Britain’s top tax officials are being sharply criticised by the National Audit office (NAO) for a property deal with a company based in the tax haven of Bermuda.
Her Majesty’s Revenue & Customs (HMRC) thought that the deal with Mapeley, the property group, would save it £1.2 billion in maintenance and other costs.
Instead, these will be barely £900 million and the benefits of the deal could fall to £650 million, almost half what had been expected when contracts were exchanged eight years ago.
The NAO says that there is now a “significant risk” that the contract will not deliver value for money over the rest of its life.
The NAO will say today that HMRC had no long-term plan regarding the sale, known as Steps — strategic transfer of the estate to the private sector. The deal was structured so that HMRC transferred ownership and responsibility for its 591 UK properties to Mapeley in return for an upfront cash payment of £220 million plus £150 million in the form of discounted service prices for managing the buildings for 20 years.
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The transfer deal became particularly controversial after it emerged that HMRC did not realise that Mapeley, was registered offshore in Bermuda.
Amyas Morse, head of the National Audit Office, said: “This major contract has been significantly affected, for the contractor Mapeley in particular, by the current economic climate. Mapeley benefited when the property market was expanding, but the economic downturn has made the contract more onerous. HMRC must take a significantly more astute commercial approach if it is to deliver value for money for the taxpayer.”
The report also criticises HMRC for reacting to problems as they arise and for not having full visibility of all the gains and losses that Mapeley has made from the contract.
The NAO says that the contract secured by HMRC was competitive, but that there were big risks involved and it required careful management. In a damning indictment, the spending watchdog says that HMRC had not recognised the contract as a major strategic asset and had not committed commercial skills to managing it.
“What started poorly has shown no sign of improving. A central plank of the deal was to enable the two departments [now the single entity that is HMRC] to vacate properties when no longer needed and save the taxpayer money,” Edward Leigh, chairman of the Public Accounts Committee, said.
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“Only now has HMRC finally drawn a plan together, under which it hopes to vacate a large number of buildings by 2011.” Mr Leigh, who called the Steps transfer an “extraordinary” deal, continued: “Value for money for the remainder of the contract will remain just as elusive unless HMRC takes a lot more commercial approach to its contract, gets a clearer understanding of the contractor’s financial position and agrees with the latter a way forward.”
Nick Friedlos, the chief executive of Mapeley, questioned the interpretation of the contract by the NAO.
A key plank of the contract was to allow HMRC to vacate offices without charge or penalty. However, the NAO says that the Government department did not take full advantage of this facility in the first years of the contract.
“They have made almost £1 billion of savings, which is considerable and they are using more of their allowance to vacate space now,” Mr Friedlos said.
The NAO also raised the possible risk of Mapely defaulting on the contract, which it said was considerably higher because of the recession and the fall in property values. If it did default, HMRC could incur significant one-off and ongoing costs.
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Mr Friedlos said that the risk of default was remote and that Mapeley had been moderately successful in reletting former HMRC properties — letting 200,000 sq ft of space this year — despite the economic difficulties.