Examination of witnesses (Questions 1
WEDNESDAY 24 JANUARY 2001
MILLS and DR
1. Gentlemen, welcome to the Committee. As you
know, as well as doing some longer term enquiries, we are having
a short, sharp stab at things from time to time and you are one
of those being subjected to that. The first question, Mr Mills,
is: what happens now?
(Mr Mills) What we have tried to do in our memorandum
indicates what should happen and what we believe will happen.
Could I make three very simple points, Chairman? We reckon we
have a very good future. Trading is extremely competitive; the
margins are extremely tight; and there is a lot of risk and hard
work in the Market. We are reasonably confident that the problems
that we had five or six years ago have been overcome and now,
with the diversification that we have in mind, things are very
promising. We are, if I may put in a plug, also conscious of our
historic past. I am not sure if members of your Committee realise
that we go back in fact to the thirteenth century when monks from
Westminster Abbey used to sell their surplus produce to the public
in what was known as Convent Garden. We are very conscious of
history but we are conscious of our future. We have two and a
half thousand people working in the Market, a very active group
of tenants in the Tenants' Association, and equally we have the
Transport and General Workers Union and their members. Collectively
with the Authority, we are quite a cohesive unit and confident
of the challenges we have to face.
2. All that may be true but as long as I have
been in this House you have been on and off with privatisation.
Does there not come a time when someone has to make up their mind
what they are going to do with the Market?
(Mr Mills) I think we actually have reached that point.
I say "we"; that point has been reached. As you will
recall better than I, Chairman, in 1990 the previous administration
announced their intention to privatise the Market, which would
of course require an Act of Parliament. In the mid-Nineties, the
then Permanent Secretary may have indicated that the issue had
been put on the back burner. Then, with the new administration,
the issues was raised again. The previous Minister in this administration
announced that he wanted to privatise. All that led to great uncertainty
amongst the work force, the traders and the local authority, and
it was considerably upsetting. You are absolutely right about
that. When the current Minister came round in January 1999 and
had a look at the Market himself and discussed the issue with
traders and the union, he promised to go away and reconsider the
basis of the assumptions that underlie the policy of selling the
Market. To be fair, the Minister kept his word on that. He came
back in April and said that it is a going concern and it is a
working, profitable market and, although the Government did not
want to be an owner of the wholesale market, which I can understand,
that they would only sell it as a going concern. In a sense, the
anxiety and uncertainty was largely if not completely allayed
because it is the Government's intention still to sell the Market,
but only as a market.
3. Did he give any indication as to when this
phantom legislation may take material form?
(Mr Mills) I do not think he is in a position to do
4. Did he express any urgency about it?
(Mr Mills) Relatively, I suppose is the answer.
5. You cannot be relatively urgent.
(Mr Mills) I think you can. Seriously, he said: "Yes,
we want to sell the Market". In that sense it is urgent but
relatively in the sense that there was very little opportunity,
and he indicated this to me, then or even now to get a measure
into the Queen's Speech which could have parliamentary time to
be enacted. That is why I say "relatively". I believe
that the Ministry each year put in a request to the Leader of
the House to ask for parliamentary time for a Bill to sell the
market and each time it has gone away through lack of time.
6. Do you want to be sold?
(Mr Mills) Yes, in one sense: if that once and for
all removed the uncertainty. In another sense, we are quite happy
as we are with the Ministry. The Ministry now is a supporter of
the Market. The more interesting point arising from that is, if
we are going to be sold, who are the possible purchasers? That
is the key matter. Our turnover as a market authority is about
£7 million a year, out of which we made a gross pre-tax profit
of about £1.4 million last year. Estimates of the cost of
the Market, if it were going to be sold as such, vary and all
the trading concerns in the Market have an annual combined turnover
of about £480 million; it could be £20 million but it
could be £40 million plus. I cannot conceive of anybody spending
£20 million, £30 million, £40 million or £50
million on buying the Market if the only profit they would get
out of the Market is £1.4 million a year based on a turnover
of £7 million. The only people who could buy the Market are
those perhaps with markets of their own. There is only one of
7. Before we come to the City of London Corporation,
with respect, you do not give the impression that you regard this
as a burning issue which has got to be sorted out. You seem content
to float along, as it were, with the present circumstances. Is
that accurate or are you agitating to get something finally decided?
(Mr Mills) I am not agitating but, with respect, I
am not floating along.
8. What are you doing?
(Mr Mills) I am cautiously optimistic. We have had
considerable problems in the last three years: first, about new
leases coming up; and, secondly, about new types of diversification
we wanted. All sorts of consultations had to be gone into about
whether that was possible or practical. We have solved most of
those problems. We are quite content to carry on as we are under
the overall umbrella of the Government but I recognise that if
the Government wants to sell us, it must only sell us as a going
concern. As I have said, my colleagues and I have looked as the
possible purchasers, and I can only see one.
9. While we are talking generally, can I examine
what your visions for the world of wholesale markets is. In France,
Rungis has demonstrated an ability to be a truly one-stop shop
for a whole variety of purchases of everything from fruit and
vegetables through to cheese, poultry and meat; you name it, they
have got it. To a degree, that is mirrored by the wholesale market
in Birmingham, which has now amalgamated under one roof a similar
range. Do you have a vision as far as London is concerned that
a similar provision is at a point in the future the way things
(Mr Mills) The answer is: yes, very much so. You are
absolutely right about Birmingham. I have been there. They sell
all types of food produce under one market roof. We want to get
to the position, as I indicated in the memorandum, of being the
one-stop food shop for London. The great advantage we have is
the location of the market. We think there is a case these days,
and I know the Minister thinks this because he has said it publicly
and I think it is reflected in the MAFF evidence to this Committee,
and now the modern caterer needs to get all his food produce from
one place rather than go to different places. The one-stop food
market is the answer. There is a subsidiary point. As you all
know very well, the number of retail outlets for horticulture
has declined considerably. As a rough estimate, I would imagine
that in the market now the amount of food produce, fruit and vegetables,
sold to the retail trade is about 20 or at the most 30 per cent
of total volume. The 60 to 70 per cent plus goes to the catering
trade. Again, as I am sure you know, Chairman, well over one-third
of food eaten in the UK is eaten outside the home. The importance
and the prevalence of hotels, restaurants and catering establishments
is going to increase. That makes catering supplies the key. Supermarkets
are not in the game of supplying the catering trade and there
is a need for the Market. The catering trade needs to have one
single place where they can go. If they can get their fish, meat
and vegetables in one place, we think that is the answer. That
is my vision. That is the way forward. We are now starting on
10. Chairman, for the benefit of the Committee
and our questions, I think it would be right to sketch a little
of my relationship with the Covent Garden Market Authority. When
the Spitalfields Bill was going through the House, I had a job
that was described as the go-between between the Covent Garden
Market Authority and the City of London to enable and facilitate
that legislation, which was amicably sorted out in the end. Obviously
I got to know people in the City and, as a result of that, I became
a Freeman of the City of London. I think I can say that any questions
I ask are appropriately balanced, but I do have a considerable
interest in Covent Garden, as I have done for a long time. Mr
Mills, I wanted to probe you a little bit about some of the trends
particulary that you outlined in an answer a moment ago. In the
annual report on page 3, paragraph 12, there is perhaps a depressing
chart which shows a decline in the turnover of wholesale goods
going through the Market, and yet in the fine print in paragraph
9 the more interesting area that you have also described is mentioned
numerically. I wondered in presentational terms why, for example,
you have not got a chart that juxtaposes the decline of the traditional
activities of the Market, the wholesale aspects, with the rise
in the matters that are dealt with in paragraph 9?
(Mr Mills) There is no particular reason. That is
the answer. The facts are there. That is important. If you look
at that chart on page 3, it shows that the value of the Market's
business is no longer in decline. In fact, if you look at the
fruit and vegetable market, for example, you see an increase.
If you look at the flower market, there is a marginal decline.
I think we have turned the corner in terms of volume and in terms
of the trading space that is now occupied. As you see in the figures
below, 98 per cent of the trading space is now let and over two-thirds
of the offices. If you went back five or six years, there would
have ben about 30 per cent vacant space in the fruit and vegetable
11. When I was looking through your submission
to the Committee, you made the statement about feeling more optimistic
but it is difficult to see any projections. Could you help the
Committee by giving us a feel as to how you see, in business terms,
the words you have just uttered being translated into something
(Mr Mills) There are two ways in which we can expand
the diversification of food product. One is that we have a tiny
amount of vacant space but we have about 20,000 square feet of
space that is currently occupied by a furniture storage company,
which was brought in during the dark days of the early to mid-Nineties
just to get some revenue to help the Authority when it was in
a difficult position. I am sure you probably recall that, Mr Jack.
They are under a licence and we can dispense with them in a matter
of months. We have the potential space there. We also have one
or two parts of the Market where new buildings could be erected.
So we have the space. We have now got the support of the Ministry
in having a considerable part of the total business of the Marketit
could be up to 50 per cent or even more than thatthat could
go into non-horticultural produce, ie fish, meat and related activities.
We started this process a few years ago. We have a couple of ice
companies, a couple of cheese companies, a lobster company and
a smoked salmon and smoked meat company. We have about three other
companies in fish and meat with whom we are currently in discussion.
We shall probably be advertising the opportunity to come to the
Market in various of the newspapers.
12. With respect, you have given us a word picture
which is more optimistic. If I were to say to you, "Do you
have a five-year business plan, numerical projections of both
your own income for the developments you have just described and
some indication of the trading prospects?" does such a document
(Mr Mills) No, because it would be very difficult,
if not impossible, to produce a business plan that had coherent
statistics in it. The statistics are in this factual account of
what is happening. We have 280 separate companies in the Market.
We amass the total turnover of those figures, which gives us our
total annual turnover of £480 million, but they are individual
companies with their own projections and their own plans.
13. As an Authority, do you have any financial
benchmarks or targets that you are hoping to achieve? I appreciate
the point that you make, that it might be difficult to accumulate
numbers for the sum total of all the businesses, but, as an Authority,
do you have an Authority financial plan where you are trying to
say that you want to move from X of lettings income to Y over
the next period?
(Mr Mills) No. That would be inappropriate in my view.
We do have a statutory duty to break even, and that is enshrined
in all of us, which we do. We are profitable and, as you know,
we have no public debt and no taxpayers' money of any shape or
form in the Market. We have survived on the income that is generated
by the activities of the Market. We do not have a projected figure
of total turnover because in that sense we are there to provide
a market. We are not there, with respect, to supply a dividend
to a whole range of shareholders. We are not under that imperative.
Our statutory duty is to provide a wholesale market and for that
market to break even. We are not like a plc which can say that
over five years we expect growth to be X and dividends to be Y,
and so forth. There is one other point, if I may, Mr Jack: we
are very conscious of the fact that, against what I have just
said, we do need, I would estimate, about £20 million of
capital expenditure in the next few years. That is going to be
a major problem for us. The market is just over 25 years old;
a lot of the infrastructure needs refurbishment; the roof for
the flower market needs replacing, and so forth. We estimate that
the amount of capital needed for that is about £20 million
to £21 million. The question is: where do we get that money
from? There are various possibilities but against that, if we
borrow the money, we would obviously have to make sure that we
can repay it without affecting our statutory financial duty. Is
the Government going to give us the money? Hardly. Do we get it
from the National Loans Fund? I do not know. In financial terms
that is the particular concern we have at the moment.
14. What discussions have you had with the Ministry
about this problem?
(Mr Mills) Several.
15. Can you give us a flavour, rather than "several",
as to where this is going, because clearly this is central to
the well-being of the future investment in the Market?
(Mr Mills) You are absolutely correct. The words I
would use are: "They are considering the matter".
16. You make a distinction in paragraph 7 of
the report on page 3 between the wholesaler and the catering distribution
side of the business in terms. I think it says here that the figures
do not reflect any trade in produce not physically passing through
the Market nor activities of agents, importers and non-horticultural
users within the market. Perhaps you could explain a little bit
about the contents of paragraph 7 for the Committee?
(Mr Mills) Yes. I think we are not unique but exceptional
in having to produce detailed figures on the trading companies
themselves, on which these figures in paragraph 7 are based, for
the fruit and vegetable market and for the flower market. There
are in the fruit and vegetable market about 60 wholesalers; there
are about 60 catering distributors; and about eight processors,
the people who actually buy the food and clean it and package
it as opposed to simple distribution. That is why there is a difference
between wholesalers and catering and distribution. That is the
basic breakdown of the market. The flower market speaks for itself.
On top of those figures, which are based on the returns from the
individual trading companies that operate in the Market, we have
the turnover of the other people, like fruit importers, who are
based in the Market and who again supply the Market with produce
from overseas. They do not have to produce a detailed figure in
the sense that the actual traders do but they give estimates.
We estimate on that basis, plus the turnover figures, and that
is why we get to the figure of £480 million for total turnover.
17. I want to return quickly to a more detailed
point about your finances. When I was looking at page 17 of the
balance, there was an intriguing item that said "return on
investments", so I turned to page 26 for greater understanding.
I noted that you have £2.5 million of short-term investments,
of which £2.3 million is on short-term loan with a local
authority. That seems to be quite a lot of money to be parked
in somebody else's account. Could you tell us a bit more about
(Mr Mills) Yes. That is in relation to the Market
Towers' account. When the Market was moved from the old site at
Nine Elms, the idea was that the twin tower building known as
Market Towers, just near Lambeth on the outskirts of the Market,
would serve as offices for the traders, plus for the Authority.
The completion of the building was delayed until after the Market
started trading, so the traders got offices in the Market itself
rather than go to Market Towers. That slightly vitiated the point.
The ownership of Market Towers was vested in the Authority. Then
by 1990, the Market Towers building was sold. The proceeds of
that sale allowed us to wipe off the outstanding debt we had with
the National Loans Fund. So we have no debt at all. We actually
own 56 acres in the centre of London. But there was a contingent
liability in respect of the people who were tenants in Market
Towers. We had a liability in respect of their existence and future.
We were allowed to put in that contingent liabilityfrom
memory, about £2 millionby the Ministry to provide
for coverage for that liability.
18. How long does that contingent liability
(Mr Mills) Until the Ministry say that it does not.
In fact there are hardly any of the original tenants in the building.
19. So there is a minimum liability. When was
the contingent liability provision last examined in detail?
(Dr Liggins) It is not examined in detail, Mr Jack.
It is simply a sum which accumulates interest and rolls over each
year. The amount of money needed to cover the contingent liability
was quantified nowhere. It was simply stated at a level that seemed