Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 420 - 439)



  420. I do not disagree that progress clearly has been made and we hope the project will be successful but, with respect, I am not sure that answers my question. Two years before the machine moves into action, one set of bankers has already abandoned the project. It is quite clear from the evidence we have heard from the FA, from Tropus and from Sport England that there were serious alarm bells and it seems that the project was allowed to drift until the banks withdrew. The kernel of my probing is how does the department gather that information and how does it deal with it because it seems that Sport England certainly did not deal with it.
  (Tessa Jowell) I have acknowledged and agreed with the chief executive of Sport England that there were deficiencies and weaknesses in Sport England's oversight of the Lottery agreement. I think it is important to remember that, at that point, that was the principal reason for government involvement or government concern about the project, to safeguard the Lottery grant which had already been made. I have acknowledged that there were deficiencies in that process. I have set out in a preliminary way the way in which we intend to address those deficiencies in the future and the remedial steps that we took once the gravity of the David James allegations became clear: informing the National Audit Office and seeking advice, requiring disclosure of the James report to the banks, insisting on improvement in the corporate governance arrangements and clarification both in relation to value for money and the position in relation to athletics.

  421. The legacy from all of this is what appears to be a very inflated price for Wembley. I can only go on press reports but they are talking of in excess of £700 million. I was with an architect who works for Herzog Nomura who designed the Tate. They are involved in building a new stadium for Bayern Munich which will be one of the key centres for the German world cup competition in 2006, a 65,000 seater stadium costing £155 million. We have bought the ground. We have not even cleared the ground and we are in that sort of territory already. Why is it we cannot do these projects properly?
  (Tessa Jowell) With respect, you say "we". This is the FA's choice. This is the FA's project and as long as they can fund it they can build a stadium at whatever cost they choose. Patrick Carter went through the option of a cheaper stadium with them. They rejected that option and decided that they wanted to stay with the modified Foster design. This has not increased the share of public money to go into non-stadium costs. We are not, as a government, funding the stadium; we are funding the non-stadium infrastructure. It is an expensive stadium but it is the FA's choice and they will bear the full financial risk. WNSL will bear the full financial risk, so they are free to make that choice.

  Mr Doran: The shambles has cost us the world athletics championship for 2005 and a huge amount of national embarrassment.


  422. You say it is the FA's project but it is the FA's project on which they have already spent £106 million of public money on land which at best is assessed to be worth just over half that. They have flung away £40 million of public money. Some people say that the land may be worth only £30 million, in which case they have flung away nearly £90 million of public money, so it is not only the FA's project, is it?
  (Tessa Jowell) I am not seeking to defend the terms of the award of the original Lottery grant.

Michael Fabricant

  423. I am pleased you said that because although you operate at arm's length the Department of Culture, Media and Sport is ultimately the custodian of public money and that has to be accepted by the department. The department does have that responsibility. Just for the avoidance of any doubt, we all hope that this project will go ahead despite everything but can you confirm quite categorically that there will be no more public funds, neither Lottery money nor section 106 moneys, being made available to WNSL or indeed Sport England or any other organisation if they were to come to you and ask. It is the £120 million plus the £20 million 106 money; no more additional funds to be made available. Can you confirm that?
  (Tessa Jowell) There will also be, as I have already made clear, £21 million from the London Development Agency but beyond the money which is already committed and is in the public domain there will be no further public money for this project.

  424. Thank you for confirming that, Secretary of State. You will be aware of the developments that happened on Tuesday. Almost by accident, the Football Association and Sport England revealed to us that in order to protect the £120 million in the worst case scenario the money would be repaid through a staging agreement whereby for 20 years there would be football events going on at Wembley which would generate a revenue stream that would enable them to repay the £120 million. Were you aware of this agreement?
  (Tessa Jowell) I was aware that this staging agreement formed part of the terms of the Lottery agreement and also if you refer to your Committee's papers of January 2000 you will discover that the Committee were also aware of this.

  425. We have seen the papers and I have made a point of looking at them but they explicitly did not talk about using the old Wembley Stadium. That was not available to the Committee. This was all new information that came out on Tuesday so again I ask you: were you aware of that before Tuesday?
  (Tessa Jowell) I certainly was aware of the staging agreement. However, it is important to set this in context. The staging agreement is an element of the Lottery agreement. I have already made clear to the Chairman that changes to the Lottery agreement will be necessary if and when the deal that the FA are currently negotiating goes to close. The staging agreement was entered into as an agreement between the FA and Sport England as a guarantee for the return of the 120 million in the event that the project did not proceed, in the absence of a parent company guarantee, which as I understand it were unable or unwilling to provide.

  426. You are right to say unwilling rather than unable. Their turnover last year was £170 million and the Football Association is able to return the money. That is why they set up a shell company, WNSL Limited, to protect them from that.
  (Tessa Jowell) They were unwilling to provide a parent company guarantee. The staging agreement also was an agreement that was reached before Wembley Stadium was closed. Wembley Stadium has now been closed for two years. If you refer to Patrick Carter's report, you will see that he includes an estimate for the likely costs of reopening Wembley Stadium. I think he gives a figure of about £40 million. He then judges that that would allow the stadium to open for five years after which substantial refurbishment would be needed. I will have to be careful in what I say here.

  427. You will!
  (Tessa Jowell) You will make sure I am. This is an agreement between the FA and Sport England. In practical terms, at a point where there is now moss growing on the walls and grass growing up between the seats, does anybody seriously think that this will be the route by which the Lottery money would in practice be returned; rather than Sport England making an immediate claim on the £40 million which would be the cost of reopening Wembley and the subsequent costs that would be involved in making it anywhere that any football fan, however ardent, would want to spend an afternoon? That is the history and I think it has to be seen in the context of the events since the staging agreement was reached.

  428. You asked does anybody believe that. David Moffett, the chief executive of Sport England does because in the context of this revelation that the existing Wembley Stadium would have to be used in order to generate the £120 million, the Chairman and Frank Doran have already pointed out that the land is only worth, at best estimates, about £50 million and most people would say it was worth only about £30 million. He himself said in that very context, "Birmingham looks extremely remote for that specific reason." He feels that that is the only way that they can generate that £120 million as long as the Football Association continue with their emphatic claim that they are not responsible. Were you ever aware of that?
  (Tessa Jowell) I was aware that there was a staging agreement. I was also well aware that the existence of the staging agreement as one of the terms of the Lottery agreement did not preclude the consideration of Birmingham as an option should Wembley fail. I think the chief executive of the Football Association to whom I spoke yesterday about this matter confirms that the position in relation to the FA now is as it was in December when they made clear that, should Wembley fail, Birmingham would remain an option to consider, subject to all the obstacles and difficulties that would have to be considered that he set out in his memorandum to you. In relation to David Moffett's evidence, of course he has to defend the staging agreement. It is a contract to which he is party.

Alan Keen

  429. I am disputing the figure of 120 million. In answer to a question to WNSL on Tuesday, they said they had made £14 million profit after the purchase of the stadium. If they made 14 million profit since the purchase of the stadium, they must have had a gross income reduced to 14 million by various expenses. Had they not been given 120 million to buy the stadium they would have had to pay rent for the stadium out of the 14 million of five, six or seven million and provided sports facilities for other people. In making that calculation, Sport England could have done one of two things. It could have said, "We will give you 120 million but we know you are going to make a profit over the next period and that profit is going to be enhanced by you not having to pay rent for the stadium. Therefore, we want the rental back, five million", or they could have said, "We will give you 125 million because we gave you 120 million in cash and you are going to gain five million by not having to pay rent for the stadium." Was that calculation taken knowingly by anyone?
  (Tessa Jowell) I cannot answer that question. I would direct the question to Sport England. The fact that the stadium was closed and that clearly contributed to the reduction in the value of the site is precisely the kind of circumstance that I would hope more rigorous assessment of the risks associated with the grant would take into account.

  430. I also asked the question about the six months since Wembley closed but it is 18 months. If they could make 14 million profit from the purchase of the stadium when it was closed, why has it been closed for 18 months, because presumably they have had to pay rent to the Millennium Stadium at Cardiff. What I am disputing is that it is not 120 million. Sport England could have given less than £120 million and got some money back.
  (Tessa Jowell) There is probably also a loss of income of around £28 million as a result of the closure of the stadium but I am sure you will understand I cannot really give you an answer to that.

  431. I wondered whether you had thought it through that way. Did Sport England have a say in when the stadium was closed? It is public money and if the stadium had stayed open longer that would have made a difference to the amount of money that is needed at the moment.
  (Tessa Jowell) I also understand that Sport England were not consulted about the closure of the stadium.

Derek Wyatt

  432. I hope Wembley gets built as fast as possible, but I would ask for information. How many meetings did the former Sports Minister have with Sport England to specifically talk about Wembley? I wonder if you could put that in the public domain?
  (Tessa Jowell) I would be happy to accept any request for further information of any kind from the Committee in the normal way.

  433. It is clear that we are pretty unhappy about some of the workings of Sport England and yet the chief executive left his job, depending on what you believe, with between £200,000 and £500,000 of a redundancy and pension package. He seems to me to be one of the most culpable in all this. I want to better understand why he could leave with that money when so much seems to have come to his door.
  (Mr Caborn) It was with the agreement with Sport England. He was paid up to the end of his contract and there was an extra valuation given to his pension which had been given to a number of employees in a similar way in Sport England which I answered in a parliamentary question. That was the procedure they adopted for other employees. Exactly the same formula was used. I think his contract was £150,000 and the rest was added valuation to his pension up to the norm, which was 75.

  434. I understand that but if there is culpability of Sport England, we have already paid off the chief executive rather handsomely and it seems to me a back to front situation.
  (Mr Caborn) Has the case been proven on culpability? At the time the chief executive left Sport England that was not the case.

  435. We asked Tropus - they claim on their website that they are involved with 15 major projects, although I think they only currently have two up and running—how you buy property and how you previously acquire land and they said something to the effect that it was quite extraordinary to buy up front at 100 per cent of the price. Normally, you would pay a third, a third and a third or varieties thereof. If it is extraordinary, why did we give them all the money if it is normal practice of a third, a third and a third?
  (Tessa Jowell) I know you have had submissions which show in what stages the grant was received by WNSL. The way in which the grant was received is again the responsibility of Sport England as the distributor who holds the liability in relation to the Lottery agreement. To look at the broader point, this project has now been subjected to rigorous, independent assessment in relation to the extent to which it represents value for money. As I am quite sure you will accept, that, for me as Secretary of State, was a key judgment in the light of the request for further government money for non-stadium infrastructure. The independent report concludes that this project does represent value for money. It has been subjected to the rigorous assessment of the Office of Government Commerce. I believe that this project which, as David James reflected, was managed in a—my word, not his—rather cavalier way, according to commercial rather than public sector standards, has now been restructured according to public sector standards of transparency and propriety and I believe that the fact that that process has taken place, that corporate governance arrangements are being put in place, is one of the reasons that the banks are showing greater confidence now than they were prepared to do before.

  436. One of our recommendations in an earlier report was that there should be a specific Cabinet Minister responsible for international events. We have noticed that we had it for a part of the Commonwealth Games but after June we did not have it. Do you feel that it would be more appropriate to have one single minister, probably from the Cabinet, to look at and hold international events?
  (Tessa Jowell) No, I do not. I do not think you need a minister other than the Secretary of State who covers culture, media and sport which in turn encompass a very large number of national events. You refer to the Commonwealth Games. We have a supporting role in relation to the Jubilee weekend celebrations and so forth. No, I do not think it is necessary to have a separate Cabinet Minister with that responsibility. I do believe that my department needs reinforcement in project management and delivery and that work is in hand.

Ms Shipley

  437. Further to your response to Mr Fabricant's questions, could you tell me how Birmingham could be advanced and simultaneously the 120 million paid back, because frankly, from the evidence given by Mr Coward on behalf of the FA on Tuesday it was as clear as mud that those two things could happen simultaneously.
  (Tessa Jowell) I am sure that the Committee has Adam Crozier's statement of yesterday and has seen a copy of his letter to Paul Spooner, the project director for the Birmingham programme.

  438. We have not seen that.
  (Tessa Jowell) They are available and we are very happy to furnish you with them. To take it in two stages, I think the FA have made clear that the Birmingham bid is one where the design is at an early stage; no contractor is in place; there have been no detailed costings beyond the indicative costings which have been carried out by Patrick Carter; there is no planning permission. The intention is to build on green belt. There is no due diligence in support of the business plan and no estimate of the extent of public funding that might be needed, although I made clear in December—and it is a commitment which obviously stands—that the £20 million of non-stadium infrastructure money that would be made available to Wembley would also be made available to Birmingham.

  439. With respect, most of that was reasons why Birmingham probably could not go ahead. What I asked was how could it go ahead given the 120 million which, in the worst case scenario, needs to be paid back. From Mr Coward's evidence, it would seem that the locked in agreement to the FA events, which was in detail alluded to by all concerned who came to us on Tuesday, would preclude that possibility. Also, did your department know that retaining the FA events at Wembley was Sport England's fall-back position?
  (Tessa Jowell) Can I quickly read from Adam Crozier's statement from yesterday because he deals with your point. "All parties have recognised that in the event that the Birmingham proposals were to be considered and proved viable it would be necessary to conclude an event staging agreement in relation to the new stadium once current legal commitments relating to the national stadium project at Wembley had been concluded in a way that satisfied all parties." That clearly includes the resolution of the staging agreement because the variation of that would have to be met by both parties. The most effective way of resolving the outstanding staging agreement is to secure return of the 120 million. That is a subject of the contract between Sport England and WNSL. I would not begin to pretend that, were the Wembley project to fail, which nobody wants it to do, we would move quickly or seamlessly to pursue Birmingham as an option. The Birmingham option has essentially been parked since December, when it was quite clear that the FA made their choice to proceed with Wembley. There will be a lot of work to be done but my department would stand ready to assist in that work.

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