| HMSO'S EVIDENCE ON THE COSTS TO THE TAXPAYER
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| Qs 16-22, 58, 76 and 120
| 44. Our predecessors asked HMSO about the impact on the taxpayer of their deals in Uzbekistan. HMSO believed that, if their new contract were honoured, there would be no loss to public funds, provided that they retained the goodwill and co-operation of Uztoshkitob and the Government of Uzbekistan. They stood to receive less than the £6.5 million sales value of the original contract but would more than recover their costs. They could not give a precise figure for the money they now expected to receive, because they had not yet decided what to do with the consignment still at Felixstowe. They were unwilling to disclose the profit margin they now expected to get because they were in commercial negotiations.
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| Qs 126 and 131
| 45. At the time our predecessors took evidence in June 1996, however, HMSO accepted that they had paid out more than they had received. Their stocks had a value of over £3 million which would, they said, be realised over the course of the year.
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| Evidence (5.3.97) p 1
| 46. HMSO subsequently reported that, during the privatisation process, all bidders had been made aware of the details of HMSO's trading with Uzbekistan, the payments received, stocks in the UK and abroad, the contract terms, and potential receipts. The successful bidder took over The Stationery Office Ltd as a going concern including all the stocks and debtors of the business.
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Qs 228-232 Evidence (10.6.96) p 23
Appendix 1
| 47. Our predecessors asked HMSO about the extra costs they had incurred in putting the deal right. They said that their overhead costs, including professional services, amounted to £348,000. But they found it difficult to say how much of this they might have paid anyway. Had they, at the outset, employed international lawyers, and a consultant who knew the area, they would not have got into the mess that they did.
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Supplementary Memorandum, Evidence (5.3.97) p 3 paras 14, 16 and 17
Q 281
| 48. HMSO subsequently estimated that their total costs under the contract, including procurement, transport, overhead and storage costs, amounted to £4.8 million by 30 September 1996. After deducting receipts of £1.6 million, this left a shortfall on the deal at that date of £3.2 million. On HMSO's privatisation on 30 September 1996, the Uzbekistan stocks, contract and potential receipts were transferred to the new owner as part of the price paid for the business. They were not the subject of a separate consideration. After privatisation, all remaining proceeds from the Uzbekistan contract, including any recoveries of debts outstanding at 30 September 1996 from Uztoshkitob and D&P Uzgroup, accrued to the new owner. Uztoshkitob now have a wholesale licence and authority to convert Uzbek Som to a maximum $50,000 a month.
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Q 285
Qs 284, 309, 344 and 348
| 49. The Uzbekistan stocks had been written down by £3 million in HMSO's 1995 accounts. Our predecessors asked Mr Lynn whether any prudent purchaser of HMSO would have placed any value on these stocks. Mr Lynn said that he was not a party to the negotiations and did not know what sum was envisaged. But he did not think that it could be taken for granted that the potential purchasers would have totally discounted the value of the Uzbekistan stocks. In June 1996 he had told potential bidders the same story that he had told the Committee: that there was the prospect of a continuing income from these stocks.
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| Supplementary Memorandum, Evidence (5.3.97) p 3, para 17
| 50. If the sum attributed to the Uzbekistan assets exceeded the receipts from the Uzbekistan deal accruing to the new owners, the taxpayers will have gained, as against what the position would have been, had HMSO remained in the public sector. But any such gain may not have been enough to wipe out the £3.2 million shortfall as at 30 September 1996. Had the reverse position obtained, the taxpayer would have made a loss on that part of the deal and have had no gain to offset against the above shortfall.
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| Qs 16-22, 58, 120, 131 and 132
| 51. At the hearing on 10 June 1996 Mr Lynn presented a very optimistic picture of the prospects for future sales under the new contract. He said that receipts would more than cover costs. He also said that if the new contract were honoured-and he believed it would be-there would be no loss to public funds. However, Mr Lynn's predictions proved to be inaccurate. As noted above, at the time of HMSO's privatisation on 30 September 1996, sales under the new contract amounted to only £0.2 million, no monies had been received and there was a shortfall on the Uzbekistan deal of £3.2 million.
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| Qs 244, 275, 276 and 341
| 52. Mr Lynn acknowledged that the predictions he had made to the previous Committee in June 1996 had proved wrong. But he denied that he had deliberately misled the Committee and Parliament. The assessment he had made was unduly optimistic but it was what he had genuinely believed at the time.
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Evidence (5.3.97) p 1
Supplementary Memorandum, Evidence (5.3.97) p 2, paras 2-3
Qs 245-246
| 53. In October 1996 the HMSO residual body submitted a note to the previous Committee, based on information supplied by Mr Lynn, in response to their request for an update on the Uzbekistan contract. However, the note did not provide the full range of information requested in the Clerk's letter of 29 July 1996 to Mr Lynn, who was then Controller and Chief Executive of HMSO: it did not set out the progress on the sale of each consignment, the costs incurred and the estimated net profit or loss to public funds.
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| 54. Our predecessors asked Mr Lynn why he had not taken the opportunity provided by the note of 10 October 1996 to correct the forecasts he had made in June 1996 and to give the Committee a more reasonable assessment of the situation. Mr Lynn apologised for the brevity of the note. He said that privatisation had just occurred and this had introduced a discontinuity into the proceedings.
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| Conclusions |
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| 55. We note HMSO's assurance that, if transactions had gone as planned, there would have been no loss to the taxpayer. This is no doubt the case. However in the event there was a shortfall on the deal at 30 September 1996 of £3.2 million; and we note that, on HMSO's privatisation on 30 September 1996, the Uzbekistan stocks, contract and potential receipts were transferred to the new owner as part of the price paid for the business.
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| 56. We think it unlikely that the purchaser of HMSO would have placed much, if any, value on the contract with Uzbekistan: it had run into difficulties, the assets had been written down in HMSO's accounts for 1995 and a new, less advantageous, contract had been negotiated. As the time of HMSO's privatisation approached, it would have been apparent to the purchaser that the new contract too had run into problems. It is therefore difficult to reach any other conclusion than that the taxpayer is likely to have lost a substantial sum, perhaps as much as £3.2 million. We consider this to be a deeply unsatisfactory outcome to a mishandled project.
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| 57. We also feel it necessary to comment on worrying inconsistencies between what HMSO said to our predecessors about sales and costs and what subsequently happened. On 10 June 1996 the Accounting Officer expressed his belief that the value of the unsold stocks would be realised by the end of the year and more than cover HMSO's costs. However, by 30 September 1996, well under 10 per cent of the stocks by value had been sold; and costs had exceeded income by £3.2 million.
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| 58. We accept that assessments of future events are inherently uncertain, but we are concerned that the evidence of Mr Lynn, the Accounting Officer, was so wide of the mark. We consider it a very serious matter that the previous Committee and Parliament were misled in this way. We note the Accounting Officer's explanation that he did not deliberately set out to mislead our predecessors but had been too optimistic about what could be achieved under the new contract. This may be so but, if it is, it is particularly unfortunate that Mr Lynn did not take the opportunity, in the HMSO residual body's note of 10 October 1996, to correct his earlier optimism.
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| 59. We do not regard the memorandum that the HMSO residual body provided to our predecessors on 10 October 1996 as constituting an adequate response to their questions about the latest state of HMSO's trade in Uzbekistan, which were set out in the Clerk's letter of 29 July to the Controller and Chief Executive of HMSO. It did not set out as requested the progress on the sale of each consignment, the costs incurred and the estimated net profit or loss to public funds at 30 September 1996. And we are disturbed that the HMSO residual body's note did not make it clear that the forecasts Mr Lynn had made on 10 June 1996 had proved to be inaccurate.
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| 60. We stress the need for all witnesses to give full and accurate replies to our questions, whether oral or written; and regard anything less as inconsistent with the requirement for full accountability to Parliament. We do not consider that Mr Lynn provided full and accurate information about significant matters for which he was accountable.
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