Ministries negotiating or renewing leases on offices will have to agree a 25 per cent discount on the market rate under coalition plans to cut the cost of the Whitehall estate, according to a letter leaked to FT Westminster. The tough move comes as ministers weigh up a radical plan to create a new financial vehicle to control billions of pounds worth of government-owned buildings in London.
Francis Maude, minister for the Cabinet Office, has written to Danny Alexander, chief secretary to the Treasury, laying out plans to drive out fresh savings from landlords “through harder negotiation”.
The government owns much of its vast estate but also rents huge amounts of space from commercial landlords. Three months ago, the coalition announced a moratorium on ministries signing new property contracts with landlords without central approval.
The new letter, sent to all cabinet ministers last Wednesday, calls for a strengthening of this moratorium. It allows departments to sign new leases but only where they can demonstrate that the deal is 25 per cent cheaper than the market rate. It raises the possibility of court action to determine the true market rate on a property. Likewise they will only be able to renew existing ones if they can agree a 25 per cent cut in the rent paid.
The order will prompt concern among those commercial landlords whose estates include large numbers of government tenants. One said last night: “This could have big ramifications. They can say what they like but it will go to court to get the rent determined ultimately.”
The Cabinet Office said it never commented on leaked documents. But it said it was committed to cutting waste and “unnecessary costs” from central government spending.
Ministers are separately drawing up plans for a shake-up of government-owned properties in London, to be announced around the time of the CSR later this month. John McCready, head of property at the Shareholder Executive, is understood to be overseeing plans to overhaul the asset management of the estate to lower costs. One aspect of this could see the creation of a new vehicle to control all state-owned properties in London, according to several sources in the property industry.
This would have the authority to manage the entire estate and impose centralised control over departments’ property decisions, potentially cutting the cost of government buildings. The business department (BIS) last night confirmed it was looking at using property vehicles as part of a shake-up of real estate costs.
Meanwhile, Sir Philip Green, the retail tycoon known for his cost-cutting skills, is also looking at finding property savings as part of the efficiency review he is conducting for Mr Maude – the results of which will be published on Monday. He was explicitly asked to assess whether leases and contracts entered into since 2007 offer value for money when he was appointed to conduct the review in August.
It is understood that some freeholds may be sold to raise upfront money for the government. However, sale and leasebacks are a more expensive way to raise money than through the gilt market at present, making this a less viable option on a large scale.