New Clause 1 - Transfer of property held off-shore

Commissioners for Revenue and Customs Bill – in a Public Bill Committee at 10:15 am on 18 January 2005.

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'(1) The Treasury shall make a scheme identifying any rights and liabilities in property of the old commissioners which shall, by virtue of section 43, vest in the new commissioners and which is owned by any person resident or company registered outside the United Kingdom.

(2) A scheme may include consequential and incidental provision.

(3) A scheme shall include provision that any property identified therein shall be managed in accordance with best value.

(4) In this section—

''best value'' means arrangements to secure continuous improvement in the way in which functions are exercised, having regard to a combination of economy, efficiency and effectiveness, and

the expressions ''the new commissioners'' and ''the old commissioners'' have the same meaning as in section 43.'.

—[Mr. Heathcoat-Amory]

Brought up, and read the First time. 

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

I beg to move, That the clause be read a Second time.

The new clause is tabled in my name and that of my hon. Friend the Member for Sevenoaks (Mr. Fallon), who cannot be here today because of his duties on the Treasury Committee. The purpose of both new clauses that we have tabled is to examine the provisions that have been made for future management of the property estate and the IT facilities of both the Revenue departments. New clause 1 would identify a scheme for managing the assets, and, indeed, liabilities, of the property of the departments, and to place a best value obligation on the new department, in line with what we understand the Treasury wants to achieve throughout the public sector. It should not be particularly controversial.

The merger and the Bill should be an opportunity anyway to review the existing provisions for managing the assets in question. I do not think that the House should agree to a merger unless it is satisfied that the assets of the departments will be in good hands. However, I am afraid that the history of property management in the departments is not altogether happy, and it has engaged the critical attention and comments of the Public Accounts Committee.

The departments put their property out to tender. It was a very comprehensive process, not just for the management but for the future ownership of the property. The tender was won by a company called Mapeley STEPS, a new company in the field. It is clear now that not much was known about it at the time. It was later discovered that one of the reasons why Mapeley STEPS could win the overall contract was that it had the advantage of being based offshore, in Bermuda, and was therefore receiving substantial tax advantages. It was, on the face of it, not very surprising when it beat its rivals to the management of that enormous property portfolio.

Whether through innocence in the departments, lack of experience or failure to take advice—we do not know—the fact of the offshore tax advantages was simply not known at the time of the contract. Indeed, when it was spotted by others, the initial parliamentary answers given by the Treasury were misleading. That was, I am sure, an innocent oversight, and was corrected when it became apparent that the company concerned was based overseas. But I am afraid that it showed a startling lack of proper oversight by the Treasury in this enormous transaction, which will stretch forward for the next 20 years. We are not discussing a passing business arrangement of a revenue nature; this was a contract to place the whole property estate in private hands, managed by the private sector, for the best part of a generation.

The affair attracted a good deal of parliamentary criticism, as I have said, but it is still not clear to me how it happened. The failures of management and oversight should perhaps have led to a more thoroughgoing review in the departments concerned. Perhaps something went on that Parliament was not told about. Clearly, the action that we understood to have been taken did not measure up to the scale of the problem.

It seems that the National Audit Office made some projections about the cost to the Revenue departments of the new contract. It estimated that the so-called facility payment that makes up the bulk of the cost would run at £170 million per year. That would be the overall cost of all the works undertaken by Mapeley on behalf of the departments. That is not the total cost because the facility price, although the biggest cost, is not the only one. There are other costs, to do with new buildings, and pass-through costs; costs incurred by Mapeley that are simply recharged to the departments. The great bulk of the overall cost is the facility price.

According to the figures that I have, over the first three years of the contract, instead of running at £170 million a year, the costs ran at £196 million for the first year, then £219 million, and then, last year, £233 million. Those figures are of course far in excess of what the National Audit Office projected at the time. The Paymaster General has written to my hon. Friend the Member for Sevenoaks to try to explain the figures, but it is not altogether clear to me that they are satisfactory.

The Paymaster General points out that the National Audit Office estimate was an average over 20 years, but then writes that the actual cash payments are higher than this average in all years. I do not understand how, if they are high in all years, they can possibly reach that average. Perhaps there is an arithmetical complexity there that I have overlooked, but it seems that the earlier estimate was a pretty gross underestimate.

Indeed, if the other costs that I mentioned, such as the pass-through costs, are added on, the costs are getting on for twice what the National Audit Office price stated. It seems that under the terms of the contract—or because of escalation clauses, indexation or whatever—the amount of money paid by the public sector is substantially higher than was expected at the time. Will the right hon. Lady enlighten us on that point?

My main point is that merging the two departments should bring the opportunity for substantial savings; that is one of the reasons advanced for such a merger. Operations are to be consolidated, and presumably a number of physical changes will take place, as departments that have been separate move into the same building. Some examples of where that will definitely be the case have been given. One assumes therefore that provision was made for that possibility under the Mapeley STEPS contract. Will the Paymaster General tell us what was anticipated about that possibility, which has always been an option, when the contract was signed?

The Treasury always has such matters under review—it certainly did in the last Government—and, as we know, the Treasury Committee has urged merger on the Government before. The possibility would   definitely have been foreseen, even if it was not a definite plan at the time of the signature of the contract. My question is about what we can trigger now to allow those savings in property to flow through and for lower payments under the Mapeley STEPS contract to be made by the merged departments.

Finally, I revert to the terms of the new clause. It would require the Treasury to bring forward such a scheme, which would best be done by the publication by the Treasury of further details of the Mapeley STEPS contract, amended or adapted to take account of the merger. The new clause would also impose a best value obligation, which would sweep up many of the criticisms and suggestions made by the Public Accounts Committee and others after examining the history of the departments in managing their property, not always particularly well.

Let us use this Bill and this merger as an opportunity for a changed approach. We have a contract before us, but my question to the right hon. Lady is about what savings she can assure us will flow through to the public sector as a result of the merger.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I start by correcting points made by the right hon. Gentleman in his opening remarks on the Mapeley STEPS contract and on how that company successfully secured the contract following a proper procurement process, which followed the Green Book. The right hon. Gentleman said that the company won the contract only because it was offshore, which enabled it to have the cheaper price. That was not the case; the possibility has been considered thoroughly by the NAO. All Government departments are perfectly capable of working out how the property market works, and therefore the relevance of the comparators. Mapeley STEPS was a successful bidder because it offered the best value for money.

The right hon. Gentleman touched on a number of points. There has been a great deal of public discussion about Mapeley STEPS—in particular about its tax arrangements, which I will touch on first. At previous Select Committee hearings—I do not think that the right hon. Gentleman was on the Committee at that point—the accounting officer acknowledged that mistakes were made; not in the procurement process but by the department in not recognising the connection between the procurement guidance and the Government's anti-avoidance agenda.

That was corrected. The new Treasury guidelines are in place to prevent that from happening in future. Indeed, under the Revenue's ASPIRE contract, which is now in place and has been negotiated since the guidelines were changed, a movement offshore is an event that could provoke the termination of the contract. The contract with Mapeley is already designed to ensure that property is managed in accordance with best value. If the Treasury were to issue a scheme or direction that was not covered within the terms of the existing contract, any changes would be subject to negotiation and agreement with Mapeley.

The right hon. Gentleman quoted the figures that I provided to the Select Committee. The £170 million that was given by the NAO is an indicative annual average of the facilities price payment over 20 years for the serviced accommodation element of the contract, as qualified by the NAO itself in the STEPS report. It was never expected that the facilities payment would be a straight-line payment each year. It does not reflect the actual changes to the estate since the contract was started, or the passed-through costs.

The right hon. Gentleman quoted from the letter that I wrote to the hon. Member for Sevenoaks. The figures he used are contained in the letter, which explains the current discussions about the facilities price and the likely costs. I specifically answered in detail the questions raised about the average NAO facilities price, which is currently £170 million per contract year, and why that varies with regard to the current contract and the negotiations that are outstanding. That was written following a letter from the hon. Member for Sevenoaks to me on the 21 October and replied to on 24 November. All that information is in the public domain, and I would be happy to circulate my answers to Committee Members.

There are other savings to the taxpayer. Significant flexibility is built into the contract, so that Mapeley will cover the risk of changes in the department's accommodation requirements—changes that have happened since the contract was signed and that will continue, notwithstanding the merger of the two departments, as the department's accommodation requirements change. If the department decides that it no longer needs to occupy a property, the risk of disposing of the leasehold or freehold transfers to Mapeley.

That flexibility will be vital through the process of change and will serve the departments well within Her Majesty's Revenue and Customs. [Interruption.] I want to continue, then I will give way to the hon. Member for Chichester. It is therefore not clear that the new clause would lead to any savings or improvements in efficiency, economy or effectiveness.

The proposed Treasury scheme seems a rather bureaucratic way of attempting to achieve what the accounting officers are already required to do, which is to administer public money wisely and carefully and to be subject to the scrutiny of Parliament. I cannot   remember how many times I have been before the Treasury Committee about the contract, as have both the accounting officers—including every year when the annual accounts are submitted, which is another opportunity for that Committee to scrutinise—and the Comptroller and Auditor General.

While I am referring to the Comptroller and Auditor General and the Public Accounts Committee, perhaps it would be helpful to remind hon. Members what the department has done following the PAC's recommendations with regard to the contract. The department has been working closely with Mapeley to normalise service delivery, to deal with some of the legacy issues and to improve the performance management system. That is a reference to where new buildings and different facilities have to come under the contract, or where buildings that we had when the contract was signed were for some reason not included in the contract.

On the settlement of the outstanding legacy issues, the NAO report recommended that the departments and Mapeley should conclude the current legacy negotiations and agree any required contract changes to allow movement towards a partnership approach to contract management. The initial indications from the PAC were that a significant improvement in Mapeley's performance must precede any revised contractual arrangement.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West 10:30, 18 January 2005

Order. May I tell the right hon. Lady and other hon. Members that this is not an appropriate place for a discussion of the history of the Mapeley contract or an analysis of whether it has been good or bad? That has already been dealt with by the Public Accounts Committee and the National Audit Office. I therefore hope that right hon. and hon. Members will from now on confine their remarks to the desirability or otherwise of the new clause, rather than conduct a further historical analysis of the Mapeley contract, which is not appropriate for this Committee.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Thank you for that guidance, Sir John. Of course I will immediately stop pursuing the department's response to the requirements to ensure that the contract—

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Order. I am perfectly happy for the right hon. Lady to outline what the department may now be doing, in the light of the new clause. What I do not want—and what I will not allow any further—is any backwards and forwards debate about the desirability, efficacy or otherwise of the Mapeley contract.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Thank you, Sir John. I think that I have made my point with regard to the contract in question or any subsequent contract. The new clause is bureaucratic and unnecessary because the requirements of the accounting officer, Government resource accounting, the obligations on the NAO and on the department to respond, and the requirements for best value will ensure that all contracts are pursued on that basis. Members have disagreements with different aspects of the Mapeley STEPS contract, but there has never been any question of there being any   loss of value for money or that the Department did not get the best return possible for the taxpayer. In those circumstances, I simply take the view that the new clause is irrelevant.

Photo of Andrew Tyrie Andrew Tyrie Shadow Paymaster General

I completely agree with you, Sir John; the key question is not about how a contract could have been satisfactorily negotiated, but about what lessons we can learn from that to ensure that the Bill is in such a shape that the same mistakes are not made again. That is the purpose of these new clauses. Can the Paymaster General really give an assurance that without them the legislation will ensure that we do not get a repetition of such failures? Can she assure the Committee that we will get ''best value'' from the estate, to borrow a phrase from new clause 2?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

There is no question about it; this contract has supplied best value. That is made clear in the NAO report. It is also clear that the contract was conducted within all the requirements for procurement. [Interruption.] No; it was made absolutely clear in the reports of both the Treasury Committee and the NAO that all the responsibilities with regard to requirements to procurement, following the Green Book and within Treasury guidelines, were pursued and best value was achieved. The new clause merely duplicates what is already in place. Therefore, it is unnecessary. I cannot let it be asserted in Committee that somehow the contract did not provide best value and was not conducted properly, because the NAO report makes it clear that it was.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

My misgivings have been increased rather than diminished by the Paymaster General's remarks. I do not want to trawl back through the Mapeley contract, but it is clear that neither the Treasury nor the Revenue had any real understanding of what they were signing up to. Finding out where the main contractor is actually located must be one of the elementary questions to address, as must whether the contractor is receiving tax advantages from being based in Bermuda, particularly as before Labour was elected to office it was very critical of individuals and companies avoiding tax by placing themselves offshore. However, as you suggested, Sir John, that is history, and the new clause is intended to ensure that things will be different under the new arrangements.

I looked again at the letter sent by the Paymaster General. It seeks to explain why the facility price, which is the bulk of the annual payment, has been substantially higher than was estimated at the time of the contract, and it points out that the NAO expert at the time did not take into account possibilities for new legislation, nor of additional buildings being taken on. I find that slightly strange, because new legislation is not always unexpected. The Bill before us is new, and therefore my initial question was whether the contract fully takes into account the possibility of Revenue department merger. I now understand that the contract has a kind of escalation clause and that additional costs can be taken into account, and   therefore the Mapeley payment goes out. I want to know whether there is symmetry in this, and if downward costs can also happen.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West 10:45, 18 January 2005

Order. The right hon. Gentleman is straying back to the desirability or otherwise of the existing terms of the Mapeley STEPS contract. As I have already indicated, that is not the issue being debated by the Committee, nor is this the appropriate forum for that discussion. The Committee is debating whether it is necessary for us to have the new clause the right hon. Gentleman has proposed. I hope, therefore, that he will confine his remarks to that.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

Of course I accept that, Sir John, but the contract is extant and runs for 20 years, so we are not simply talking about the years up to now since signature, but about what will happen from now on until the end of the contract—the remaining 16 or 17 years. That is highly relevant to the Bill and the new clause.

My question is a simple one: when the merged Revenue department comes into existence, consequential on the Bill becoming an Act of Parliament, is there a provision under existing arrangements for the payment to decrease? We know that payments have increased in recent years in response to additional legislation and additional buildings being taken on by the Revenue department. Is there a symmetry here, and, if not, can we ensure that the contract is changed to reflect the possibility of Revenue officials moving out of buildings to achieve the savings and economies that underlie the purpose of the merger?

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Order. The right hon. Gentleman is trying my patience. The Committee is not here to consider the existing Mapeley STEPS contract, or what may or may not happen in the future; it is here to consider the new clause. I will not allow the Committee to be used as an inquest on that particular contract.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

I am not interested in the contract, but in what the new clause says. I can only refer to it. It says:

''The Treasury shall make a scheme identifying any rights and liabilities in the property of the old commissioners.''

I do not know how it is possible to make a new scheme without some reference to the contracts that bind the old commissioners. Will you accept that, Mr. Chairman?

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I am perfectly happy for the right hon. Gentleman to argue the case for such a scheme in the course of the clause. What I am unhappy about is a disinterment of all the detailed terms of the existing contract and its examination in detail by the Committee.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

Well, I will just have to rephrase my question in terms of the new clause. Will the Treasury make a new scheme—we will call it Mapeley II—to identify the obligations of the old commissioners, that is, of the existing Revenue departments, and will those payments under the new   scheme provide for reductions in the annual payment consequential on the anticipated savings when the new Revenue departments merge into one?

We have seen that the existing contract provides for escalation of costs. I wish to know whether there is provision for decreasing them. That is the scheme that my new clause calls for. I am therefore, it seems to me, entirely in order in asking the Paymaster General what existing contractual arrangements may prevent such a new scheme taking effect.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Briefly, I told the right hon. Gentleman in my opening remarks that the contract gave significant flexibility so that Mapeley will carry the risk of changes to departments' accommodation requirements. I went on to specifically point out the risk of disposing of leasehold or freehold, as an example, once the departments had said that the accommodation was no longer required. I can confirm, again, that the contract provides the opportunity to realise the benefits of the merger through rationalisation of the estate. The contract was designed specifically to do that. The departments contract and grow. When they contract, their costs reduce; when they grow, they increase. Parliament is informed of all of that. Unlike previous contracts, this contract provides for both reductions and increases within the negotiated terms.

The right hon. Gentleman comes back with his basic premise that there was a failure, and that lessons therefore have to be learned and new procedures are necessary. My contention is that there was not a failure, and the Comptroller and Auditor General also takes that view. On 7 May 2004, he said that the department had got an exceptionally good price for a deal that should bring a range of benefits. He went on to mention the very important point that there are risks to such a keenly priced deal, which the department must manage very carefully if it is to realise its full value.

I have explained, without trying to try your patience too much, Sir John, that those matters have been taken forward and therefore that the clause is not required. The accounting officer, the requirements of all departments for value for money, the view of the National Audit Office and their ability to investigate all successfully worked in this case, will work in future cases and the recommendations are being taken forward as well. Therefore the right hon. Gentleman does not need his new clause, because the mechanisms are already in place. If he wishes to put it to vote, I will ask my hon. Friends to oppose it.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

It has to be dragged out of them, does it not? I think, however, that we are now a little bit clearer about the arrangements for the future, which are consequential on arrangements for the past. In light of the more recent comments of the right hon. Lady, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.