Examination of Witnesses (Questions 420
- 439)
THURSDAY 23 MAY 2002
THE RT
HON TESSA
JOWELL, MP, THE
RT HON
RICHARD CABORN,
MP, MS SUE
STREET AND
MS PHILIPPA
DREW
420. I do not disagree that progress clearly
has been made and we hope the project will be successful but,
with respect, I am not sure that answers my question. Two years
before the machine moves into action, one set of bankers has already
abandoned the project. It is quite clear from the evidence we
have heard from the FA, from Tropus and from Sport England that
there were serious alarm bells and it seems that the project was
allowed to drift until the banks withdrew. The kernel of my probing
is how does the department gather that information and how does
it deal with it because it seems that Sport England certainly
did not deal with it.
(Tessa Jowell) I have acknowledged and agreed with
the chief executive of Sport England that there were deficiencies
and weaknesses in Sport England's oversight of the Lottery agreement.
I think it is important to remember that, at that point, that
was the principal reason for government involvement or government
concern about the project, to safeguard the Lottery grant which
had already been made. I have acknowledged that there were deficiencies
in that process. I have set out in a preliminary way the way in
which we intend to address those deficiencies in the future and
the remedial steps that we took once the gravity of the David
James allegations became clear: informing the National Audit Office
and seeking advice, requiring disclosure of the James report to
the banks, insisting on improvement in the corporate governance
arrangements and clarification both in relation to value for money
and the position in relation to athletics.
421. The legacy from all of this is what appears
to be a very inflated price for Wembley. I can only go on press
reports but they are talking of in excess of £700 million.
I was with an architect who works for Herzog Nomura who designed
the Tate. They are involved in building a new stadium for Bayern
Munich which will be one of the key centres for the German world
cup competition in 2006, a 65,000 seater stadium costing £155
million. We have bought the ground. We have not even cleared the
ground and we are in that sort of territory already. Why is it
we cannot do these projects properly?
(Tessa Jowell) With respect, you say "we".
This is the FA's choice. This is the FA's project and as long
as they can fund it they can build a stadium at whatever cost
they choose. Patrick Carter went through the option of a cheaper
stadium with them. They rejected that option and decided that
they wanted to stay with the modified Foster design. This has
not increased the share of public money to go into non-stadium
costs. We are not, as a government, funding the stadium; we are
funding the non-stadium infrastructure. It is an expensive stadium
but it is the FA's choice and they will bear the full financial
risk. WNSL will bear the full financial risk, so they are free
to make that choice.
Mr Doran: The shambles has cost us the
world athletics championship for 2005 and a huge amount of national
embarrassment.
Chairman
422. You say it is the FA's project but it is
the FA's project on which they have already spent £106 million
of public money on land which at best is assessed to be worth
just over half that. They have flung away £40 million of
public money. Some people say that the land may be worth only
£30 million, in which case they have flung away nearly £90
million of public money, so it is not only the FA's project, is
it?
(Tessa Jowell) I am not seeking to defend the terms
of the award of the original Lottery grant.
Michael Fabricant
423. I am pleased you said that because although
you operate at arm's length the Department of Culture, Media and
Sport is ultimately the custodian of public money and that has
to be accepted by the department. The department does have that
responsibility. Just for the avoidance of any doubt, we all hope
that this project will go ahead despite everything but can you
confirm quite categorically that there will be no more public
funds, neither Lottery money nor section 106 moneys, being made
available to WNSL or indeed Sport England or any other organisation
if they were to come to you and ask. It is the £120 million
plus the £20 million 106 money; no more additional funds
to be made available. Can you confirm that?
(Tessa Jowell) There will also be, as I have already
made clear, £21 million from the London Development Agency
but beyond the money which is already committed and is in the
public domain there will be no further public money for this project.
424. Thank you for confirming that, Secretary
of State. You will be aware of the developments that happened
on Tuesday. Almost by accident, the Football Association and Sport
England revealed to us that in order to protect the £120
million in the worst case scenario the money would be repaid through
a staging agreement whereby for 20 years there would be football
events going on at Wembley which would generate a revenue stream
that would enable them to repay the £120 million. Were you
aware of this agreement?
(Tessa Jowell) I was aware that this staging agreement
formed part of the terms of the Lottery agreement and also if
you refer to your Committee's papers of January 2000 you will
discover that the Committee were also aware of this.
425. We have seen the papers and I have made
a point of looking at them but they explicitly did not talk about
using the old Wembley Stadium. That was not available to the Committee.
This was all new information that came out on Tuesday so again
I ask you: were you aware of that before Tuesday?
(Tessa Jowell) I certainly was aware of the staging
agreement. However, it is important to set this in context. The
staging agreement is an element of the Lottery agreement. I have
already made clear to the Chairman that changes to the Lottery
agreement will be necessary if and when the deal that the FA are
currently negotiating goes to close. The staging agreement was
entered into as an agreement between the FA and Sport England
as a guarantee for the return of the 120 million in the event
that the project did not proceed, in the absence of a parent company
guarantee, which as I understand it were unable or unwilling to
provide.
426. You are right to say unwilling rather than
unable. Their turnover last year was £170 million and the
Football Association is able to return the money. That is why
they set up a shell company, WNSL Limited, to protect them from
that.
(Tessa Jowell) They were unwilling to provide a parent
company guarantee. The staging agreement also was an agreement
that was reached before Wembley Stadium was closed. Wembley Stadium
has now been closed for two years. If you refer to Patrick Carter's
report, you will see that he includes an estimate for the likely
costs of reopening Wembley Stadium. I think he gives a figure
of about £40 million. He then judges that that would allow
the stadium to open for five years after which substantial refurbishment
would be needed. I will have to be careful in what I say here.
427. You will!
(Tessa Jowell) You will make sure I am. This is an
agreement between the FA and Sport England. In practical terms,
at a point where there is now moss growing on the walls and grass
growing up between the seats, does anybody seriously think that
this will be the route by which the Lottery money would in practice
be returned; rather than Sport England making an immediate claim
on the £40 million which would be the cost of reopening Wembley
and the subsequent costs that would be involved in making it anywhere
that any football fan, however ardent, would want to spend an
afternoon? That is the history and I think it has to be seen in
the context of the events since the staging agreement was reached.
428. You asked does anybody believe that. David
Moffett, the chief executive of Sport England does because in
the context of this revelation that the existing Wembley Stadium
would have to be used in order to generate the £120 million,
the Chairman and Frank Doran have already pointed out that the
land is only worth, at best estimates, about £50 million
and most people would say it was worth only about £30 million.
He himself said in that very context, "Birmingham looks extremely
remote for that specific reason." He feels that that is the
only way that they can generate that £120 million as long
as the Football Association continue with their emphatic claim
that they are not responsible. Were you ever aware of that?
(Tessa Jowell) I was aware that there was a staging
agreement. I was also well aware that the existence of the staging
agreement as one of the terms of the Lottery agreement did not
preclude the consideration of Birmingham as an option should Wembley
fail. I think the chief executive of the Football Association
to whom I spoke yesterday about this matter confirms that the
position in relation to the FA now is as it was in December when
they made clear that, should Wembley fail, Birmingham would remain
an option to consider, subject to all the obstacles and difficulties
that would have to be considered that he set out in his memorandum
to you. In relation to David Moffett's evidence, of course he
has to defend the staging agreement. It is a contract to which
he is party.
Alan Keen
429. I am disputing the figure of 120 million.
In answer to a question to WNSL on Tuesday, they said they had
made £14 million profit after the purchase of the stadium.
If they made 14 million profit since the purchase of the stadium,
they must have had a gross income reduced to 14 million by various
expenses. Had they not been given 120 million to buy the stadium
they would have had to pay rent for the stadium out of the 14
million of five, six or seven million and provided sports facilities
for other people. In making that calculation, Sport England could
have done one of two things. It could have said, "We will
give you 120 million but we know you are going to make a profit
over the next period and that profit is going to be enhanced by
you not having to pay rent for the stadium. Therefore, we want
the rental back, five million", or they could have said,
"We will give you 125 million because we gave you 120 million
in cash and you are going to gain five million by not having to
pay rent for the stadium." Was that calculation taken knowingly
by anyone?
(Tessa Jowell) I cannot answer that question. I would
direct the question to Sport England. The fact that the stadium
was closed and that clearly contributed to the reduction in the
value of the site is precisely the kind of circumstance that I
would hope more rigorous assessment of the risks associated with
the grant would take into account.
430. I also asked the question about the six
months since Wembley closed but it is 18 months. If they could
make 14 million profit from the purchase of the stadium when it
was closed, why has it been closed for 18 months, because presumably
they have had to pay rent to the Millennium Stadium at Cardiff.
What I am disputing is that it is not 120 million. Sport England
could have given less than £120 million and got some money
back.
(Tessa Jowell) There is probably also a loss of income
of around £28 million as a result of the closure of the stadium
but I am sure you will understand I cannot really give you an
answer to that.
431. I wondered whether you had thought it through
that way. Did Sport England have a say in when the stadium was
closed? It is public money and if the stadium had stayed open
longer that would have made a difference to the amount of money
that is needed at the moment.
(Tessa Jowell) I also understand that Sport England
were not consulted about the closure of the stadium.
Derek Wyatt
432. I hope Wembley gets built as fast as possible,
but I would ask for information. How many meetings did the former
Sports Minister have with Sport England to specifically talk about
Wembley? I wonder if you could put that in the public domain?
(Tessa Jowell) I would be happy to accept any request
for further information of any kind from the Committee in the
normal way.
433. It is clear that we are pretty unhappy
about some of the workings of Sport England and yet the chief
executive left his job, depending on what you believe, with between
£200,000 and £500,000 of a redundancy and pension package.
He seems to me to be one of the most culpable in all this. I want
to better understand why he could leave with that money when so
much seems to have come to his door.
(Mr Caborn) It was with the agreement with Sport England.
He was paid up to the end of his contract and there was an extra
valuation given to his pension which had been given to a number
of employees in a similar way in Sport England which I answered
in a parliamentary question. That was the procedure they adopted
for other employees. Exactly the same formula was used. I think
his contract was £150,000 and the rest was added valuation
to his pension up to the norm, which was 75.
434. I understand that but if there is culpability
of Sport England, we have already paid off the chief executive
rather handsomely and it seems to me a back to front situation.
(Mr Caborn) Has the case been proven on culpability?
At the time the chief executive left Sport England that was not
the case.
435. We asked Tropus - they claim on their website
that they are involved with 15 major projects, although I think
they only currently have two up and running—how you buy
property and how you previously acquire land and they said something
to the effect that it was quite extraordinary to buy up front
at 100 per cent of the price. Normally, you would pay a third,
a third and a third or varieties thereof. If it is extraordinary,
why did we give them all the money if it is normal practice of
a third, a third and a third?
(Tessa Jowell) I know you have had submissions which
show in what stages the grant was received by WNSL. The way in
which the grant was received is again the responsibility of Sport
England as the distributor who holds the liability in relation
to the Lottery agreement. To look at the broader point, this project
has now been subjected to rigorous, independent assessment in
relation to the extent to which it represents value for money.
As I am quite sure you will accept, that, for me as Secretary
of State, was a key judgment in the light of the request for further
government money for non-stadium infrastructure. The independent
report concludes that this project does represent value for money.
It has been subjected to the rigorous assessment of the Office
of Government Commerce. I believe that this project which, as
David James reflected, was managed in a—my word, not his—rather
cavalier way, according to commercial rather than public sector
standards, has now been restructured according to public sector
standards of transparency and propriety and I believe that the
fact that that process has taken place, that corporate governance
arrangements are being put in place, is one of the reasons that
the banks are showing greater confidence now than they were prepared
to do before.
436. One of our recommendations in an earlier
report was that there should be a specific Cabinet Minister responsible
for international events. We have noticed that we had it for a
part of the Commonwealth Games but after June we did not have
it. Do you feel that it would be more appropriate to have one
single minister, probably from the Cabinet, to look at and hold
international events?
(Tessa Jowell) No, I do not. I do not think you need
a minister other than the Secretary of State who covers culture,
media and sport which in turn encompass a very large number of
national events. You refer to the Commonwealth Games. We have
a supporting role in relation to the Jubilee weekend celebrations
and so forth. No, I do not think it is necessary to have a separate
Cabinet Minister with that responsibility. I do believe that my
department needs reinforcement in project management and delivery
and that work is in hand.
Ms Shipley
437. Further to your response to Mr Fabricant's
questions, could you tell me how Birmingham could be advanced
and simultaneously the 120 million paid back, because frankly,
from the evidence given by Mr Coward on behalf of the FA on Tuesday
it was as clear as mud that those two things could happen simultaneously.
(Tessa Jowell) I am sure that the Committee has Adam
Crozier's statement of yesterday and has seen a copy of his letter
to Paul Spooner, the project director for the Birmingham programme.
438. We have not seen that.
(Tessa Jowell) They are available and we are very
happy to furnish you with them. To take it in two stages, I think
the FA have made clear that the Birmingham bid is one where the
design is at an early stage; no contractor is in place; there
have been no detailed costings beyond the indicative costings
which have been carried out by Patrick Carter; there is no planning
permission. The intention is to build on green belt. There is
no due diligence in support of the business plan and no estimate
of the extent of public funding that might be needed, although
I made clear in December—and it is a commitment which obviously
stands—that the £20 million of non-stadium infrastructure
money that would be made available to Wembley would also be made
available to Birmingham.
439. With respect, most of that was reasons
why Birmingham probably could not go ahead. What I asked was how
could it go ahead given the 120 million which, in the worst case
scenario, needs to be paid back. From Mr Coward's evidence, it
would seem that the locked in agreement to the FA events, which
was in detail alluded to by all concerned who came to us on Tuesday,
would preclude that possibility. Also, did your department know
that retaining the FA events at Wembley was Sport England's fall-back
position?
(Tessa Jowell) Can I quickly read from Adam Crozier's
statement from yesterday because he deals with your point. "All
parties have recognised that in the event that the Birmingham
proposals were to be considered and proved viable it would be
necessary to conclude an event staging agreement in relation to
the new stadium once current legal commitments relating to the
national stadium project at Wembley had been concluded in a way
that satisfied all parties." That clearly includes the resolution
of the staging agreement because the variation of that would have
to be met by both parties. The most effective way of resolving
the outstanding staging agreement is to secure return of the 120
million. That is a subject of the contract between Sport England
and WNSL. I would not begin to pretend that, were the Wembley
project to fail, which nobody wants it to do, we would move quickly
or seamlessly to pursue Birmingham as an option. The Birmingham
option has essentially been parked since December, when it was
quite clear that the FA made their choice to proceed with Wembley.
There will be a lot of work to be done but my department would
stand ready to assist in that work.
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