Seventh Standing Committee
on Delegated Legislation
Wednesday 3 July 2002
[Mr. Edward O'Hara in the Chair]
Draft Queen Elizabeth II Conference Centre
Trading Fund (Variation) Order 2002
The Parliamentary Under-Secretary of State for the Office of the Deputy Prime Minister (Mr. Christopher Leslie): I beg to move,
That the Committee has considered the draft Queen Elizabeth II Conference Centre Trading Fund (Variation) Order 2002.
The variation order is a technical change, which regularises the ability of the trading fund to receive income from lettings and consultancy advice activities. It leaves the broad financial regime for the conference centre unchanged. The purpose of the Queen Elizabeth II conference centre is to provide conference facilities for national and international meetings up to the highest level. It is an executive agency of the Office of the Deputy Prime Minister. I hold ministerial responsibility for the agency and approve its business plans and key targets from year to year.
The conference centre markets its facilities commercially as a high-quality venue for both Government and private sector use. It is run as a trading fund under the Queen Elizabeth II Conference Centre Trading Fund Order 1997. Its trading fund status allows it to meet its outgoingsboth current and capital expenditurefrom trading and other receipts, and from income retained from year to year. That enables the management team to have operational freedom to run the centre more efficiently and effectively within an agreed operating framework.
Trading funds were introduced under the Government Trading Funds Act 1973 as a means of financing the trading operations of a Government Department. A trading fund is a financial framework that can be applied to the revenue-earning activities of a Department, as an alternative to an agency operating within the resource-funded framework through a parent Department. Operations are considered for trading fund status when their revenue consists principally of receipts in respect of goods and services, and when that would be in the interests of efficient and effective delivery. Trading fund operations are required to break even and to meet certain financial objectives.
Trading fund status was introduced for the Queen Elizabeth II conference centre in April 1997 following a market test of the centre's management in which the in-house management team was successful. The centre moved to trading fund status to provide it with greater financial freedom to develop its business and meet challenging financial and other performance-related targets that were being set. The general objective was
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that the conference centre should grow and develop its business in response to market needs from both the public and business sectors, and maximise its financial return to the Government.
When the original trading fund order was drafted, it was intended that the Queen Elizabeth II conference centre should have considerable operational freedom and flexibility to meet market expectations and to make full use of the building that the conference business occupies. The scope of the funded operations set out under schedule 1 of the 1997 order was drawn fairly broadly. It allowed the centre also to undertake operations
''incidental, supplementary, conducive or otherwise ancillary''
to the provision of conference services, as well as the main conference services themselves.
Since 1996-67, the Queen Elizabeth II conference centre has been extremely successful. It met all of its targets in its first five-year service level agreement. During those five years, it had generated a surplus of £7.5 million, of which £5.8 million has been paid to the Exchequer. It is widely recognised as one of the leading conference venues in the world.
Against that background, the conference centre was subject to a formal quinquennial review last year. On 15 October 2001, my predecessor announced that the Government wished to retain and continue to operate the Queen Elizabeth II conference centre within the public sector. Privatisation or contracting-out the operation was considered, but it was decided that the present management had been particularly successful and that the financial results being achieved were near optimal. Accordingly, there would be no benefit, yet considerable risk and cost, in pursuing those options.
However, it has become clear that the scope of the Queen Elizabeth II conference centre's trading fund operations could benefit from greater clarity. That relates to the centre's ability to receive income from lettings not related directly to conference services and also from consultancy advice activities. The centre has engaged in limited letting of vacant space within the premises for car parking or offices, or the letting of space on the roof for aerials for mobile telephone networks. In fact, those aerials service mobile phones in and around the House.
The great majority of the centre is fully utilised for conference use, but it makes good business sense to ensure that the management have a clear incentive to put vacant space to alternative use and earn additional revenue. The amendment to the order would formalise the arrangement for the agency to receive income from all such lettings and not be required to pass those on to the Department. Otherwise, there would be unnecessary complication, and the Queen Elizabeth II conference centre management would be left with limited incentives to fully exploit the building assets that it occupies.
From time to time, the centre is also asked by third parties if it can provide consultancy advice related to its conference management-related skills and experience and expertise in technical presentations. Such work would probably be mostly within the United Kingdom but could be abroad. The centre's
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management would like to be able to exploit those opportunities, which would help to achieve useful supplementary income and provide useful staff development opportunities.
In effect, the variation to the order simply places the Queen Elizabeth II conference centre trading fund in the same position as resource-funded agencies, which can retain receipts to offset expenditure and make a small return through undertaking non-core work. The order makes quite minor technical and regularising changes that are in the interests of improving the effective operation of the Queen Elizabeth II conference centre. The overall broad financial trading fund regime for the centre remains unchanged and I commend the proposal to the Committee.
Mr. Geoffrey Clifton-Brown (Cotswold): On a point of order, Mr. O'Hara. Having heard the Minister's comments about altering the status of the trading fund, it is clear that the fund is in the risk business. God forbid, if the economy took a downturn, the trading fund could make a loss, in which case it would have to be funded by the Exchequer. Effectively, by altering the trading fund, we are dealing with a money resolution. Is it in order for the Committee to discuss such a matter?
The Chairman: That is not a point of order for me. The Committee has one dutyto consider the statutory instrument. I have one dutyto conduct the proceedings. If that point of order should be raised anywhere, it would be on the Floor of the House.
Mr. Clifton-Brown: I am grateful for that verdict, Mr. O'Hara.
As the Minister said, the order extends the scope of the funded operations of the Queen Elizabeth II conference centre trading fund to retain income from the letting of space within the curtilage of the centre, whether or not it is be used for conference-related services. The order would also allow for the provision of consultancy advice to third parties, which would be substantially within the United Kingdom but may be abroad, and would relate to the agency's conference management-related skills and experience and technical presentational expertise.
By allowing the Queen Elizabeth II conference centre to receive income from lettings and the provision of consultancy services, is the order not forcing the conference centre to compete more in the private sector, but without enjoying the advantages of full private sector freedom?
Has the conference centre made it clear what prices would be charged for the respective services that it will now provide? How will the prices of the existing services be affected? Will they remain the same? How will the Government set price caps in relation to the services being offered? Will there be price caps?
By virtue of the order, the Queen Elizabeth II conference centre will make increasing incursions into the commercial sector. Is it still legitimate for it to remain publicly owned? What is the justification for a publicly owned conference centre?
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How does the Minister think the conference centre has performed since the establishment of the trading fund in 1997? The Minister's opening remarks were most helpful and comprehensive. He was kind enough to say that the centre had reached all the targets set out in a parliamentary written answer by the now Minister for Local Government and the Regions on 29 July 1997. There are seven targets and the Minister says that the conference has met all seven, which is gratifying. Since all the targets have been met, will the Minister now consider new and increased targets?
The Minister said that conference consultancy services would be mainly within the United Kingdom, but could be abroad. That is worrying. Who will keep a check on the various executives tripping around the world incurring all sorts of expenses, and determine whether the business that they bring in is profitable?
What does the Minister estimate to be the increased income that may be achieved by offering the new services outlined in the order? What are the risk factors involved? For example, has the Minister factored in any downturn in the economy, as I mentioned in my point of order?
What are the set up and capital costs? Does the Minister anticipate that the introduction of new functions will have any impact on the existing functions of the conference centre? What measures have the Government taken to ensure that the conference centre becomes more entrepreneurial and able to compete with private sector rivals, notably in conference management? Are management levels in place to ensure that the centre is efficient? What comparators are in place?
How far does the Minister envisage that the scope of the Queen Elizabeth II conference centre will expand beyond conference-related services? We know that the order adds consultancy services, but do the Government envisage the addition of further services to the list? Does the Minister envisage bringing forward further orders to that effect?
What will happen if the trading fund fails to make a profit? The Minister said that making a profit is a key objective, but what would happen if that did not occur due to, for example, the downturn of the economy?
Finally, what is the occupancy charge imposed by the Department? I understand from the explanatory notes that there is an occupancy charge, and there might well be a capital charge. Will the Minister tell us about that? Is the charge related to profitability and is it likely to change as a result of the order? If the building is used to make a greater profit, which, presumably, the Minister anticipates as a result of the order, the occupancy capital charges paid to the Exchequer should increase. Will he tell us what will happen over five years, because he must have considered it?
This is an uncontroversial order, which we welcome. It must be in everybody's interest to make greater use of Government resources. We shall not press the matter to a vote, but I shall be grateful if the Minister can answer my questions. I congratulate him on the full, comprehensive and gracious manner in which he introduced the order.
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