Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 1-19)




  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 Corporation—and we can talk about how the problems that arose in 1996 were resolved—or, 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 with that?
  (Sir Richard Mottram) I do.

  Chairman: That is the point we are trying to make today.

  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 cases—also we have quite effective audits of what was going on—we 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 like this.

  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 later on?
  (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 place—which I can describe for the Committee if they would find that helpful—all 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 four—we can come back to the wind up later on—particularly 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 of affairs?
  (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.[1]

  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 left behind?
  (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 to it.

  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 43—it is a very narrow point but I must put it to you—the 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

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