Committee waves red flag as Circuit of Wales suffers tank slapper

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Public Accounts Committee
Welsh Government funding for the Circuit of Wales (pdf)
Published: 22nd May 2018

Chair’s Statement, Nick Ramsay AM (Con, Monmouth):

“The approach from the Welsh Government to this project has been one of two halves. The Welsh Government made some inexplicable decisions during its initial funding of this project, such as authorising payment for the purchase of FTR (a motorcycle company in Buckinghamshire) as part of the property development grant intended to buy land in Ebbw Vale.

Then, having made the eventual decision not to provide the requested guarantee, the Welsh Government chose to focus its justification for this on a technical accounting matter, rather than citing the comprehensive due diligence which it had commissioned.”

The Circuit of Wales is a proposed (and, AFAIK, still not officially cancelled) £430million motorsports circuit and business park at Rassau near Ebbw Vale.

The Welsh Government provided £9.3million in initial funding to the developers, but in order to proceed, the developers asked the Welsh Government to underwrite £210million worth of finance from Aviva to allow the project to proceed. The Welsh Government refused, triggering a Wales Audit Office investigation.

1. The initial £9.3million in funding wasn’t value for money

The civil service – via Deputy Permanent Secretary, James Price – argued the money provided value because in the context of a £430million project it’s a fairly small sum. While the Committee agreed that government investment in high-risk projects was sometimes appropriate, this wasn’t one of those occasions.

Around half of the £9.3million was made up of property development grants with, or through, nine different companies related to the developers (Heads of the Valleys Development Company, HOVDC for short) – some of which weren’t readily identified by the Welsh Government beforehand.

There was no evidence of a competitive tendering process and the Auditor General revealed that some of the payments were nothing more than monthly retainers (including to Aventa – a company wholly owned by HOVDC’s director, Michael Carrick) with no evidence of a service actually being delivered.

HOVDC have entered a CVA (a “lighter” form of administration) and still owe the Welsh Government £7.3million.

2. There was no reason to buy an English motorcycle company

£300,000 of the property development grant was used to buy a Buckinghamshire-based motorcycle company, FTR – which went into administration in October 2016.

No explanation for the purchase was officially given by the Welsh Government, who would’ve had to approve it as part of the terms of the grant. HOVDC said it was bought to use its links to MotoGP and to eventually re-establish itself in Wales. However, James Price told the Committee it was “value for money” because it would’ve eventually seen the development of “a Welsh motorcycle” and act as a catalyst for the development of an automotive cluster in Ebbw Vale.

In light of that, the Committee was surprised there was no requirement (in the grant award) for FTR to relocate to Wales or create jobs in Wales. The Committee also said a Welsh Government statement saying no public funds were used in the FTR purchase was “incorrect and misleading”.

It’s so bad, the Committee recommend it be used in civil service training as an example of what not to do.

3. Welsh Government outbursts over the Auditor General’s report were misleading

When the Wales Audit Office published their report the Economy Secretary, Ken Skates (Lab, Clwyd South), expressed “surprise and disappointment” at its conclusions and complained he/the civil service didn’t have enough time to read the report – later found out to be misleading as the civil service were given a heads up more than a month before the report’s publication.

The Welsh Government also claimed there were inaccuracies. The Auditor General said there was only one minor error relating to an economic efficiency test and stood by the rest of the report.

The Committee said bringing into question an Auditor General report, “hampers our ability to perform our scrutiny functions effectively”.

4. The excuse the Welsh Government used to withdraw raised concerns

The Welsh Government decided not to underwrite the Aviva finance because they believed that under ONS and UK Treasury rules it would count as part of the Welsh budget, effectively taking £210million away from public spending as “on the balance sheet” money (rising to £373million if the entire debt fell on the Welsh Government).

HOVDC said no concerns were raised with them about this at any point, but the Welsh Government said they told HOVDC in Spring 2016.

The head of the civil service in Wales, Permanent Secretary, Shan Morgan, told the Committee that this accounting issue wasn’t the only reason the guarantee was pulled, while other civil servants said they wanted the guarantee to be at least £100million lower.

No explanation has been given for why the Welsh Government didn’t seek early clarity from the ONS on whether the guarantee would be on or off the balance sheet.

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