The Richmond Yard and Cluttons contract affair goes to the very heart of the integrity of Government. It is a story of deceit and departmental and ministerial embarrassment. It has all the characteristics of a Le Carré novel—villainy, conspiracy, deception, bluff, obfuscation and the ludicrous.
It started with a memo from Mr. G. Hopkinson, director of the London region of the Property Services Agency, dated 29 April 1987 to Sir Gordon Manzie and to the Minister's private secretary. In this memo, a copy of which I have, the Minister is reported to have said:
The Prime Minister and the Secretary of State have specifically asked that Richmond Yard be valued now by a private sector valuer.
The memo goes on to say, "Please get it done." It was done. A £40,000 plus VAT contract was given to Cluttons to value Richmond Yard, the new DHSS headquarters in the heart of Whitehall. No tenders were invited for that contract.
We now know that no sooner had the contract been let than all hell broke loose in the Department. Civil servants, incensed by what they saw as the pouring of taxpayers' money down the drain, ran amok, leaking like sieves. My bucket was out collecting wherever possible as usual.
Enter my hon. Friend the Member for Warrington, North (Mr. Hoyle), who tabled a key question on 14 March this year—a whole year later. He asked:
what estimate the Property Services Agency has made of the cost of undertaking the valuation of the Crown premises at Richmond Yard by in-house staff".
The Minister panics, because by this time an in-house assessment has been made and it shows that the job of valuation could be done for £1,500 plus VAT. The Minister is clearly on the hook. Does he tell the truth to Parliament? His civil servants submit replies. All tell the truth; all are rejected. The Minister breaks out in a cold sweat and 14 days later, having rejected all replies, the Minister pens his own reply:
No in-house assessment was made."—[Official Report, 14 March 1988; Vol. 129, c. 461.]
The die was cast as a lie was told. That lie will cost the Minister his job.
However, the truth refuses to lie down.
I unreservedly withdraw.
The truth refuses to lie down. Civil servants, by the coachload, are haemorrhaging information. They want not only retribution, but a head.
I then went to the National Audit Office to secure an inquiry. John Bourne, the Comptroller and Auditor General, ordered one. Its findings revealed that the
PSA subsequently considered that their own costs would have been about £1,500 in an estimate made after the commercial firm had completed their work.
The Minister was back on the rack. He responded with his next lie. In his letter of 26 May to my hon. Friend the Member for Warrington, North he said:
In the context of my reply I felt that the assessment to which I referred was the valuation for rental purposes and not the cost of undertaking that valuation. It was certainly not my intention to mislead you"—
that is my hon. Friend—
or the House on this point".
He then claimed that "ambiguity" was the cause of the misunderstanding. What garbage. Who does the Minister think he is fooling? He spent 14 days drafting the reply that he now claims was unintentionally ambiguous. He knew precisely what the question meant. He knew that the crucial words were "of the cost of".
Smelling not a rat but a skunk, I further corresponded with Mr. Speaker in an attempt to make an application for contempt against the Minister on the basis that he had deliberately misled Parliament. Mr. Speaker accepted the Minister's explanation. I suppose, in retrospect, that I could not expect Mr. Speaker to pronounce the Minister a liar. However, I should point out that Mr. Speaker was not given access to the draft replies that the Minister had rejected. I feel sure that the Minister was relieved, but his relief must have been short lived, because I subsequently found out that he was canvassing his colleagues in the corridors of the House for support.
Events then took a new turn, following a letter from me to the Prime Minister. My letter was clear and concise. I asked, first, whether the Prime Minister would endorse the Minister's explanation. Secondly, had she really ordered that the original valuation should go out to the private sector in the way that the Minister had told his civil servants? This morning I received the Prime Minister's reply. She said:
I fully accept his explanation.
She would, wouldn't she? To reject the explanation of a Minister would be to call him a liar.
The right hon. Lady did not reply to my second question. I am now informed that an inquiry into the Hopkinson memo is still continuing in Downing street. As I stand here tonight, the writing is on the wall. No. 10 is embarrassed; the Minister's private office is in turmoil; he is locked in an argument with Sir Gordon Manzie on the use of consultancies by the PSA; throughout the PSA he is treated with deserved contempt and ridicule; people in his private office snigger when he walks through the door; and, to cap it all, he actually ordered a leak inquiry to find out where the wally from Workington was getting his leaks from.
I shall let the Minister into a little secret in the Chamber tonight, which I feel sure is as safe between these four walls as was the story of his antics relating to Richmond Yard within his Department. I shall say it quietly for fear that it will leak out and cause congestion on all main line stations in the London area. An InterCity express train could not accommodate all the leakers. Everyone knows the truth; everyone cares; everyone is laughing at the Minister; everyone wants him to resign; everyone wants the truth out, most of all his hon. Friends, who have repeatedly said it to me privately over the past few weeks. Just tell us the truth.
If the hon. Member for Warrington, North (Mr. Hoyle) wishes to speak, I do not object, but he has not canvassed the possibility with me before.
I shall not take very long, but I wish to speak about this despicable event because it was to my question that the Minister was forced to reply. He has been dragged to the House tonight.
On 14 March, I tabled the key question, asking
what estimate the Property Services Agency has made of the cost of undertaking the valuation of the Crown premises at Richmond Yard by in-house staff".
The Minister replied:
No in-house assessment was made."—[Official Report, 14 March 1988; Vol 129, c. 461.]
In his letter of 26 May, the Minister said that he was referring to the actual valuation rather than to the estimate. There can be only two explanations for the Minister's behaviour. The first is that he did not understand the question, in which case he is clearly incompetent to be a Minister. The second is that he was misleading the House. In either case, he should resign. We shall probably hear a resignation speech from him tonight.
That was not the end of it, however, as I gave him a further opportunity to clarify the matter when, on 25 March, I asked
if he will ask for an estimate of the cost of the Property Services Agency providing a valuation of the Crown premises at Richmond Yard; and if he will make a statement.
The Minister replied
No. It would serve no useful purpose."—[Official Report. 25 March 1988; Vol. 130, c.237.]
Again, there are two explanations for his answer. Either he was saying that a statement would serve no useful purpose, which circumstances have shown to be incorrect; or he was saying that there was no useful purpose in estimating the cost of valuation, which is very odd given that he knew that a valuation had already been made by his Department.
It has been reported that the Minister told the London director of the PSA, Mr. Giles Hopkinson, that no less a person than the Prime Minister had asked for a valuation by a private firm. Will the Minister tell us whether that is true?
Either the Minister is incompetent, because he is unable to understand a question, or he has deliberately been misleading the House.
Order. The hon. Gentleman, who is an experienced parliamentarian, knows that it is not in order to accuse any hon. Member of deliberately misleading the House. He must withdraw that remark.
Even by the standards of the hon. Member for Workington (Mr. Campbell-Savours), he has gone over the top in the hysterical way in which he has approached the debate. Both the hon. Gentleman and the hon. Member for Warrington, North (Mr. Hoyle) put their case on the basis of selective quotations, especially from my reply on 14 March to not one but three questions from the hon. Member for Warrington, North. Their case is based on the argument that part of my reply purported to be a specific answer to one of those questions. It is a sad day when hon. Gentlemen are not prepared to accept the explanation that is given. I make no apology for introducing less passion, but more reason, in my reply.
When the Government are considering the use and allocation of Government accommodation, it is important that we consider the way in which we can bring home to Departments the cost implications of their decisions. Such matters lie at the heart of our decision to seek a private sector valuation of Richmond Yard, and I shall use this opportunity to explain why our decision in this case cannot sensibly be discussed or understood except in the wider context of our policies on the location of Government Departments and, more generally, on contracting out.
So why did we decide to use the private sector in the case of Richmond Yard? To understand our decision I have to begin by explaining how Departments are charged for the buildings they occupy. We expect Departments to pay the opportunity cost of the accommodation they occupy. In other words, they pay the full market rent. Minds have to be concentrated and Departments have to be made to take hard decisions on whether they need to stay in central London or should move to cheaper accommodation elsewhere. Even Opposition Members will recognise the benefits of the price mechanism for encouraging Departments to look seriously at the possibility of relocating away from London to cheaper accommodation. It is only one factor among several, but the cost of accommodation has a key role to play in Departments' consideration of whether to move Civil Service jobs to the less prosperous regions of the country.
With the right professional expertise it is not too difficult, in most parts of London, to assess what a market rent should be.
Thank you, Mr. Deputy Speaker.
The PSA estate surveyors are as good as any of their counterparts in the private sector at analysing comparable rents for similar properties in a particular area and determining an accurate figure. The PSA estate surveyors do an excellent job and I am grateful to them, but we face a particular problem in Whitehall, where the Government themselves are effectively the only market makers. Whitehall is not a particularly popular area commercially, in part because there are so few buildings that are not in Government use, yet it is the one area, above all others, in which Departments would wish, if possible, to have their central headquarters.
Does my hon. Friend agree that many public companies and public bodies, such as the Church Commissioners, employ firms such as Cluttons? Cluttons is regularly employed by the Church Commissioners to carry out valuations, despite the fact that they have their own in-house surveyors capable of doing the job. If the Church Commissioners find it desirable to confirm the figures that have been given by its internal surveyors, is there any reason for the Government to behave differently? Should they not seek to emulate the Church Commissioners?
My hon. Friend speaks with great knowledge and experience of these matters, and he is absolutely right. Many firms with in-house staff choose, for particular purposes, to employ outside valuers and estate surveyors.
As I said, the problem with Whitehall is that so few buildings are not in Government use, yet it is the one area above all in which Departments would wish to have their central headquarters. We considered the possibility of introducing a premium additional to market rents to reflect the benefit to Departments of a Whitehall location, but we concluded that such an artificial arrangement would not necessarily reflect the most cost-effective use of Government buildings in the area. We have settled instead for arrangements that allow Departments to argue their case for accommodation in Whitehall on operational grounds, while at the same time ensuring that they are fully conscious of the true economic costs of their decisions.
The latter point is crucial, but in the circumstances of the Whitehall market the true commercial rent is especially difficult to establish. The problems were compounded, in the case of Richmond Yard, by the fact that it was the first new freehold building to have been designed and built in Whitehall since the war. In that sense, the building was unique and there were no other properties with which it could be compared directly. Therefore, we needed a valuation that would carry conviction in the unusual, indeed unique, circumstances of this case. There was no absolute answer without putting the building on the open market, and any assessment short of that is a matter for informed professional judgment.
That is a difficult point, but it is worthy of answer and I am coming on to answer it.
In view of the importance of the case and the fact that we were dealing with a major new development costing more than £40 million, we needed an independent assessment that would stand up to criticism as to its validity, both on the methodology to be used and the figure arrived at on the basis of that methodology. My professional advisers in the PSA decided that Cluttons should be used to carry out the valuation. Cluttons has considerable experience of public interest matters. It is familiar with the type of buildings that the Government own and occupy and the constraints that can apply in the open market.
With that in mind, the PSA initially consulted one of Cluttons' senior partners informally on the general issue of valuations in the Whitehall area. That was done on a personal basis, and his advice was given on the same basis and without charge. That preliminary informal advice showed that Cluttons fully understood the issues, and officials decided not to approach other firms when it came to a formal contract specifically for a valuation of Richmond Yard, but to negotiate terms.
Initially, Cluttons proposed a fee of 1·5 per cent. The figure was negotiated down to I per cent., and that was accepted by my professional advisers as being reasonable in terms of fees generally prevailing in the market place. It represented no more than the going rate for the job. They did not regard 1 per cent. of one year's rent as excessive in relation to the total rent at issue. It is smaller still in relation to total accommodation charges in Whitehall, for which the valuation now provides a useful bench mark.
Does my hon. Friend agree that a 1 per cent. valuation fee is common in the market, especially in areas where there is some uncertainty about the valuation? There is then a high risk that the valuers could be sued on their valuation, and the cost of insuring against that risk is extraordinarily high.
My hon. Friend has great knowledge of these matters. In this case, the PSA was able to negotiate a one third reduction of the fee that was originally quoted by Cluttons.
The hon. Member for Workington has laboured the point that the cost of using Cluttons was substantially higher than the cost of undertaking the work in-house. I have explained why we decided, on policy grounds, to use the private sector. The additional cost is justified on those grounds alone, but I should also comment on the comparison that has been made between Cluttons' fee of £35,000 plus VAT and the estimated in-house cost of £1,500 plus VAT.
The simple fact is that the two figures are incapable of direct comparison. The profession operates on a fee basis, and always has done. In practice the consultant makes money on a few large cases, but losses on many others, with no charge at all for the considerable proportion of work that goes into cases that subsequently do not proceed. The client pays no more than the value of the advice, irrespective of the cost to the adviser. The standard RICS scale fee for valuations, before these scales were abolished, was 2 per cent. The fee covers all the running costs and overheads of enabling the firm to take on one-off commissions with no regard to the possibility of further work from that source. It also covers the costs of insuring against professional negligence and includes a profit element. The PSA in-house figure is based on hourly charges for staff time. It includes overheads, but, because all the staff concerned are employed on a permanent basis, makes no allowance for risk or for the peaks and troughs in work load for which any firm in the private sector has to budget.
Nevertheless, I well understand the desirability of achieving true comparisons between in-house and private sector costs, and when we have commercial accounts in PSA, with a bottom line figure, it will be far easier to make those comparisons. We are now well on the way to achieving that objective following my right hon. Friend the Secretary of State's announcement on 25 May that the PSA should become a fully commercial organisation equipped to compete in the open market.
My right hon. Friend said that from 1 April this year a new relationship had been established between Government Departments and the PSA on major civil projects. Civil departments now have financial responsibility for their own requirements and can choose between using the PSA and outside agents. From 1 April 1990 that arrangement will be extended to all civil and defence services. At that time the PSA will be reorganised into three businesses. Two of them will be service businesses providing project and estate services.
I shall not give way again. I have only about five minutes and I want to answer the points made by the hon. Member for Workington.
The third business, ownership of civil property, will involve the PSA in continuing to manage the common user element of the civil estate, but a substantial amount of property will become the responsibility of individual Departments.
The principle of these reforms is that the PSA is no longer to be the sole provider and maintainer of all Government accommodation. It will offer a service to Departments, but the Departments as clients will have financial responsibility, and there will be a move to a position in which the PSA is in competition with outside suppliers of design——
I must rise to that. The hon. Gentleman was able to participate in the debate without having spoken to me beforehand, and I readily agreed that he could do that. Now he is ungracious enough to suggest that I am frightened of him.
Our policy on the use of consultants is quite clear. We use them whenever we can demonstrate that they provide value for money. We use them if staff shortages, particularly in London at the present time, mean that we have no alternative. We use them if by so doing we enable in-house resources to be redeployed more cost-effectively to other work, thus improving our overall quality of service. Finally, we use them if they possess a particular expertise not available within the PSA. The agency is not staffed to cope with every foreseeable or conceivable demand on resources, nor has it ever been.
If the hon. Member for Workington is in any doubt about the present position, I can tell him that there are 31 estate surveyors and 14 graduate trainees and students in post in the London region of the PSA, and there are about 11 vacancies.
Finally, let me make it absolutely clear that there was never any intention on my part to mislead the House, as hon. Members have suggested. The decision in principle to use a private sector valuer to value Richmond Yard was taken by Ministers. I stand by that decision and I believe that it was right in the circumstances. My only regret is that Opposition Members apparently failed to understand my replies in answer to questions from the hon. Member for Warrington, North in March. They were intended to make clear, first, that no in-house assessment of the rental valuation had been undertaken and, secondly, that an assessment of the cost of undertaking the valuation in-house would serve no useful purpose, as far as I was concerned. The answers were simply a statement of fact.
The hon. Gentleman is persistent and repetitious in his accusations, but that does not make him right. He has sought throughout to put an interpretation on my answers that is wrong. Rather than accept the correct interpretation, he persists in an endeavour to make party political points. The House will see those for what they are and no doubt put them alongside other obsessions for which the hon. Gentleman is so renowned.