Property Services Agency

HC Deb 25 May 1988 vol 134 cc339-48

4.8 pm

The Secretary of State for the Environment (Mr. Nicholas Ridley)

With permission, Mr. Speaker, I should like to make a statement on the future of the Property Services Agency.

The Government have decided that the PSA should become a commercial organisation. In reaching this decision, we have taken account of a report prepared by Messrs. Deloitte Haskins and Sells on the introduction of commercial accounting into the PSA. Copies of that report have been placed in the Libraries of both Houses of Parliament. We have also paid special attention to the report on PSA which the Select Committee on the Environment prepared under the chairmanship of my hon. Friend the Member for Hornsey and Wood Green (Sir H. Rossi).

Last July my right hon. Friend the Chief Secretary to the Treasury announced that, from 1 April this year, there would he a new relationship between Departments and the PSA on major civil projects. Those payment and untying arrangements will now be extended to cover the range of services, defence as well as civil, offered by the PSA. The extended arrangements will be fully in place by 1 April 1990. By 1 April 1990, also, PSA will be reorganised into three businesses, as recommended by Deloittes. Two of these will be services businesses, covering project services and estates services. For the third, PSA will continue to manage, on behalf of the Government, the common user element of the civil estate. A substantial amount of property, however, will become the responsibility of individual Departments. I hope to make substantial progress in implementing that reorganisation before the completion date of 1 April 1990.

PSA will continue to seek opportunities to contract out functions to the private sector. I shall keep the process of contracting out under continuous review.

The changes are designed to expose the PSA to outside competition as rapidly as possible, and to equip the PSA to compete effectively, but further measures are needed if the PSA is to operate on a fully commercial basis. I have therefore decided that the PSA should become a Government trading fund, as proposed both by Deloittes and by the Select Committee. In line with the timetable set out by Deloittes, I look to the PSA to put as much of its operations as practicable on a trading fund basis no later than I April 1993.

My right hon. Friend the Prime Minister has agreed that my right hon. Friend the Secretary of State for Defence should take over responsibility from me in two areas. First, estate agency functions on the defence estate, both in the United Kingdom and overseas, will transfer on 1 October 1988. Secondly, some 200 industrial staff who are employed in the PSA's directly employed labour force to carry out specific and permanent tasks at defence establishments will transfer on 1 April 1989. By 1 April 1990, as arrangements are developed to put PSA's relationship with MOD on to an untied basis, up to 800 more of those industrial staff will be transferred.

Dr. John Cunningham (Copeland)

Is the Secretary of State aware that the reasons set out for the creation of the PSA in its present form are as valid now as they were when it was created by the Conservative Government in 1972? Its role is to provide, manage and maintain Government property, including defence establishments, courts, research laboratories, training centres and land. We see a continuing need for such a role in the public interest.

Is the Secretary of State aware that we support the aim of greater efficiency in the Civil Service and within the public sector? Surely the proposals are aimed at preparing the PSA for its dismemberment and ultimate sale. If better commercial practice and performance is the objective, will the Secretary of State assure the House that the restructured PSA, as announced today, will be totally free to compete on equal terms with the private sector, without ministerial interference, and as recommended by the House of Commons Environment Select Committee? If he cannot give the House that assurance, are not his arguments for better performance on commercial terms simply exposed as bogus?

The PSA has been trusted to build the Clyde submarine base, which is intended for The UK Trident strategic system and the expanding fleet of nuclear and conventional submarines. The development is one of the most challenging projects ever undertaken. If the PSA has been trusted to do that work, is it efficient

in carrying it out? If it is inefficient, why was it trusted with such a critical and expensive project in the first place? Perhaps the Secretary of State will explain that decision in favour of the PSA undertaking such complicated expensive work which the Government have already endorsed.

If the Ministry of Defence, which currently provides some 60 per cent. of PSA work, is no longer obliged to use it, what are the implications for jobs, especially regional employment, and for security? There are, for example, more than 1,600 jobs in the north-east of England that will be at risk as a result of the Government's decision and as many more in Scotland. How many of the 24,000 PSA jobs does the Secretary of State estimate will eventually go as a result of that decision?

In general, the PSA gives the taxpayer a good deal. Its chief executive a—distinguished civil servant—is SirGordon Manzie, who is trusted and whose annual report has been endorsed by the Secretary of State. In that report Sir Gordon says: comparisons have shown PSA to be competitive with its private sector counterparts. If that is true, what can be achieved by the Government announcement today? Surely that announcement exposes as bogus the Secretary of State's claims about commercial improvement. The Government's statement is simply a triumph of dogma and ideology over British public interest.

Mr. Ridley

The hon. Member for Copeland (Dr. Cunningham) managed to wax himself into a paroxysm of apprehension about what I believe to be a helpful and progressive statement regarding improvements to the efficiency and management of the Government's estate. I agree that it is the PSA's defined role—laid down when it was set up in 1972—that we are now seeking to develop. I welcome the hon. Gentleman's acknowledgement that greater efficiency is something that we should strive for, and that is what the statement seeks to achieve.

Curiously enough, I also welcome the hon. Gentleman's call for the PSA to be able to compete with the private sector. In effect, that is a request for a future Government to privatise suitable parts of the PSA. I welcome that request from the hon. Gentleman, just as I welcomed his enormous concern about the critical and important nature of the Trident base—he was right to stress its importance. I have no doubt in the abilities of the PSA both in that respect and in respect of the many other functions that it performs for Government Departments, including the Ministry of Defence. I believe that it will supply sponsor Departments with the very best service, and in that case it will continue to prosper.

I believe that there will be no threat to jobs. The hon. Gentleman got the figures regarding jobs connected with the Ministry of Defence slightly wrong. In future, however, my right hon. Friend the Secretary of State for Defence will answer for that. As I said in my statement, up to 1,750 PSA staff will probably transfer to the MOD. Those are the staff that the MOD will need to manage its estates. The PSA is already contracting out about 85 per cent. of its physical work, so perhaps the MOD will be able to improve upon that transfer figure slightly. A great deal of work is already contracted out and the people employed on such contracts manage the estates. Therefore, there will be no threat to their jobs.

Sir Hugh Rossi (Hornsey and Wood Green)

I welcome my right hon. Friend's statement inasmuch as it accepts two main recommendations of the Select Committee: the creation of the PSA as a trading fund, and the untying of the defence establishments. Contrary to the statement made by the hon. Member for Copeland (Dr. Cunningham), the Labour Members who served on the Committee listened carefully to all the evidence, studied the effects of the recommendations and were completely in agreement with those recommendations and accordingly, no doubt, with the statement that my right hon. Friend has just made.

May I say to my right hon. Friend in criticism that the way in which answers to Select Committee reports are presented to the House in a piecemeal fashion is more than unsatisfactory. We have had a memorandum, a partial reply in a private Member's motion, and now a statement. It would be far more satisfactory if all these matters could be dealt with by way of Command Papers and we could then properly study the Government's replies to very carefully thought out recommendations of Select Committees. I am glad to see that my right hon. Friend the Leader of the House is in his place to hear that criticism of matters of procedure.

As far as I can tell, all the recommendations of the Select Committee on the PSA have now been accepted, except that I do not know where we stand on the recommendations that a central body of PSA expertise should be retained as one unit for specialist advice and as landlord of the Civil Office and Storage Estate; and … allowed to manage the Civil Office and Storage Estate more positively, as a major property resource". Where do we stand on those recommendations—the last major recommendations of my Committee?

Mr. Ridley

I am grateful to my hon. Friend. I consider that the report on the PSA to which we are referring was one of the very best reports that Select Committees have produced for a long time. I pay tribute to all the members of that Select Committee. The report was so good that the Government have more or less agreed to every recommendation, although they were major recommendations.

I hope that my hon. Friend will excuse us for the delay in providing an answer, but the report raised some very complicated matters which had to be pursued and that took rather longer than I should have liked. The delay was to enable us to meet the recommendations. On the other hand, Select Committees like an early Government reply, so we were in a dilemma. I hope that my hon. Friend feels that the delay has been worth while to achieve the results that the Select Committee suggested.

Of course, the PSA will continue to give specialist advice to Government Departments about property management. That function will not be disturbed. The expertise is there at present and will continue.

In regard to the ownership of the civil estate, as I said in my statement, a large common user element of the Government's property will remain the responsibility of the PSA, but where facilities are purely for the use of Departments, such as in many defence matters, the ownership will transfer to the Department concerned. The exact dividing line between the common estate and the property which goes to individual Departments has yet to be defined, but I hope that that definition answers my hon. Friend in principle. As he said, we have accepted the recommendations about the trading fund and about untying.

Mr. James Wallace (Orkney and Shetland)

Does the Secretary of State accept that if his proposals will lead to Government Departments, not least the Ministry of Defence, having greater flexibility to economise through engaging contractors which offer a price lower than that of the PSA, that will generally be welcomed?

Can the right hon. Gentleman give any guarantee that the reservoir of expertise mentioned by the hon. Member for Hornsey and Wood Green (Sir H. Rossi) will be retained and that there will not be a proliferation of mini-PSAs which could lead to the loss of the advantages achieved through economies of scale?

Has the Secretary of State had an opportunity to speculate on the implications of commercialisation for the care and maintenance of this building? Does he foresee charges for the showers, for example?

Mr. Ridley

On the first point, any Department will be able to obtain the best price it can for maintenance or work to its own property as a result of untying. The hon. Gentleman welcomed that.

Secondly, the PSA will remain as a body and will continue to have specialist knowledge which will be available to those from any branch of Government who want to consult it and to Government Departments which will be free to use the PSA as the agent for managing their properties.

Thirdly, I propose no change in the arrangements under which the Palace of Westminster is run. In this case, the landlord is a royal one and the PSA manages the building on behalf of the landlord in conjunction with the Services Committee of the House.

Mr. Michael Heseltine (Henley)

I strongly support my right hon. Friend's announcement. May I put two questions to him? First, is it not more likely that jobs in the economy will be increased by his announcement as the skills within the public sector will be transferred to the private sector and will not only become available to the public sector but will be exploited through the British civil engineering industry across the world?

Secondly, will my right hon. Friend consider, in the dispersal of the Government estate to separate Departments, urging those Departments to use contract management from the private sector for the management of those estates, as well as enjoying the additional freedom of overall responsibility that he has given them?

Mr. Ridley

I am grateful to my right hon. Friend. It is very likely that the development of the policy will lead to a strengthening of the private sector. There is no reason why it should lead to a reduction in the numbers employed by the PSA if it can continue to justify its activities by winning work from Departments.

On my right hon. Friend's second question, it will be up to the Departments to manage their own property from now on. I hope that he will urge Departments to follow the course of obtaining the best offer for managing their estates, whether it be from the PSA or from the private sector, as well as contracting out maintenance and new construction work.

Mr. Peter L. Pike (Burnley)

The Secretary of State said that the Select Committee report was a good report. As a member of the Select Committee, I must say that even better reports are still awaiting his response. Will the right hon. Gentleman give a categoric assurance that the statement is not a prelude to privatisation? Will he further give an assurance that the trade unions will be consulted fully and their views given due consideration?

Will the right hon. Gentleman also recognise that one of the major problems that the PSA faces is that the Departments that it serves are sometimes very unclear in giving to the PSA work requirements, both in their initial instructions and when changing their minds? That causes major problems for the PSA. Will the Minister try to ensure that it does not occur in future?

Mr. Ridley

Whether reports from Select Committees are good ones must await my view. The hon. Gentleman cannot put those words into my mouth before I have decided.

Privatisation may become a possibility which the staff prefer when the three businesses have been separated. They may well wish to go into the private sector to compete for a greater share of the work available. We cannot prejudge that as it will be many years before we reach that position. Trade unions will be consulted from this afternoon about the announcement that I have just made.

The lack of clarity of the intentions and needs of Government Departments which has made life very difficult for the PSA in looking after its buildings has been in part the cause of the changes that I have announced this afternoon. From now on, Departments will be responsible for managing their own buildings and for paying for that management. They will therefore have a much greater incentive to seek the best value for money than if the costs of whatever changes they make halfway through fall upon the PSA. which is hardly fair on it.

Several Hon. Members

rose——

Mr. Speaker

Order. I remind the House that we have a busy day ahead of us. I ask for brief questions, and certainly not questions that have been asked before.

Mr. James Couchman (Gillingham)

I congratulate my right hon. Friend on his wise decision to take the PSA into a full commercial position. If I have a criticism, it is that it will take a very long time to establish it as a trading fund and 1993 seems a long way ahead. After all, we have fully privatised greater public utilities in rather less time.

In regard to the Ministry of Defence assuming responsibility for its estates, what will happen to those estate management matters which are currently in train? Will the MOD assume responsibility for those matters ahead of I October, or will the PSA take its responsibility beyond 1 October? My right hon. Friend is very well aware that there are matters in my constituency which are of significant importance to my constituents.

Mr. Ridley

I agree that it is a pity that it will take so long to attain a full trading fund, but that is the estimate of the PSA and our consultants, Messrs. Deloittes, who believe that it cannot be done quicker. That is the time that it will take to move a large organisation from vote accounting to having full commercial accounts in a trading fund because of the immense changes that are necessary, each of which underlines the difference between a Government Department and a commercial organisation.

I shall soon have to ask my hon. Friend to ask my right hon. Friend the Secretary of State for Defence how he will manage the contracts that he needs for the defence estate. I am sure that he will wish the smooth transitional arrangements to continue and contracts that are in train will obviously be treated differently from contracts that will be let after 1 October.

Mr. John Garrett (Norwich, South)

What will be the required rate of return from the three businesses? Will it be rigged in order to make them uncompetitive compared with the private sector? Is it intended to make political appointments to head them?

Mr. Ridley

I shall be able to set targets for the three businesses once we have three businesses in a few years' time, but not now. The staff of the PSA will remain civil servants, as they are at present, until such time as the new era is reached.

Mr. Kenneth Warren (Hastings and Rye)

Much as I applaud the management changes that my right hon. Friend has proposed today, will he, following his answer to the last question, make sure that the staff understand their forward terms and conditions of employment so that we avoid the turmoil that we are now experiencing on the privatisation of the Crown Suppliers?

Mr. Ridley

I confirm that there will be no change in the status or position of any PSA staff as a result of what have announced this afternoon. They remain civil servants. The PSA is run by a permanent secretary, to whom I pay tribute, as did the hon. Member for Copeland (Dr. Cunningham). There is a small advisory board that is purely advisory, but, for the rest, all members, whether they go to the MOD or stay with the PSA, will remain in exactly the same position as at present—as civil servants.

Mr. Tam Dalyell (Linlithgow)

How much were Deloittes paid for their report?

Mr. Ridley

I have no idea.

Mr. Michael Morris (Northampton, South)

Is my right hon. Friend aware that, in evidence to the PAC, it was clear over the years that the PSA needed to be released from some of its shackles, and to that extent my hon. Friend's statement is welcome? However, can he assure us that one of the trading functions—the servicing of boilers, lifts and so on—will not simply result in a major direct labour department under the PSA?

Mr. Ridley

I am grateful to my hon. Friend. It is time that we made the move that I have outlined. Some people are best directly employed in the maintenance and looking after of property, but equally there is always scope for contracting out and from now on it will be for individual Departments which own their own properties to take those decisions. The PSA will continue to decide whether to contract out the sort of work to which my hon. Friend is referring in relation to the common user element in the civil estate.

Mr. Dennis Skinner (Bolsover)

Why could not the Minister give a straight answer to my hon. Friend the Member for Norwich, South (Mr. Garrett) on who will be heading the three companies in preparation for privatisation? Will there be any friends of his, or civil servants, distinguished or otherwise, heading them up? Could ex-Ministers have a lucrative number in the future? Why cannot the right hon. Gentleman give a guarantee that nobody will be latching on to any of these slush funds?

Mr. Ridley

I have made it clear that as the PSA becomes three separate businesses the whole staff will be civil servants who will be interchangeable with civil servants from other Departments. If new arrangements are proposed in five years' time, that will be the time for the hon. Gentleman to expect an answer to his question.

Mr. Michael Fallon (Darlington)

If, by his statement, my right hon. Friend is preparing the three businesses for early privatisation, is he not to be congratulated? If he is not, is he not astounded by his own moderation?

Mr. Ridley

I do not know which of my hon. Friend's interpretations to claim. It will take the five years until 1993 to obtain the accounts necessary and to separate the three businesses. I make it plain that the business that owns the common user estate is unlikely to be privatised because, clearly, we cannot make ourselves tenants throughout all Government properties, particularly in the Whitehall area. Whether the other two businesses should be privatised will become much clearer when they become established.

Mr. Ian Gow (Eastbourne)

Can my right hon. Friend confirm that the great majority of the land and buildings used by Government Departments is used by individual Departments and so his announcement today means that almost all the owners of the Government estate will be at liberty to use the private sector? Secondly, will my right hon. Friend try to accelerate his timetable for setting up the trading fund? Will he acknowledge that many Conservative Members want him to accelerate a programme of full privatisation for the whole of the PSA?

Mr. Ridley

Those Departments with special user directed buildings, such as the courts buildings of the Lord Chancellor, or the buildings solely concerned with agriculture of my right hon. Friend the Minister of Agriculture, Fisheries and Food—those are just examples; there are many more—will pass to the Departments concerned. However, a Government office is unlikely to transfer because it may house one Department for a period and later switch to another Department. As such, that is part of the common user estate. I shall be able to give more details of the precise split between departmental property and the common user estate after more work has been done.

I agree that it would be desirable to accelerate the proposals in the statement as fast as possible, but we have already tried to do that and our accountants, Messrs. Deloittes, have advised us that if we meet the target of 1993 for the trading fund, we shall be doing well. However, a Government of the same colour will still be in place then and will be ready to take the next step.

Dr. Keith Hampson (Leeds, North-West)

Will my right hon. Friend accept that the regional office of the PSA in my constituency welcomes his proposals as being sensible? However, I am sure that the PSA staff would like the reassurance that, if they are to lose their traditional client base, they will be free to win contracts on a new wider client base within the private sector, such as in the nationalised industries, the National Health Service, and so on.

Mr. Ridley

It was on a visit to the regional office in my hon. Friend's constituency, when I discussed this matter a year or two ago with the staff, that I confirmed that this was the right direction for us to go and I am sure that they will feel the same now. The new businesses have a lot of work to do to become established and we should leave matters as they are at the moment. However, if there are invitations and strong pressure for those new businesses to compete in the private sector, that will be a compelling reason for privatising them.

Mr. Robert G. Hughes (Harrow, West)

I welcome my right hon. Friend's statement, but does he agree that there is a possibility that, in the separation into three units, there may be an increase in the arm's length relationship between those placing the order and those doing the work that has been missing for some time? Secondly, may we hope that there will be a better use of resources and property, in particular property going to the MOD? Does my right hon. Friend agree that it would be better to leave people living in such property than to leave it empty?

Mr. Ridley

I believe that the separation will lead to more arm's length relationships and less arm twisting, which I am sure is what my hon. Friend would like. It will help the Ministry of Defence to identify surplus property and make disposals, and to ensure that any empty houses are either occupied or sold. However, the majority of empty MOD houses are far away from distressed areas of housing shortage.

Several Hon. Members

rose——

Mr. Speaker

Order. I appeal for brief questions. It would be helpful if these matters could be raised on the Adjournment.

Mr. David Heathcoat-Amory (Wells)

I welcome this overdue move towards commercial management on a trading fund basis. Will my right hon. Friend elaborate on the third of his new PSA companies, that holding civil land and property? As there is an increasing shortage of commercial sites, particularly in the south of England, will my right hon. Friend oblige the new company to dispose of property wherever possible so that it can achieve its full potential in the market place?

Mr. Ridley

I agree with my hon. Friend, but disposals from the PSA are currently running at £40 million or £50 million per year, which is a remarkable figure. I pay tribute to the agency for the diligence with which it has disposed of surplus Government land and property. There is not much more scope for increasing that figure, and I do not imagine that my hon. Friend would want us to go as far as selling, for example, the freehold of the Treasury.

Mr. Toby Jessel (Twickenham)

Is my right hon. Friend aware that many of my constituents will be heartily relieved if someone moves in to sort out and tighten up on the excesses of the Property Services Agency at Hampton Court palace? Can he say how his policy for improving the administration there will interact with his new proposals?

Mr. Ridley

As my hon. Friend knows, we have already taken steps to establish an agency to manage Hampton Court palace, and those arrangements are going well. That in itself means untying the PSA from being the monopoly building adviser and contractor at Hampton Court palace. In a sense, that decision pre-dates the statement I have just made. In either case, Hampton Court palace will be free to seek the advice, the design and the contracting work which it finds of greatest value for money in what it has to do.

Mr. Chris Butler (Warrington, South)

Can my right hon. Friend tell the House how the management of the British Library project will be affected under the new commercial arrangements he has described? What would happen if the Property Services Agency ran severely over budget in respect of that project?

Mr. Ridley

Contracts already in existence and operating will continue to be managed as at present. That would apply to the British Library. If the Property Services Agency, having bid for the project, fails to make sufficient money to cover its costs and loses money, it will be necessary for it to account to the Treasury. In due course, the Treasury would decide whether or not to make good that which it had lost.

Mr. Richard Holt (Langba urgh)

As a member of the Select Committee on the Environment, I endorse the remarks of my hon. Friend the Member for Hornsey and Wood Green (Sir H. Rossi) and of the hon. Member for Copeland (Dr. Cunningham). When it comes to relocating the three new companies, will my right hon. Friend give serious consideration to making the north of England the area to which they are directed?

Mr. Ridley

I have asked the PSA to consider what scope there is for relocating its operations and staff well in advance of anything that may arise from my statement. That is now being done. I am sure that my hon. Friend does not expect me to suggest any particular locations, but both the PSA and the Government are keen to devolve as many functions and staff as they can to localities where the resultant jobs will be welcome and where houses will not be so expensive.

Mr. Kenneth Hind (Lancashire, West)

I welcome my right hon. Friend's announcement. However, in the past there has been a major problem in dealing with defence property because of the PSA's influence. Will my right hon. Friend confirm that in future it will be easier to dispose of surplus land and houses currently owned by the MOD as a result of the PSA's reorganisation?

Mr. Ridley

It will certainly be no more difficult. The decision whether to dispose of land or property has always been one for the Ministry of Defence, which has always owned its own property. We are now giving it the personnel necessary to manage the estate agent, maintenance and new build functions. I hope that the Ministry will be able to dispose of surplus properties, as my hon. Friend suggests. I believe it will help the Ministry to be itself in control of the estate agent function in identifying and putting on to the market property which it does not need.

Mr. Dalyell

On a point of order, Mr. Speaker. There are eight officials in the Box. The Secretary of State for the Environment has a particularly athletic PPS. I asked a very short question about the cost of Deloittes' report. Could not one of the Minister's officials, through his PPS, have provided the information I sought?

Mr. Speaker

The PPS looks to be in very good shape, but I cannot answer the hon. Gentleman's question.