Examination of Witnesses (Questions 1-19)
MS SUE
STREET, MS
CAROLE SOUTER
AND MR
STEPHEN DUNMORE
12 JANUARY 2005
Q1 Chairman: Good afternoon. Welcome
to the Committee of Public Accounts where today we are looking
at managing National Lottery Distribution Fund balances. We are
joined, once again, by Ms Sue Street, who is the Permanent Secretary
of the Departure for Culture, Media and Sport, Ms Carole Souter,
who is the Director of the Heritage Lottery Fund and Mr Stephen
Dunmore, who is the Chief Executive of the New Opportunities Fund.
You are very welcome. Perhaps, Ms Street, I can start by asking
you a question. If we look at page 9 of the Comptroller and Auditor
General's Report, figure 4, you will see the process by which
the money goes from the Lottery player through the operator, Camelot
of course in this case, down through the National Lottery Distribution
Fund and finally to help the public. Of course, it is quite important
that the money goes through as quickly as possible to the public,
that is the whole point of it. If we turn, now, to page 15 and
we look at paragraph 2.9, we see that: "At 31 March 2004
the balances in the National Lottery Distribution Fund stood at
£2.7 billion, a fall of 24% since March 2002 against the
Secretary of State's target of 50%." Why have you made such
poor progress in meeting this target?
Ms Street: Firstly, I think it
is important that the Secretary of State did set a target which
was a big and bold signal that we were determined to get to grips
with this. We are 30% down now from the 1999 peak, which might
not have been the case if we had not set an explicit target. We
did miss the full 50% since 2002. Paragraph 2.10 of the report
shows that while the balances of 10 distributors did fall, the
balances of 5 others went up, including some of the big ones.
There is good news in this which is that revenue went up more
than expected, which is excellent, but drawdown was slower than
expected. As of now I think it is important to note 85% of the
cash raised for good causes has been spent and 133% of the remaining
balance—ie 33% over committed—has been committed.
We are back at the 1997 levels of around £2.57 billion but
we are determined to press down hard.
Q2 Chairman: These are not small
figures, are they? You have missed this target by a mile, maybe
up to around a billion pounds. This was money which was sitting
around not doing anybody any good. There was a maximum in 1999
with a build-up of a staggering £3.6 billion held by the
National Lottery Distribution Fund, a huge sum of money. You had
the Secretary of State's target, which I would have thought was
a reasonable one, and you have fallen far short of it.
Ms Street: As I said, we are 30%
down from the peak and we wanted to be 50% down. In the last eight
months the balance has fallen by 6%, so we are encouraged by that.
There is no doubt that setting the target has driven us in the
right direction but not as far as we would like to be.
Q3 Chairman: Let us try and investigate
why this happened. Ms Souter, can I please refer you to figure
11 on page 16. You will see if you look at the Heritage Lottery
Fund its actual balance is £929 million, the forecast
was supposed to be £791 million for 31 March 2004, but if
you look at the actual balance of 31 March 2004 you will see it
has risen to £942 million. That is not very good is it?
Ms Souter: Certainly the model
that we have been using to forecast what will happen turned out
not to be a good predictor of what happened in fact. One of the
key reasons for that was that we found that the model was based
on what happened historically and in practice the large projects,
which are a very big element of what we do, were taking longer
to deliver than they had in the past. Now, that is a matter of
concern and I should make clear that we are totally committed
to reducing the balances. If we had known at the time that those
large projects were going to take longer than expected to deliver,
undoubtedly we would have increased our level of over-commitment
in those years and done so earlier than we did in fact.
Q4 Chairman: All right. Mr Dunmore,
let us look at the New Opportunities Fund which is below that.
The New Opportunities Fund's financial balance at 31 March 2001
is £568 million, forecast balance for 31 March 2004 is £361
million, actual balance at 31 March 2004 is £737 million.
What has gone wrong?
Mr Dunmore: Like the Heritage
Lottery Fund, we are very committed to reducing the balances and
we welcome very much the target setting. I think when we contributed
to the target setting in 2001 clearly we were very optimistic
about what we could achieve, and that was partly—rather
like the Heritage Lottery Fund—because of a lack of historical
information. It was also because we were a very young organisation.
We have only been around since 1998 and, in fact, four months
before the target was set we had only just received our Round
3 policy directions from the Government which was £1.5 billion
worth of programmes. We were consulting on them, we did not know
what shape those programmes would take, particularly in terms
of delivering, and the way in which you deliver the programmes
can have a great impact on the actual drawdown and the speed with
which you can commit. There are a lot of variables that we did
not know the answers to, and I freely admit, in retrospect and
with hindsight, we were over-optimistic. However, since then,
and I think this is an interesting fact, our balances peaked in
2003 at £951 million. Since then we have been on a very steady
downward path until December 2004 when our balances were at £692
million. From that peak in 2003, I think we are now making very
good progress and we are determined to make more.
Q5 Chairman: Mr Dunmore, if you look
at page 21 and figure 15, you will see that in terms of March
2004 your commitments were some way short of the maximum acceptable
level you set yourselves. In fact, the New Opportunities Fund
was £142 million short. Why was that?
Mr Dunmore: Certainly we were
very pleased to set ourselves a target for commitment—
Q6 Chairman: There is no point setting
targets if you are way short. This is money which the Lottery
player imagines is going to good causes but is hanging around
doing nothing.
Mr Dunmore: It is money, also,
however, which is committed and we have over-committed on our
balances by 55%. We are committing to the maximum we can at the
moment on our current programmes within the terms of the policy
directions that we are given. As I say, because we are over-committing
we have reduced the balances by £259 million since January
2003. I think it will be a real opportunity with the money available
to the Big Lottery Fund over the next four years to create new
programmes. It will be an opportunity for us to start afresh on
this and to set ourselves realistic and challenging targets for
reducing the balances.
Q7 Chairman: On the same point, Ms
Souter, on the same figure, the Heritage Lottery Fund was £243
million short of its maximum.
Ms Souter: Of its maximum over-commitment?
Q8 Chairman: Why?
Ms Souter: Our trustees discussed
its over-commitment policy within the last month and confirmed
that a two year maximum was what they would stick with. Where
we are at any given time in relation to that maximum is a matter
of judgment because if we were to suddenly increase our volume
of commitments in one year, the inevitable result would be a big
reduction in future years because obviously we can only spend
money once. We have to take a judgment about how far we can go.
By the end of this financial year we will be £280 million
over-committed and by the end of the financial year 2005-06 we
will be £410 million over-committed, which will take us to
the maximum.
Q9 Chairman: You are going to deal
with the problem?
Ms Souter: Yes.
Q10 Chairman: You give that commitment
to this Committee, do you?
Ms Souter: Yes.
Q11 Chairman: Fine. Thank you. That
is what we like to hear. Ms Street, if you look at paragraph 4.6
on page 27—this is the last detailed question I want to
ask you—you are leaving distributors uncertain about whether
they will continue after 2009 and what their Lottery proceeds
will be. Why is that?
Ms Street: The shares that might
pertain to each Lottery distributor is a matter of policy for
ministers, and they have not made any decision yet to change the
shares that are currently set out. They have given a guarantee
that nothing will change until 2009 so that is already a considerable
level of certainty, we are only at the beginning of 2005, there
are four years of absolute certainty. Ministers have agreed that
we will set the timetable by the end of March so that will give
some clarity. I will do my level best to make sure that distributors
have at least two years' notice of any change and that will be
better than they had either at the launch of the Lottery or at
the beginning of the licence. I think my colleagues would be content
with a full two years, that is what I am willing to do, and will
say unless and until anything different happens the shares will
continue as they are even beyond 2009.
Q12 Chairman: Can I ask this general
question: you set up this vehicle to help these good causes, in
fact you are frustrating them. We have heard about butter mountains,
we have grant lakes where there is money sitting around doing
nothing. Are you going to accelerate this process of reducing
balances now?
Ms Street: As I say, firstly,
we welcome the NAO Report, and it is what we want to help us drive
those balances down, not that it does not give us a lot to do.
I do not think it is a grant lake, all the money and more, 133%
of the money in that balance is committed. What I would like to
see is that all the distributors implement their own policies
and commit to the maximum that their own policies allow.
Q13 Mrs Browning: Mr Dunmore, you
wrote to me on 4 January and I have your letter here. I would
be grateful if you could clarify what changes you are going to
make. You mentioned the changes coming up with the Big Lottery
Fund. I was concerned—just on a point of principle, if you
just explain it to us—you say "We will meet our commitment
to provide £40 million for voluntary and community activity
in eight rural districts in England between 2002 and
2007, the countryside communities." My understanding is that
people from all communities purchase Lottery tickets so I am just
wondering, generally, if people across all rural communities purchase
Lottery tickets why the proceeds of those Lottery tickets are
going to be restricted to eight districts? It sounds rather like
a Government department prioritising rather than how I would expect
Lottery funds to be distributed.
Mr Dunmore: I hope I can explain
that clearly. What we need to do as we move from the Community
Fund and the New Opportunities Fund into the Big Lottery Fund
is to meet all of our existing commitments under the programmes
that both of those funds are running currently. Now one of the
programmes, and I imagine I have mentioned it because it must
have arisen in your letter, is the Countryside Communities programme,
which is a £40 million programme.[1]
Q14 Mrs Browning: Eight areas.
Mr Dunmore: In eight areas but
not eight times £40 million.
Q15 Mrs Browning: No.
Mr Dunmore: A total of £40
million for eight areas. All I was pointing out was that whatever
the changes are that happen in the Big Lottery Fund and whatever
the new programmes are that we introduce for the next four years
we will meet our commitments on the existing programmes that we
have made already.
Q16 Mrs Browning: Yes. I do not think
you have quite understood me, I will rephrase it. My point is
the point of principle that across the country people in all rural
communities would purchase Lottery tickets but the distribution
of those funds from the purchase of those Lottery tickets is being
restricted to eight rural districts. Why is the input general
but the output being restricted geographically?
Mr Dunmore: The output is being
restricted geographically in that case because we are targeting
eight particular areas where we want to make a difference and
areas which have particular problems and particular incidences
of rural deprivation. However, across all of our programmes generally
we target on disadvantage in a variety of different ways, and
that is both in an urban context and a rural context. Also, we
have programmes that are more general in their impact and the
Community Fund's large and medium grants programme, which is still
running at the moment although it will be phased out when we get
our new programmes, is targeted on particular groups in need but
it has a wide geographical distribution. I think there is always
an instance there where we need to balance the general distribution
of Lottery funding—because, you are quite right, people
from all sorts of backgrounds and localities buy tickets—with
a commitment which certainly the Big Lottery Fund and its constituent
parts have had to target social disadvantage particularly.
Q17 Mrs Browning: I have got no difficulty
with the principle of when the applications come in to prioritising
and assessing on the grounds of need and your criteria there,
it just seems the principle of people across the board in rural
areas buying Lottery tickets but knowing—or perhaps they
do not know and I am telling them now—that even if you have
a worthy cause in your particular rural locality, if you are not
one of the designated eight rural areas, because most rural areas
have some deprivation of some sort or another, that somehow, although
you have bought your ticket, your community could not even apply
for a grant because they are outside a geographic area.
Mr Dunmore: I think I am making
the point in response to that, that we have a wide range of programmes.
They are targeted in different ways and some of them are relatively
open, so wherever you are you will have an opportunity to apply
for one programme or another.
Q18 Mrs Browning: Could I bring you
on to something else which was earlier in your letter and that
is you have said here: "We are winding down our voluntary
and community funding programmes (the medium and large programmes
in England) and the UK wide strategic grants programme."
Now, I am a bit concerned because I realise that the heart of
this report by the National Audit Office does highlight the fact—and
it has been mentioned already by the Chairman—the difficulties,
for example particularly with the Heritage Lottery Fund, of the
amount that is held in balances. It is a huge amount of money.
I had another letter this week from the Bishop of Exeter and I
would like to share this with you. I think he too has been a recipient
of one of your letters. One of the points he makes about the Heritage
Lottery Fund—and I think it is well made and I just wonder
how you are going to manage this at the same time as bringing
these balances down—is that the sort of grants which are
being sought, for example by churches, are grants whereby the
timescale—the lead time from the time they get permission
to have a grant and actually drawing down the money and carrying
out the work—can be extremely long for very legitimate reasons.
For example, the Bishop tells me—and I am sure he is absolutely
right in this—on our historic churches that even once you
get permission to carry out renovation because of the need to
use skilled craftsmen, and they are in short supply, they have
to wait their turn until they have finished off projects and that
in itself, quite legitimately, can delay the drawdown on money.
I just wonder, you are under some pressure for very good reasons
to reduce these balances but how are you going to enable these
more sustainable projects to still get their fair share of the
Lottery money without suddenly feeling you are under pressure
to provide money for what I would call quick fix type grants whereas
the more sustainable need for longer term funding, such as the
historic churches the Bishop mentioned, are really quite legitimate
causes?
Mr Dunmore: Perhaps my colleague
could answer part of that also?
Q19 Mrs Browning: Yes, of course.
Mr Dunmore: You have really concentrated
on a very relevant point. The degree to which, following a sensible
risk assessment, you believe you have to keep a certain amount
of balance is in part—only in part—dependent on the
sorts of programmes you are delivering. It is certainly clear,
and I know from Carole's experience and from mine with a couple
of our capital led programmes, that programmes which involve a
large amount of capital spend are going to take longer to deliver,
so we recognise that. There are all sorts of reasons to do with
planning permission and the whole raft of other things to do with
capital projects which can delay the process. When we are delivering
those sorts of projects, and certainly there is no intention to
stop doing that, we need to take that into account.
Ms Souter: In relation to churches,
certainly one of the factors that is often found with the churches,
for example looking at roof works, is quite often you do not know
what the scale of the problem is until you have uncovered the
roof in the first place and found what is underneath and what
has happened. That can lead to complications for people. It is
terribly important once we have said yes to a project that the
applicant knows the money is there and that is why we hold money
in the balances. We need to be able to respond to any issues which
come up for them. Certainly part of the judgment for the Heritage
Lottery Fund, in thinking about the level at which it can over-commit,
is exactly the fact that the majority of our funding has gone
to capital projects over a million pounds. So we know that it
will take four to five years on average for those projects to
come to completion and they are starting to benefit the community
from the very moment that we say yes to the application because
that means people can start to work and plan.
1 Ev. 14 Back
| 
