“The Gathering 2009”
Item 2 is the section 23 report “The Gathering 2009”. I welcome to the meeting the First Minister, Alex Salmond, and the Cabinet Secretary for Education and Lifelong Learning, Michael Russell.
I am content to allow committee members to proceed with questions.
Thank you very much, and thank you for making time for us.
I did not.
I met Jamie Sempill many years ago—before the 1999 election, I think. I think that he was a Tory candidate then. I had no contact with Jenny Gilmour, and I never discussed the gathering with either of them at any time before my first meeting with them.
The decision to give a grant was not exceptional in itself; that would happen in the normal course of business practice. However, it was a bit unusual to agree to give a grant to a company that was structured in the way that this one was. For example, in the case of the Cairngorm funicular railway, there was joint public sector and private sector exposure. In this case, the company directors’ only exposure when the organisation was set up was £1 each, so the public sector was essentially taking on all the risk. As we now know, some small private companies have clearly suffered as a result. The set-up was unusual. Why did you think that it was acceptable to give a grant to a company that was structured in that way? The directors had very little exposure to liability.
As I remember, the original grants were from EventScotland, the City of Edinburgh Council and the local enterprise company.
The company limited by guarantee structure is not unusual in itself; there are many companies limited by guarantee. I think that the company was seen as a company within the cultural sector that was doing a public good. I understand that the gathering could have come about only with the involvement of the Standing Council of Scottish Chiefs, of which Jamie Sempill was a prominent member—indeed, I think that he was chair of the council at one stage—and the company was seen to be undertaking a public good to a great extent. The fact that the three public sector funders that the First Minister mentioned each provided a grant during 2007 confirms that it was seen that a public good was being undertaken.
It might be helpful to say that, across the homecoming programme as a whole, a ratio of return of 8:1 was looked for. I believe that the same ratio, which I assume comes from EventScotland and the tourism industry, has applied to other tourism events for many years. In other words, it is assumed that £1 of public grant will be able to generate £8 of value in the total event.
I accept what you and Mike Russell are saying, but the issue is that, if things had gone badly, as they subsequently did, the company directors were liable for only £1 each. When you decided to give a grant on top of the other public sector grants, you stood to lose considerably more than either of the directors. Is that a factor?
A grant is not something that we expect to get back; the grant is for the delivery of the event, and that is matched against whether the event is delivered or not. We will come on to discuss the loan that was advanced to The Gathering 2009 Ltd, for which it is obvious that there were different criteria. If the event had been successful in financial as well as in tourism terms, we would not have expected to get the grant back. The loan is a different matter.
It is important to note that, as it says in the heading on page 13 of the Audit Scotland report,
Why did you decide that the Government would not be involved in the steering group?
Again, I am dealing with matters that occurred before I became the relevant minister. I think that there was a feeling that the steering group was the appropriate group of organisations that would have a day-to-day involvement with the event as it took place. Remember that, as the Auditor General for Scotland said,
Do members have questions about the grant?
After the Government signed up to the grant, it had to consider progress on the event. It says in the Audit Scotland report that you received “informal updates” on progress. Will you give a bit of detail about what that means?
The steering group, as we are indicating, met on a regular basis. It started with quarterly meetings, then it met monthly and eventually there was a weekly meeting. The steering group included organisations with a connection with government, which were watching what was taking place.
Did the informal updates relate to the feedback that you were getting from the steering group?
The steering group was instrumental in ensuring in discussions with the group that it was going in the right direction.
Do you find it surprising that, in its monitoring of progress, the steering group was not receiving actual and year-to-date financial information on performance?
As the Auditor General said in his report and in evidence to the committee, with hindsight there were questions about the quality of that information. At the time, I think that the group felt that it was getting the information that it needed. As the Auditor General said on page 1,
However, you were receiving informal updates from the steering group. I find it staggering that a group that was monitoring progress was not receiving accurate financial information. Did the Government not pick up on and have concern about that?
Had the group known that it was not receiving accurate financial information, I would find that staggering, too, but all the evidence is—again, it is in the Auditor General’s report—that it is only with the benefit of hindsight that we know that to be the case.
Remember that a steering group does not replace the board of directors. The board of directors has legal duties and a range of other things. The steering group approach, which, as Michael Russell said, has been applied across a range of supported events, is taken to ensure that the event will be delivered as envisaged—in other words, that the grant from the public will result in the event that was promised. In fact, the tourism impact of the gathering turned out to be much larger than had been envisaged. The issue with the gathering is not the impact on Scottish tourism but the financial difficulties and debts of the company.
I understand the legal requirements on company directors, but I would have thought that, if a steering group was in place to monitor how the event was progressing, consideration of key financial information would have been part of its role. It is unusual, to say the least, that actual and year-to-date financial information was not being provided. I would have thought that the Government would have looked at the matter in the context of the updates that it was receiving.
I have indicated what the steering group’s role was and what information was being received, and I have said that, in hindsight, some of the projections turned out to be wrong. On the projections about the day and thereafter that were wrong, I do not think that any of the information that the group had beforehand would have told them that.
It is not surprising that the projections were wrong if it was not using actual financial information—
It was using financial information, Mr Kelly, as I think all the reports show. Of course, there are questions, which you are raising, about some of the information that went to the group. However, it was using financial information.
What financial information did the Government receive in its informal updates from the steering group?
We received information about whether the event was on schedule, planned and going to take place—in other words, as the First Minister said, on whether the event would be delivered. The information that we had all the time was that it would be delivered, which will be germane when we discuss the events of 28 April 2009 and thereafter. The information that we were receiving was that the event was going to be delivered. That was the most important information that we could have at that stage.
You were seeking broad-brush, high-level assurances, as opposed to financial information that might give an indication of how things were progressing—
Not “as opposed to” financial information, Mr Kelly. That would be a misrepresentation. However, our view was that we had provided the grants for specific purposes—£80,000 for the Highland games and £20,000 for the education programme—and the indication was that those would be delivered.
Did you receive no financial information in your informal updates?
If we were to check everything that was going on with every organisation with which we are involved every ten minutes, we would not do anything else. Our job was to ensure that the event would be delivered.
As I recall, it says in the Audit Scotland report that the steering group was receiving information on central, pessimistic and optimistic assumptions. The financial information that it received turned out to be wrong, but it was receiving financial information.
Mr Kelly is concerned about the Government’s day-to-day involvement in the event. I am not sure what he is looking for and whether he expected you to be down there organising the event on the day. Was your involvement in the gathering different from the involvement that you would have in a similar event? Was your approach radically different from the approach that the previous Government would have taken? My understanding is that it was not. Were you doing anything radically different from the general approach to running events?
I would have said not. We do our best to help and support where we can do, and it was important that we should secure an event that had such strong significance in terms of the multiplier effect, as the First Minister said.
I understand from the timeline and the Audit Scotland report that Lord Sempill and Jenny Gilmour first approached EventScotland in February 2007. That was not when EventScotland, the City of Edinburgh Council and the LEC agreed to make the first grants. Given that the same steering group structure was used for other events, I cannot see why we would have had a different structure in this case. When we came into office, we did not say that we would change the structure of steering groups for delivery of major events. In retrospect, perhaps changes should have been made, but we did not make them.
On pages 8 and 9 of the Auditor General’s report, it is indicated that, at one stage, The Gathering 2009 Ltd sought £205,000 of additional grant funding but the Scottish Government decided to provide £100,000. That suggests that, throughout the process, the Scottish Government did not have a blank-cheque policy towards The Gathering 2009 Ltd and that its requests were considered in detail and on their respective merits.
Exactly so. The report also confirms—it is entirely clear—that the £100,000 that was awarded towards the end of 2008 was awarded for specific purposes that we wished to see delivered and which were delivered, and in a way that met Scottish Government objectives. That is why the commitment was made. The relationship is entirely clear. Equally, we did not support proposals that did not meet or were not central to our objectives, or which we did not wish to see delivered. That is entirely proper. Others would have taken the same view.
If I remember correctly, two things were happening at the time. First, the event was shaping up to be much bigger than had been originally anticipated. Secondly, The Gathering 2009 Ltd was seeking funds to support the broadcasting of the event. However, the Government took the view that that should be a commercial matter between The Gathering 2009 Ltd and the broadcasters. To be fair to The Gathering 2009 Ltd, by then we were into the financial crisis. It may have been much more difficult to secure broadcasting at the end of 2008 than it would have been at a different stage. Nonetheless, the Government decided to support specific educational and other initiatives as part of the gathering event but not to support what we viewed as being primarily a commercial activity—the broadcasting of the event.
Paragraph 17 on page 9 is relevant to the points that James Kelly and Anne McLaughlin have explored. It states:
Absolutely.
On page 8, the Auditor General states:
I think not. In addition, we know that, from June 2007, The Gathering 2009 Ltd had been discussing its business plan with EventScotland. In July 2007, the three public sector funders—EventScotland, Scottish Enterprise Edinburgh and Lothian and the City of Edinburgh Council—agreed to provide a grant of £100,000 each. The event was well established and clearly had bona fides at that stage. However, when The Gathering 2009 Ltd came to the Government to request resources, we treated it in exactly the same way as anyone else. A substantial part—half—of its request was turned down.
I think that I am right in saying that Lord Sempill and Jenny Gilmour have confirmed that they have never previously been involved in a company in liquidation.
Thank you.
We move on to the issue of the loan. Cabinet secretary, we are advised that, in April 2009, when you were in your previous role, the directors of the company met you and reported cash-flow problems. Did the suggestion of a loan come from them or from you?
In my recollection, the issue did not arise at that meeting, at which the company was outlining its difficulties.
Just to clarify, what the company was talking about was, in effect, a host broadcaster. Dozens of international broadcasters covered the event. However, they were not paying any money to do so but were covering it as news journalists. The Gathering was looking for a company to buy the broadcasting rights for the event. That is what they were struggling with.
That would have given the company additional income, and it would have maximised the potential for international sales of, for example, the DVD and CD that it hoped to issue. The company did, in fact, issue both—but it was not able to market them because, by that stage, it had very bad credit problems.
When did the issue of the loan first arise?
After 28 April, the company produced further information that I had asked for. It looked at ways in which the Scottish Government might be able to assist it—whether through additional funding, through help for the company to negotiate with WorldPay, or through a loan. Scottish Government officials and I discussed the issue. As Minister for Culture, External Affairs and the Constitution at the time, I informed the First Minister of my discussions as part of my normal reporting to him. By round about 7 May, officials sought advice from the finance directorate as to whether a short-term loan would be possible. I know that the committee has been through this evidence with the former permanent secretary, but there was no indication that a short-term loan was anything other than possible. Officials then moved forward to detailed discussion with the organisation as to its plans and its financial projections. Eventually, we concluded that the offer of a loan would be appropriate. That offer was made on 1 June and accepted on 5 June.
So the idea of the loan came from the Government, rather than from the company.
By the time the options paper came out and the discussion took place, a number of possibilities were hardening up. The intention was clear: we wanted to support the company through a short-term difficulty in order to allow it to hold the event—in other words, to allow the outcomes to be secured. Ways in which that could be done formed the discussion that took place Eventually, the subject of the discussion hardened into a short-term loan. I think that that was regarded as the best and most appropriate way of providing assistance.
The company did not ask you for a loan; your officials decided that a loan was the best way in which to move forward.
As you will know, convener, their evidence indicated that they thought of a number of possibilities, one of which would have been some sort of loan assistance. In examining those possibilities, opinion within the Government eventually hardened up on the question of a loan.
But the idea of a loan came from the Government side rather than from the company.
I think that the evidence shows that that idea was probably current on both sides during the discussion. I do not think that it can be attributed to one side or the other.
Well, except that you said earlier that, when you were looking at the range of options, that was one of the options that you had considered. You said that, in the initial discussions, the question of a loan did not come up, so it is quite clear that the germination of that idea was on the Government side rather than the company side.
No, what I indicated was that, between 28 April and 7 May—I will repeat it, convener—a paper was produced, there were discussions about options, which included additional grant funding, helping the company to negotiate with WorldPay and a loan. I do not think that either side would have had a eureka moment. I think that what took place here was a productive discussion about possibilities that hardened up, certainly on the side of the Government, to the effect that this was the best way to do it.
Yes, we can go back over the evidence, because my recollection is that the company said that there were other options. It is clear to me, anyway, that much of this discussion started from the Government side. Obviously, both sides would have agreed, ultimately.
Convener, Mr Russell kept me informed of this, but I think that it is pretty clear from the information that the company produced that it would have preferred a further grant to a loan.
That is as may be, but I am just trying to find out where the idea of the loan came from.
As I think Mr Russell said, he asked for further information and, after that request, the company produced a paper that set out the difficulties and a range of options, one of which was a further grant and one of which was a loan. Mr Russell kept me informed of everything that was happening. He took the decision as a responsible minister. However, given that the very real possibility was that, because of the cash-flow difficulties, the event might not take place, I cannot believe that any other minister faced with that situation would have done anything other than to secure the future of the event. If the choice is between securing the future of the event by further grant or by a loan, then clearly the Government’s preference will be to do it by a loan.
Okay. You have identified a key issue there, First Minister. You say that, if the loan had not been made, there was a real danger that the event would not have happened. Ultimately, then, what the private sector creditors are saying is right, which is that they would not have been left out of pocket had the loan not been made.
I think that the evidence that you had from Jamie Sempill indicated that there may well have been more private sector creditors before the event at that point than there were afterwards. That is not something that I know or do not know. However, I think that it would be wrong to assign causal inevitability in that way. No, I think that that is probably not right. Yes, I think that the event would not have taken place, but the number of people left in the lurch at that stage might have been greater, and might have included all those who had purchased tickets.
Well, of course, and we can trace back to the evidence of that, but the fact is that the financial commitments made by a lot of the small companies that are now out of pocket were made after the loan was granted, so these small Scottish companies would not be struggling in the way that they are had that loan not been given.
I think that this loan was made with the best intentions in order to secure the outcomes of the event.
Did Audit Scotland not comment directly on the circumstances? This is Michael Russell’s area, so he will be able to help me with this, but Audit Scotland precisely commented on the position that the minister was in and said that it was “not unreasonable” to come to that conclusion. I repeat that I cannot conceive that any Government minister faced with that proposition would not have taken action to secure the future of the event. The second argument is that, at that point, the evidence was produced that this was a cash-flow difficulty and that the funds were frozen in WorldPay. There was no reason to believe that the company would later run into financial difficulties to the extent that it did. What was likely, if the cash-flow position had not been resolved, was that there inevitably would have been financial difficulties with, according to the evidence of the directors, many more creditors affected than has subsequently been the case.
I have two further questions; I will then bring in other members.
We had been dealing with the company for some time; that has been made clear in previous evidence. At that stage, the company was working with the steering group on a weekly basis, and we thought that we knew quite enough about it to give it a short-term loan. We also knew that the moneys that were due to it more than matched the short-term loan. There was specifically a cash-flow difficulty—again, I am relying on the Auditor General’s evidence. In those circumstances, we took the not unreasonable decision to provide a loan. The Auditor General said in his evidence that
Finally, the loan was secret. Why was it kept secret?
It was not a secret loan. EventScotland was aware of it. In the circumstances, I think that it believed that it was best not to spread that information any further. However, it was not a secret loan.
So the steering group knew about it.
It was not a secret loan. EventScotland knew about it. Nobody in EventScotland suggested to us, and we did not suggest to it at any stage, that it should be secret. It was felt that the information had gone as far as it should go in the circumstances.
So the steering group and the City of Edinburgh Council did not know about it.
It was not a secret loan in the terms that you have put it, convener.
Did the City of Edinburgh Council know about it?
It was not a secret loan in the terms that you have put it, convener.
It is on the record that the City of Edinburgh Council—
It is on the record that it was not, in my opinion, a secret loan in the terms that you have put it.
It is on the record that the City of Edinburgh Council did not know about the loan. Jim Inch said to the committee—
Convener—
Just let me finish what I am saying, First Minister; I will then bring you in. Jim Inch said to the committee:
I was going to say that the Audit Scotland report points to that. In retrospect, I think that Audit Scotland is right. We should have insisted on EventScotland informing the rest of the steering group of the loan. That is a perfectly fair point to make.
Who was involved in the discussions on the loan?
I and my officials, who advised me, were involved, and at one stage the Scottish Government’s finance director was consulted on the propriety or otherwise of the loan. The normal set of advisers was involved.
Was the permanent secretary ever involved?
I think that the former permanent secretary has indicated to the committee that he was not involved and told you at some length why he felt that that was so. He has given evidence on that.
Given the importance of the event and the request for a loan, might it have been appropriate for the former permanent secretary to have been involved?
No. I rest entirely on his view of the matter, which is correct. He has made his view entirely clear.
I know from his letter that he has reflected on the issues. The word “reflected” is important in modern politics. Given that he had to make the final decision to write off the loan, might it have been best if he had known—
No. He was entirely clear about why he felt that it was not necessary for him to have been told. I lean on that evidence.
How did you arrive at the sum identified for the loan?
It seemed to meet the difficulty that the company had identified.
On the discussions about the loan, on reflection—there is a lot of reflection going on—do you agree with the First Minister that it would have been best to have informed the steering group of the loan?
I think that EventScotland should have informed the steering group with our assistance, but there was no secrecy. Nobody was told not to do things. That is a key distinction.
If you were a member of the steering group, would you feel a bit out of sorts that no one had informed you of such a loan?
I was not a member of the steering group. I cannot speculate on that.
If you were a member of any group that was trying to deliver a major project such as this—
Mr McAveety, I am not going to speculate on things that I have no responsibility for.
Do you not think that it would have been appropriate for the people who were asked to deliver one of the major events that the country was putting on for the year of homecoming to have been given some information about the loan?
We have both said—I concur with the First Minister—that it would have been better had EventScotland told the steering committee. However, I have also made the key distinction about the words used, which I put on record earlier.
You might remember, Frank, that the Government was not on the steering group. However, I have already said that, as Audit Scotland said, we should have insisted that EventScotland inform the other members of the steering group.
What is the limit before you have to report a loan being made?
I do not think that there was a limit on this occasion. The distinction that the permanent secretary made was that there were differences in terms of the sums of money that were being used by the Government. He said to the committee that he was not looking down his nose at the £180,000, but that it was not the largest sum of money that the Government was involved with.
Did you discuss with the permanent secretary how to handle the issue of the loan under the legal conditions relating to how loans are dealt with? He has discussed issues around the use of section 23 of the National Heritage (Scotland) Act 1985.
Advice was given that the loan could be made under section 23, and that was the circumstance in which it was made. That was discussed with the appropriate officials. The advice was that that was how it should be done, and that is how it was done. Equally, it is clear that the advice of the finance directorate was that that was legitimate and that there was no need to report it elsewhere.
Is it normal for your officials not to inform the permanent secretary of a loan of such a scale?
Yes, quite clearly so. In terms of the proper activities, the permanent secretary has confirmed that there was nothing wrong with his not being informed. The finance directorate has made that clear, and the permanent secretary has concurred with those views, even after reflection.
Are there any examples of similar loans being given without the permanent secretary being informed?
I am unable to give you that answer. As the permanent secretary indicated, loans are not uncommon across a range of Government bodies.
Is it common that section 23 of the—
No, this is the only occasion on which that route has been used. However, there are other pieces of legislation that are commonly used to provide loans, and I am sure that the permanent secretary is not informed of many of those loans.
But that provision is not commonly used.
Section 23 has been used for a wide variety of cultural purposes, but not for loan giving, except on this occasion.
It would have been possible to allocate a further grant to the company, but the question involved a judgment about whether the company’s arguments—which were verifiable—about an amount being effectively frozen in the WorldPay system were true. If the company’s arguments were true, as seemed to be the case—and still seems to be the case—a loan, as opposed to a grant, seemed to be the proper way in which to deal with a cash-flow problem.
I am not disputing that a loan was probably a better course of action than a grant—the evidence indicates that it would have been daft to have given a grant, so a loan was a reasonable option. I have been asking about the process of information around that loan.
Mr Russell, you seem not to like the word, but is it not a simple fact that this loan was kept secret from the partners in the event? They did not know about the loan, and they were not informed of it. Is that not a definition of something being kept secret?
The phrase was not “kept secret”; it was “a secret loan”. I do not want to split hairs with you, Mr Stephen—or is it Lord Stephen these days? I accept the First Minister’s view that it would have been better if EventScotland had told the other members of the steering group of the loan. However, at no time was I or any of my officials involved in an act of secrecy with regard to the loan. That is very important, in terms of how this matter is presented.
So, you do not like the phrase, “secret loan”—
It was not a secret loan.
But you would accept that the loan was kept secret from those partners. Is that right?
I would accept that the First Minister was entirely right to say that it would have been better had EventScotland communicated the information to the other members of the steering group. That is what I have said, on the record, and that is what I will continue to say.
EventScotland was not making the loan; the loan was being made by the Scottish Government. That information was given to EventScotland. I have said twice now that I agree with the fair point in the Audit Scotland report that we should have insisted on EventScotland informing the other members of the steering group.
And you, as the Scottish Government, which gave the loan, had no responsibility to those other partners to tell them directly.
We should have insisted on EventScotland doing that. We were not on the steering—
Why go through EventScotland? I am not clear why—
We were not on the steering group.
EventScotland was part of the steering group. On reflection—to use Mr McAveety’s term—and after reading the Audit Scotland report, I believe that it is reasonable to say that we should have insisted on EventScotland informing the other partners on the steering group.
I am coming on to that point, but I just want to be clear that you, as the Scottish Government—the organisation that granted the loan to The Gathering 2009 Ltd—did not feel any obligation to inform the other partners in the event directly, not through EventScotland, that the loan of £180,000 had been given.
We should have insisted that EventScotland, as a member of the steering group, inform the other partners.
You feel that it should have been done through a third party, EventScotland.
As it was the body that was running the steering group, I would have thought that that would have been entirely appropriate.
On your point about the other partners agreeing on the need for loan, I would point out that, of course, they did not have the information that would enable them to make such a decision at that time—benefit of hindsight is a grand thing, is it not? Surely the crucial point is that the loan would have flagged up to the other partners in the event the financial difficulties that the company was facing. It would surely have been of immense benefit to those organisations to have learned about those difficulties at as early a stage as possible. In effect, what happened was that those financial difficulties were kept secret from those partners.
Around the time of the loan, the partners were presented with a financial estimate of the event, with a pessimistic main run and an optimistic scenario. That is in the documents and the Audit Scotland report. They were getting financial information on the course of the gathering.
They were totally unaware of the cash-flow difficulties that were being faced by The Gathering 2009 Ltd.
They were not. We know that the final pre-event projections in July 2009 showed the company’s indebtedness quite correctly and included a series of projections based on pessimistic, likely and optimistic views of ticket sales, passport sales and other income. The company represented its situation perfectly accurately, and the steering group was involved in detail with the group in helping it to take the issue forward. It is one thing to criticise ministers or others, but a range of people were involved in the steering group and were providing strong practical help to The Gathering 2009 Ltd to ensure that, as the Audit Scotland report says,
Do you believe that full and accurate financial information was being provided to the steering group members at that time?
I think that all the indications suggest that the steering group was performing its function, which is defined in paragraph 22 of the Audit Scotland report, and the directors of the company were working hard in order to deliver the event. You will know that the post-event analysis indicates where the problems were and that there was a slight overspend and a considerably smaller amount of income than had been anticipated. You will also know that one of the reasons that was given for that was the weather on the weekend and that there were other reasons to do with ticket sales. Those are the reasonable analyses that were done.
The two pieces of information that belie what you are saying, Nicol, are in the Audit Scotland report. The entry on the timeline for 8 July 2009 says:
If that was the case, why were no protections built into the offer of loan to ensure that the funds that were due to the company from WorldPay were received by the Scottish Government?
That is an interesting point. The issue of confidence in what the company was telling people is relevant.
I am asking about any protection. As far as I can see from the letter of offer of loan, no protection was asked for.
I am going through the sorts of protection that might have been sought. One is preferred creditor status. There are some difficulties with preferred creditor status. If you seek that, it rather implies that you do not accept the information that you have been given, and it would put the Government in a different position from other potential creditors. The question whether it would be impossible to secure the loan against the assets of WorldPay is more interesting. That is one of the lessons that might come out of this affair.
So none of those options was considered at the time. Is that correct?
When the Auditor General said that giving the loan was not unreasonable, he also said that
An unusual letter, dated 1 June 2009, was sent by Carolyn Gardner of the Scottish Government to Lord Sempill regarding the authorisation of the loan. It talks about a grant being made—schedule 1 of the letter is a grant claim form, which reads:
I did not say that it was thrown together in haste. I said that, as the Auditor General said,
I am happy to provide a detailed written briefing on the issue of state aid and de minimis aid. As a former Deputy First Minister, Nicol Stephen knows that it will not be possible for me to go through what is a huge number of regulations and rules in detail between now and lunch time.
Mr Russell—
If you will allow me to finish my answer, you will be able to ask another question.
Why does the document refer to grant aid being given?
Because we had not given a loan under section 23 of the National Heritage (Scotland) Act 1985 before. As the first paragraph of the letter of 1 June refers to a “loan”, I would have thought that people reading the letter would have realised that it was a loan.
So the words
A loan is a loan is a loan. It was clearly a loan. It was known that it was a loan.
So the word “grant” is an error. Is that right?
A loan is a loan is a loan.
I am sure that the letter makes it clear that it is a loan, and I am sure that Nicol Stephen would not want to say anything other than that. The documentation makes it clear that it is a loan, does it not?
I am clear that it was eventually understood to be a loan, but when the letter was sent out, clarity was not uppermost. The protections that were given to the Government and the taxpayer as a result of the loan offer letter were, it is fair to say, non-existent. The First Minister is smiling, but I regard this as extremely serious. Let us be clear that £180,000 of Scottish Government money—taxpayer’s money—was thrown out of the window as a consequence of that letter.
I am sorry, but that is not so.
No protections were built in—
Not so.
That is factually accurate.
It is clearly not so.
Was the money ever repaid, Mr Russell?
We have an Audit Scotland report that considers whether it was wise to offer the loan, and concludes that, in the circumstances that Mr Russell faced, it was not an unreasonable thing to do. Most of the time, when Audit Scotland considers ministers’ actions and concludes that they were not unreasonable, that is regarded as a general indication of a verdict on what the minister did. Nicol Stephen clearly does not regard it as such; fortunately for him, he was not facing the circumstances that Mr Russell faced.
I asked a very simple question. Was the money ever repaid?
Clearly the money has not been repaid, as everyone knows.
Were any protections built into the offer, to secure the WorldPay money?
The offer was for repayment. That was clearly the protection that was felt necessary at the time. The Audit Scotland report and other comments have made us consider whether we should improve things in such circumstances, and I am willing to consider that.
If the Official Report records laughter when Nicol Stephen was speaking, I hope that it reflects that the laughter was at him and not with him.
Oh, come on. Behave yourself.
Mr Hepburn, we do not need personal insults.
Okay; I withdraw the remark.
Convener, can I place it on the record that I have never said that in this committee and that, as far as I can recall, I have not said that at any time? It would be helpful if members did not make personal comments about individual members of the committee or put inaccurate words into committee members’ mouths.
Okay. The point is noted.
Can I suggest that Nicol Stephen alluded to it, convener, if he did not outright state it?
Can we get on with questioning the First Minister and the cabinet secretary?
I asked a question.
As the committee will know, there was an independent examination of the economic impact of both the gathering and homecoming. The evaluation showed that the economic impact of the gathering to Scotland was rather more than £10 million and to the city of Edinburgh rather more than £8 million. In terms of its economic impact, the gathering was undoubtedly a success. It far exceeded original expectations, including those of the public sector bodies that supported it.
Would either or both of you agree that defining all things unknown as “secret”, as some members seem to be suggesting, is unhelpful to say the least, if not probably sensational and misleading?
I think that I would be happy to agree with that, but I would add to the First Minister’s remarks with a quotation from the manager of the Holyrood hotel, who had his entire hotel booked during the gathering by members of clan Donald. He stated:
Jamie Hepburn can have a last question.
I have two more questions, if that is all right, convener.
It certainly was not done on a whim. The timeline shows that very serious consideration was given to what should take place and what the mechanism should be to take things forward. I think that the Audit Scotland report reflects that. The permanent secretary has given very clear evidence on the considerations that were brought to bear and the solution that was eventually found. I again lean on that evidence.
On the convener’s point about the subsequent effect on other businesses—the company’s creditors—I presume that the loan was awarded not on the basis that The Gathering 2009 Ltd was going to go into administration or liquidation. I suppose that essentially this is the question: the Scottish Government does not have a crystal ball, does it?
We were dealing with an organisation that had started to deliver the event in 2007 and which was the only organisation that was able to deliver it, because of the involvement of the Standing Council of Scottish Chiefs. It had been working with the steering group since February 2008 and had been funded by the Scottish Government to deliver certain clear objectives in the grant that went to it at the end of 2008.
I have three quick points to make. First, the loan was offered not because it was envisaged that the gathering would fail, but to allow it to succeed; that was the intention.
To go back to the convener’s point, when it came to making a decision on whether to provide financial assistance as a grant or a loan, you decided to give the loan. In making that decision, did you think about the private creditors and local businesses that were going to participate and had already participated in the run-up to the event? Did you aim to help or hinder them?
I was mindful in the discussions that took place that there would have been a very severe effect on those who were already involved and who were creditors. We are talking about a decision that was made during May, which was roughly two months before the event took place. A large number of people and organisations were already involved and were expending considerable time and money. That would have been a major problem.
Obviously I understand that, as did the Auditor General.
I hate to speculate, and I think that I should not, having refused Mr McAveety. However, I will just say that I suspect that I might have been in front of this committee for that decision. Perhaps we should reflect on that.
Mr Russell made the decision, and he informed me about it. He got the information. I note the evidence from Lord Sempill, who was led by Lord Foulkes into saying that my private secretary phoned him to arrange the meeting. We now know that that was Mr Russell’s private secretary—there is no doubt about that.
You said that, without the loan, it is unlikely that the event would have gone ahead and rightly made the point that many creditors have not been paid for the event. What is your view about their expectations, given that the Government was clearly fully in support of the gathering? You have said that you were not formally involved in the steering group, but Government organisations were involved in it. Do you have a view on that? Are you aware of creditors’ views that the Government’s involvement in the steering group—albeit informally, through Government organisations—gave it some kind of responsibility, having kept the gathering going at a point at which it might have collapsed?
I am very aware of and sensitive to the creditors’ position. When we come to discuss the efforts in which I was personally involved to secure the event’s future and the creditors’ position, I will be able to demonstrate that awareness. Many of the 400 events for homecoming were supported directly by the Government, but the Government does not take on liability for private companies that pursue events. The Gathering 2009 Ltd is a company limited by guarantee and was established before the Government took office. The fact that an event is supported by the Government and the existence of a steering group, which is the case for many events, do not mean that the Government takes on a company’s liability, which rests with the company’s directors. A steering group does not replace a board of directors, legally or in any other way.
As I pointed out earlier when the member was not here, the steering group model is used widely. There were advisory steering groups for the MOBO awards and the Ryder cup. Paragraph 22 of the Audit Scotland report states:
I was responding to the comment by both of you that, without the loan, it is unlikely that the event would have gone ahead and that people provided services on the basis that they thought the Government supported the event and wanted it to go ahead. I have been left high and dry by what you have just said. Without the decision to go ahead, a number of people would not have spent money and provided resources. As a result of what has happened, those people have not been paid.
The loan was extended with the intention of securing the event. If the event had not gone ahead and income had not been generated from it, many creditors would have been in the position you describe. Our intention in advancing the loan was to secure the future of the event and allow it to proceed successfully. We and the steering group had every indication that there was a good chance that that would happen. The loan was made with the intention of securing the future, not in anticipation of the event’s failure. If we had not extended the loan, the risk of failure and of the event’s not taking place would, at the very least, have been very high.
You have said a couple of times that, because the event went ahead, a number of people were paid and that, had it not gone ahead, many more people might have been left out of pocket. Are you saying that, because the event went ahead, a number of creditors were paid? Some have not been paid.
I understand the point you are making. When evaluating how many creditors there would have been if the event had not gone ahead, I was relying on evidence from the company’s directors, who made that point to the committee. When the loan was extended, all we could know was that if the event did not go ahead there would be significant detriment to the Scottish economy and significant damage to our reputation, and that a significant number of creditors would not be paid. As I have just said to Sarah Boyack, we extended a loan with a view to the event’s being successful, so that no creditors would not be paid.
I will return to the process that was followed and pick up on points that Nicol Stephen made. In response to Nicol Stephen, the First Minister said that he was confident that up-to-date and accurate financial information was in place. When the company told the Government via Mr Russell in April 2009 of cash-flow problems, what financial information did it produce to show that it had those problems?
As I said, we received a detailed paper from the company that set out the cash-flow difficulties and outlined a range of ways in which the directors thought the Scottish Government could help them. Thereafter, considerable interaction took place between officials and the company to discuss the difficulties and the directors’ projections. It took from the directors’ meeting with me on 28 April until 1 June to offer the loan because a detailed understanding of the WorldPay situation was needed.
Were you presented with an up-to-date cash-flow statement and associated financial statements that included year-to-date financial information?
I have indicated that the detailed paper that we received set out the cash-flow difficulties and a range of ways in which they would be helped. Real information was provided on the real cash-flow difficulties and the solutions that would be required.
Did you see a cash-flow statement?
I believe that my officials saw all the information that the company could provide, which included cash-flow statements.
The point about WorldPay and the amount that it held was verifiable and verified.
The amount that was returned from WorldPay after the event was exactly what the directors said it would be.
That would be verifiable if you had an accurate and up-to-date cash-flow statement. You are confident that that information was provided?
It was verified.
I am saying that the amount that was held in WorldPay was verifiable and verified.
Did you or your officials view a cash-flow statement?
Officials viewed all the information that the company provided, which included cash-flow statements. They also had verification of the amounts that WorldPay held. As the Auditor General’s report says, the details of the company’s income, expenditure and projections were discussed with the steering group regularly.
To save time, perhaps you could ask your officials to write to us on whether a statement was seen.
I will ensure that my officials provide additional information to the committee.
Was the information shared with the steering group?
The steering group had the information that it received all the time. The Auditor General examined that and had discussions with the steering group. Paragraph 25 of the report says:
If we accept what you tell us—that you or your officials had an accurate cash-flow statement—you possessed more information than the steering group. [Interruption.] Let me finish. Why did you not share that information with the steering group? Paragraph 24—which you did not read out—says:
With the greatest respect, Mr Kelly, that is not what it says.
I have just read out what it says.
Paragraph 25 is entirely clear that the group was receiving information of a comprehensive nature. I am not sure that this is taking us anywhere but, if you go further on, you will see that the reality of the outturn is that the income that they eventually received was less than projected. At the end of the day, even the cash-flow information and the projections that the group was receiving were affected by the actual ticket sales at the event and during the weekend. The financial difficulty arose neither in the projections nor even in the short-term cash-flow situation, which was rectified by the Scottish Government’s decision to provide a loan, but at the end when there was a small overspend and a considerable undershoot in ticket sales. Those sales were the result of the weekend’s activities.
It is laughable to suggest that accurate financial information was available when the steering group was not viewing actual and up-to-date spend.
I am sorry, but that is not what the report says.
Hold on, Mr Russell.
On the basis of discussions that you and your officials had on the cash-flow difficulties, what information, if any, did you pass to the steering group?
We have made that clear on a number of occasions. Mr Kelly, I must return to the point that the basis of my decision was entirely reasonable. That has been confirmed by a range of individuals. I am sorry that you do not find it reasonable, but it was a reasonable decision that was taken in the best interests of the event, those involved in it and what was going forward. I think that that stands.
Is it not the case that you kept the information secret from the steering group?
No, it is not the case.
What information did you give to the steering group then?
I repeat that what you have said is not the case.
But you have not been able to give us details about it.
Let me answer your question in this way, James. The key information that was needed with regard to the cash-flow advance was to find out whether in WorldPay a sum was indeed being held that the company could not access. We will provide the detail that the convener asked for about the other information that officials had.
First of all, I apologise for my voice this morning, convener.
Clearly we would have wanted to recover the loan. That was the purpose of making a short-term loan and the letter in question makes it quite clear that we wanted the money back once the cash-flow difficulty eased—which, I point out, would have happened immediately once the money held in WorldPay was paid out. That money was, I think, due to be paid immediately after the event; however, it was finally paid not the Monday after the event but the Monday after that. We would have wanted that money back by the end of August. That did not happen because, as we now know from the analysis, ticket and other sales were lower than expected and some spending was higher than expected.
I accept that there are some lessons to learn. Indeed, we have already alluded to one—insisting that EventScotland informs the rest of the steering group—but if the public investment and return are evaluated by the normal criteria, it is clear that the event generated £10 million-plus for the Scottish economy. The issue here is not the public investment itself, whether it be from the City of Edinburgh Council, the LEC at the time, EventScotland or the Scottish Government, but the fact that all those bodies and, indeed, Scotland have had a substantial return exceeding the normal ratio that one expects from tourist events. With great respect to the committee, I do not think that that is the central issue. There are certainly lessons to learn, but the event generated a massive return to the Scottish economy at a time of great economic difficulty.
I have never fully understood WorldPay’s role in withholding the income from advance ticket sales, which, after all, is what has possibly led to these discussions. Do we have a clearer understanding of why that happened? Was any pressure brought to bear on WorldPay to release that income?
Jamie Sempill has already given the committee an indication of the issue. Under the agreement that the company had signed with WorldPay, the money would not be released until after the event; indeed, such money is usually held by WorldPay until after events. Coming back to Mr Kelly’s celebrated cash flows, I point out that the company had budgeted on the basis that the money would not be required to pay bills until after the event. The shortfall in sponsorship that had been recorded—and which was subsequently made up—and the fact that the company had to pay some bills earlier than expected led to the cash-flow difficulty, which could have been removed had the company been able to draw down the WorldPay money. It was not able to do so, which is where the difficulty arose. As I have said, that is in Lord Sempill’s evidence.
On the potential purchase of The Gathering 2009 Ltd, the Audit Scotland report clearly indicates that the First Minister was very closely involved with these matters. Indeed, he has said so himself. We also know that it was a private limited company with two directors. Did the directors know that you were trying to sell the company?
First, let me set out the sequence of events. I met the company directors on 14 August for what was meant to be a general debrief on the event. At the meeting, I was made aware of the company’s belief that it had made a loss; it did not know what the loss was and, obviously, we asked for comprehensive information to be provided. The directors then met Mr Russell on 9 September, by which time the extent of the losses was beginning to emerge.
Yes, but my question is fairly simple. Did the private company know that you were phoning people—for example, the chief executive of the tattoo—to ask whether they would purchase it?
The basic answer is that I informed the company of the meeting that I was calling and to which I had asked the tattoo and the City of Edinburgh Council and, after that meeting, gave it a debrief of the progress or lack of it that had been made.
With due respect, First Minister, I am not asking about that. Were the directors of the company aware that you were phoning people to ask whether they would consider buying this private company?
The directors of the company were aware of the meeting, which was designed to try to find a solution for the company. The directors were aware that that might well involve trying to find a purchaser for the company.
Were they aware that you had phoned the tattoo?
You would have to ask them that.
Well, we have and they said on record that they were not aware of your efforts to sell a private company. In other words, you were secretly making efforts to encourage the sale—
There’s that word again.
I do not know what other word to use to describe it. The company directors have told the committee on record that they were not aware that the First Minister was trying to arrange the sale of their company.
I briefly met the directors of the company immediately after the meeting on 12 October with the Royal Edinburgh Military Tattoo Ltd and the City of Edinburgh Council to discuss progress. That is what happened. As we know, no decision was made at that meeting, but I certainly met the directors and told them about the progress or lack of it that had been made.
Yes, but on 8 October you phoned the chief executive of the tattoo to ask him to consider the purchase of the company.
I asked him to attend a meeting on 12 October and whether the tattoo would be interested in taking over The Gathering 2009 Ltd.
So is the Audit Scotland report accurate in its statement that on 8 October
It is accurate, but not complete. I asked the chief executive to bring his relevant officials and other members of the tattoo to a meeting on 12 October to discuss the potential for the tattoo to take over The Gathering 2009 Ltd. I had no way of knowing whether the tattoo could or would wish to do so. All I was able to do was call a meeting with interested parties to see whether a solution could be found. That was the purpose of the phone calls.
I presume that you are referring to the meeting on 12 October. The record shows that four days before that meeting you phoned the chief executive of the tattoo to consider the purchase of the company. According to the report, the meeting on 12 October involved
I thought that I had just answered that question. I met the directors immediately following the meeting on 12 October.
And you told them that you were attempting to make arrangements for the sale of the company?
I did, at that meeting on 12 October; I told them what had been discussed at the meeting.
Could I—
Hold on a minute, Mr Russell.
I can help you, convener—
Let me finish. The directors have said that on the record. It is highly unusual for the First Minister of Scotland secretly and behind the backs of directors to try to make arrangements to sell a company. Have you approached parties about buying another company, in circumstances in which the company’s directors did not know that such efforts were being made? Has that been done before?
The directors of the company did know, because on 30 September I met them to discuss potential courses of action. That discussion included the possibility of the company being purchased by other parties. In those circumstances, the directors were perfectly aware that that was a potential course of action.
But did they—
It was a potential course of action for the reason that the First Minister gave and to ensure that people who were owed money by the company could be paid. In those circumstances, on 30 September the directors were aware of the actions that were taking place. That was entirely clear.
Did they know that on 8 October the First Minister had phoned the tattoo?
They knew that, after 30 September, the people who were involved—I think I left on 9 or 10 October—would take strong, positive, helpful action to try to assist the company to move forward from the situation it was in. That is what they knew, and they concurred with that, because it was helpful to them.
They told us that they were not aware that the First Minister had phoned the tattoo. You cannot confirm to us—
You are talking about two different things—
Of course they are two different things. That is what I am asking you—
Allow me to answer, then. You said that the directors were not aware of the phone call on 8 October. I have explained that the phone call on 8 October was made to invite the tattoo to a meeting to see whether it was able to purchase or was interested in purchasing the company. The City of Edinburgh Council was invited on the same basis. I briefed the directors of the company as soon as the meeting had taken place. The phone call was merely to invite people to a meeting and to give them the circumstances of what it was to be about.
First Minister, that is not the question that I asked you. You are answering a different question. I asked—
Convener, you cited a different part of the record. You said that they were not aware of a phone call, but they were most certainly briefed on the meeting as soon as it had taken place.
They have told us on the record that they were not aware that you were trying to sell the company, and the other—
They were briefed on the actions that were taking place.
Excuse me, Mr Russell. The other question that I asked was whether you have been involved in any other efforts to sell privately owned companies where the directors of those companies were not aware of such efforts.
That is not what happened on this occasion. On 30 September, they were perfectly aware of the potential courses of action, which included getting someone else to buy the company. They were perfectly aware of that, so you are not asking an accurate question.
We can check the records, but the record shows that they said that they were not aware.
I did it, rather than Mr Russell, because he was going on a ministerial visit.
No, I asked about your officials.
I often phone people, if I am inviting them to meetings, to brief them on the background. I do not always do it via my officials. When it comes to inviting people to a meeting where officials and everybody else will be present, there is absolutely nothing wrong with the First Minister of Scotland doing that.
Your officials were aware of the calls that were being made. They kept a record of the calls that were made and they were aware of their content.
They were aware that I was calling people to invite them to a meeting. It is obvious that they were aware of that, because I think that I am right in saying that the calls appear in the timeline of the Audit Scotland report.
Some of the calls are in the Audit Scotland report. The ones on 8 and 12 October are in the report, but the phone call to the man in the pub to ask for help on 9 October is not included. Why was that not included?
I think that you are talking about the phone call to Councillor Cardownie. As I remember his evidence to the committee, when you—or someone on the committee—asked him whether he had ever received calls like that, he said that he had, when he was a Labour councillor, from Labour ministers. I phoned Councillor Cardownie to ask him and his officials to attend the meeting the following Monday. His whereabouts when I phoned him were not under my direction or in my gift.
No, but you said that the calls were recorded and you referred to the—
No. I said—
You said that the fact that the phone calls had been made was recorded, and you referred me to the Audit Scotland report. That report does not record the phone call that you made to Councillor Cardownie.
The fact that the call took place was certainly recorded in my records. The Auditor General is here. There is no secret about that call. It was made because, in my view, the City of Edinburgh Council had to be part of the solution, if one was to be found. When Councillor Cardownie came to the meeting, he came with a range of officials from the council, as I expected him to do. I made the assumption, as Major General Loudon did, that he would have informed the chief executive and leader of the council that he was attending such a meeting. Those things seem pretty obvious, convener.
There is clearly some concern around the committee table that you made those telephone calls personally, First Minister. There seems to be a feeling that it was somewhat extraordinary for you to have picked up the telephone and used it yourself. That suggests that some people around the committee table have trouble using a telephone in person. I am a little confused, because I think that it was perfectly ordinary for you to pick up the telephone and call whoever you thought appropriate. Indeed, I think that the permanent secretary confirmed to us that it is not outwith the Scottish Government’s protocol for the First Minister to do so. Will you comment on that?
I admit that I make telephone calls to people on a large number of occasions. I believed that a meeting might offer a solution to a very difficult problem that affected a substantial number of people, as well as a way to secure an event for the future of Edinburgh and Scotland, so I made the calls. I am proud and delighted that I made them. My only disappointment is that the solution that I hoped to find did not fall into place.
It is useful to know that Mr Russell can use the telephone as well, First Minister.
I think that people would have been astonished if they had not felt that the Government had done its utmost to secure the event’s future and the position of the small creditors.
We can go back and look at the press coverage of the weekend of the gathering; at the conference that Queen Margaret University, I think, held shortly after the event and at which its impact was discussed; and at evidence from EventScotland that the gathering was an idea that was intended to roll forward and that even a small deficit was expected to be traded out by the sales of materials and the use of intellectual property.
First Minister, you have mentioned the position of the creditors a number of times. Throughout the coverage of the episode, suggestions have come from some quarters that the Scottish Government does not care about the position of the creditors. I take it that, while the efforts that you made at the time that we are exploring were about securing the wider public benefit of a future similar event, the creditors were also uppermost in your mind.
That is correct. Those were the two outcomes that I was trying to achieve.
I refer to a letter that the committee has received from Dave Anderson, the director of city development at the City of Edinburgh Council, dated 17 November 2010. In that letter, Mr Anderson says:
They were certainly well-intentioned, but I am disappointed that they were not successful. The essence of the proposition that we were trying to argue contained the elements of potential success. I am happy to discuss with the committee what happened at the meeting of 12 October, and what transpired afterwards.
Before I allow Nicol Stephen to come in, I will say that I am aware that the cabinet secretary has another committee meeting to attend. We understand why he has to leave.
I am game to continue if the committee agrees.
I appreciate that. Thank you. Mr Russell, you may leave whenever it suits you.
I will start by asking Mike Russell when he was in India.
I was in India from 10 to 16 October 2009.
From the timeline in the Audit Scotland report, it is clear that the First Minister’s involvement started on 9 September 2009—he can correct me if I am wrong—and that there was a whole series of meetings after that, some of which were internal. The meeting on 9 September was on the same day as Mike Russell met the company directors. There was then a follow-up meeting later in the day between Mike Russell and the First Minister.
I was actually involved from 14 August. If you look at the information that has been given to the committee, you will see that I met for a debrief with the company; I mentioned that earlier. At that stage, it informed me that it believed that it had made a loss, although it could not evaluate what that loss was. I obviously asked for comprehensive information to be supplied to the Government as quickly as possible. Up until then, Mr Russell had been the minister dealing with the event and he had regularly told me of the progress of the difficulties at our portfolio meetings—he had been the lead minister.
I point out that I reported to the First Minister because I was in the First Minister’s portfolio. The regular portfolio discussions took place as the reporting of a junior minister to the minister to whom he was responsible.
Okay. Thank you.
You are correct, Nicol, that we are coming to a period when, for a variety of reasons, I took a more direct interest.
Both you and Mike Russell have referred to the normal actions that any First Minister or minister would take to rescue a company and protect jobs. I am just pointing out that, from my experience in Government, it is unusual for the First Minister to be as involved in an issue of this nature as is clear from the timeline, on which, by the way, the meeting on 14 August is not mentioned. You have given, as the reason, the fact that the minister who was directly responsible was going off to India. I understand how that would have applied in October, but it does not give a full explanation of why you met the directors previously and had other meetings in September.
I met the directors on 14 August for what was meant to be a general debrief on an event that I had attended.
And on 16 September.
About the meeting on 16 September, the timeline states:
So, you did meet the directors on that date. The timeline is accurate.
On 16 September. Yes.
Thank you.
You seem surprised about that. It is my style, as First Minister, to intervene directly in circumstances. I can think of another example in which I phoned to find a potential purchaser of a company. In the case that I am about to cite, it was a successful intervention. I phoned Scottish and Southern Energy because I understood, from sources, that it was interested in establishing a call centre. During that phone call, I was able to inform the company that Barclays was closing a call centre in Cumbernauld. The decision was obviously for Scottish and Southern Energy, not for me, but, partly as a result of that phone call, Scottish and Southern Energy decided not to proceed with an investment in a call centre elsewhere and, instead, chose to buy the call centre in Cumbernauld from Barclays. My involvement as First Minister contributed to that. I do not say that it was my decision—it was Scottish and Southern Energy’s decision—but a direct intervention by me, as First Minister, making phone calls to see whether companies would be interested in a purchase, secured, if my memory serves me right, some 700 or 800 jobs in Cumbernauld.
I put it to you that you intervened because you realised that, when the facts and the scale of the losses became clear and it became known that the company was spectacularly insolvent, leaving a considerable number of small creditors, you would be subject to considerable criticism and would be strongly attacked—in other words, the damage to your reputation and to that of your Government would be very great.
No, I was motivated by two interests. First, securing the interests of the small creditors was a major interest of mine. Secondly, I wanted to secure the future of the gathering as an event. The damage to the reputation of ministers in any Government who were not prepared to try to do things in the public interest would be much greater than the damage to the reputation of ministers who made some attempt—it is far better to make an attempt to secure the public interest.
In all this, did you or your officials offer to find a way to fund the company’s private sector liabilities?
In conversation with my officials, I came up with a proposal that I thought might be a viable way forward for the company that would secure the private sector creditors. As Nicol Stephen knows, we could not bail out the past—it is standard practice not to give grants for things that have already happened. In addition, paying over the odds for a company raises state-aid issues. Having the company’s assets valued was an important part of the process of trying to find a solution, but the Government could not pay £500,000 for something that was valued at £100,000. However, in my view, there was a way of securing the public interest through the proposition that was put first to the Royal Edinburgh Military Tattoo and subsequently, by the permanent secretary, to the City of Edinburgh Council; in fact, I think that the proposition came from the other direction—from Jim Inch.
Did you believe that another public sector organisation could underwrite the private sector liabilities and that the Scottish Government could not?
The convener asked why I contacted representatives of the Royal Edinburgh Military Tattoo to invite them to the meeting on 12 October. One of my reasons for doing so was that, initially, I believed that such an organisation would be able to underwrite the company’s liabilities. At that stage, I did not know that the City of Edinburgh Council had an organisation with the potential to fulfil that role; I believe that I am right in saying that evidence that has been presented to the committee indicates that Jim Inch suggested that possibility to the permanent secretary the day after the meeting.
Did you know about or in any way authorise an offer to the City of Edinburgh Council to provide it with funds to underwrite the private sector creditors? Jim Inch has made it clear in evidence that there was such an understanding and that such an offer was made during his meeting with the permanent secretary.
I was not at the meeting with the permanent secretary. What I authorised was the letter that was sent on 12 November that set out the Scottish Government’s ability. The position, which, incidentally, was made absolutely clear at the meeting when we discussed the matter with the tattoo, is that the Government cannot offset the past. We made it clear that we could not give a grant directly or indirectly to pay for an event that had already taken place, but that what we could do—legitimately and properly, subject to an appropriate business plan—was give an indication of support for a future event. That it was in the Government’s province to do.
In those circumstances, how would benefit come to the private sector creditors? In short, how would the private sector creditors be paid off?
The proposition was as follows: the Government could both write off its own liability and encourage other public sector organisations to do likewise—the permanent secretary checked that with the accountable officers of those organisations—and it was entitled to give an indication of support not for the past but a future event. In return, the potential purchaser of the company—whether the tattoo, as was originally envisaged, or any other organisation such as DEMA, as was subsequently envisaged—would take on the private sector liabilities of the company. It seemed to be a perfectly reasonable and clear proposition.
You made an important point, First Minister, about the intentions of the City of Edinburgh Council. On 14 October, your private secretary phoned the chief executive of the tattoo to say that it need take no further action over purchasing the company. That was because, at that point, you believed that there was a solution with the City of Edinburgh Council that meant that you did not need to pursue the tattoo option. Is that correct?
That is correct. As you correctly surmise, the meeting on 12 October was principally about whether or not the tattoo might be interested in taking over The Gathering 2009 Ltd—the intellectual rights and the ability to hold gatherings in the future. Incidentally, apart from the diversification possibilities that the tattoo had already mentioned to me, it struck me as rather obvious that the tattoo could offer a gathering-type event in the city of Edinburgh.
Just before I bring in Anne McLaughlin and Frank McAveety, I have a question on that point. The press release confirming that the council and DEMA would take over the liabilities was issued on 15 October. Deborah Smith, the acting director of the culture, external affairs and tourism directorate, wrote on 19 October:
We had the belief that they were agreeing to do exactly that. That belief is supported by the press release that was issued on 15 October—a press release that I believe you have evidence to say was approved by the variety of people you mentioned. It was our firm belief that Edinburgh council had decided to do that.
You hit on an important point. We are clearly getting two contradictory stories: one from the Government that an agreement was reached and that Edinburgh council knew that it would take on the liabilities; and statements from Edinburgh council that say that it made it clear that it could not take on the liabilities. Both cannot be true, so you are right: we will have to probe—
You could rely on the press release that was issued by Edinburgh council, and whether or not it was approved by the variety of people—
Absolutely, First Minister—further questions must be asked about that. Each of the four individuals to whom I referred said quite clearly that, at the meeting that they had to discuss the press release, they made it very clear that they did not agree with it. Someone, somewhere is not telling us the full story, and we will have to go back to them.
All I can put to you, whether there was a misunderstanding or a change of mind or heart or whatever, is that every action that the Government took indicates that we believed that Edinburgh, through DEMA, was about to embark on that course and was going to honour the terms of the press release that it issued. That was our firm belief as a Government.
You have referred to the press release that Edinburgh issued—that is the press release that your officials prepared, which is unusual.
The reason for that is that we had, in the normal course of events, and in the hope and expectation that the tattoo would take on the proposition that was being put to it, prepared the press release, which was ready for that eventuality. That press release was offered to Edinburgh council in discussion with officials—I was not there. It was Edinburgh council that issued the press release and agreed it; it was not the Government.
We can come back to that.
I want to come back on the convener’s comments about the fact that you made phone calls yourself, First Minister. I was going to ask you to confirm that being First Minister does not render you helpless, and that you can in fact make phone calls, but Jamie Hepburn has already elicited a positive response from you on that.
That is not true.
Can I just finish my point, and then you can come back in and correct me?
Not if you misquote me.
In looking over the Official Report of the meeting in which Councillor Cardownie made the shock revelation that the First Minister had called him, I noted that the convener said:
As long as it is with specific reference to the gathering, because we are running out of time.
On the reasons for the phone calls, one was to Euan Loudon, because I knew that the tattoo was interested in diversifying, and one was to Steve Cardownie, because I knew that he was in charge of events at the City of Edinburgh Council. If another Edinburgh councillor had been in charge of events, I would have phoned them. I phoned the relevant people to invite them to a meeting. I thought that it was a good idea for me to phone people to get everybody who was needed at the meeting to be there.
I think that it has been suggested that, rather than you phoning, a better way of doing things would have been your officials phoning other officials to phone those people.
I regarded the matter as important. I wanted people to attend the meeting, and hoped that a solution might be found. There had been a substantial discussion for some days, if not weeks, about how we could square the circle, not of being able to support the past, but of finding a proposition that might be attractive for the future. That was what we were trying to do.
The difficulty in our inquiry is that, across the range, inconsistent responses are being given on who was kept informed and what people were informed about. If we have an agenda of having refreshingly open government, obviously, my reflection on that is to say that EventScotland should perhaps have told the steering group that The Gathering 2009 Ltd was in trouble. Can we get things clear? Was EventScotland told not to tell the steering group that?
No, it was not.
Absolutely?
To my knowledge. Mr Russell was the responsible minister at the time, so I can say only that, to my knowledge, EventScotland was not told not to tell the steering group that. However, I am sure that Mr Russell can check that. I have already said that, on reflection—to use Mr McAveety’s word again—I accept that we should have insisted on EventScotland telling the steering group that, whether it wanted to or not. I believe that that is in Audit Scotland’s report. That is the position that we should have taken, and it is one of a number of lessons that we can take from the gathering.
We will not labour the issue. We can get confirmation outwith the meeting of whether EventScotland was told not to pass on that information.
A committee member referred to the letter from the director of city development at the council, Dave Anderson. The complete paragraph is quite revealing. I understand what happened, and I am not criticising anyone for trying to do their best. I recognise that the intention was to continue the gathering. Dave Anderson says:
I have not seen that letter, and I am not sure whether he was referring to the attempt after the event—
He was referring to DEMA’s involvement.
I disagree with him. A proposition was put together that might have been attractive. At the very least, whether or not the officials and other people in Edinburgh realised that proposition, they must have been quite attracted to it. I know that because we had a meeting on 12 October, the subject of which was whether the tattoo would be interested in the company. I think that Jim Inch said when he gave evidence that he ventured to the permanent secretary on 13 October—it was his idea—that DEMA might be an alternative organisation that could step into the breach. Therefore, at the very least, there was substantial interest.
My final question also seeks clarification of previous evidence. Was the Government unaware of any previous business failures involving Lord Sempill?
I am not aware of any. Mr Russell said that in terms of the evidence. I am sure that he will also clarify that point.
We can get that clarified.
I have no reason to believe that either has anything other than a proper business record. I understand that Jenny Gilmour’s company had successfully delivered a number of events and I have no reason to believe that they have in any way behaved improperly. We all know that, unfortunately, the event made a very substantial loss.
When you talked about DEMA not taking on the company and the fact that it took several months to find out from the City of Edinburgh Council that it definitively did not want to take on the company, you said that you could have issued a direction for the Government to take it over. Did you commission thought on why the Scottish Government should or should not take over The Gathering 2009 Ltd as an on-going company, if you thought that future opportunities would come from it? What was the rationale behind your decision?
That is what I said, and I considered the matter. I hoped that the independent valuation of the company that we commissioned—I think through EventScotland—would come to a larger sum, because I believed, and still believe, that the intellectual property and the information that the gathering has are valuable. For example, as I understand it, The Gathering 2009 Ltd has information on approximately 7,000 or 8,000 substantially well-off—by definition—people around the world who are interested in Scotland. That is, in my view, a valuable list of names. These are people who paid for the top tickets to come to the whole event. I was disappointed when the valuation of the company came in at a maximum of £100,000.
Given that DEMA is a relatively small organisation financially, were you surprised that it did not want to take on the company and the future opportunities? When the council did not take on The Gathering 2009 Ltd, did that make you reconsider the issue? Did you commission a further report on the options?
No. On 13 October—I am looking at the reference—Jim Inch raised the possibility of DEMA buying the company, as he said in his evidence. I was confident for a substantial time after the press release of 15 October that what was announced in that would be delivered. I wrote to the council’s leader on 28 October to thank her for the council’s co-operation. I believed that what was announced would happen.
So you do not understand the refusal of the offer by DEMA or the council.
I can only speculate. I believed that we had reached an agreement. I believe that those involved changed their minds. I do not know what provoked that change of mind or whether everybody felt the same. I have no idea—you would have to pursue that elsewhere.
Just for the record, the leader of the City of Edinburgh Council wrote to Iain Smith MSP, in his capacity as a committee convener—copied to you, First Minister—on 23 December 2009, saying:
With respect, convener, that was more than two months after the press release.
Yes, that is what I am saying: there are things that we need to explore further. The four key people involved all said that they were at a meeting to discuss the press release and they all disagreed with it, and yet, as you quite correctly said, First Minister, the press release went out in their name. Further questions need to be asked.
On that point, when that letter came out from the leader of the council two months later, you must have been aware that the agreement that you thought had been struck with the City of Edinburgh Council was falling apart.
We certainly believed that it was in substantial trouble. I got news on 20 January that DEMA was now unlikely to purchase the company; that came from a meeting between my officials and City of Edinburgh Council officials. As the convener rightly said, just before Christmas the leader of the council wrote that the press release had been “premature and ... misleading”, but there were also other statements around the same time. For example, the leader of the council said—I do not think that I am misquoting her, and I am sure that we can find the reference—that she was determined that future gatherings would be held in Edinburgh. I remember such statements.
I cannot see any indication in the timeline in the report of your involvement after the middle of October 2009. You have referred to a letter that you sent to Jenny Dawe, the leader of the council, on 28 October, in which you said:
I approved the letter on the Government’s intentions that went to the council officials on 12 November. At that stage, we believed that the agreement stood. At that stage, we believed that the council required an in-writing indication of the Government’s willingness to support future events. That is what we believed that the council required.
You understand my point. Given the scale of your activity and your desire to help the situation, of which you have told us, why, after 12 November, were you not right on top of the situation again? Why did you not have a further meeting—perhaps not with the same large round-table group as before, but at least with the City of Edinburgh Council? Why did you not at least authorise your officials to go into intensive meetings with the City of Edinburgh Council to help to save the situation? The private sector creditors seem to have been hung out to dry from some date in October or perhaps early November until the insolvency in late January.
The letter of 12 November gave the council the information that we believed it was looking for—the information that we believed that the agreement was in place. There was certainly contact with officials, and the council’s position was that it was waiting for the valuation report that it had commissioned, which I understand it eventually received formally on 27 January.
To complete non-involvement.
No. I thought that an agreement was reached. We proceeded on that basis. We sent to the council the information that we believed it required. The council’s position was that it was seeking another valuation of the company.
I put to you an alternative explanation. When you thought that responsibility for the private creditors had been shuffled off to the City of Edinburgh Council, you backed off. You felt that the buck had been passed to the council. From that date on, the Scottish Government did not give the assistance and support to the City of Edinburgh Council that Jim Inch, in his evidence, made clear had been expected.
I think that you are wrong, for two reasons. First, you are wrong, because the overall obligations involved both private and public sector creditors. Not only had the Government achieved, through the work of the permanent secretary, the ability to write off the obligations that were due to us, but the other accounting officers throughout the public sector had agreed to take part in the rescue attempt.
Is it not the case that if you had made an additional payment to the City of Edinburgh Council through the capital city fund, it would have been not a retrospective payment to fund the private creditors but simply an increase in the capital city fund? Was not that mechanism, which Jim Inch initially discussed with the permanent secretary, feasible and available to the Scottish Government? Is it not the case that if that mechanism had been used, the company would have been saved and the private sector creditors would have been paid off?
You should pursue that with the former permanent secretary, if you want to do so, because the advice that we received was that we were properly able to support a future event, in the proper way that events are supported, subject to a business plan, and we could give an indication to that effect. We did not receive advice that we could, in effect, distribute more money through the capital city fund—incidentally, the fund is meant to help Edinburgh to cope with its position as the capital city anyway—because that would be seen as a retrospective payment to meet a past event. That is the indication that we got. The offer that we made to Edinburgh—
Why would it be seen in that way?
What would be the point of distributing to Edinburgh through the capital city fund money that was being offered to it through the normal approach to supporting a future event? I am unclear as to why Edinburgh should regard it as more appropriate to get an indication of support of £380,000—I think that that figure was in the letter—through the capital city fund as opposed to an indication of support for a future event, unless of course the sum that was being looked for was substantially greater than the sum that we were properly able to offer.
The sum for the future event would properly have had to be spent on the future event. To do otherwise would have been an inappropriate use of public funds.
Well, exactly. That is what was in the letter of offer to the City of Edinburgh Council. I am quite certain that the former permanent secretary will back this up: the only proper way that we could offer funds was by offering support for a future event, not a past event, based on an appropriate business plan. On that basis, we were able to indicate that support would be at least at the level of support for the previous event. That was a pretty substantial offer.
You think that the capital city fund route would have been inappropriate and that purchasing the company through a ministerial direction, which would also have saved the company and allowed the private sector creditors to be paid, would have been inappropriate. You were not prepared to issue a ministerial direction in either case.
I have not issued a ministerial direction to overturn accountancy advice—
Well, I have done. It can be done, First Minister. It is a perfectly—
Please let the First Minister speak.
I am not disputing for a second that it can be done. I have given the reasons why I did not think it proper or appropriate to go against my accountancy office advice, particularly when I thought that an alternative position could be arrived at. I am deeply disappointed that the alternative approach did not turn out to be successful.
When was the City of Edinburgh Council told that the capital city fund route could not be used?
Discussions were taking place between the permanent secretary and Jim Inch. I think that you would have to ask them for the detail of that. There were also telephone calls between John Elvidge and Tom Aitchison. My understanding was that what the City of Edinburgh Council needed to complete the arrangements that it had undertaken was an indication, in writing, of support for the future event. That is what I believed to be necessary. I approved the letter that was sent on 12 November, which indicated that support. You will really have to ask the permanent secretary, Jim Inch and Tom Aitchison about the detail of their discussions.
Thank you, First Minister. The committee will need to ponder a number of issues. You referred to inconsistencies in the evidence that we heard from Scottish Government officials and City of Edinburgh Council officials. We will need to take that up with the council. I think that you also acknowledged that there needs to be more openness and transparency on some matters that relate to the loan. There is also the question of the attempt to find a buyer. We will need to consider those matters.
I thank you and the other members of the committee for your courtesy. I have tried to get across to you the timescale that was involved when Mr Russell had ministerial direction over the matter and the timescale around and reasons for my personal involvement. The final thing that I want to say is that at all times, Mr Russell and I acted with the best of intentions in terms of securing the position of the private creditors and securing the event for the future benefit of Scotland.
Thank you.
Previous
Subordinate Legislation