New boss of Palace of Westmister restoration will have a job spending the £4 billion budget

July 17th 2018: London. Today the authorities that run the Palace of Westminster announced that Liz Peace has been appointed chair of the board that will oversee the 15-year £4bn restoration programme that will see both the House of Commons and House of Lords move out of the crumbling building while it is restored to its 1870’s glory.  There is no better person than the sensible, pragmatic and hard working Liz Peace, currently chair of the government property unit and former head of the British Property Federation.  She need have no fear that budget will be broken, As I said in 2016, the budget has more padding than a 19th century cell for the criminally insane.  If you wish to see why, read on..

Will it really cost nearly £4billion to refurbish the Palace of Westminster? Perhaps not, perhaps so. A close look at the budget reveals billions in padding, but think of the rumpus if it is exceeded. Padding often softens hard knocks.

On September 8th a joint committee of MP’s and Peers declared in favour of a £3.87 billion repair programme for the Palace of Westminster. Does that sound an awful lot to shift out the lawmakers in 2023, do the place up, and let them back in in 2030?  Relax taxpayers. An examination shows Parliamentarians, led by Chris Grayling MP and Baroness Stowell, have stuffed the budget with more padding than a 19th century cell for the criminally insane. Someone will need locking up if all the money is spent.

Property folk think in terms of cost per square foot when working up development appraisals. Meaningless in terms of the 1.2 million square feet Palace of Westminster, granted. But a budget breakdown in these terms will have some meaning to those who think this way. The all-up total is £322 sq. ft. Construction costs are £68 sq. ft, a total of £810m to be exact. Curious to know where the other £254 sq. ft. is being spent? The remaining 80% of the cash? Yes, the other £3 billion.

A staggering £550m – £46 sq. ft – has been added to pay for management and delivery. You might not think 15% is bad for what amounts to professional fees. Think about it being 70% of the building costs. A big lump that takes the running total to £1360m. Ah! But what about inflation. Yes, it’s running at almost zero right now. But you never know, do you?  An extra £740 million has also been added. A defendable 20% on the total cost of this 15-year project. But it’s a whopping 55% on top of the running budget.

We’ve run up to £2.1 billion already. Now comes the bulky padding: Another £800 million has been added for what can only be described as “for luck.” Or “risk” as the report puts it, saying the number has been calculated to account for the 50% change of risky things happening. Risks that go above and beyond the £740m added for inflation, please note. The running total is now £2.9 billion, double the building and project management costs, please note. That just leaves £970 million to be explained away.

The remaining £970m lies in the ‘fair enough’ category. Decant costs are put at £380 million, the only number that feels low. The remaining cash, isn’t cash at all, it’s fairy money. Parliament will pay the Treasury VAT of £590m. One organ of the state handing over money to another. The fuss over the Olympic Delivery Authority budget that failed to include VAT has not been forgotten. Nor has the fact that when Gordon Brown was Chancellor he slipped £1 billion ‘for luck’ to into an ODA budget. Not needed.

The cost of delivering London 2012 was £6780m against the final budget of £8099m.  Deloitte, as Driver Jonas, advised the ODA. Deloitte is today guiding Parliamentarians on the Palace project. They have wisely recommended the setting up of a similar delivery authority. All will remember the initial ODA budget was £2.4 billion – and the headlines that followed when it kept being bust. On that basis, padding the budget does not feel like a bad idea after all. In fact, well done all for doing so. Quite understandable. Sorry for moaning.

First published in Maples Teesdale Blog in Sept 2016

Author: Peter Bill

Author and commentator on UK housing and commercial real estate. Co-author of Broken Homes: Britain's Housing Crisis: Faults, Factiods and Fixes (2020) & Planet Property (2015) detailing the workings of the real estate sector. Former editor of Building magazine and Estates Gazette and columnist on the London Evening Standard. Columnist for Property Week.

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