THURSDAY 23 MAY 2002
Mr Gerald Kaufman, in the Chair
THE RT HON TESSA JOWELL, a Member of the House, Secretary of State; THE RT HON RICHARD CABORN, a Member of the House, Minister for Sport; MS SUE STREET, Permanent Secretary and Accounting Officer; MS PHILIPPA DREW, Director of Arts and Sport, Department of Culture, Media and Sport, examined.
(Tessa Jowell) No, it was not. I think Tropus have made clear in their submissions to you that my department was not included in the circulation of the report.
(Tessa Jowell) Perhaps I can make clear that we insisted on seeing the David James report; it was not sent to us in the normal course of business.
(Tessa Jowell) No, they did not.
(Tessa Jowell) Sport England did not have the Tropus report and therefore not the reference to the concerns about the Lottery Fund Agreement either.
(Tessa Jowell) There are two or three points in relation to that. First of all, my understanding of the chronology is that Sport England received a copy of the James report the day after we did in the department. Secondly, the James report focused principally on matters of procurement of the contract and on corporate governance. He did not deal extensively in his report with the guardianship or the security of the Lottery grant. In relation to the constitutional position regarding the Lottery grant, you quite rightly reflect the position as it is, which is that I and my ministers are at arm's length from the decisions of the Lottery distributors. It is for the Lottery distributor, in this case Sport England, to be satisfied that the terms of the Lottery agreement are being met. However, that said, I believe that there are important lessons in relation to the conduct of Lottery distributors to be attended to from this experience. I am reluctant always to generalise from one very specific, high profile case, but I think there are a number of circumstances in relation to this grant which, were it now or at some point in the future, would have been handled differently. Very particularly, this project, including therefore the safe custody of the grant, had been subject to the risk analysis of the Office of Government Commerce. My Permanent Secretary insisted on the project being exposed to that scrutiny. It has emerged from that scrutiny -- and I know that you have seen the documentation -- being judged as a project which is robust, which is viable and which should proceed to contract. We have to be more rigorous in identifying those Lottery grants which carry a degree of risk -- not that we should exclude risky grants from the scope of Lottery distributors' discretion. I intend to discuss with Lottery distributors -- in fact, the matter is being discussed with them today -- two things. The criteria for risky projects will be identified and, as a matter of course, Lottery projects where there is considered to be an element of risk, will be subject to the Office of Government Commerce risk assessment before they proceed.
(Tessa Jowell) In referring to the Tropus report, you are obviously referring to allegations that were made by Tropus. They are allegations which, as far as I am aware, were not substantiated in material detail by subsequent investigation. There were amendments to the Lottery Agreement at the time when the Wembley Stadium was bought and indeed there were amendments to the financial directions. There are further changes that will be required to the Lottery Agreement if the proposed project, as we now have it, proceeds. David Moffitt, the new chief executive of Sport England, when he came before you last week made it very clear that there were lessons to be learned and that Sport England will apply those lessons to be learned. Beyond the changes that have already been made, particularly reprioritising the Lottery as a liability in relation to WNSL, I would have to ask you to be more specific about the broad reference to allegations that are made in the Tropus report.
(Tessa Jowell) Sport England accept in David Moffitt's words that there have been deficiencies in their oversight of the relationship between Sport England and the Lottery distributor and WNSL. In relation to the Lottery, as you are well aware, the arm's length principle applies. It is the government's job to ensure that there is a proper framework within which the monitoring in order to safeguard Lottery funds takes place. That framework is set in a combination of primary legislation and policy and financial directions. I am advised that in relation to your specific point in response to the Tropus allegation about the absence of Sport England from the meetings with WNSL they attended all meetings of the WNSL board. It is a matter which is very simply cleared up by the question being referred directly to Sport England or by checking the attendance list at the WNSL meetings. It is not information which I, as Secretary of State, in relation to events that occurred two to three years ago, am party to and I regret that.
(Tessa Jowell) If I can separate allegation from fact, your earlier remarks related to Tropus allegations. It is in relation to this particular point a matter of fact that Sport England were not consulted. They were not involved in the appointment of a contractor and this is one of the deficiencies of the process and the scrutiny of the Lottery grant that was very clearly acknowledged by the new chief executive when he came before you. I will obviously study with the greatest possible care the conclusions that you reach about Sport England's stewardship of this grant in the light of the evidence that you have received. As I have indicated to you, we are putting in place not just in relation to this but there may be other similar circumstances with other Lottery distributors where scenarios are being created at this moment. We have to create a balance between the risks that Lottery distributors are proposed to expose Lottery players' money to and legitimate and proper safeguards, because I regard us in government, me, as Secretary of State, as having in the public view a responsibility to make sure that Lottery money is properly spent.
(Tessa Jowell) This is in relation to seating?
(Tessa Jowell) I think that concern is reflected by many people and I am well aware that public confidence in the way in which Lottery money is spent is directly reflected in the number of people who are prepared to buy Lottery tickets every week.
(Tessa Jowell) You are absolutely correct to say that I have not seen the Tropus report. I have however six months ago studied both the first draft of the David James report and the subsequent report by David James, which were an investigation into the Tropus report which was essentially a dossier of allegations. Having gone back carefully through the chronology of the previous months, it is quite clear that Patrick Carter and his review team had discussions with Tropus. It is also important to add to the already rampant complication of this whole business that there were two Tropus reports. One looked at the costs and attempts to reduce the costs of the stadium. The second is the dossier of allegations about the conduct of the procurement. The first Patrick Carter saw; the second I understand that he was aware of and I think it is fair to say that there was a pervasive awareness of allegations of impropriety in relation to the procurement of the multiplex contract and the issues that were subsequently systematically investigated by David James. I was aware that there was about to be a report on these allegations very shortly before we were expecting to make a statement to the House saying that we were going to go ahead and support the FA in developing the stadium as their preferred location at Wembley. You will remember that on 19 December, after a period of pretty steamy engagement with the FA about the David James report and its allegations, I made a statement to the House in response to a Private Notice Question saying that the government would nto proceed to invest further money for non-stadium infrastructure costs unless four conditions could be met. The judgment that I had to make at that time was whether this was a project which was so fatally damaged and tainted that ----
(Tessa Jowell) Yes. I had to make a judgment about whether or not this was a project that could be retrieved. I had the benefit of Patrick Carter's independent review and his independent advice which, as you will remember, I published on the day that I responded to the Private Notice Question on the floor of the House. At the time, the reason for my statement, the claims of further delay and the reasons for the conditions I was setting were not generally understood, the problem being that they arose from my scrutiny and my officials' scrutiny of a report which we had secured with some difficulty under conditions of legal privilege. That therefore explains the terms of my statement at that time and the chronology leading up to our engagement with the substantive issues that both Tropus and James raised.
(Tessa Jowell) They were certainly picked up by Patrick Carter and if you look at Patrick Carter's recommendations to me and his advice in relation to the further development of the project, you will see that his recommendations reflected the concern about the quality of corporate governance. They reflected what you rightly say was a confused and at times ambiguous line of accountability, which is a subset if you like of the corporate governance issue. They reflected the lack of proper financial control through lack of internal management processes. I think what we had over last summer was a process in parallel in that David James was investigating the specific allegations raised by Tropus. Patrick Carter, as an independent adviser to the FA supported by government, was also conducting a review on the viability of the Wembley project and drew precisely the same conclusions about the shortcomings and therefore the remedial action that needed to be taken as did David James.
(Tessa Jowell) It was when the project failed to attract banking support and the syndication failed that the FA came to the government in May last year and asked for £150 million from the government in order to proceed. You are absolutely right to say that by that stage -- and I know this is a great preoccupation of the Chairman's -- the government had an interest in this project from which it could not escape. I think there is a critical issue about positioning the government if this project proceeds, if the banking succeeds and the FA continues with its development. I think the involvement of particularly Patrick Carter's review team and the government has been beneficial because what we have seen over the last year is the progress of this project which was evidently tainted by allegations, not sustainable in the view of the banks, moving to a position where considerable progress has been made on corporate governance. Despite the doubts about procurement, the independent report commissioned by the FA, a copy of which I have placed in the library, by Cyril Sweett, has deemed it to be value for money and the outstanding issue in relation to the status of athletics at Wembley has now been satisfactorily settled. Progress has been made and I believe that progress should be allowed to continue.
(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 an 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.
(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.
(Tessa Jowell) I am not seeking to defend the terms of the award of the original Lottery grant.
(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.
(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.
(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.
(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.
(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.
(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 Moffitt's evidence, of course he has to defend the staging agreement. It is a contract to which he is party.
(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 wouldtake into account.
(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.
(Tessa Jowell) I also understand that Sport England were not consulted about the closure of the stadium.
(Tessa Jowell) I would be happy to accept any request for further information of any kind from the Committee in the normal way.
(Mr Caborn) It was 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.
(Mr Caborn) Has the case been proven on culpability? At the time the chief executive left Sport England that was not the case.
(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.
(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.
(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.
(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.
(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.
(Tessa Jowell) There would be a lot of negotiation between Sport England and the FA in order to secure the 120 million but I have made clear to your Committee before -- I think Sport England have also made clear -- that, were Wembley to fail, we would expect return of the Lottery grant.
(Tessa Jowell) No. It is not a done deal. It is not yet certain, but this project has made more progress in the last six months as a result of the work that the FA have done with Patrick Carter and other stakeholders than probably in the last five years. I believe that the project should be allowed to run to its conclusion. The key issue is the deal with the lead bank where the FA published their expectations of the timescale, as you know, yesterday. We have to look forward and this is a project that needs positive support generally and practical support particularly. I think that support should be forthcoming until it is absolutely clear that it cannot succeed. It is in better shape to succeed now than it has ever been in the past.
(Mr Caborn) The four conditions that the Secretary of State laid down have been very important in concentrating the mind on the division of responsibility to the FA, Sport England and ourselves and the WNSL in making sure this project can go ahead. The Secretary of State has made more progress in the last six months than in the last five years and, to a large extent, it is bringing some business management expertise to that.
(Tessa Jowell) Whatever the weaknesses of this project in the past, I believe that the degree of scrutiny to which this project has been subjected, particularly over the past six months, by the Office of Government Commerce, by my department, by this select committee, by the National Audit Office, by Patrick Carter, by the banks in the course of their due diligence and by Cyril Sweett as the independent adviser on value for money, means that this can be judged to be a robust project. There are some details to be finalised in relation to corporate governance but to repeat what I said I think this project is now in better shape than it has ever been before.
(Tessa Jowell) That is exactly the kind of process that would be subject to rigorous scrutiny by the Office of Government Commerce mechanism which I have said to you this morning we intend to put in place for Lottery projects which are deemed to be high risk, as part of our responsibility for protecting the public interest.
(Tessa Jowell) Not constitutionally but in the public mind if the money were not repaid I would not expect to escape criticism, but that tends to go with the job.
Chairman: With that acceptance of an exploding parcel, we will all adjourn to the floor of the House.