workforce Change is about, assessing those impacts. What does it mean for our own staff and their wellbeing, as well as the impact on the businesses? So yes, that is taken into account.

Q19 Nick Ainger: Can I quote you some examples? In Newport, half the staff who are being transferred from Newport to Cardiff are outside the acceptable travel limit. The same is true for half the staff in Pontypridd as well. Had that factor been taken into account when the decision was taken to close those two offices?

Mr King: Yes, it will have been, definitely. It is a difficult one to answer and give you a straight answer on it in terms of the impact on those particular offices. What we need to do is assess what the skills are that are impacted, what it means for the individuals who are impacted. We cannot necessarily, for all those offices, find a solution overnight, so it may be that some work needs to be retained for a short period of time. We may need to ship some work in for a short period of time, but if our overall strategy is to move work out of those areas that will be our long-term goal.

Q20 Nick Ainger: Can you explain what happened with the Newport office when the announcement was made that it was due to close and all the staff were transferred from there to Ty Glas in Cardiff? There was then a subsequent announcement by the Department of Work and Pensions that they were going to move a substantial number of their staff from Cardiff to Newport, and then there was a third announcement that the Valuation Office Agency were going to use that office for a strategic site. How does that fit in with the National Audit Office recommendation where they say that departments are missing opportunities for better coordination and improved value for money across department families? It seems absolutely crazy that we are actually sending HMRC staff down the M4 to Cardiff at exactly the same time the DWP are sending their staff from Cardiff to Newport, and there does not appear to be any coordination, no co-location even within two Treasury departments, HMRC and the VOA. Can you explain what has happened there?

Mr King: I cannot comment on the individuals. I do not know the facts on that, but that is what Workforce Change is there to do. It is there to talk to other departments to make sure the strategies are aligned. Apart from anything else, it is to our advantage in terms of making sure that staff do not need to travel needlessly, so that they can make those arrangements between departments.

Q21 Nick Ainger: So in the 140 offices what you are telling us is that you have actually talked to other government departments, you have talked to other departments within your family to see if there is a possibility of co-location instead of closure of those 140 offices?

Mr King: I am not necessary saying that we are talking about co-location. We will have spoken to them about their plans and I guess part of it is the maturity of the actual plans of individual parts of the business and across different departments as well.

Chairman: We are going to suspend now for ten minutes until 14:51.

The Committee suspended from 2.41 pm to 2.52 pm for a Division in the House.

Q22 Sir Peter Viggers: With the Private Finance Initiative scheme (PFI) the ownership of this independent company can, of course, be onshore UK or offshore. What is the general principle which applies when deciding whether to award a contract to a PFI in terms of its onshore or offshore residence?

Ms Tulett: I am sorry, I do not really know the answer to that question. I can find out.

Q23 Sir Peter Viggers: Well, there is a memorandum you sent to us which spells it out. I thought it would be helpful for you to have the opportunity to spell out the general principles.

Ms Tulett: Are you talking in general terms for the Treasury priority or for the Treasury's own building?

Q24 Sir Peter Viggers: I was talking in general terms.

Ms Tulett: I am sorry, I do not know if my colleagues can help.

Mr King: We have nothing to add because we have not been through one since that, as such, but the principle is that you ignore the offshore issue as part of the assessment of the value for money, that is the main assessment.

Q25 Sir Peter Viggers: When you say you ignore the offshore element, ignore it in what sense? Do you say, "Well, they're making a profit, so they can keep it," or do you say, "What's the bottom line for us?"

Mr King: No, you would ignore the advantage of it when you are making the assessment.

Q26 Sir Peter Viggers: So you assess the value from your point of view as a customer, is that right?

Mr King: No, I am not saying that. I am probably getting into an area that I do not understand enough, not having had to assess a PFI in that time. Is it something that we need to get back to you on in writing of how we would do that?

Chairman: Is your question being answered or not?

Q27 Sir Peter Viggers: No. You sent us a memorandum, someone sent us a memorandum from the Treasury, which says that the Treasury provides guidance that central government departments should "restrict contractors' use of offshore jurisdictions, consistent with EU and other international obligations and the Government's stated objectives on tax transparency and openness, to avoid harmful tax competition". That is what the memorandum says. I am just trying to get clarification of that. In practice, what can departments legally do to avoid awarding contracts to companies which avoid tax by being based offshore?

Ms Tulett: I am sorry, I do not feel that I can give you an answer on that without talking to colleagues who are specialists in that area.

Q28 Sir Peter Viggers: I would have thought that is what you are here for.

Ms Tulett: I do not have in my brief anything around the particular central policy on PFI.

Q29 Sir Peter Viggers: Moving to the thrust of the question I was going to ask, I was going to ask whether you think there is some sense of piquancy or even impropriety that the building of the Treasury, whose job is to manage finance on our behalf and gather tax, is owned by an offshore entity?

Ms Tulett: The Treasury building, to my knowledge, is not owned by an offshore company. I am afraid I cannot speak for the HMRC PFI deals, but we actually had confirmation back in March, which I think it does cover in the memo, that actually our principals are not offshored.

Q30 Sir Peter Viggers: The Treasury publication called Managing Public Money states that the public sector comparator for PFI deals includes an adjustment for the tax on the PFI provider. Has this adjustment been excluded in the PFI contracts for the Chancellor's Departments, particularly the STEPS deal (the Strategic Transfer of Estates to the Private Sector)?

Ms Tulett: The STEPS deal is something which my colleague, Mr King, can perhaps talk about, but I can confirm that the EP arrangement we have on the Treasury end of the building is that the parties are UK resident and that is not offshored.

Q31 Sir Peter Viggers: Do the parties involved in the Treasury PFI contracts have an offshore element?

Ms Tulett: For the 1 Horse Guards end, my information is no, they do not. I cannot speak for the 100 Parliament Street end.

Mr King: It is the same answer for the other side. There is no indication of offshore ownership at all.

Q32 Sir Peter Viggers: In your memorandum you state that Exchequer Partnership (which is the body which owns the Horse Guards Treasury building) is based in the UK and that this is confirmed on a regular basis. There have been recent news stories that the PFI for 1 Horse Guards Road had been moved offshore to avoid taxes. Is this correct, and that this solely involved shares in the company being bought by an offshore holding company?

Ms Tulett: We checked that out as late as March 2008 and we do not believe that to be the case, so no, it is not offshored.

Q33 Sir Peter Viggers: You satisfied yourselves that it is not?

Ms Tulett: We did indeed, in March 2008.

Q34 Sir Peter Viggers: Can the UK based Exchequer Partnership successfully transfer its profits abroad to its parent company to avoid UK Corporation Tax?

Ms Tulett: I am sorry, I do not have enough information to be able to talk about how a company may structure its tax affairs. I apologise, I cannot answer that question to the Committee this afternoon, but I can certainly respond to that in writing.

Q35 Sir Peter Viggers: Have any calculations been done to estimate the tax foregone by the Exchequer of PFI deals being sold to offshore companies?

Ms Tulett: Not that I am aware of. Again, this is outside of my brief. I do apologise, but as a witness I do not have that information. I cannot answer that question.

Q36 Chairman: Perhaps you can get the answers to us?

Ms Tulett: I will, indeed.

Q37 Sir Peter Viggers: Do the non-UK based shareholders avoid UK tax on gains or income from their shares in the holding company that they would have paid if the holding company had been UK-based?

Ms Tulett: I am sorry, again I am not equipped to answer that question but I can get that answer to you.

Q38 Mr Breed: It looks like we might have a slightly shorter meeting than we had anticipated! Who is the expert in Mapeley STEPS between you all? Jolly good, Mr King. It is something I had never heard of until a little while ago, so some of the questions I am going to ask you I may not know entirely why we are asking you, but I will work that out when you give me the answers. Why did the number of properties encompassed by the STEPS contract grow between April 2006 and March 2007, just about a year, when elsewhere in the memorandum you state that over 150 properties have been vacated or disposed of since April 2004?

Mr King: I have not got an immediate answer for that.

Q39 Mr Breed: It seems rather strange, would you not accept? You do not know?

Mr King: No, I do not.

Q40 Mr Breed: Right. Can we add that to the lengthy list? When HMRC vacates a property is the level of the payment to Mapeley adjusted downwards?

Mr King: Yes.

Q41 Mr Breed: Good. How is that downward adjustment calculated?

Mr King: There is a separate facility price for each building, so it is as simple as -

Q42 Mr Breed: It is the square footage?

Mr King: Part of it is square footage and part of it was based on the original price on each property on the original bid, which was indexed as we go forward in the contract. So it is as simple as we start at that amount, because we know how much each building costs.

Q43 Mr Breed: So it is pre-conceived? It is not something which is negotiated on an individual basis?

Mr King: No.

Q44 Mr Breed: Have any of the Department's non-STEPS properties been brought into the agreement? How much were these properties sold to Mapeley for and how was it ensured that this provided value for money?

Mr King: We have not brought any more buildings onto the contract.

Q45 Mr Breed: None at all?

Mr King: None at all.

Q46 Mr Breed: I am talking here as if I know something about Mapeley, but I know nothing. Who are the ultimate beneficiaries of Mapeley, the company? Who are they?

Mr King: Mapeley was floated in 2005, so it is now a public company. Its main shareholder is Fortress Investments. They have about 50, 51% of the shares and the rest are generally held.

Q47 Mr Breed: The company which operates the STEPS and those others is the Guernsey based subsidiary of Mapeley plc, presumably?

Mr King: Yes. Do you want me to explain that?

Q48 Mr Breed: So we have entered into contracts with Guernsey based companies rather than a UK plc?

Mr King: That was the original deal which was done with STEPS from day one, yes, although it was not Guernsey then, I do not think, because it has only been Guernsey since the flotation.

Q49 Mr Breed: So have they conveniently transferred internally the benefits of the contract to their subsidiary then more recently established in Guernsey?

Mr King: The flotation did not actually make any change at all to any benefits in terms of how our Government was impacted.

Q50 Mr Breed: Just one last question then. The Treasury Minute to the PAC report on the STEPS deal states that the outstanding issues between the department and Mapeley were settled in June 2005 and that HMRC agreed to pay an extra £500,000 per annum and a £2 million one-off sum. The Memorandum to the Committee states that the settlement was actually in December 2005, about six months later, and that Mapeley was paid £3.5 million. Can you clarify for us which of the statements is correct?

Mr King: I think it is a matter of when you are talking about, when it is an agreement. I think the agreement was actually made with Mapeley at the earlier date but it actually was not ratified until the later date. In terms of the difference between the figures, I am not sure exactly what the difference is. I assume it is the backdated totals of those figures, which add up to the £3 million.

Q51 Mr Breed: Can you tell us why such a sum was even required?

Mr King: It was - which is not unusual for a contract - that at day one there was a number of issues which were not quite understood or settled before contracts were signed, most of them quite small issues. So it could be something as simple as the number of security guards which belonged to a building, which was not passed over with the data at the time. Some of it would be more significant than that, in that some of the data did not reflect, maybe, a floor of the building. So that settlement was about going through those one by one, making sure that the issue was understood and fully audited as well. Most of it was quite simple decision making, it is right or it is wrong? Some of it needed legal interpretation and guidance. So most of it was about data at day one.

Q52 Mr Breed: So it was part of the learning curve and it was part of the experience of the initial part of the contract. But what you are saying to us, I hope, is that although additional money was paid, it was recognised that additional services were provided?

Mr King: Yes.

Q53 Jim Cousins: I wonder if I could start just by asking Mr Burt to give us, not perhaps now but in written form, some detail on the Investment Property Databank, which is an organisation referred to in the Memorandum which the Committee has had?

Mr Burt: What sort of information would you like?

Q54 Jim Cousins: Who are they, how much were they paid, and what sort of work did they do for you?

Mr Burt: IPD have probably got the biggest database of public sector and private sector properties. They were taken on by us at a cost of around £300,000 a year to run our property benchmarking. The reason why we took them on - and this was done through open competition - was because they had the most extensive database and that would allow us to compare building performance in central government with building performance in the private sector and other parts of the public sector.

Q55 Jim Cousins: You are still using them?

Mr Burt: We are still using them. We have actually extended their contract for this year, but we are refreshing the contract and we are in the procurement process now to renew the contract, which will start from April next year.

Q56 Jim Cousins: I take it that whoever owns them is based offshore?

Mr Burt: I do not believe that is the case.

Q57 Jim Cousins: It would be useful to have that confirmed, but the importance, Ms Tulett, of Investment Property Databank is that it was on the basis of their work that the figure was agreed of 10 to 12 square metres of space per person, and that is what the Treasury and all its departments are now working to?

Ms Tulett: I am sorry, I am not involved in the benchmarking target. That actually is an appropriate question for Mr Burt.

Q58 Jim Cousins: Ms Tulett, you will be familiar, I am sure, with the fact that the Treasury (because they have told us this in the Memorandum) is now working to 10 to 12 square metres of space per person?

Ms Tulett: Yes.

Q59 Jim Cousins: That 10 to 12 square metres can be achieved either by putting workstations together or by having a workstation which people share?

Ms Tulett: Correct.

Q60 Jim Cousins: As a result of this work, 0.8 extra people can use a workstation, i.e. that there is hot desking, that 1.8 people are using one workstation, and that is the result of this exercise? That is all correct. Does that apply to the senior civil service grades or only to the administrative grades?

Ms Tulett: We have a system whereby everybody within the organisation works within their open plan areas. Clearly, we do not actually allocate a specific set of area to individuals because within that you have to allow circulatory movement, et cetera, but the senior grades within HM Treasury (within the Horse Guards end of the building) are actually in the open plan accommodation alongside all other grades. But we do not actually allocate 10 to 12 per person; in many cases it is less.

Q61 Jim Cousins: Does this figure we are working to (which is quite an intensive use of space, 10 to 12 square metres of space person) apply to all the staff of the Treasury or simply to the administrative grades?

Ms Tulett: It would apply to everybody as an average figure for the amount of space which is utilised.

Q62 Jim Cousins: I am grateful to you. Mr King, can I bring you straight to something which was in the Pointer review, because we had the report this afternoon? I want to emphasise to you I am not in any way addressing the issues of substance which underpin that review, but there are some quite significant statements in the review which have a more general application. This is what is said in the review about HMRC: "HMRC has gone through enormous change, including making efficiency gains and shedding staff, which naturally impacts on morale." That sentence appears in a paragraph headed by the statement "Morale is low," which is a headline. "Staff are weary of change. A clear message from the workshops we have run with front-line personnel is that the average member of staff has the impression that decisions are short-term, tactical and largely cost-focused." Do you recognise that picture of HMRC?

Mr King: I know HMRC are aware that staff morale is low, and that is reflected in the regular staff surveys which we conduct.

Q63 Jim Cousins: "There are numerous disparate activities and change programmes taking place across HMRC, adding to a general confusion about what HMRC represents, where the organisation is heading and what this means for staff and other stakeholders." That is p.70 of the Pointer review. Do you recognise that picture of HMRC?

Mr King: Certainly we are going through a massive change programme at the moment, our departmental transformation programme, which is at least a five year programme and affects every part of the organisation.

Q64 Jim Cousins: Do you think there could be any cross-connect between that picture of HMRC (the very rapid closure of offices and their reorganisation) and working to a figure of 10 to 12 square metres of space per person, a sort of "pile it high" kind of policy with regard to staff? Do you think there could be any connection?

Mr King: I cannot comment on the wider issues. On the 10 square metres, which is obviously something closer to the area that I work in, it is something we have introduced in various places already. I think we are aware that it is almost the way you do it as much as what it is, and that is what we are working on now in terms of working with people, giving them more choice in how this is introduced, and that might be fairly peripheral things in terms of how the discussions go on, the consultations with staff, trades unions and managers on how an office might work, but it is not to take away the 10 square metres.

Q65 Jim Cousins: PCS, the staff trade union for all grades (but most of their membership obviously is in the administrative grades) has said that staff working in offices covered by the Mapeley STEPS programme are unclear about what activities are run by Mapeley STEPS and what activities are run directly by HMRC. Could that be right?

Mr King: It may be right, and I would go further than that, in that to offset that confusion - if there is any, because it is possible that the communication of how that works with the Mapeley contract and what is available in-house, et cetera, is not clear - as part of resolving that we are actually carrying out a roadshow, which starts this time next week, going around to meet as many frontline staff as we can. We are trying to meet -

Q66 Jim Cousins: I beg your pardon, Mr King. You are saying it is starting this week?

Mr King: Starting, sorry, next Wednesday.

Q67 Jim Cousins: Starting next week. But that is to address issues which have been around for three or four years?

Mr King: I accept that, and that is our answer to the current situation. We recognise our staff might have issues in understanding what the processes are, what is allowed to be delivered under the contract. We are aware that since day one of the contract there has been quite a turnover of staff as well, so it is a refresh as much as anything else to make sure that our staff do understand, and also to give staff an opportunity to say where their issues are. I could just add that I will be on that roadshow and so will the chief executive of Mapeley.

Q68 Jim Cousins: How many issues have been referred to the formal arbitration processes between HMRC and Mapeley STEPS about the practical day to day uncertainties of who does what?

Mr King: I have not got a record as such of how many.

Q69 Jim Cousins: You could let us know?

Mr King: I am not sure we actually record how many, but we can certainly give you a view of exactly - it depends whether it is a contractual issue or whether it is just a general inquiry.

Q70 Jim Cousins: Surely whether or not something is a contractual issue will not necessarily be clear to the person making the complaint or recording the difficulty? That can only, surely, be sorted out higher up the line and I would have thought the number of issues which were referred for arbitration between yourselves and Mapeley STEPS was an important piece of management information which would not go unrecorded?

Mr King: Most of the sorts of areas you are talking about is what we were discussing earlier, those post-contractual grey areas that we did spend time arbitrating over.

Q71 Jim Cousins: But, Mr King, one of those grey areas which you have already highlighted in an answer to Mr Breed's question was security guards. It is rather troubling that an organisation does not know who is running its security guards. Do you not find that troubling? Would you not be troubled if you worked for an organisation which did not know who was running the security guards?

Mr King: I think the organisation knows who is running the security guards. If staff do not know who is Mapeley and who is in-house, that is a possibility.

Q72 Jim Cousins: Perhaps you could let the Committee know by what process you did finally decide who was running the security guards and whether that is the same for all offices in which the Mapeley STEPS contract is involved, or perhaps it varies from one place to another, does it?

Mr King: Yes, it does. About 38% of our guards are in-house and the rest are outsourced.

Q73 Jim Cousins: 38% are in-house and the rest are not? Perhaps you could let us know how that has been arrived at and how that has come about, because that suggests that in any given office it may not be clear which security guard is line managed by Mapeley and which security guard is line managed by HMRC. It may not even be clear to the HMRC management on the site.

Mr King: I would be very surprised it if was not clear to the management on site. The senior responsible manager, which we have for each site, will be quite clear on that. Most of our in-house staff, security guards, are on the large sites.

Q74 Jim Cousins: One of the terms of the Mapeley deal is that you share in the benefits, in the profits which are realised by the sale of properties which you have vacated and which are put on the open market for resale. How much has come to HMRC as a result of that?

Mr King: To date it is something in the region of about £2 million and slightly more is expected by the end of this year.

Q75 Jim Cousins: Only £2 million?

Mr King: I think the real reason why it is not higher is that Mapeley are not selling properties.

Q76 Jim Cousins: They are not selling properties. Why are they not selling properties?

Mr King: I assume this is strategy, their own strategy of not selling properties.

Q77 Jim Cousins: But their strategy of not selling properties therefore means that you do not share in the proceeds?

Mr King: That is a by-product, yes.

Q78 Jim Cousins: There is nothing in the contract which provides a trigger for you to raise that as an issue with them?

Mr King: No.

Q79 Jim Cousins: How extraordinary! You have conducted your own investigation that you have told us about of whether, if you continue your office closure programme at the present time, Mapeley would end up in default and you hired external consultants to advise you about that. What was the cost of the external consultants who advised you? Let us know that.

Mr King: Yes, I will let you know that.

Q80 Jim Cousins: What do you now know about what would happen if Mapeley did go into default, did go into receivership, did go bust, because that is clearly an issue which you have considered? What would happen?

Mr King: What would happen is the same as was the position at the start of the contract, in that were Mapeley to go into receivership obviously our interest is in protecting our offices and our staff, so we have rights of occupation, we have rights to -

Q81 Jim Cousins: What rights of occupation do you have? What is the term of them?

Mr King: I am not sure. I will have to come back to you on that.

Q82 Jim Cousins: You are not sure? You are the head of estates management at HMRC, you have conducted an investigation of what happens if this company goes into default, and you do not know what your rights of occupation are? So are you telling the Committee we could have the tax collection operations of the Government sort of put into the street?

Mr King: No.

Q83 Jim Cousins: Well, what are your rights of occupation?

Mr King: I will need to get back to you because I do not know exactly what the term of the occupation is.

Q84 Jim Cousins: That would be very helpful to us. We do want to be reassured. Closing offices is one thing; trying to run them from the street edge is another.

Mr King: The simple answer is that we would then take on the leaseholds as they stand at the time, on current market rates.

Q85 Jim Cousins: What profits has Mapeley made from the STEPS deal?

Mr King: I cannot answer that. I do not know.

Q86 Jim Cousins: You do not know. Do you ever investigate it? Do you ever check it?

Mr King: Not in terms of their profits, no.

Q87 Jim Cousins: The pricing of the original bid was based upon the fact that they would get returns from rises in the value of the properties transferred rather than profits from managing the estate, so it is a bit surprising that you do not investigate their profits to see how that has worked out, because that was a precondition of the original deal.

Mr King: Well, it was not a condition of the deal, it was their justification for the bid being viable.

Q88 Jim Cousins: It was their justification for low-balling the price?

Mr King: No, that is not what I said.

Q89 Jim Cousins: It was their justification for offering the price they offered you?

Mr King: Yes.

Q90 Jim Cousins: But you have never checked up on what has happened to their performance as a company with regard to that?

Mr King: No. We look at their performance as a company generally, but their profit is not a main issue to us.

Q91 Jim Cousins: How much do you pay Mapeley each year, and does that sum of money rise?

Mr King: Yes, it does. The figure is in the region of...

Q92 Jim Cousins: Perhaps you could send us the figures?

Mr King: Yes. I am sorry, I do not know the exact figures. I will have to send them to you, but the figures are index-linked.

Q93 Jim Cousins: Are these figures in line with your own projections at the time the contract was made?

Mr King: Yes.

Q94 Jim Cousins: Perhaps you could set that out for us, too?

Mr King: Okay.

Q95 Jim Cousins: How much over the lifetime of the contract do you expect to pay Mapeley?

Mr King: I have got the figure if you want me to refer to it, or I can again put it in writing with a full answer.

Q96 Jim Cousins: Could you give us a general idea for the Committee? You have not got the figure with you?

Mr King: No, I have not.

Q97 Jim Cousins: You had better send it to us then.

Mr King: Okay. Just to go back, it is £220 million per annum we are currently paying them.

Q98 Jim Cousins: Perhaps you would confirm that. So over the lifetime of the project, it being 20 years, then it will be £4 billion?

Mr King: It is around that figure, yes.

Q99 Jim Cousins: It will be £4 billion plus index linking. What is the index linking indexed to?

Mr King: There are various parts of the indexation in the contract depending whether it is the property element or the service element, but it is around the RPI index.

Q100 Jim Cousins: It is around the RPI? So Mapeley's index linking is running two and a half times ahead of the 2% general figure that your staff will be working to?

Mr King: It is more complicated than that. It is not straight RPI, it is plus or minus RPI depending on the term within the contract, years in the contract.

Q101 Jim Cousins: Perhaps you could let us know that, but at any rate the index linking that is going on is ahead of the Government's general inflation target for the present year. You are doing a different index linking exercise. It is not based on 2% CPI, it is based upon RPI, which is currently running at what?

Mr King: 3.4%.

Q102 Jim Cousins: 3.4%. The property which was transferred to Mapeley was valued at £567 million, more than 50% greater than the value the property was sold for. What is your present estimate of the value of the portfolio of properties? That will be particularly important to you, will it not, because that in future may be something from which you get a profit share?

Mr King: We do not track the value of the properties because in terms of the profit share, in terms of the development gain, it is not linked to the actual value at the current day of the property. Again, it is index-linked.

Q103 Jim Cousins: Perhaps you would set out to the Committee how that works. It does seem as though it is quite a favourable deal from the standpoint of Mapeley in terms of realising the value of property assets? You have only had £2 million from them so far as part of the profit share. Could it be the case that there could be health and safety failures in the way that Mapeley delivers its services on a day by day basis? Has that ever been brought to your attention?

Mr King: There have been health and safety issues, as with any portfolio, but -

Q104 Jim Cousins: How many times has that happened, or do you not count those either?

Mr King: We have not got an actual record of health and safety failures as such.

Q105 Jim Cousins: You do not have an actual record?

Mr King: We have records. I could not quote what the record is at the moment.

Q106 Jim Cousins: No, but you could let the Committee know what those records on health and safety are and how they were resolved?

Mr King: Yes.

Jim Cousins: Thank you.

Q107 John Thurso: My apologies for being late. Mr King, can I ask you one question regarding HMRC's property before moving to another matter? We have had a very helpful note from the NAO which has the statement: "The Workforce Change initiative intends to change the way the Department works and the transformation of the estate is a key part of this initiative." To what extent is the re-balancing or re-focusing of the estate driving the Workforce Change programme?

Mr King: I think in terms of which part of the Department, it is the business that is driving it and what Workforce Change does is -

Q108 John Thurso: What does that mean?

Mr King: The way Workforce Change operates is that the businesses within HMRC and the strategies with those businesses are brought together along with estates, along with IT, along with HR and the issues around HR, and it is between those that decisions are made. Within that, it would be the business that really takes precedence in terms of where it would be location-wise.

Q109 John Thurso: So the fact that the current consultation document for Scotland has a massive closure of offices is just a convenient help to you in the management of the estate rather than the estates management having sought that outcome?

Mr King: It is not the estates leading on those closures. We close offices that will fit in with what the business requires.

Q110 John Thurso: So if it was seen that an office closure was misguided, the estates would be perfectly happy to keep it open?

Mr King: We have our own targets to meet and so far it has not been an issue. We have kept offices open which in terms of efficiencies would have been beneficial for us to have closed, but they have remained open because that is what the business preference has been.

Q111 John Thurso: Sorry, if I could just get clarity. You have a target to close offices, but that is entirely dependent upon the guys working on the other side of the fence. How do you get there?

Mr King: Again, that is the Workforce Change, that we work together. Really it is around space. HMRC has roughly about a third of its space that it can release and that is what we have been working on in the last two years, and we continue to 2012.

Q112 John Thurso: So roughly you are looking for a third of office space to go?

Mr King: Yes.

Q113 John Thurso: Thank you. Mr Burt, can I turn to Trevelyan House? In annex B of your memorandum, at footnote k, it states that OGC signed a new lease for Trevelyan House in September 2006 but relocated in October 2007. How long is that new lease for? What is the duration of that lease?

Mr Burt: I do not have that information. I will have to provide that for you.

Q114 John Thurso: I feel a pattern emerging here! Was OGC aware that it might have to relocate in 2007 when it signed the lease in 2006?

Mr Burt: The pattern of relocating out of Trevelyan House into 1 Horse Guards and getting a new sub-tenant to replace us in Trevelyan House was all taken as a total package.

Q115 John Thurso: So assessments of the costs of that transaction were taken into account when looking at what might happen?

Mr Burt: Yes.

Q116 John Thurso: You stated, I think, in a previous memorandum that you considered three options for the ongoing use of Trevelyan House. Were these options fully costed to ensure that the most efficient outcome was arrived at?

Mr Burt: I believe so. I was not actually involved in the direct negotiations and the costings over that, but I believe that was the case.

Q117 John Thurso: How would that have been done? What would the assessment have comprised of?

Mr Burt: We would have looked at both the exiting costs and also the costs of moving into new accommodation. We would have looked at the extent to which a new sub-tenant would be able to take over the terms of the lease that we had there.

Q118 John Thurso: There is also a statement in there to the effect that when most properties are let in the open market they are refurbished and command higher rents, which has probably been true for the last decade but probably is not true now. Did you ensure that the cost of reinstating OGC's fit-out and dilapidations, which you cited as a reason for not pursuing a private sub-let, would not be more than made up for by the increased rental costs above the payment OGC was making over the life of the lease?

Mr Burt: That would have been taken into account, yes.

Q119 John Thurso: Can you tell me to which government department the space was transferred?

Mr Burt: It has gone to the security services.

Q120 John Thurso: Any particular one, or just generally the security services?

Mr Burt: I do not have the actual name of the organisation. I am not sure I would even be allowed to have the name of the organisation.

Q121 John Thurso: Mr Bond, no doubt! Did the security services occupy the building immediately or was there any cost they had to incur in getting ready to use it?

Mr Burt: There was a refurbishment period because there was clearly a need for some special arrangements to be made in that property.

Q122 John Thurso: What I am driving at is, did you have a set of costs in getting it ready before you knew and then along comes another lot who said, "Oh, dear, we can't have that. Let's have another set of costs getting it ready for what we actually want"?

Mr Burt: No, we would have looked at all of the implications of whichever sub-tenant was going in there, and certainly any extra costs as a result of the sub-tenant who is going in there would have been taken into account, so it is the overall view.

Q123 John Thurso: Just as a matter of interest, why was the space not let via a MOTO agreement rather than by transferring the lease, as the former would have avoided the large loss on disposal?

Mr Burt: I think I would need to come back to you on that.

Q124 John Thurso: Thank you. Now, turning to the Chancellor's Departments, again this wonderful annex B of your memorandum gives the costs of the various buildings which the Chancellor's Departments occupy. Given that 1 Horse Guards and 100 Parliament Street are two halves of the same building and the PFI deal is with the same group of companies, why is the 2006-07 admin cost for Exchequer Partnership 1 more than 10% less than that for Exchequer Partnership 2?

Ms Tulett: I do not know why that is the case. Each was negotiated on its individual merit, so...

Q125 Chairman: Why do you think it is the case?

Ms Tulett: Well, they are separate companies and therefore the actual buildings themselves are slightly differently configured and there would have been separate costs in going forward into those two buildings. So the costing structure which underlies those individual agreements with EP1 and EP2, which are both separate companies, would have had differing factors taken into consideration.

Q126 John Thurso: It would be very helpful for us to have an actual understanding of that issue, because either you are getting better at it as you go along or you are picking on companies who are less good at what they do, unless there are some fundamental differences. Perhaps you could look into that and add that to the list?

Ms Tulett: I will do.

Q127 John Thurso: What are the relative sizes of the HMT and HMRC offices in 1 Horse Guards and 100 Parliament Street? Are they broadly the same size or is there a major difference in size?

Ms Tulett: They are broadly the same size, but actually the configuration internally is subtly different in terms of open space.

Q128 John Thurso: Are the annual costs per square foot broadly the same?

Ms Tulett: Off the top of my head, I do not know, but I would imagine broadly the same, yes.

Q129 John Thurso: Perhaps you could include that. One of the things that interests me is that given the lower admin costs, why is the lifetime cost higher, even allowing for the extra two years in 1 than it is in 2? Perhaps you could address that one as well?

Ms Tulett: Understood. Yes.

John Thurso: Thank you very much.

Q130 Chairman: We have had rather a large number of questions which have not been answered, or properly answered, and we do expect answers on those. You are, Ms Tulett, the Finance Director of the Treasury, is that right?

Ms Tulett: I am indeed, yes.

Q131 Chairman: Were you not advised that we would be asking questions on PFI and offshore tax havens?

Ms Tulett: I was not expecting the more general policy questions, so no, sorry. I mean, I was prepared to answer questions specific to the deal but not in terms of Treasury policy in those areas, which is not my area. My brief is actually HMT domestic.

Q132 Chairman: Would you agree with me that we have had an unacceptable level of questions not being answered?

Ms Tulett: Certainly I would have wished that we had perhaps brought another witness along who could have answered some of those more general questions around PFI deals.

Q133 Chairman: All right. Well, we certainly expect answers to the questions which were asked, in particular some of those asked by Sir Peter Viggers, to which no answer was given, namely what departments can legally do to avoid awarding contracts to companies which avoid tax by being based offshore, and whether or not Exchequer Partnership can transfer its profits abroad to avoid UK Corporation Tax, and what calculations are done by the Exchequer to assess the annual tax foregone. I expect answers to those questions and all the other questions you did not answer within ten days of this meeting, and if they are not satisfactory I have to warn you that we will have to recall you, with the Permanent Secretary, to go through this in more detail again.

Ms Tulett: Understood.

Chairman: Thank you very much.