Examination of witnesses (Questions 20
WEDNESDAY 24 JANUARY 2001
MILLS and DR
20. Given that you said earlier that you needed
somewhere in the region of £20 million odd for investment
and we have an unquantifiable but diminishing risk in which you
have something like £2.5 million tucked away, would it not
seem sensible to re-examine this?
(Mr Mills) Absolutely, but the point is that until
the Ministry agree, it does not matter if we re-examine it or
not. The Ministry holds the key to the unlocking of that money.
21. So they ought to be looking at this?
(Mr Mills) That is a fair point. In the same way that
we pay corporation tax obviously on our gross profit, effectively
the balance, under a formula agreed with MAFF, we pay over to
MAFF. My view is that it would be nice to retain that money instead
of having to go to MAFF to service a loan for the capital expenditure
we need. We are in discussions with MAFF about this. I am hopeful
that we will get something settled.
22. My final question in this area is that,
as we now live in the world of e-commerce, I wonder if you could
tell me whether you think that trading by this particular means,
as opposed to personal application to the various parts of the
Market, is likely to have an effect on your future trading activities?
(Mr Mills) That is very apposite, if I may say so,
because we have just held a seminar in the Market for traders
on the benefits of e-commerce. There are naturally two conflicting
views. One is the traditional view: no, we want to deal face-to-face.
A lot of transactions in the Market are still done with cash.
It is more of a cash economy than most other parts of British
commercial life, I would imagine. So there is a traditional view:
no, we like to deal with our customers face-to-face or on the
telephone. There is the other view, to my mind the more long term
view, that this is bound to happen. There is a "world of
fruit.com" which was set up by, I think, Fyffes, where you
can trade on the net. Fyffes spent a lot of money setting up this
apparatus. Traders and suppliers can join that. That could be
an electronic marketplace. We had a seminar only a couple of weeks
ago for the traders outlining this very point because I think
that is bound to happen. You still need personal contact, personal
assurances that who you are dealing with is all right, but a lot
of transactions could be done over the net. I believe that is
the future and we have started on the process of trying to encourage
traders to go down that route.
23. May we go on to the relationship between
yourselves and new tenants? How would you portray that relationship
at the moment? Is it good, bad or indifferent?
(Mr Mills) I think it is good. The Tenants' Association
represents tenants' interests. We deal with the Tenants' Association
on major issues like rents. We consult regularly with them on
things like the general service charge levied on the Market and
any operational matters. We have a good relationship with the
Association and the individual tenants. I think that is constructive.
24. Are you finding continuing interest in people
coming on to the site because obviously you lose tenants and gain
new tenants? What is the sort of churning process?
(Mr Mills) From time to time we do lose certain tenants
because, as I say, the margins under which they are operating
are extremely tight. Competition is very fierce, not just in the
retail trade from supermarkets but in the supply and price that
they have to pay and commission they make, and that is very difficult.
That is particulary true in the flower market, for example. There
is increasing competition with what they call the flying Dutchmen
who come over in their lorries, supply flowers direct to the retail
florist and bypass the wholesale market. Incidentally, they will
be able to do that without necessarily suffering the congestion
charging that is threatened upon us in the Market, which would
be unfair. It is very difficult. One or two companies over the
years go bust or move out. In the last few years there has been
an encouraging number of inquiries about taking up new premises.
As a generalisation, that has increased over the last three years
compared with the previous period. As I said earlier, I think
in relation to a question from the Chairman, we are getting inquiries
from alternative or complementary food activities, not just fruit
25. Your level of occupation of office space
is somewhat lesser than the trading space. Why is there that disparity?
You did allude to the fact that this is to do with the original
problems about where people are going to put their offices.
(Mr Mills) To be quite blunt, the offices are not
perfect. They are pretty basic. If you had a choice, you would
not start from there. In the trading areas we provide the space
and of course we provide the cost of operating the potential Market.
The traders themselves can refurbish their equipment. We had as
an example the smoked salmon and smoked meat chap who came in
and, I think it is no secret, spent about half a million pounds
on equipping his stand with the latest health and safety, food
and hygiene equipment and machinery. So he has a state-of-the-art
place as a trading unit. The offices which are over the trading
area are pretty grim. Some of the traders have an office as part
of their unit. I am surprised that we have over two-thirds occupancy
of the offices, to be honest. That is better than it was. If we
had untold wealth, we would of course completely refurbish all
the offices. That is not going to happen.
26. Do you have many non-traders in those offices?
(Mr Mills) We have a lot of agents and importers.
They all have a connection.
27. Can we look at the nature of the leases
and the length of time for those leases? What is the going length
(Mr Mills) They are standard, ten-year leases. Previously
the majority of the tenants had nine-year leases. Those expired
at the end of March 2000. At the beginning of April 1999 we started
negotiating new leases and we offered the standard, ten-year lease.
From 1 April 2000, those ten-year leases came into operation.
A few traders have five-year leases and a few, like the smoked
fish chap I mentioned, have a 15-year lease. There is no break
clause in the standard, ten-year lease. There is a rent review
after five years.
28. Is there a demand for longer-term leases?
(Mr Mills) If there is, we can give them because it
is explicit and the Minister quite cheerfully acknowledged that
publicly. We are the body that determines the length and type
of leases under statute. Yes, if somebody wanted even longer,
we would consider it obviously, but we have power to grant it.
Ten years is reasonably satisfactory. The Chairman referred earlier
to the previous uncertainty about the future of the Market: was
it going to continue and what about one-year leases and two-year
leases as some people were talking about? That all added to the
gloom and the doom. The key factors that have lifted that doom
and gloom are: the Minister's statement of April 1999 and, more
particulary, the ten-year leases that the majority of the tenants
29. Finally in terms of tenants and leases,
can you give us a feel for how the rent review situation is handled,
firstly with new tenants and then obviously with existing tenants?
Is there a regular process?
(Mr Mills) Yes. There are two aspects. One is rents.
In April 1999, we issued a notice saying that the process of negotiating
new leases was about to start. We deal very closely with the Tenants'
Association. We use what is called the analogue rent approach,
which is looking at rents for commercial warehousing in London
basically and seeing what has happened there. The Tenants' Association
people have their advisers and we have our property advisers and
eventually we agree a figure. That requires quite hard bargaining,
nobody disputes that, and that is perfectly proper. In the end,
we come to an agreement with the Association. We now have ten-year
leases with a five-year rent review. From memory, the rents went
up by about 39 per cent, but of course we are talking about a
ten-year lease and there is an opportunity for a rent review.
The last time, under the old nine-year leases, when there was
rent review, rents went down by about 30 per cent. I think it
is a fair system. That is rent. The other thing is what is called
the general service charge which is a charge paid for the actual
cost of operating the Market: security, waste disposal and all
that. That is dealt with by means of a finance committee discussing
the matter each year and then the level of service charge being
fixed. It is reviewed each year. The basic charge is about £6.40
per square foot. That is done again after considerable consultation
with the Association.
30. For argument's sake, if the Market was sold
today, what would be your liability in terms of the pay-outs you
would have to make to existing leaseholders?
(Mr Mills) It all depends when and how long the lease
is for the individual tenant and whether the liability would be
ours in total or whether it would extend to anybody else; i.e.
the Ministry. If an Act of Parliament were passed, in effect repealing
the 1961 and subsequent Acts, so we did not have a statutory duty,
the way I imagine it would happen would be that the Authority
per se would disappear. The Ministry presumably in the
interim, before the market was sold, would take over the running
of the Market. That is what I assume but there are as many different
views on this as there are types of produce really. I do not see
that we would necessarily have the liability then because we would
31. I was trying to get a relationship between
the comment you made at the beginning when you said "we now
own 56 acres of prime central London land" and the value
of that asset compared with the liability that either you or the
Ministry would have if the Market were to be sold.
(Mr Mills) This was a very interesting point. Before
the Minister made his statement about only selling the Market
as a going concern, as I understand it, the idea in the then Government's
thinking and that of the previous Government was to sell the site
for possible developmentproperty, residential, commercial.
In my view, that was a bit daft and it was certainly against the
wishes of Wandsworth Borough Council and I thought it would have
been adverse. The liability then would have been compensation
to the traders for the loss of their business and the interruption
to their leases. Now, if it is sold as a going concern, the question
of liability in that sense does not arise.
32. What is the value of the Market and buildings
as they stand?
(Mr Mills) The figure in the accounts, as you will
see, which is historical costs with depreciation, is about £5
million, a figure which does not really change. What would it
actually be worth? Obviously it would be worth what the market
is prepared to see as a figure and who would buy it. Mr Jack and
Mr Curry would know this far better than I but the figures, looking
back through the records, that have been bandied around in the
FT for example, when it was a live issue, go from £20 million
to £40 million. How do you place a figure? If it is sold
as a going concern, what is the valuation of the land and buildings?
If you were to sell it for office or residential development,
of course it would be considerably different. Wandsworth Borough
Council has made quite clear, and they repeat it in their evidence
to you, that they want to see the Market continue. It is a very
interesting point about how much it would be worth. In my view,
it would be worth a considerable sum of money.
33. You mentioned 56 acres and it would be tempting,
if it was sold on, for the new buyer, even if it was sold as a
going concern, to find some way to sell off at least a proportion
of that land to convert it into residential properties.
(Mr Mills) It might be but Wandsworth Council, the
local planning authority, is quite clear, as they have said to
you, that they support the diversification line we are taking
and the continuation and expansion of the Market. It is the biggest
source of employment in Wandsworth Borough outside the local authority
itself, so they want it, too. It all depends on the wording of
an Act and whether somebody could do what you suggest.
34. It does not sound to me that you have any
plans or desire to move.
(Mr Mills) None at all.
35. Would it be possible for you to sell off
part of the site and carry on trading?
(Mr Mills) The only advantage of that would possibly
be to the Treasury, I suppose, because it would not be any advantage
to us. If, say, there is an acre which we could sell without upsetting
the authority of the Market, we would not retain the money; the
money would go to MAFF and then be passed on to the Treasury.
36. When was the last time the Treasury approached
the House on the matter? Was it in the last few years?
(Mr Mills) No. The Treasury were very keen, if I may
say so, and were involved in the proposition a couple of years
ago to sell 10 to 11 acres of the property for the rehousing of
Chelsea Barracks, which did not happen. I do not know how relevant
that is. Of course, when selling the Market was an active consideration,
I understand obviously the Treasury were interested. There would
be absolutely no point in us selling bits of the land piecemeal
because we would not get any benefit at all and it would hamper
any plans for building new premises that we could develop.
37. Finally, do you remember the actual year
when the Treasury discussed that?
(Mr Mills) The Chelsea Barracks proposal was in 1999.
38. You mentioned the words "congestion
charging" in your document. Would you like to tell us what
is on your mind?
(Mr Mills) Yes, with pleasure. We have in the Market
about 5,000 vehicle movements a day. Not all those vehicles come
across the proposed congestion charging zone, but some do, quite
a few do, and so they would be liable to the charge. Of the vehicles
in the Market, 5,000 vehicle movements a day, some naturally,
the majority, are British and some are foreign, bringing produce
from France and Germany through the Tunnel or whatever. We saw
the Mayor of London's consultation paper because we were given
a copy by Wandsworth Borough Council. We were never officially
consulted, which I found amazing. I have written to the Mayor's
office twice. I have never had an acknowledgement. I sent in our
submission on congestion charges on behalf not only of us but
of the other London markets, Western, the three City markets and
Borough Market. We formed ourselves into a group known as The
Association of London Markets. I was made Chairman of that and
I sent in on their behalf our submission to the Mayor's office
on the consultation paper that they never sent us. That has never
been acknowledged at all. We are in contact with a number of people,
some of them GLA councillors and the Metropolitan Police, about
whether it is not unfair competition that British vehicles going
into the Market will effectively, if they go through this zone,
be charged £5 or £6 on the day? If they have delivered
their produce and leave at 7.30 or 8 in the morning, they will
be liable for the charge. As I understand it, it is going to be
collected by means of cameras focusing on the registration plates
of the cars. If you get a Dutch or French lorry coming over, theoretically
that should pay the congestion charge. How is that going to be
enforced because the system here will not obviously have the registrations
of all the foreign vehicles? I have written to the Commissioner
of the Metropolitan Police and the Commissioner of the City of
London Police to ask what their views are. They have both sent
friendly replies saying it is not a matter for them because it
is not a criminal matter but a civil liability that would be created.
39. How would you describe the impact on the
Market if this scheme goes ahead?
(Mr Mills) It could have an impact, depending on how
many vehicles could come through the zone, and also of course
the work force who have to come in by car at midnight because
there is no public transport. If they live where they have to
cross the congestion zone, that could add £25 to £100
per week to their travel costs. The total cost to the Market,
depending upon the number of vehicles that use it, for everybody
concerned could be between £5 million and £10 million