Examination of Witnesses (Questions 80-99)
WEDNESDAY 15 NOVEMBER 2000
MR ROBIN
YOUNG, MR
M O'CONNOR AND
MR D JAMES
80. Absolutely.
(Mr James) It was a report at that time which was
prepared by the financial arm of the company and which was a financial
arm which I have to say was hugely stretched, still with the problems
of trying to assimilate the completion of the payment for all
the backend development and build. It was a finance department
which I equally say was not short on quality but was very much
short on quantity of people necessary to address a task of this
size at that time.
81. You have been very good about answering
questions so far. You have been very particular in answering all
the questions which have been put to you. There is one of mine
which you have not answered and that is the name of the person
who prepared that draft budget.
(Mr James) The person who would have been responsible
for preparing that[12]
would have been the extremely hard pressed finance director of
the company, Mr Neil Spence, for whom I have a very high regard,
for his dedication and commitment under an extremely difficult
situation.
82. Is not the real reason that NMEC stuck with
such high ticket sales projections to be found on page 20 of this
report in paragraph 2.9, where it says, "By November 1999
the Company had drawn down all but £7 million of the Commission's
£499 million grant and had used up all but £5.7 million
of its cost contingency. The Company was therefore heavily dependent
upon the timely receipt of its forecast income". Is it not
true that had those over-optimistic visitor forecasts been revised
then the Dome would have had to have been declared insolvent even
before it opened?
(Mr James) Yes, it is correct that there would have
been an insolvency situation but it would not have been an insolvency
in default if the board's expectations that they would be provided
with extra grant had not been fulfilled. Their justification was
the dependence upon those future grants they hoped to negotiate.
83. You bring me to the question of insolvency
and now I want to press you here because in September I went on
television and quoted your words about the £47 million grant
and I relied heavily on the public advice you had given at that
time that the reason for pursuing the £47 million grant at
that time was that it would have cost more to have closed the
Dome there and then. I thought that was a very persuasive argument.
Let me ask you this. Are you familiar with the Lotteries Act 1993,
sections 40 and 41 and the Lotteries Act 1998?
(Mr James) No, sir.
84. Let me ask you whether you are aware that
they do not permit funds to be used to pay creditors.
(Mr James) The NMEC company never had anything else
but liabilities relating to creditors. It could never have moved
a day in its whole life without being able to pay creditors out
of grant.
85. From liquidation. When a company is in liquidation
it is my understanding that the Lotteries Acts stipulate that
creditors in a liquidation cannot be paid from lottery money.
(Mr James) I am not surprised to hear that. I would
think that was an absolutely prudent line, but this company was
never in liquidation.
86. In that case though, would you agree that
had the decision been taken in September to close down the Dome
at that point, then in fact the money which would have had to
have been paid out, I have no doubt would have been paid, but
it would not have been lottery money that would have been paid.
I go back to Mr Williams' point that those people who had given
money through the lottery to the good causes would have seen that
money go to the good causes and the Government would have had
to have bailed out the Dome from public funds for the creditors,
if it had chosen so to do.
(Mr James) I believe that your analysis is correct
in the main. I am sure you understand that when I came onto this—forgive
my political naivety but this is my first engagement in the political
field—if you look at the chart on page 36 you will see the
full extent of the liabilities which might have arisen. I took
a view when I came in—it may seem wrong—that I did
not mind where the money was going to come from. I was doing an
assessment of the global loss which would arise. I was very impressed
at certain of these losses. It seemed to me to be extraordinary
for example, if you look at the second line of this chart, that
anybody was going to expect the employees who had given their
commitment to enabling the Dome to trade on, to sustain a loss
of £18 million.
87. I entirely agree with the thrust of what
you are saying.
(Mr James) I could not see how, in terms of solvency,
anybody could decide to make a preference of paying one group
for which they felt sorry, without incurring the liability for
everybody else. I think that is a very important point.
88. Absolutely; a point which I take. Mr Young,
I take it that unlike Mr James you do not plead ignorance of the
Lotteries Act 1993, sections 40 and 41 or the Lotteries Act 1998.
(Mr Young) No.
89. You were therefore aware in September of
this year that had the Dome gone into liquidation at that point,
no further lottery funds would have been used in order to bail
out creditors.
(Mr Young) Yes, that is right.
90. So the argument which was put forward from
the Department of which you were the Permanent Secretary at the
time, that it would have cost more to have closed it than to have
continued it, was actually an obfuscation, was it not?
(Mr Young) No, it was correct. I am sorry, I am missing
something here.
91. It is correct, as Mr James has just outlined,
that it would have cost more money to close than to continue.
(Mr Young) Yes.
92. The obfuscation that I refer to lies in
the point that the money would not have been from the lottery
funds, it would not have been the money which should have gone
and that the public wishes to see go to good causes, it would
have had to have been the Government which bailed it out through
revenue.
(Mr Young) I think that is probably right.
93. Why was that not made clear at the time.
(Mr Young) Because it was not relevant. The decision
that we were taking, on which I was advising the Secretary of
State, was as to whether it was value for money in September to
produce the extra grant. For that to happen, I had to repeat the
calculation which I did in May, with which I replied to Mr Rendel's
questions. By looking in the light of the Pricewaterhouse calculations
of the costs in toto, not distinguishing between them,
of a £47 million grant from the Commission to the company
and then the totality of the liabilities which would fall from
closure, had closure been allowed to happen, we would need to
distinguish between various sorts of liabilities and follow you
down the road as to who could pay for them and who could not.
That was for me at that time irrelevant. I was looking at the
total cost of closure, versus the £47 million grant applied
for. I think that what you said on television in September was
right.
Mr Burns
94. I do not want to repeat questions that colleagues
have already asked but I should like to return during the course
of my time to one or two questions on visitor numbers. May I just
start by saying that this country does not have a long tradition
and history of Government involvement in building some prestige
event to attract members of the public to pay their money to attend.
The Great Exhibition does come to mind, the Festival of Britain
and the Dome; they are the three which probably most people can
easily identify. The other two, both on attendance numbers, on
interest from the public and finances, seem to have done reasonably
well: the Great Exhibition funding all the great museums in South
Kensington. Would you agree, as I assume you will, that to have
a successful event or whatever you want to call it of this nature,
two things are crucial before they ever open their doors: one
is proper and careful preparation of everything from the building
through to the contents and what is on offer; two, a clear and
precise vision and menu of what the event is offering for people
to make it attractive to people to come.
(Mr James) I would agree.
95. On that assumption I shall now continue.
Do you think that prior to the Dome opening its doors, and particularly
in the early days, enough work was done on market research and
professional advice to identify the way forward and what actually
the Dome was going to be there for, apart from something to commemorate
and celebrate the millennium?
(Mr James) I am very strongly impressed from my own
research into this that this was an exhibition designed to fit
into a building which had been designed rather than a building
designed to house an exhibition which had been conceived.
96. Right. That possibly suggests not enough
preparatory work was done because surely you design a building
to take what is on offer rather than work out what is on offer
and jam it into a building willy-nilly of what actually is on
offer.
(Mr James) I do not think it was jammed willy-nilly
in. There was a broad concept and there was a very great determination
as to what the exhibition should portray. The detail of it was
the subject of a great deal of experimental work, experimental
design, which ate into the time available for the build and which
did tend to cause the bunchup at the end with the rush to get
completion through on time.
97. When you say a lot of experimental ideas,
who dreamt this up? Was there any proper market research actually
going out and maybe even in a more informal way to find out what
people might actually want and what they might then want to spend
their money to go to see?
(Mr James) I am not aware of any, but that does not
mean there was none. I am not aware of any that I have found.
98. Do you not feel, given your experience with
the whole thing, that you would have been aware of it if it had
happened and you are tactfully trying to say that you do not think
it happened?
(Mr James) A very influential group of people were
put together to advise.
99. I am coming to that because that worries
me even more. When anyone says "a very influential group
of people", just as the expression "the Great and the
Good", it worries me considerably. I shall get onto that
when I come onto the contents. I want to keep more to the numbers.
May I just pick up one or two things on numbers? First of all,
what I should like to know is whether any market research was
carried out before the Dome opened its doors on the sort of numbers
which might be attracted to the Dome during the course of the
year?
(Mr James) A rolling process was carried forward and
this was quite substantial and was continued through to the first
half of this year.
12 Note by Witness: The draft budget was prepared
by the Finance Director after discussion with all the Executive
and operational directors. The budget originally included three
cash-flow alternatives to demonstrate the different phasing that
might result from the assumed levels of ticket sales and commercial
income; the resultant range of additional working capital was
between zero and £50 million. It was on the basis of these
forecasts that the then Accounting Officer informed the Board
and the Shareholders that there was a potential need for additional
working capital in the first four months of 2000 (para 2.14 of
the NAO report). Q79, and pursued in Q81, refers to the scenario
that included a zero additional working capital requirement. All
three cash-flows were considered by the Sub-Committee established
by the Board in November 1999. Back
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