Examination of Witnesses (Questions 1-19)|
MOTTRAM KCB AND
MONDAY 4 MARCH 2002
1. Welcome to the Public Accounts Committee.
Today we are looking at the operation and wind up of the Teesside
Development Corporation. We welcome Sir Richard Mottram, the Permanent
Secretary at the Department for Transport, Local Government and
the Regions. Welcome.
(Sir Richard Mottram) Thank you.
2. We also welcome Mr Duncan Hall, the former
Chief Executive of Teesside Development Corporation. Perhaps I
can start the questioning with you, Sir Richard, would you accept
that it is one of the major responsibilities of your Department
to ensure good governance of the bodies that you sponsor, that
there were major shortcomings in the governance of this body and
that you did not provide adequate support on all occasions?
(Sir Richard Mottram) I would accept,
Chairman, that it is a fundamental responsibility of my Department
to ensure there is good governance in a body of this kind, as,
no doubt, we will go on to discuss there was a clear framework
of governance in place. There were a series of steps that were
being taken by my Department to ensure that this organisation
operated within that framework. As the Report brings out we did
not succeed on every occasion.
3. The answer to that question is yes, you failed
to provide adequate support that a body like this might have expected?
(Sir Richard Mottram) The answer to that question
is not "yes". We did provide this body with a lot of
support and a lot of advice and I think the Report suggests they
did not always take it.
4. No. For instance if you look at paragraph
15 on page 5 you will see it says there,"The Department considered
commissioning an independent internal audit of the Corporation
in July 1996 because of its concerns about the reliability of
financial information, including that on cash flow and commitments.
The Chairman threatened to consider his position if it did so,
and the Department decided it would not be helpful to undermine
confidence", et cetera. The moment that the Chairman of the
Corporation threatened to resign you backed off, did you not?
(Sir Richard Mottram) As the Report brings out very
clearly, Chairman, the Corporation actually achieved a great deal
in the period in which it operated. I think it achieved a great
deal in very difficult circumstances, probably the most difficult
of any urban development corporation. This was an organisation
that had a lot of support in government, including from ministers.
It certainly is the case, as the Report brings out, that faced
with the choice between working with the Corporationand
we can talk about how the problems that arose in 1996 were resolvedor,
in a sense, creating a crisis if the Chairman were to resign,
which might have undermined the work of the Corporation, the Department
chose to go with working with the Corporation.
5. Let me say straightaway, as you made clear,
I want this to be understood, and paragraph 2 makes it plain,
"Over its lifetime the Corporation helped attract private
sector investment of £1.1 billion into the area, created
over 12,000 new jobs and brought 1,300 acres of derelict land
back into use". We accept all that. This inquiry this afternoon
is not about that. The point I am putting to you is that all that
excellent work could have been achieved and some elementary aspects
of good governance could still have been adhered to. Do you agree
(Sir Richard Mottram) I do.
Chairman: That is the point we are trying to
The Committee suspended from 16.37 to 16.43
for a division in the House.
6. Could I refer you, please, to page 16, paragraph
2.12. You will see there this is an example of the Corporation's
approach to managing its cashflow. That approach led to a number
of transactions which were costly for the taxpayer. "In two
cases we examined, the Corporation required the sites from the
developer for the original sums paid for them plus £1.6 m
million without any of the developments having taken place."
Although, apparently, aware of what was going on you seem to have
limited success in curbing some of these activities, why was this
do you think? What lessons can we draw for the future, that is
why we are here this afternoon?
(Sir Richard Mottram) The lessons I would draw for
the future, some of them are in the beginning of the Report, no
doubt we will come on to those later. You need to have frameworks
in place, governance frameworks, so to speak. You need to be monitoring
actively what is going on. If you are doing all of those things
and if you are in dialogue with the organisation our view is that
in a number of these casesalso we have quite effective
audits of what was going onwe and our auditors were not
necessarily picking them up or where we were picking them up and
drawing them to the attention of the Corporation this Report shows
that they were not necessarily corrected. I think you have to
have all those things in place and you can still get problems
7. Other members can come back to that. Can
I refer you to Part 3 of the Report, in particular the need for
the Corporation to be wound up by 31 March 1998?
(Sir Richard Mottram) Yes.
8. I wonder whether you think it is reasonable
to expect it to complete its work on an exact date like that and
whether that led to some further problems that we can discuss
(Sir Richard Mottram) I think, Chairman, these corporations
were established on the basis they were of a limited life and
they were all going to be wound up roundabout that period. We
were drawing to the attention of the Corporation from 1993 onwards
the need for it to be thinking about the fact that it was going
to wind up in 1998. It was not a case of suddenly the date changed
or there was confusion about the date, there were a whole series
of processes put in placewhich I can describe for the Committee
if they would find that helpfulall geared to this organisation
winding up properly in 1998. Then we discover, as Report brings
out, even at the last stage of that process the Corporation was
handing out money. We did not find the way in which it was eventually
wound up acceptable.
9. All right. Can I know refer you to paragraph
fourwe can come back to the wind up later onparticularly
the responsibility of Board members to their work. Can I just
I read you a letter which was sent by Mrs Joan Wade to Joe Cavanagh
at the National Audit Office. "During my service with Stockton
Borough Council I have never been involved with finance and never
held a similar position in any other organisation. Those inviting
me to join were aware of this. I also had no experience of the
workings of a business, having never worked in any place other
than a small corner shop for three years, working approximately
eight hours a week since the age of 20. Despite this I never saw
the Department Guidelines or a Report on the needs for the Corporation.
No attempt was ever made to indicate that I should have training
for the position nor was any training given to me". That
was Joan Wade talking about her experiences when she was asked
to join the support. Do you think that is a satisfactory state
(Sir Richard Mottram) From 1992, I will just double
check that date, onwards Board members were given clear guidance
about their responsibility. If I can read one sentence from quite
a short document, that everyone could have been expected to read.
I know there are great, thick bureaucratic documents about the
governance of the organisation and the Board members could not
have reasonably read all that. This document, which is quite short,
says, "The Board has a collective responsibility for the
business of the Corporation both for ensuring that it meets statutory
responsibility and for the quality of its management, this includes
responsibility for the stewardship of public funds so as to ensure
the highest standard of regulatory propriety and value for money
for all expenditure". It then goes on to describe that. If
you look at the Board members of this Corporation personally,
I do not know them because I was not personally involved at the
stage all this was happening, they included a wide range of people,
many of whom could absolutely have been expected to understand
what proper financial stewardship meant in the public sector as
well as the private sector. It may well be that the individual
that you referred to, obviously it is because you said it, and
I am not questioning it, felt she was not necessarily well equipped
for that aspect of the responsibilities of the Board. The Board
as a whole were, in my view, wholly equipped for it and they were
given clear instruction as to what their role was. There are lessons
that were bought out in the recommendations of the Report which
I wholly support.
10. Do you accept that some members of the Board
seem to be unclear as to their financial responsibility? There
are lessons to draw in future when you appoint members on the
Board of non-departmental public bodies.
(Sir Richard Mottram) We have drawn those lessons,
but without wishing to be rude to the lady in question, I do not
think anybody who had gone on to a Board of this kind and read
just one document about the responsibilities of Board members
could have misunderstood that the fundamental requirement in an
organisation like this is the proper stewardship of public money.
11. May I turn to another subject, the Report
from the Comptroller and Auditor General recommended that departments
take a risk assessment of responsible bodies to determine levels
of oversight. Do you accept there were shortcomings here, this
was a potentially risky project and, perhaps, with the benefit
of hindsight you could have increased your level of risk assessment?
(Sir Richard Mottram) Over time the relationship between
the Department and the Corporation did change. I think the role
of the Department, from my reading of the papers, became more
intrusive because we became more aware of some of the risks involved.
Generally I absolutely agree with the Report and the recommendations
in the Report, but I think we need to think increasingly about
how we can build on statements of internal control for non-departmental
public bodies and think about what the risks are in relation to
the nature of the work they are doing, the size of the organisation,
the financial resources that the public sector is putting into
it and we should match the way in which we are sponsoring, monitoring
and auditing bodies to the risk as we see them. Absolutely.
12. If I can just ask a few questions to Mr
Hall now. Do you believe that you were given sufficient support
and guidance by the Department? Having worked in this field for
so long do you believe that the framework should be changed to
provide better support in the future?
(Mr Hall) I think it is a balance between the requirements
of the organisation and the requirements of the Department, as
has been said. Obviously if you look at the recommendations now
you can see that there are improvements that could be made in
terms of support and guidance.
13. Can I ask you about the deficit that was
(Mr Hall) Yes.
14. You would, no doubt, claim that when you
gave up responsibility for this Corporation there was a small
surplus, which has now been translated into a substantial deficit,
who should bear the blame for this?
(Mr Hall) I am not sure it is a question of blame,
I think it is a question of changing circumstances. I think that
the position was that the issue was primarily vexed by the transfer
of Tees Barrage and the large amount of money that was involved
in that transfer. Plainly a situation arose where the Corporation
could not achieve the completion of their negotiations, particularly
given a difference of view on the assets which the Corporation
was transferring. Having said that, it follows from that that
a successive body would negotiate its position in the way that
it saw its position. I am not sure that there is blame to attach
15. Were the projects you left behind inherently
poor ones that led to the deficit?
(Mr Hall) With respect I do not think they were. I
think, again, I have to point to the differences of approach which
have been taken. If one looks at the deficit which arose then
one has to take a view, for instance, on whether it was worthwhile
to keep the office blocks of the Corporation or was it worthwhile
to buy out those interests. That decision has a very basic effect
on the deficit left by the Corporation. I am using the same analogy
as I do to Tees Barage, ie depending on the approach that is taken
and the negotiation which is taking place it effects directly
what the deficit should be.
16. Do you have any grounds for believing that
English Partnerships did not do as good a job as you might have
expected in carrying on your work?
(Mr Hall) I can only repeat the point that I have
just made. Everyone can have a view on what other people do. In
essence we finished on 31st March 1998 and English Partnerships
in their wisdom will take the approach they take as a body dealing
with regeneration. I do not think, frankly, I am in a position
to say whether that is a good job or a bad job, it is a different
job, a different approach by different people.
17. Can I ask you about a couple of points which
were particularly made by current and former members of Parliament
with an interest in your work, referring to Appendix 2 on page
43it is a very narrow point but I must put it to youthe
concern was that the Corporation had operated a secret bank account.
Was there any truth in this at all?
(Mr Hall) Absolutely categorically not.
18. Can I put to you the concern expressed on
page 44 about the industrial shredding machine, that only you
had a key and that these machines were used for purposes they
should not have been?
(Mr Hall) Again, as the Report finds, there was no
question whatsoever of a personal situation regarding shredding
and myself, absolutely not.
19. Sir Richard has made the point earlier that
your Corporation did achieve a great deal, and we are not arguing
about that. Today we are discussing whether you could have achieved
all that you did achieve while still working with in the framework
of good governance. Do you accept there were shortcomings and
that, perhaps, you tried to proceed at a faster pace than the
funding deserved and that mistakes were made?
(Mr Hall) I think at the time the situation of the
Corporation was that it did not feel that it had made mistakes,
it felt that it was achieving the regeneration which was the fundamental
point of its existence. In those circumstances I have to say that
part of this Report does come as a great surprise to me in terms
of our situation, if you bear in mind the audit position of the
Corporation over 11 years. The Department, quite rightly, expressed
concerns about certain matters of the Corporation but, frankly,
the Department did not turnaround and say, "Look, you have
broken the rules, you are not doing this properly".
1 Ev 31, Appendix 1. Back