Examination of Witnesses (Questions 160
WEDNESDAY 31 JANUARY 2001
160. I want to turn briefly to page 3, paragraph
7 and come back to the point about the operating specification.
You said that it was not part of the requirements of a PFI deal
that this sort of thing at that time should be specified before
the contract was signed. It may not have been part of what was
required for PFI but what possible advantage did it bring to the
Armouries to wait until after the contract was in place and the
thing was up and running before that specification was put in
(Mr Young) My two colleagues will help
because they were involved in the discussions, but my understanding
is that it was not a question of advantage or disadvantage, it
was just that this was the first such deal and the first such
sharing of responsibilities in a project like this and they did
not know what to put in the operating agreement. That is my understanding.
It was not a Machiavellian decision on either side, it was literally
that they did not know what to put in. Once the thing was opened,
RAI were in financial difficulties and would not agree.
161. Surely it must have been clear to you,
Mr Wilson, that even if you did know exactly what it ought to
be, to have something in there would give you a negotiating advantage
afterwards which you could use. If later on it turned out that
a slightly different way of running the thing would be better
and to both sides' advantage, you could always change it. To miss
out entirely was surely to throw away one of your cards.
(Mr Wilson) Although at the time we thought
we were doing the right and sensible thing, we accept the criticism
from NAO and yes, they should have been put in place. The reasons
are given in the report correctly in paragraph 1.29. Our joint
understanding of the operating specifications and what they were
there for is different perhaps to yours. They were not intended
to have legal force and therefore make it easier for either partner
to determine an agreement or whatever. They were there as aids
to good management. As aids to good management they should have
been codified, I agree. The advice we have had from our lawyers
is that we, the Royal Armouries, would not have been in a substantially
stronger position regarding anything like material breach with
the operating specifications than without them. What we did was
have an operating committee which met many times and Mr O'Boyle
and I sat on that with the Chairman of Royal Armouries (International)
and we discussed all these issues. We agreed on the details of
how the museum would be managed. We established things like a
security committee which met and agreed the amounts and levels
of security and types of security that the museum should have
between the signing and the opening. The intention was to codify
that as required by the agreement after opening once we had some
experience of running it and once we had made the necessary alterations.
Sadly that did not happen and I do accept it should have happened
162. One final question which I hope will receive
a one-word answer to both parts. Is the support group still in
place and how often do you meet them?
(Mr Wilson) The Royal Armouries Association
at Leeds which was spawned by the support group is and they meet
163. With you?
(Mr Wilson) Yes, with a member of our
164. I also wanted to ask you why the numbers
were so wrong in the first place, but I am sure you will say you
have answered that many times. You surely do not have to be a
rocket scientist to realise that they were over-optimistic given
the location. I only live an hour and a half from Leeds in Lincolnshire,
an hour and a half drive away, but it is not a tourist centre,
is it, as you yourself said? To what extent was the location of
the new site determined by political factors, in other words that
it was in the north of England?
(Mr Young) The first decision was that
it had to be moved out of London and out of the Tower of London.
165. Why did it have to be moved out of London?
(Mr Young) The decision was that they
needed to vacate bits of the Tower of London which they were in
so that it could be used
166. Why did they have to move out of London?
(Mr Young) The then Government took the
decision that it had to move out of London.
(Mr Young) To have a bit of the national
museum not in London. There was a mood at the time that too many
national museums and galleries were in London and that more should
have been moved out. That was the in-principle decision taken.
Various locations, Leeds, Manchester, Liverpool, were looked at
and Leeds was chosen, partly because of the keenness of the city
council and the then development corporation to back it.
168. Leeds is a very fine place, a wonderful
place, a wonderful place to live, make money, but it is not a
tourist location. For the bulk of the population of this country
it is not easy to get to. To me it is a daft decision to put it
in Leeds. That is no criticism of Leeds.
(Mr O'Boyle) The catchment population
within two hours of Leeds is greater than London's equivalent.
169. Really? Right; the catchment population.
I know it is on a far smaller scale, but we have the National
Fish Museum in Grimsby, which is having appalling problems located
there, making a huge loss. I am sure you will tell me there is
a vast catchment area: Scunthorpe, Hull. With London at least
all the railway lines go towards London, the roads, it is a tourist
centre. I understand this thing about the catchment population
but people go once. How are you going to get people to go back
again. Local people go once and that is it. You do not have a
great moving population moving through your catchment area, do
you, as you have in London?
(Mr O'Boyle) You are absolutely right.
The tourist component is missing when you are off the beaten track
and that is a major factor in visitor numbers and the propensity
to visit. What we have also found is that we did suffer with some
very, very negative press coverage, indeed after the tragic events
of Dunblane the Queen made her speech from the museum when she
opened it. That really was a terrible event. We also had very
negative press coverage. These are not excuses, they are just
170. So you are reliant on that catchment area,
are you not?
(Mr O'Boyle) Yes, we are.
171. Just remind me, how many tourists visit
London every year compared with Leeds? Do you happen to know?
(Mr Young) Millions more.
172. May I go back to my original question because
I am not sure you answered it? Because this was in the north of
England did this mean that visitor numbers were not questioned
as rigorously as they might have been?
(Mr Young) I do not think so. We have
successful museums and galleries in Manchester, Liverpool, Cornwall.
It is not the case that successive Governments have had the policy
that all national museums and galleries should be in London for
very obvious reasons. The idea is that there should be access
to the national collections in many parts of the country. It was
thought a positive strength of this move that there should be
access. People who live in London can already go to the Tower
of London and other national museums and galleries in London where
most of them are. It was thought to be a positive strength of
this proposition to move something out of London and Leeds was
173. So the answer is that visitor numbers were
questioned as rigorously as they would have been in London. There
were no political considerations here.
(Mr Young) The political decision I have
described is the desirability to move
174. I know it is a political decision in the
first place, but are you denying the fact that visitor numbers
were not questioned as rigorously as they might have been because
it was politically attractive for it to go to the north of England?
(Mr Young) The visitor numbers and their
assumptions were made by the private sector company. I repeat,
this was not a Government decision about how many visitor numbers
or what projections to believe. We went to the marketplace and
the company took its view on the visitor projections. It was emphatically
not a political decision.
(Mr O'Boyle) We have seen a significant
growth in the educational visits over the period since opening:
36,000 schoolchildren came in 1999. That is a major component
of the museum profile. In terms of overseas tourists into the
Leeds region, 1.3 million per year is the figure that the consultants
have told us as opposed to London which must be at least ten times
175. How much risk was actually transferred
to the RAI? Would they have been aware that the Department was
very unwilling to let the museum close, that for instance the
Department considered the museum's closure was unacceptable for
a number of reasons, the loss, in its opinion, of a national museum
in the north of England, the first public failure of a PFI project
and the negative impact of the client stock development scheme?
Was the Department in truth very unwilling to let the museum close
and RAI knew this?
(Mr Young) The new PFI guidance would
have forced us to face that question at the start of the project.
What happened in 1993 was that we went out just with the express
intention of maximising private sector risk and maximising private
sector contribution, so we did not have to answer that question.
PFI guidance would oblige us to face exactly that and to put the
risk where it should properly lie. If it was indeed the case,
and I do not know whether it was in 1993, that the Government
would have admitted that they did not want the thing to close
and would have had to consider the public sector stepping in,
then that should have been stated and discussed at the time of
the PFI project starting. In this case we went ahead on the explicit
assumption that what we were after was maximising private sector
176. I am not sure you have answered me, but
I shall try again. How much risk was actually transferred to the
RAI? Would they have been aware that the Department was very unwilling
to let the museum close? The answer to that must be yes.
(Mr Young) I do not think they were.
They have £21 million of debt, which they have to pay off
over 30 yearsat least Mr O'Boyle has given his best estimate
as 30 years for that. They are getting nothing from it, they have
lost all their investment, they do not have a single return and
they have 30 years to wait for anything, if they get that then.
They not only paid for one third of the capital costs of this
but they got saddled with £21 million of debt which they
are struggling to repay over 30 years. The idea that we are bailing
out the company would not be recognised by the company shareholders.
177. Why was RAI allowed to escape so lightly
in the new deal which was struck and keep all the profitable parts
while the public sector is left with a loss-making museum?
(Mr Young) What we have tried to do is
follow the PFI guidance now in place and re-balance the allocation
of risk between the private and public sectors. The mistake here
was to put too much of the risk, intentionally, on the private
sector and produce an unsustainable project because, as it turns
out, the private sector, the company, would have gone into liquidation.
This was an unsustainable project and that is not the objective
of the thing. The objective is to have a sustainable museum of
world class quality in Leeds.
178. But they were allowed to escape lightly,
were they not?
(Mr Young) In my view RAI did not escape
in the slightest bit lightly, unless you think that getting no
return for 30 years and being £21 million in debt is.
179. They did not go bust, did they?
(Mr Young) No, but I would argue that
their investors do not feel comfortable with their investment.