Managing National Lottery Distribution Fund Balances (HC 223-i) Public Accounts Committee 12 Jan 2005

Q46 Mr. Gerry Steinberg (City of Durham): If you turn to page 13, figure 7, it is quite clear that when the Lottery first started the income was much greater than the actual distribution. What are you doing about the huge discrepancy in the first few years? What has happened to that money?

Ms Street: Firstly, I think paragraph 2.3 is a really seminal paragraph, it sets out fairly clearly that the current level of balance is a result of the low rate of drawdown compared with income in the first four years. That was where it all built up. Then, as this report sets out, there have been successive and increasing efforts to reduce that so that is why we can over-commit now by 133% because there is more in the balance than is called upon at present.

Q47 Mr. Gerry Steinberg (City of Durham): I did make some rough calculations. I worked out that the fund had taken something like £15 billion over the life of the Lottery up to now, is that right? The drawdown has been something like £13 billion.

Ms Street: It is very close. I think we are 10:16 and the drawdown has been 14.

Q48 Mr. Gerry Steinberg (City of Durham): That £2 billion is still in balances?

Ms Street: 2.57.

Q49 Mr. Gerry Steinberg (City of Durham): That is the total balances?

Ms Street: Yes.

Q50 Mr. Gerry Steinberg (City of Durham): The reason why I ask is how quickly is that being used up?

Ms Street: I think the graph at table one shows a much too gentle decline from 1999 but since we began to get a grip and really challenge this, as I have said, in the last eight months it has fallen to 6%, which if we can keep that up will bring us through.

Q51 Mr. Gerry Steinberg (City of Durham): The reason why I ask this question - there is a purpose behind it - many of my northern colleagues and myself are very worried about there being big balances at the present time because there is this thing called the Olympic Lottery Fund, is there not?

Ms Street: Yes.

Q52 Mr. Gerry Steinberg (City of Durham): How much of this money is destined for the Olympic Lottery Fund?

Ms Street: The money is not intended to come from the balances. I am wearing my badge for the Olympics.

Q53 Mr. Gerry Steinberg (City of Durham): I noticed that which worries me a great deal.

Ms Street: We can debate this. The virtues of the bid have cross-party support but clearly not everyone wants it.

Q54 Chairman: That is no guarantee.

Ms Street: I just mention it. We will know in six months' time on 5 July whether or not we have won the bid.

Q55 Mr. Gerry Steinberg (City of Durham): I was coming on to that. How much money are you using from the Lottery money before you even know whether you have got the bid or not?

Ms Street: No money from the Lottery.

Q56 Mr. Gerry Steinberg (City of Durham): No money at all?

Ms Street: No.

Q57 Mr. Gerry Steinberg (City of Durham): Okay.

Ms Street: If we do win the bid there is an argument to say that the Lottery funds exactly this kind of celebration of sport and the arts that the Olympics is.

Q58 Mr. Gerry Steinberg (City of Durham): We had a celebration of the year 2000 and it was called the Dome. Can you remember that celebration?

Ms Street: Fortunately I was not at the celebration but, of course, I do remember the difficulties.

Q59 Mr. Gerry Steinberg (City of Durham): Just remind us how much was spent on the Dome?

Ms Street: I think it was £750-800 million. I do remember, of course, appearing before this Committee, and you will have a chance to talk with one of my colleagues next week on that. We will be returning about 13% of the sale of the proceeds back to the Lottery but, of course, it left a scar on my back as I have said to you before. It is important to be clear that if we win the Olympic bid the projection is that the possible diversion from the current good causes will be around 5%.

Q60 Mr. Gerry Steinberg (City of Durham): How much is that?

Ms Street: That is what we are looking at. That is around £750 million.

Q61 Mr. Gerry Steinberg (City of Durham): £750 million. I am very worried, therefore, bearing in mind how much London has had already, not including the Dome. That means good causes in my part of the world is going to dip out again because the money is going to be concentrated in the South of England and particularly in the Olympic bid. Have we got worries about that or not?

Ms Street: I think that, of course, constituency MPs and Members of this Committee will want to look to their own constituencies. From the information I have Durham has benefited a lot, £46 million in the past.

Q62 Mr. Gerry Steinberg (City of Durham): How much did you say the Dome was again?

Ms Street: Several hundred million.

Q63 Mr. Gerry Steinberg (City of Durham): Right.

Ms Street: But some very important projects in Durham. Of course, all of my colleagues in the distribution funds will have to look to distribute across the geographic spectrum.

Q64 Mr. Gerry Steinberg (City of Durham): Are you saying that if we are successful with the Olympic bid that the distributors can look forward to a lot less money?

Ms Street: I have explained, our projections are 5% could be deferred.

Q65 Mr. Gerry Steinberg (City of Durham): What was the original expectation the Dome was going to cost?

Ms Street: I do not have that. I think the Dome came in on budget but the visitor projections were extremely optimistic.

Q66 Chairman: We had a report on this this morning, actually, so we know a bit about it. It cost about £600 million, is that right, NAO?

Sir John Bourn: Yes.

Q67 Chairman: £600 million because of the shortfall in visitor numbers. That is the answer to the question.

Ms Street: No doubt you will be discussing that next week, Chairman.

Q68 Mr. Gerry Steinberg (City of Durham): I am very worried that my good causes in the North of England are going to end up as good causes for the Olympics?

Ms Street: I note your concerns.

Q69 Mr. Gerry Steinberg (City of Durham): I hope you will do more than note it. Can we move on. Would you agree, therefore, that there is this danger looming, it would be advisable for the distributors to spend as much as they can at the present time and give out more grants?

Ms Street: My reasoning would not be the same as yours. Parliament will have the opportunity to take a view on the Olympic Games and whether they want it. That is why I cannot answer your concerns, because it is a matter for Parliament and for ministers. As a matter of good financial management, as I have said, we are extremely keen, and we have had robust discussions with the Lottery distributors to reduce balances.

Q70 Mr. Gerry Steinberg (City of Durham): How can you ensure that the distributors now move much more speedily to allocate grants?

Ms Street: I think the movement has to be not necessarily in speed. HLF in particular is very fast in getting money out of the door. The move has to be to implement their own policies and for some of them to see if they want to move a little bit along with that spectrum of caution and over-commit more than they do now which the NAO clearly signals ---

Q71 Mr. Gerry Steinberg (City of Durham): Clearly the two organisations sitting either side of you have something like half a billion pounds in surplus, is that right?

Ms Street: A bit more than that.

Ms Souter: Our balance is just over £900 million but if I can explain, it is not surplus. All of that money, and by the end of this financial year another £280 million on top, is committed to specific projects, Woodhall Colliery and things like that, projects which are either being developed and shortly will be ready to go or have spent some money but not yet spent all of it.

Q72 Mr. Gerry Steinberg (City of Durham): I understand your problem, I do. With the new National Lottery Bill there could be problems, clearly, particularly with yourselves. Do you think it is fair that with the new recommendations any interest being held separately should be shared equally amongst the distributors?

Ms Street: I can understand perfectly the Government's thinking behind it.

Q73 Mr. Gerry Steinberg (City of Durham): Do you think it is fair?

Ms Street: It would be for Parliament to decide.

Q74 Mr. Gerry Steinberg (City of Durham): Yes, but do you think it is fair?

Ms Street: I think at the moment the need for heritage projects is so great that I would be very sorry to see any loss of income to heritage projects. Clearly that is a matter that will be put before Parliament and for Parliament to decide.

Q75 Mr. Gerry Steinberg (City of Durham): You see I have a great deal of sympathy with the argument that has been advocated that you should be spending the money more quickly but also what worries me as well is money should not be given out willy-nilly and that money is given to the projects. How do you assess that projects are doing what they said they were going to do?

Ms Street: We have very clear published criteria for each of our grant programmes which we provide in all sorts of different formats for people and obviously we are working within terms of our strategic plan which runs to 2007. The assessment process is a very formal process and we look at each of the criteria and assess against those. Obviously it is a recorded process as we are distributing public money we have to be accountable for what we are doing. With the largest projects we will employ then a monitor to make sure that what is happening on the ground is what people said they were going to do in their project. Now the degree to which we check projects, and the frequency with which we check projects, obviously depends on the size of the project we are talking about. If we are talking about a £20,000 local history project, which might be run through our local heritage initiative programme of the Countryside Agency, there will be a very light touch monitoring assessment there. If we are talking about a £20 or £25 million grant, thinking about the £20 million given to the Royal Festival Hall, for example, there will be inevitably a much greater degree of monitoring and detailed assessment as the programme goes along. We have talked about risk a lot already, I think it is right that we assess the risk of the various projects and apply a degree of monitoring accordingly.

Q76 Mr. Gerry Steinberg (City of Durham): A final question to Mr Dunmore, what do you hope the Bill that is going to come before Parliament shortly will do in terms of the distribution of the interest and the distribution of the balances?

Mr Dunmore: Certainly we welcome the Bill and the particular reason why we welcome the Bill is because it will legitimise the big Lottery Fund which will be very helpful. We welcome the fact, also, that in the Bill the Government is committed to giving us a much more flexible framework than the framework that the New Opportunities Fund had which will enable us to add value to the programmes that we have developed and to respond to the views of our stakeholders.

Q77 Mr. Gerry Steinberg (City of Durham): Can you answer two specific questions?

Mr Dunmore: On the reallocation of the interest, I feel fairly neutral, I think it could be regarded as being a fairer way of doing it. I do not think it will make a great deal of difference to the way we behave. I do not look at my balances in the NDLF every week and say: "This bit of it is interest and this bit is principal", I just work on the basis of the balances that we have got and the firm targets that we have for reducing them. I am not sure that will make a great deal of difference to me. Again, I feel fairly neutral about the other process that is proposed in the Bill as well.

Ms Street: I wonder if I could correct something: I said £750 million but I am advised - I do not know if this brings you small comfort - it should have been £450 million not 750 million.

Q78 Mr Williams: For the Olympic?

Ms Street: That would be the diversion from the good causes.

Q79 Mr. Gerry Steinberg (City of Durham): 5%?

Ms Street: Yes.

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Q105 Mr Williams: It says "income" down here. This is purely income into the Distribution Fund, that is what I am talking about. On page 13 it shows income for the Distribution Fund of 1.4 million as of 2003-04 and, therefore, what you are committing, just to get a comparator, is equivalent to one-third of a year's income.

Ms Street: I think the calculation that we have made, and it is an estimate, is that there will be a 5% diversion, that is a 450 million diversion, over the seven years up to 2012. It is not really taking it out of one year's income. I do not know if that helps for clarification.

Mr. Gerry Steinberg (City of Durham): These figures are just not what we were told about. These figures are not the ones that we have been given in the report. The report says: "In total the National Lottery is expected to provide up to £1.5 billion to help meet the costs of staging the Games, should London's bid be successful. In addition to the £750 million to be raised from the new games, the Government proposes that: £340 million...." et cetera, et cetera.

Chairman: I think we will have to vote. We will adjourn for five minutes.

The Committee suspended from 4.35 p.m. to 4.41 p.m. for a division in the House.

Q106 Mr. Gerry Steinberg (City of Durham): The response was, you said, something like £400 million but I can remember when I read the report at the weekend (but I could not remember where I had read it so I have had to quickly go through it) at 4.17, on page 29, it does not say anything about £400 million, it says: "... the National Lottery is expected to provide up to £1.5 billion to help meet the cost of staging the Games, should London's bid be successful. In addition to the £750 million to be raised from the new games ..." That is £2.5 billion. That is a little bit more than £400 million, is it not?

Ms Street: I will try and clarify to what I was referring. The £450 million is referred to in paragraph 4.15. Part of the way down you will see "59% of the £750 million to be raised from the new games over their seven year life might come from players switching from existing lottery games." 59% of the £750 million is the £450 million I was putting on the record which over the years (I think it is about £64 million a year) from the report might be diverted. It is then set out very helpfully in the report that of the £1.5 billion we expect £750 million to be from the new games, but not all of that will be diversion, and £340 million mainly from Sport England, so it is exactly as set out in the report and I probably did not express it very well. It was the 59% that I missed.

Mr. Gerry Steinberg (City of Durham): That is as clear as mud.

Mr Field: Beat that one.

Q107 Mr. Gerry Steinberg (City of Durham): Give us a yes or a no; does that mean that in fact £2.5 billion will be taken from the Lottery to pay for the Olympic Games?

Ms Street: No, £1.5 billion is the expected total, of which a large amount, £340 million, will come from Sport England and the estimate is a £440 million diversion from the current causes.

Q108 Mr. Gerry Steinberg (City of Durham): So I am right that it going to cost £2.5 billion to stage the Olympic Games here?

Ms Street: No, that is not correct but I would be happy to write to you.

Mr. Gerry Steinberg (City of Durham): There are two questions I wanted to ask but I am hoping to come back on that.

Chairman: Roll them into one.

Q109 Mr. Gerry Steinberg (City of Durham): Miss Souter, the National Lottery sent us a briefing which makes quite desperate reading if you were to believe it, and I am not saying it is not true. You told us that clause 7 of the new Bill would create a power that would, if used, force the Heritage Lottery Fund to either tell projects that have already been awarded grants they cannot have the claim or even to close the doors to new applications altogether. In clause 8 you told us that if the invested income were to be shared, you would lose something like £15 million a year. Do you still stand by those two points that you made in the briefing?

Ms Souter: Yes, what we were attempting to do was draw attention to what we thought the impact of the clauses as currently drafted (in our understanding of what they meant) would be, and we subsequently, as we do on a regular basis, had further discussions with the Department, and I am sure that the Department will be clarifying and Ministers will be clarifying during the second reading and other stages of the Bill exactly what that will mean. I think that it is clear that the clause which reallocates interest will have the impact that the NAO itself estimated to be 15.7 in 2003-04 so I think that can be factually calculated. The way in which the other clause on possible reallocation of interest is handled I am sure is something Parliament will explore further in the next stages of the Bill.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.