Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 60-79)



  60. It says in the Report, you agreed the figure, it is paragraph 2.25, "£34 million of commitment outside delegated authority and without first getting Departmental approval". That is a lot of money, is it not?
  (Mr Hall) If I may say, the situation in relation to "moral commitment" is a very vexed issue that plainly needs clarification because, in fact, the situation is that £34 million was not spent because those commitments did not result in all of those schemes taking place.

  61. You were approving them.
  (Mr Hall) Pardon?

  62. You were approving them. The fact they did not come to fruition does not alter the fact of what you did.
  (Mr Hall) If we deal with the issue of these particular cases, if I may repeat my point, there is a very vexed issue which arises here, the Report makes it quite clear that the Department were fully aware of what we were doing. There is no clandestine business here.

  63. They were turning a blind eye.
  (Mr Hall) With respect, I do not think they were.

  64. If they were not, they were telling you to stop it or carry on with it, which was it? Did they say stop it, carry on, or did they say nothing.
  (Mr Hall) At the time we were dealing with these particular matters it was the middle course, it is unfair to the Department to say they did nothing. The Department were aware of these items. The Department knew about them pretty well from inception and we then reached the vexed issue of the question of approval. Why I believe it is a vexed issue is that in the final analysis of approval, and I do not wish to sound trite when I say this, you have to know what you are approving. You have this conundrum going on, which is that you are negotiating with people, you are not legally committed to those people and you are trying to come to the final analysis of what you are seeking approval on. Until that negotiation is complete you cannot get the approval because the Department will not be fully aware of what they are trying to improve.

  65. You knew you were working outside of the rules to start with, that is the important point. Honestly sitting listen to you I do not know whether to put it down to arrogance, contempt or plain stupidity. I have to tell you, I suspect the worst, but I do not want to, and none of us are suggesting that, when you find so much of the evidence has been shredded, key evidence as described by the Comptroller and Auditor General, it is understandable that you put yourself in an invidious, unavoidable situation and you did it because you have blatant disregard of almost every rule in the book.
  (Mr Hall) I have to say that I did not look at the situation and I do not believe that the Corporation looked at the situation in that manner. If I go back to the cases which were exemplified here I would repeat the point, what is slightly surprising in your comments, that every paper, every board minute, every report we wrote was automatically sent to the Department as a matter of course from the inception of the Corporation. We were not in a situation of some clandestine organisation secretly negotiating here and there. As far as we were concerned we were making very explicable what we were doing.

  66. That is not true, is it? In the case of the Haverton Hill Shipyard you actually entered into a contract after the final meeting of the Board a matter of days before the whole thing was folded up. In that case, this is what is incredible, you entered into an agreement against all of the rules to provide somebody with a mortgage to buy a site from you, that is contrary to the rules, despite the fact that you were already, as a Corporation, taking legal action against some of the members of the Board of that company in another role in another company when they still owed you £800,000. That is hardly learning from experience, is it?
  (Mr Hall) It might be useful if I can explain some of that.

  67. I would love you to.
  (Mr Hall) The situation, first of all, the rationale as to why the Corporation wished to go down the route it went down was the people involved in the Haverton Hill Shipyard were plainly providing local jobs, the onshore industry was plainly important to us and had, in fact, been involved on site for a number of years. We were taking legal action against the company, a simple statement of fact. We were looking at the management arrangements of that company which then altered. We had a view that the company could succeed. The Corporation then agreed to sell this site to the revised company.

  68. You had no power to give it a mortgage, did you?
  (Mr Hall) If I may explain that. The Corporation agreed to sell the site on a staged payment basis.

  69. We cannot go into the full details of it, the fact is that you broke the rules, you did it on the deadline, you did not report it to the Board, you did not report it to the Department, you did it at the end of the life of the Corporation. Let us switch to something else, Middlesbrough Football ground. There you gave a 999 year lease on a peppercorn of £1 a year. You did it having told your surveyor, this is in the Report you signed up to, you would describe it as contaminated, unreclaimed, partially serviced and in need of £8 million worth of work and you as a Corporation had already provided money for that work to be done. On that basis you gave away public property for £1 a year over 999 years. How do you justify that?
  (Mr Hall) I do not have the basis or the benefit of the files of the Corporation. It was implicit in the original arrangements regarding the leasehold interest, and I cannot recall all of the details of those, that the freehold of the football club was to be transferred to them. For whatever reason we initially had to enter into a leasehold arrangement, that was implicit from the outset—I am sorry, I do not have the details, it is some five or six years on—and the situation which arose out of that is when matters affecting the lease were resolved we would be transferring the freehold to the football club at its initial rent of £1. The situation as to why one looked at that on the basis of £1 was because notwithstanding the work which had been undertaken by the Development Corporation, the implicit expansion value of the football club, it was its subsequent inherent value, therefore you have to go back to the original basis when the site was unreclaimed.

  70. What is amazing is the flagrant disregard you have shown for securing the rights and the value as far as the Corporation is concerned. That is one case, the Middlesbrough ground, and the district auditor says there was one million, possibly, lost there. In the case of other properties which you sold off through negotiated, instead of open, sales the district auditor estimated a loss of £4 million there. In the case of your office rental you entered into a long term agreement that was going to go long beyond the time that your body could have stayed in existence at double the going market rate. In the case I mentioned of Haverton Hall you not only entered into the mortgage but you then agreed to write down the security of the Corporation and take second place behind a private sector investor. Why?
  (Mr Hall) Basically in the particular case of Haverton Hill I think there is a need to appreciate the actual conundrum that was created by the decision of the Board of the Corporation. Inadvertently, let me say, absolutely inadvertently, that we agreed to sell the site for £740,000. Because we were selling that site over a period of time to the company the company did not have the money to pay for it. As we were selling it over a period of time the title would pass and to protect title we would have to take a first charge on the property. The upshot of all that was perverse because essentially we required the first payment of £240,000 with a balance of £500,000 to be paid, therefore priority was given to an investor to invest the £240,000 in order that the first payment could be paid made. The difficult part of that, I think it is slightly unfortunate is in terms of the mortgage—if this is my mistake, it is my mistake—in you would understand the mortgage to be that we gave the company money. We gave a mortgage of £500,000, we passed over £500,000 to the company, no money went over to the company. The technical reason why the mortgage was created is because we agreed that the company could pay the balance of the money, the £500,000, over a period of four years or five years. That is how the mortgage arrangement arose.

  71. I have time for one final question. I have to come back to you, Sir Richard, but it goes back before your time. Having listened, I know you know the inside of this even better than us who have read the Report, to the responses here and seen the lack of awareness of the basic responsibility to observe the rules of public finance do you not think that your predecessors were patient with this Corporation to the point of irresponsibility?
  (Sir Richard Mottram) To the point of irresponsibility, I would not say that, no, because I have to go out of the room and talk to them tomorrow. No, I think not. I think that this is a pretty indefensible saga. We can, no doubt, go on and you talk about the extent to which the Department knew about it and the Department was or was not pushing sufficiently for this behaviour to cease. I am not trying to defend the behaviour, it was indefensible.


  72. Arising directly out of that, you heard Mr Hall's answer that every paper, every Board minute, everything, was sent to you, there was nothing done in secret, that is his case in defence, you must accept a degree of responsibility?
  (Sir Richard Mottram) Yes, except, Chairman, as the Report keeps bringing out, things were being done quite clearly against the wishes of the Department over long periods of time. It may be we should have said, "We cannot go on like this, we have to put it on a different basis". That was, to go back to what I said earlier, I think the strategic decision which was taken by the Department, taken by my predecessors, I suppose, "Do we pull the plug on this operation because there are significant cases of unacceptable behaviour, or do we give greater weight to the regeneration benefits", and that is what we did. Therefore that raises a question about us as well, I quite agree.

  Chairman: We will come back to that.

Mr Osborne

  73. Sir Richard, do you always rely on MPs to uncover chaos in your Department?
  (Sir Richard Mottram) No, Chairman.

  74. You do not always rely on MPs to—
  (Sir Richard Mottram) No, I do not. I uncover a lot of it myself.

  75. Perhaps you could give us some examples. My question has immediately opened up another avenue!
  (Sir Richard Mottram) Not for today perhaps, Chairman. No, I do not. We obviously had investigated some of these issues ourselves, using internal audit, and we could come on and talk about the way in which the structure of auditing we had kept coming across these issues, and they were being drawn to the Department's attention, they were being drawn to the Corporation's attention. So we did not only discover all of these cases after the NAO Report was produced. Many of them, obviously, are based on departmental documentation. I was actually very keen we should produce this Report when it was suggested by the Comptroller and Auditor General because I think it does have some important lessons in it. But, no, we do not rely on Members of Parliament.

  76. You do not rely on them?
  (Sir Richard Mottram) We rely on them absolutely, but in the case of chaos in my Department, it is not my view that the way to discover it is to rely on Members of Parliament because I do not think it is something we should be doing; we should be using our own auditing methods.

  77. You may have had views about this and what was going on in Teesside, but the fact is it took three local MPs to write to the National Audit Office to get an investigation to lead to the hearing we are now having. Am I correct in saying that at no time did you propose to the National Audit Office they should look at what was going on?
  (Sir Richard Mottram) We had actually conducted internal audit reports on these matters which were sent to the National Audit Office. To repeat myself, when the Members of Parliament in turn raised these issues with the Comptroller and Auditor General, he certainly discussed with me whether it would be a good idea for the NAO to investigate, which obviously is absolutely in his gift, not mine, but my view was that it was.

  78. Mr Hall says he did not bend or break the rules, do you think he bent or broke the rules?
  (Sir Richard Mottram) I think he consistently bent and broke the rules, yes.

  79. Could you comment on that, Mr Hall, briefly?
  (Mr Hall) I find that a surprising remark to make at this juncture because I have to say that if I am looking at the situation over eleven years, the life of the Corporation, together with that of the Board of the Corporation, the position was that certainly concerns were expressed about a variety of items at the Corporation, but I am unaware of a situation, and I believe the Corporation is unaware of a situation, where there was a suggestion that we consistently bent and broke the rules. I cannot, frankly, understand why we were receiving proper audits and signed off audited accounts over the whole period of the Corporation's life.
  (Sir Richard Mottram) Could I qualify my remark actually because I certainly do not want to be unfair. The point I was trying to make was that in relation to the events which are identified in this Report, subject to one case where there is a question about whether the Department's view was itself correct, and it probably was not, there are a number of examples here where the bending or the breaking of the rules was I think clear. That is the only point I make. I was not saying the Corporation was spending all its time consistently breaking rules, because actually I think the Corporation spent all its time consistently trying to regenerate Teesside, and I would not want my remarks to be misunderstood.

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