Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 80-99)



  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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