I almost never watch Prime Minister’s Questions, but led there by another topic, I found myself hearing the Prime Minister (8th January 2025) confirm the repurchase of some 36,000 homes for the Ministry of Defence, claiming the saving of some £230 million per annum in rent. He did not explain where the £6 billion purchase price will come from, nor how it will be funded.

I expressed some views about Annington Homes some time ago. It seems that I now must offer a mea culpa. I was wrong in my first analysis; it seems that it is ok after all for the UK government to re-purchase the homes it sold in 1996 to Annington using taxpayers hard earned cash. One might ask how this has gone below the radar in the media, and it has exercised my mind somewhat.   

Government long-term funding rates are above 5% per annum today, suggesting a net annual funding cost for this purchase of more than £300 million per annum in interest payments alone. Accepting that there is a “saving” of £230 million a year in rent by buying the properties back, the opportunity cost of this transaction might well be an additional £70 million a year; so maybe not the saving presented.

Perhaps it can be argued that government will fund this long-term asset with short term debt issuance at lower rates, and therefore the “gap” is not quite so great. Not a trick those of us who cannot print money can pull off. 

I don’t really understand the deal at all. The implication is that government can now refurbish the estate and that somehow this couldn’t happen under the previous ownership structure. I just don’t think that is right; government was responsible for that before the deal, though they will now avoid future rent reviews against them. My view is that this deal will likely have come at a cost to the taxpayer.

I said previously that it was not to my taste that the UK government should try to undo a deal it had done in good faith over a generation ago, especially when there are external world class investors involved. It seems the rules of the game are now different. Add to that some rather extraordinary, almost vitriolic statements from some government officials on the announcement which implied that those that had sold the assets all those years ago should be locked in the Tower of London and it all looks rather uncomfortable. Err… that would be whom precisely? It was certainly not the private sector’s fault that they responded to a government tender and did better out of it than government had anticipated at the time. Neither the new deal nor the comments are a good look to my mind.

The only conclusion I can reach is that some rather clever media management has gone on; “nothing to see here” being its essence. Presumably the argument goes that the government was on the hook for the £230 million per annum of rent, therefore it was on the government balance sheet, and this deal simply moves the assets from one place on the balance sheet to another. Accounting in other words. Hmm…

A further intrigue for my over-active grey cells was an uncomfortable to read article on a very slow news day near Christmas in a national newspaper on the founding entity of Annington. I don’t know anything about the accusations therein, but it was a strange article and whilst it delivered a few jabs, it lacked a heavy punch in my view. It could of course have been entirely a coincidence, but I still feel strangely uncomfortable. Were they connected I wonder?

We are in a different world, and it is one I am rather fearful of. Government can turn chameleon very quickly and play to its own rules. Certainly, the private sector doesn’t have the ability to rewrite contracts in the way government can.

A lot of so called public private partnership deals were done under previous UK governments, and it is reasonable to conclude with the benefit of hindsight that the private sector got the best of a number of those. I wonder if the MOD buy back is going to be seen in the future as a canary in the coal mine. Might we be about to see a number of those PPI deals undone now, especially where government has been “embarrassed”. And whose money will they use (silly question of course) and what might it really cost the already over-burdened taxpayer, and will we ever know? What price then on dealing with government in the future I wonder? To my mind the MOD buy back raises a lot more questions than it answers.