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Herstmonceux Castle (Sale)

Volume 171: debated on Friday 4 May 1990

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Motion made, and Question proposed, That this House do now adjourn.— [Mr. Nicholas Baker.]

2.35 pm

During 1986, I raised in the House several times the subject of Herstmonceux castle—in questions to my right hon. Friends the Prime Minister and the Secretary of State for Education and Science, in a debate on tourism and in an Adjournment debate on 19 December that year. I did so because I disagreed, as did many of my constituents as well as many distinguished scientists, with the Government's decision to allow the Science and Engineering Research Council to move the Royal Greenwich Observatory from Herstmonceux, as had been proposed in the Kingman report, and then to sell Herstmonceux castle.

The main objections from astronomers to the proposed move were that there had not been sufficient consultation before the decision and that, in any case, the scientific justification was thin, to say the least. As Dr. Charles, the university lecturer in astronomy at Oxford, put it:
"The SERC is seen spending an enormous amount of money on a move that nobody has called for and in order to solve problems they can neither specify or quantify."
Others argued that there was no apparent financial justification for the move and some people went so far as to say that the sale of the castle looked suspiciously like asset stripping. Such scepticism was no doubt encouraged by the remarks by Professor Mitchell and Dr. Catterall, chairman and secretary respectively of the SERC at the time, who repeatedly maintained that Treasury approval would be forthcoming only if the move could be demonstrated to be self-financing. In other words, the castle would be sold to meet the budgeted cost of the move and of new buildings at Cambridge, which had been chosen as the RGO's new headquarters.

That was the only financial target in the SERC's mind and its sole priority was to get just enough money from the sale of the castle as quickly as it could and without any strings attached to the sale that might get in the way of a research transaction. At no stage did the SERC give the impression that it would be worth while making a special effort to find a buyer who would undertake to do creative things with the castle and grounds in the public interest. Such considerations were of central importance to local residents and to others, such as Professor Gregory from Bristol, who wanted to convert the equatorial group of telescopes at the eastern edge of the park into a centre in which visiting schoolchildren could experience what he called "hands-on science", but apparently they were of no consequence to the SERC. It merely needed money for the move that it had planned and it was playing by Treasury rules. Other considerations were none of its concern, it seemed.

My suggestion to Professor Mitchell at the time—that, instead of moving the RGO, the SERC should endeavour to develop an international centre of scientific and technological excellence around the RGO at the castle, which would generate revenue from research work and seminars for clients throughout the world—was met with blank incomprehension. The idea that the RGO and the castle should be thought of as anything but a cost centre and that the SERC might do well to take an entrepreneurial view of the assets under its control, to earn a little extra money to help fund its research efforts, seemed foreign to Professor Mitchell.

That is exactly what it was. I have no doubt that the American, Japanese or German counterparts of the SERC would have jumped at the opportunity of taking prize assets, such as the RGO and Herstmonceux castle, and developing around them a centre of international renown—instead of the unimaginative retrenchment and withdrawal to Cambridge, where the RGO's identity would be submerged and where the university astronomy departments might well feel inhibited about participating in shared projects. In spite of the objections, the SERC went ahead with its plans and the castle was duly sold in 1988. The consideration was £8·1 million on a deferred payment basis, although the SERC itself did not reveal the figure and the public was led to believe from newspaper reports that £12 million had been paid. The purchasers, James Developments, made no attempt to contradict that.

Subsequently, the National Audit Office examined the terms and conditions of the sale and the manner in which the transaction was carried out. Last month the Comptroller and Auditor General published a report of his findings. He concluded that the SERC did not fully investigate bids higher than the one that was accepted, but which could have resulted in a purchase consideration of £14 million instead of £8·1 million.

The report by the Comptroller and Auditor General makes several observations from which lessons about the disposal of state-owned assets should be learnt. It says that, although the castle was first placed on the market in May 1988, a Treasury guidance issued on 29 April 1988, designed to ensure that the best possible prices were obtained on the sale of land by public bodies, did not influence the marketing strategy of the SERC. Although the Treasury knew of the impending sale and must have had a draft guidance in hand for months previously, the final version of the guidance issued in April did not reach the Department of Education and Science until 3 June, and it had no effect on the behaviour of the SERC when it dealt with tender offers for the castle in August.

The report also alludes to the vigorous publicity campaign the SERC began in May with the estate agents Knight, Frank and Rutley. Yet at least one bidder, Mr. Nesser from Los Angeles, whose offer of £9·25 million was rejected on the curious ground that the SERC did not have his financial references and was unwilling to delay matters for a day or two while they were obtained from the United Sates, claimed that he had heard of the sale by chance and that the marketing effort internationally had not impressed him in the slightest.

The report goes on to say that the best price guidance provides that land with development potential should normally be sold with the benefit of planning permission. Even if the SERC failed to come across the Treasury guidance, it was certainly given precisely the same advice by Wealden district council. The planning officer and his team at Wealden were in no doubt that it would make sense for the SERC to offer the castle with planning permission, and they said so to the SERC. However, Professor Mitchell was in too much of a hurry to get the money that the Treasury said he could have to wait until planning consent had been agreed. The unfortunate result has been that James Developments has spent the past 18 months putting forward outline development schemes that Wealden rightly considers unacceptable in many respects and which English Heritage, in its capacity as interested observer and adviser, also wished to see rejected.

The report also concludes that a clawback provision in the event of future development gain at the property should have been part of the sale contract, but the SERC overlooked that, too.

Most damning of all is the conclusion in the report that, besides Mr. Nesser's bid of £9·25 million, a telephoned offer of £10 million from a Mr. Abrams, which was shortly raised to £14 million, was also rejected. The National Audit Office says in its report that the higher bids should have been fully investigated and that financial references should have been sought before the £8·1 million bid from James Developments was accepted. By its failure to pursue the other offers, the SERC settled for a figure that could have been exceeded by almost 75 per cent.

Just as in the sales of Royal Ordnance and of the Rover Group, the taxpayer is entitled to conclude that public sector assets were sold in too much of a rush and too cheaply. It is even more depressing that the SERC, whose scientist members are fond of bemoaning publicly how much more money they need from the Government to finance their research, should have taken such a blinkered view of common-sense commercial considerations in a property sale. It is little wonder that those scientists, who are mainly university academics, should feel so uncomfortable about the long overdue responsibility now placed on British universities by the Government—and rightly so—that they should help to pay their own way.

Sadder still is the fact that James Developments, a partnership whose financial resources and track record in property development have still to be revealed by the SERC, or by anybody else, has thus far achieved nothing with the castle, which remains firmly closed to the public.

Any further changes in the way in which state-owned property is sold will merely close the stable door after the horse has bolted. Nevertheless, I urge Ministers, who are fond of talking about market forces, to take sound commercial advice when they venture into the marketplace on the taxpayer's behalf. If they do not, they are likely to find that the taxpayer feels justifiably aggrieved about being short changed.

2.45 pm

I have listened with close interest to my hon. Friend the Member for Bexhill and Battle (Mr. Wardle). He has raised a subject that is, I know, of interest to a number of hon. Members, and I welcome the opportunity to try to answer some of the points that he has made.

As my hon. Friend has reminded us, the Science and Engineering Research Council decided in 1986 to move the Royal Greenwich Observatory from Herstmonceux to Cambridge, where the council believed that it could better serve the scientific community for which it was designed. My hon. Friend said that he disagreed with that thesis, but I have no doubt that care and thought went into the council's decision.

I know that, at the time, my hon. Friend regretted the removal of this historic observatory from his constituency, and argued vigorously against it; and I understand why, as a centre of scientific excellence, housed in a particularly fine building, is naturally the object of considerable local pride. The council's decision, however, was made not only on scientific grounds but on grounds of efficiency and cost, and it should not be a point at issue in today's debate.

Let me first explain the respective roles of the Government and the SERC. The council, as an independent body under a royal charter and as owner of the property, had primary responsibility for the sale arrangements, but my Department—as the main supplier of funds to the council—was involved in certain aspects of the sale, in particular the use of the proceeds. The operation of the sale was handled by the council. Treasury guidance was taken into account, but, having reviewed its sale strategy in the light of that guidance, the council concluded that it did not need to make any changes.

My hon. Friend referred to the report by the National Audit Office. As is the usual practice, the Public Accounts Committee, having studied the report, will wish to decide whether to take further evidence. However, although I do not want to pre-empt the details of any future discussion, I should like to make one or two comments—particularly in view of some of the stories that have appeared in the press over the past couple of weeks.

Contrary to the impression given by the press, the report comments very favourably on many aspects of the sale. The National Audit Office was generally satisfied with the council's arrangements: it mentioned specifically the use of a reputable firm of agents, the vigorous marketing of the property, the timely point at which the sale was conducted, the provision for new accommodation in Cambridge and the monitoring and control of costs. As my hon. Friend observed, the report went on to make two specific points about ways in which the council might have acted differently. When we look at the facts of the case, however, the picture that emerges is rather different from that presented by the more excitable newspapers.

The sale was conducted on the basis of an invitation to potential buyers who had shown an interest in the property. The research council's agents set a specified date by which all bids were to be submitted; to ensure fair treatment and the best competitive price, they were to be in the form of "best and final offers", and to be accompanied by financial references. A buyer, James Developments was selected on that basis. The council accepted the company's bid of £8·1 million, and its agents set in hand the arrangements for finalising the deal.

My hon. Friend mentioned other, unsuccessful bidders, one of whom said that he was prepared to increase his earlier offer. He said, first, that he was prepared to increase his earlier bid to £10 million; then, that, in addition to his earlier bid, he would be prepared to make a special one-off payment of £7 million to the European Space Agency on behalf of the United Kingdom if that would secure the sale. Finally, he said that, instead of doing that, he would be prepared to increase his earlier bid to £14 million. At no point, however, did he provide the financial references to support any of his offers—including the original offer—as required under the terms of the original invitation to bid. It is important to make that clear.

I rehearse those facts now because they are relevant to the suggestion that the SERC could have obtained a higher price than it did and because they are a matter of public record, to be found in the National Audit Office report.

The National Audit Office report suggests that the SERC should have pursued the offers further before exchanging contracts with James Developments. The research council decided against doing so for two reasons. First, it was not prepared to be a party to gazumping. Secondly—I have to present the full picture—on the advice of its professional and experienced agent, it thought it doubtful that the second bidder would be able to complete at the prices that were being quoted.

If the SERC chose not to pursue references, how can the judgment have been made that the bidder was unable to meet the consideration of £14 million?

As I understand it, references were sought but no information was forthcoming. That is why the professional agents gave the considered judgment that it was unlikely that finance would be forthcoming from the bidder.

The council's judgment is also now a matter of public record in the National Audit Office report. I will not go beyond that, except to say that, if the research council had changed the ground rules at that point and pursued an offer about whose viability it had serious doubts, other bidders might well have dropped out, and the outcome could have proved far less satisfactory to the taxpayer than was achieved.

My hon. Friend referred to a second point in the National Audit Office report concerning planning permission. It was always obvious that the purchaser would need to develop the property for some new use, and my hon. Friend has explained the new uses that he thought would be suitable.

Before the property was placed on the market, the research council and its agents very responsibly had detailed discussions with the local planning authorities—Wealden district council and East Sussex county council. Jointly with those authorities, the research council and its agents sponsored a detailed report by the English tourist board on possible options for the use of the site. The research council's agent drew up a planning brief on the basis of that report and the local structure plan. The brief was then approved by Wealden district council and informed the decision made on the sale and the agents' judgment of the sale price likely to be attainable. All that information was available to prospective purchasers.

Once bids had been received, the council accepted the agents' professional advice that the price offered by the successful bidder was a good and fair one in relation to the development options that were likely to be allowed by the planning authorities.

The National Audit Office report suggests that the research council should have gone further, that it should have tried to negotiate some clawback arrangement with the purchaser. Under such an arrangement, the purchaser would have agreed to reimburse the vendor all or part of any increase in value attributable to the granting of planning permission after the sale terms had been agreed.

Decisions on such an agreement have to be a matter of judgment in each case. The danger of such an arrangement is that, as a quid pro quo for agreeing to it, the purchase price might be reduced below the likely benefit that might arise later.

Again, on the basis of professional advice, the research council took the view that a clawback provision would not be to its advantage. My hon. Friend will know that development of the site is strictly limited by Wealden district council's local structure plan, and also of course by the castle's status as a scheduled ancient monument. The research council considered that the sale price agreed was already a fair one in relation to the sorts of planning consents that were likely.

Of course, a different view could be taken, as the NAO report suggests. In this case, the research council was on the spot and had all the facts before it and the benefit of experienced professional advice. While it may not be strictly relevant to the NAO report, I would just note that the purchaser has, I understand, still not obtained the sort of planning consent that he was hoping for, some 18 months after the sale was agreed. You may feel, Mr. Deputy Speaker, that that rather bears out the research council's judgment on the matter, but that is a matter of opinion.

I know that the wider question of planning consent is of great concern to my hon. Friend, and that he has taken a close personal interest in the future use of Herstmonceux. I have explained the actions that the SERC very responsibly took with the planning authorities before the sale was completed. Now that the sale has taken place, from here on this has to be a matter for the purchaser and the local planning authorities. I know that discussions are continuing and that my hon. Friend will ensure that the concerns of his constituents are effectively represented.

While I have listened with great care to my hon. Friend, it is fair that my account of events shows that the research council's acts have been well thought out in the light of the facts as they were known at the time. We shall obviously continue to study carefully what the NAO has said in its report, but there is significant ground for arguing, as the research council has argued, that the taxpayers secured a good price for the property, that they probably could not have done better and might certainly have done considerably worse.

The purchase price was shown in the appropriation accounts in the usual way, as my hon. Friend pointed out. I am aware that I may not have completely and entirely satisfied my hon. Friend, but I hope that I have given an adequate explanation of the circumstances that surrounded the sale of Herstmonceux castle.

Question put and agreed to.

Adjourned accordingly at three minutes to Three o'clock till Tuesday 8 May, pursuant to Resolution of the House [27 March].