Taxpayers could face losses of more than £5bn because of a “disastrous” decision to sell off military homes during a housing boom, a report by parliament’s spending watchdog indicates.

The public accounts committee believes that the previous estimated loss of up to £4.2bn after selling and leasing back 55,000 family homes for the military will rise when a new rental deal is renegotiated in three years.

In a report released on Friday, MPs said the £1.66bn single payment deal with Annington Property Ltd, which was approved by John Major’s Conservative government in 1996, was “appalling”.

The Ministry of Defence would have been better off if it had kept the properties, they concluded.

Ministers face a battle to avoid paying more to Annington’s private equity fund, managed by the offshore tycoon Guy Hands, in a new negotiation over renting back the estate to accommodate servicemen and women. One housing expert estimated that the final bill to the taxpayer could reach £5bn.

MPs also noted that during a national housing shortage, it was “scandalous” that the MoD had 10,000 empty properties which cost £30m to rent and maintain.

Meg Hillier, the chair of the committee, said: “Taxpayers have lost billions as a result of this appalling deal and there could be worse to come.



“The uncertainty over those negotiations is a further slap in the face for those forces families who, for far too long, have endured poor standards of subsidised accommodation.”



Michael Portillo was the defence secretary when the deal was signed off. The MoD intended to release funds to improve the quality of housing for servicemen and women, and reduce exposure to the housing market.

As part of the “sale and leaseback” deal, the MoD then rented the homes from Annington on 200-year underleases. In January, the National Audit Office concluded that the losses on the deal could reach £4.2bn.

MPs said the losses might well increase after a renegotiation of the rental deal from 2021.



While the MoD predicts the rental costs will fall, Annington’s expectations imply a rise of around £84m a year, auditors found.

The report remains gloomy about the government’s prospects during the negotiation.

“The department’s costs could increase significantly at a time when the defence budget is already stretched,” the report said, adding that the MoD did not have “the strategy, capability or information required” to negotiate with Annington.

The MoD has more than 10,000 empty properties, roughly the same as 21 years ago, despite a 30% fall in the total number of properties rented back from Annington over that period.

An MoD spokesperson said: “We have a dedicated team working to prepare for the upcoming negotiations with Annington and believe we have strong grounds to retain current rent levels.”

Regarding criticisms over empty houses, the spokesperson added: “A percentage of our housing stock needs to be empty between occupancies to allow for essential maintenance to take place before new tenants move in. Military personnel also move around the country regularly and a certain number of houses need to be kept in reserve to accommodate them.”

