Examination of Witnesses (Questions 100
WEDNESDAY 10 MAY 2000
100. You have just completed the national register?
(Mr Hornsby) We shall complete the national asset
register in the autumn of this year.
(Mr Hornsby) But when that support system is on stream
it will be entered simultaneously in the regional case file and
in the national register.
102. You have not yet completed it but you will
soon complete it?
(Mr Hornsby) Yes.
103. It can be five or six years they have held
this asset before they will appear in any completed national register?
(Mr Hornsby) Not entirely. As I explained earlier,
during the time that the grant was live we would have had a series
of visits to check on the capital asset anyhow. The period which
we will need to visit to check that the asset is still producing
community benefit will be the period post grant completion.
104. Mr Young, first of all, a number of system
changes have now been agreed as a result of the NAO Report, including
things like approving grants in principle in the first instance
where the purpose itself is not fully known, including things
like the asset register which has just been mentioned. What system
changes were made as a result of recommendations from your Department
before the NAO came in?
(Mr Young) To give a true picture can I stand back
a bit? We have had, of course, two NAO Reports on Lottery distribution.
There was one first on the Sports Council, which was on their
initial capital projects and focused rather a lot on the assessment
of bids. The second was on the Arts Council where the NAO looked
at the 15 biggest capital projects under the Lottery. Now this
one where we have looked at these mostly revenue grants. In each
case the NAO Reports have thrown up important and interesting
different suggestions and simultaneously, as I have said, we ourselves
have been in the business of continuously improving the performance
of the Lottery distributors. So over the last two or three years
we have issued revised financial directions. We have laid down
new requirements on grant variations, on monitoring, on need to
get sufficient resources and skills. We are now entering into
the evaluation phase, as Mr Hornsby has said. So it is right,
as a result of our best practice discussions and the NAO Reports
and other suggestions for improving the performance of the Lottery
distributors, we bring them together regularly and either by guidance
or by changes to directions or by discussion we try and cause
improved action. That is the core position. I hope that helps
answer the question.
105. It does in a sense. I am interested, you
talk about the other NAO Reports as well and the other grant giving
(Mr Young) Yes.
106. Are the changes which you have made to
systems within this grant giving body purely due to changes that
the NAO has suggested in these other reports or are they changes
which you yourselves as a Department have come up with, quite
separate from anything which may have been suggested by the NAO?
(Mr Young) I think it is a bit of both. I do not want
to give credit to anybody in particular for the changes we have
made. I am trying to give the true picture, which is one of continuous
improvement. As a matter of fact on the timing, this Report looks
at grants made between October 1995 and January 1997. I appeared
here to talk about the Sports Council in June 1998 and then a
year later to talk about the Arts Council, so you cannot see a
causational change from one report to the particular change. It
is not like that. We do not wait for the NAO Report or wait for
the Committee hearing, we try and improve things all the time.
As each distributor makes a change, discusses it with colleagues
and with us, then we try and make the change. We issue guidance
notes. We have best practice seminars. That is the sort of thing
which goes on.
107. It seems to me and it seems to some of
my colleagues, I think, that some of the changes which are being
made as a result of this NAO Report are, with the benefit of hindsight
possibly, fairly obvious changes to make. I wonder if you could
give us any explanation as to why you have not spotted these potential
changes yourselves in the Department without having to wait for
the NAO Report?
(Mr Young) Mr Hornsby will have to be specific on
this particular point. I hope I am not giving the impression anybody
was waiting for the NAO Report or, indeed, that these changes
which have been made have been caused solely by the NAO Report.
As I understand it, the Charities Board and all the other distributors
have changed their practices as well and we have issued different
guidance and policy directions ourselves. But, for example, we
have heard about the increased number of grant officers, we have
heard about the complete new grant management manual, we have
heard about the estate procedures. The Report talks about the
Charities Board reviewing these procedures for supplementary grants
and grant conditions. None of this was awaiting the NAO Report,
it was all as a result of the discussions that the Department
has with the distributing bodies about how to improve performance.
108. Mr Hornsby, can I turn to you. I do not
quite understand the process here about capital assets. Can you
tell me when a body is given a grant to buy a capital asset, it
is presumably owned then by the organisation to which the grant
(Mr Hornsby) Indeed.
109. Does the Charities Board have any rights
over that at all?
(Mr Hornsby) We did consider at an earlier stage whether
we would be justified in taking a charge on that asset and we
discussed this with our lawyers and with my finance colleagues.
The view taken, given the scale and nature of our grants, was
that the bureaucracy and, indeed, the cost of taking out separate
free standing charges would outweigh the benefits. It is an option
that we did consider.
110. What controls are there for the length
of time that the asset has to be maintained by their organisation
and used for these purposes? Is that part of the standard terms
(Mr Hornsby) The requirement of the standard terms
and conditions governs the period for which the grant is live
and, in line with the statement of financial requirements, looks
at an obligation on the organisation to inform us if, at any subsequent
stage, they wish to dispose of the asset, in which case, we would
look at the possibility of reclaiming the appropriate proportion.
111. Is that forever and a day, or is there
some time limit on how soon they can
(Mr Hornsby) That statement of financial requirements
runs for 80 years. In my own view I think this is an excessive
period. The idea that my grant officers are chasing up and down
the country checking whether bits and bobs we funded 80 years
ago are still true, seems to me excessive. We have raised the
matter with the Department, who in turn have written to the Treasury,
suggesting that 80 years may be a slightly over-long time period,
and we are awaiting the result of further negotiations, which,
as I understand it, Mr Young's department is having with the Treasury
on this point.
112. If disposal did take place and they reported
to you that disposal was going to take place, how would the value
that was clawed back be calculated?
(Mr Hornsby) If I can give a concrete instance; if
we had funded a village hall which was worth £1 million and
we had given them a quarter of a million pounds for refurbishing
and three years later it is taken over by a multiplex cinema who
pay £5 million for it, we would argue that the proportion
of our grant which represented the value of the building should
be clawed back in proportion to the enhanced price that they were
able to obtain commercially. In other words, if it goes to a multiplex
cinema, whatever other jollity it brings to the populace, it does
not bring the community benefits for which we had funded the village
hall, so we would expect a contribution that was in line
113. You say "we would", that presumably
means that such a case has not come about yet?
(Mr Hornsby) No, we have not had cases. On the whole,
the type of voluntary bodies that we fund and the type of capital
assets we buy for them are not ones that they are likely to surrender.
The only cases we have had are where voluntary bodies we have
funded merge or change or go under, and in these cases we say,
"We funded you for a minibus to help respite care for the
elderly. You now tell us that your council of management is imploding.
We ask that that minibus be transferred to the most closely natural
analogous charity in the area which is providing a similar service."
That way we preserve the benefit and we transfer the asset to
114. You said, "We would expect to get
back the proportion of the asset." What rights do you have
(Mr Hornsby) The standard terms and condition we issue
indicate that the grant that goes towards capital assets should
continue to be used for the benefit and the purposes for which
the grant was made, and that in the event of a sale or transfer
we should be notified so that we have the possibility of looking
at appropriate recovery. As I say, we have not had a case yet,
so we have not been able to test it.
115. Having the right to be notified of something
does not necessarily give you the right to recover the money.
(Mr Hornsby) I absolutely take the point. The notification
is a necessary trigger. We link with that the point you have made
116. What is there in your standard terms that
gives you the right to recovery?
(Mr Hornsby) What we say in the standard terms is
that if the grant we have made is no longer used for the purposes
for which we made it, then we would want it back, and the prior
requirement, the trigger for that, is that they must notify us
if it is sold.
117. You use imprecise terms, you say the terms
say, "we would want it back". In the indication you
give now you say you would expect the proportion to come back
to you as the proportion of the original grant. What right in
law could you insist on that you would get back that money?
(Mr Hornsby) My understanding, though I would want
to check the legal detail of the terms and conditions, is as I
have said; they could not sell without written permission, and
in addition we would expect to recover the amount of the grant.
We have not had a case that has been tested in the courts yet.
118. You say, "They could not sell without
written permission", so you have a sort of charge over it,
(Mr Hornsby) To that extent that is true, yes. It
is not a charge in the sense that it is entered on the land register,
but it is an inhibition, and that is absolutely clear in the terms
and conditions, they cannot sell without our written permission.
Mr Williams: There is another division. I make
this point before we leave: Mr Rendel is absolutely right, we
have had numerous occasions, particularly in relation to PFI,
where legalities have proved to be quite crucial in the level
of compensation that the public sector has been able to obtain
from private partners. It would be helpful if you could let us
have a note on the legal basis for your presumption. We will adjourn
again for the division.
(The Committee was suspended from 6.26pm
to 6.32 pm for a Division in the House)
119. What is there in the standard terms and
conditions, which I assume are legally enforceable, about the
provision of the self assessment reports?
(Mr Hornsby) The terms and conditions specify that
at the end of each year, if it is a two-year or three-year grant,
we need an end-of-year report, and at the end of the completion
of the grant, we need an end-of-grant report. That is part of
the terms and conditions.
6 Note: See Evidence, Appendix 1, page 121 (PAC