The Festival Pleasure Gardens

TREASURY HISTORICAL MEMORANDUM No. 2

THE FESTIVAL PLEASURE GARDENS

Paragraph

I.--HISTORY OF THE PROJECT ....................................... 1-21

Stage I .......................................................................... 1-12

Stage II ........................................................................ 13-14

Stage III ....................................................................... 15-18

Stage IV ....................................................................... 19-21

II.--WHY DID THINGS GO SO BADLY WRONG ? .......... 22-36

1. The shortcomings of the Company ............................ 22-27

2. The shortcomings of control ..................................... 28-36

Treasury Chambers,

Great George Street.

November, 1957.

TREASURY HISTORICAL MEMORANDUM NO. 2
THE FESTIVAL PLEASURE GARDENS

I. HISTORY OF THE PROJECT

1. In February 1949 the first serious discussions took place about the project for providing Pleasure Gardens in Battersea Park as an adjunct to the Festival of Britain. The proposal was that the Gardens should be run by a Government sponsored company with powers to borrow about Ł1 million from the Treasury and the L.C.C. It was thought that the Gardens could be provided at no cost to public funds on condition that they were planned for a period of at least five years. Treasury officials were unanimously and strongly against the proposal that the Government should assume financial responsibility for the scheme. "The estimates of cost are not worth the paper they are written on," wrote one. "Everyone with any experience must know that there will be a large excess over the estimates, especially if the Government is known to be standing behind the scheme. I feel in my bones that this is not the sort of scheme which Government in this country can make a success of." [1]

2. Because of these objections from the Treasury and others from local authorities the scheme was reconsidered. The Festival of Britain Council [2] and the Lord President, who was the Minister in charge of the Festival, were very anxious to have the Gardens--every big exhibition had had something of the kind, the Festival must not be stigmatised as exclusively "highbrow" and the Gardens would relieve pressure on the crowded South Bank site. The scheme was therefore pruned to provide Gardens that could open only for one season; the capital cost was, on the Lord President's instructions, to be cut to a figure that could be recouped within a single season, subject to a maximum permissible loss.[3] In June 1947 the Festival Office produced estimates for Gardens that would cost only Ł500,000 to construct and Ł270,000 to run and demolish; revenue was expected to be Ł670,000 so that the loss would be only Ł100,000. The Treasury was still very dubious about the suggestion but the objections submitted to the Chancellor were not nearly so forceful as those to the earlier scheme, the Treasury did not scrutinise the reliability of the new estimates. The Chancellor agreed to the scheme, on the understanding that the Gardens would be run by a company for which there would be no Parliamentary responsibility; the Government would be responsible only for making money available and for taking whatever steps were possible to see that it was repaid. The L.C.C. would share in the loan for the Gardens.

3. An Act of Parliament [4] provided for a loan not exceeding Ł570,000 to the Festival Gardens Company and enabled the L.C.C. to make loans. It was agreed that the L.C.C. should lend up to Ł200,000 but no matter how great the total loss, the Council's liability was to be limited to Ł40,000. The rate of interest was to be the rate fixed, and for the time being in force, for loans from the Public Works Loan Board to local authorities.[5] Preliminary loans were made before the Act was passed to enable the Company to start work.

4. The original Board of Directors for the Festival Gardens Company was appointed by the Festival of Britain Council, though after the Company began work the composition of the Board changed somewhat. The Chairman was Sir Henry French who must have seemed a remarkably suitable man for the appointment since he had been a civil servant most of his life, ending up as Permanent Secretary of the Ministry of Food, and had later worked in the public entertainment world as Director General of the Fihn Producers' Association. The Treasury had been anxious that the Board should have an official majority but apart from Sir Henry, the final Board had only four civil servants from the Festival of Britain Office. [6] In addition there were three representatives of the L.C.C., the Chairman of London Transport, one, later three, members of the amusement industry, an eminent horticulturist and a representative of the entertainments world (the latter soon dropped out). The post of General Manager was advertised with no result and in the end Mr. Crainford, the Secretary of the Festival Office, was appointed Managing Director. Mr. Crainford's previous experience was in the theatrical world.

5. The appointment of Festival Office nominees to the Board was regarded as one of the main forms of Government control. There were other safeguards. The shares of the Company (Ł100 worth) were held by the Treasury Solicitor and the L.C.C. in the proportions 60: 40, and, more important, safeguards were written into the Loan Agreement to which the Lord President of the Council, acting by the Director General of the Festival of Britain Office, the Company and the L.C.C. were parties. [7] Firstly, the loans were to be advanced only on receipt of estimates for work to be done and the cost to be incurred. Sums advanced were to be applied strictly for the purposes for which they were advanced; the Company could vary the allocation between items only for sums of Ł500 or less. Secondly, the Company was to keep full, complete and accurate accounts showing all income and expenditure and all commitments involving expenditure and such accounts and records were to be available to the Comptroller and Auditor General, the L.C.C. and the Festival Office. Thirdly, any revenue was to be paid into a separate banking account and no money was to be drawn from the account without the consent of the

[1] GS.250/208/01A, p. 93f.

[2] The Council was composed of distinguished people including representatives of all political parties and it advised generally on Festival of Britain plans.

[3] GS.250/208/O1B, p. 91.

[4] 12, 13 and 14 Geo. 6 Ch. 102.

[5] The interest was to be compound.

[6] The Festival of Britain Office was in effect a Government Department with its own Vote. Its staff were therefore civil servants, though mostly temporaries. The Director of Finance and Establishment, Mr. Campbell, who was a member of the Festival Gardens Company was, however, a permanent civil servant.

[7] GS.250/208/OIB, p. 66ff.

TREASURY HISTORICAL MEMORANDUM No. 2-- continued

Lord President and the L.C.C. Fourthly, the Company was to supply each month to the Lord President and the L.C.C. a budget showing the estimated figures for the next month of expenditure and receipts allocated between different items. The Company was also to keep the Lord President and the L.C.C. in close touch with details of its activities and answer any questions concerning the expenditure of money. One additional safeguard in the earlier drafts provided that the Company should not enter into any contracts involving more than Ł500 in any one case or more than Ł5,000 in any one month unless the terms were approved by the Lord President. This clause was dropped at the request of the Festival Office to give the Company more freedom, to relieve the Festival Office of work and because the Festival Office did not want to have to agree to contractual arrangements which might not be in line with the practice in Government Departments.

6. The Company was incorporated in November 1949. In March 1950 the Chairman of the Company sent to the Lord President new estimates of expenditure and revenue. Expenditure was now expected to be about Ł1,100,000 and revenue Ł1 million. The increase in expenditure over the June 1949 estimate by the Festival Office was justified on the grounds that the cost of site-work had increased and that some structural work was being provided by the Company instead of by concessionaires. Thus the estimated loss remained at Ł100,000 and the Company was confident that it would need no further loans since it would be able to draw on money from selling tickets in advance and advance payments from concessionaires. No one was therefore worried.

7. Between March and November 1950 the Treasury does not seem to have received any information about the Company's financial affairs. In November 1950, however, the Managing Director of the Company produced alarming new estimates which put expenditure at Ł1,624,000. Revenue was now based on the assumption of average daily admissions of 50,000 instead of 40,000 as before. At this level revenue was put at Łl,467,000--a deficit of Ł157,000, but if revenue was still based on attendances of 40,000 the deficit would be Ł354,000. Moreover, there was by now danger that Sunday opening would not be allowed--as indeed it was not--which would lead to a drop in revenue of another Ł250,000. The Treasury was assured that even so, with the advance sale of tickets and revenue from concessions, the Company could still manage without a further loan. The Treasury heard that the Board of the Company took a serious view of the estimates; the Chairman at a Board meeting had said that it was clearly a case of mal-administration for which the Board must collectively share some of the responsibility. A budget of reduced expenditure and revenue calculated on an attendance of 40,000 was to be produced, and the Chairman would be reporting the position to the Lord President. The Treasury did not think it need take any action at the moment as the Board was "evidently aware of the seriousness of the position" and should be left for the moment to take suitable steps to deal with it. Meanwhile, Mr. Campbell who was a director of the Company, weighed in, in his other capacity as Director of Finance at the Festival of Britain Office, with a letter to the Managing Director of the Company asking for a thorough explanation of items of expenditure and pressing his view that a proper finance officer should be appointed to the Company. [1]

8. Here matters rested, as far as the Treasury was concerned, for the next three months. Mr. Campbell's letter had not apparently been answered. The Company replied to the Lord President who replied to the Company direct and no copy of his letter was sent to the Festival Office. The Festival Office rightly regarded this as a severe snub and let matters rest. The Treasury had no copies of the letters to and from the Lord President and did not know what had happened until March 1951 when an inquest was being held on the crisis in the Company's affairs. It seems that already at this stage the Lord President's Office did not bother to probe the reasons for the increased expenditure because it was pinning its faith on the possibility of recouping the money put into the Gardens by keeping them open for more than one season. However, there was one step forward: in January 1951 a retired Director of Naval Accounts was appointed Finance Officer.

9. In February 1951 the Treasury was again very concerned about the Gardens. The latest estimate of loss on them to be borne by His Majesty's Government was Ł500,000 which had to be shown in the 1951-52 estimate for the Festival Office. The Chancellor wrote to the Lord President expressing his concern at the loss. The Lord President's Office in turn emphasised to the Company the concern of the Lord President and the overriding need for economy.

10. On 8th March 1951 Sir Henry French appeared before the Public Accounts Committee and made some astonishing revelations. On 6th March, the Lord President, on advice from the Company had told the House that the estimated expenditure on the Gardens was still Ł1.6 million. In Sir Henry French's evidence it now appeared that this Łl .6 million would be considerably exceeded and that this must have been apparent for some time because heavy incentive bonuses had been paid to the workmen on the site since January. It was also quite clear that the Company would need large additional loans. After the P.A.C. meeting it emerged that the estimated expenditure was now about Ł2.5 million, that the loss on six months' working would be Ł1.4 million, and that even allowing for drawing the whole loan immediately, the Company was at that moment insolvent. A further loan of Ł1 million was needed and, pending the Act to give authority for this, immediate advances were necessary from the Civil Contingencies Fund.

[1] GS.250/208/01B, p. 64.

4 TREASURY HISTORICAL MEMORANDUM No.2. -- continued

11. At the end of March 1951 the Minister of Works, Mr. Stokes [1], was invited to review the organisation of the Festival Gardens Company. From this time onwards he did in fact take over ministerial responsibility for the Gardens from Mr. Morrison, who had been Lord President but was now Foreign Secretary. Mr. Stokes asked for a report on the Company's activities and miscalculations from a firm of chartered accountants. At his request the Chairman, Sir Henry French, resigned and the Managing Director of the Company was replaced [2] by Major Joseph, who was a member of the Board and a member of the amusements industry. The new Chairman was General Sir Charles King who had been Engineer-in-Chief at the War Office for three years; he had great experience of difficult constructional work and some experience of looking after one or two industrial companies that needed salvage. It was emphasised to him that great importance was attached to a named member of the Board having definite responsibility for finance and that it was most appropriate that he himself should be that member.

12. The various inquests on this sorry story were held. Not only was there the accountant's report on the miscalculations of the Company but Mr. Stokes asked another accountant to make a detailed examination into the Company's main contract, for it emerged that at some stage this had become not a fixed price but a cost-plus contract. The conclusions of these inquiries were published as a White Paper and will be dealt with in Part II of this memorandum. [3]

13. Meanwhile, Stage II of the Company's career began. One point that had to be cleared up was the relationship between the Festival Office and the Company. The Festival Office insisted [4] that it could not take charge of the Company's finances--it could only do so by putting in its own finance officers and if it did so" one of the main purposes of setting up a private Company would disappear ". The Director General, as Accounting Officer for the Festival Office, was responsible for passing the loans to the Company and for seeing that the loans were not used for purposes other than that for which they were granted. He would also draw the Government's attention to any weakness in the financial arrangements of the Company if they came to his notice. But the Chairman of the Company was in charge of the Company's finances and was responsible for seeing that loans were properly looked after. The Festival Office did, however, consider that the Company should provide a clear statement of its financial operations to enable it to control its own expenditure properly. The Company was therefore to produce each month a financial statement showing (a) the allocation against each item of its budget, (b) the expenditure it had incurred to date against each item, (c) the expenditure it estimated would be incurred in the next month against each item, (d) the expenditure it estimated would be required to complete the work under each item, (e) the revenue to date against each item, (f) the revenue estimated to be received in the next month, (g) the total revenue estimated to be received against each item. Later the Treasury did ask the Festival Office to satisfy itself from time to time that the Company was keeping its allocations realistic in the light of actual expenditure and commitments. [5]

14. The Festival Gardens opened at last at the end of May 1951--nearly four weeks after the scheduled date. At last there came one bright, if brief, period in the story. The Gardens proved gay and charming and were a great popular success during the Festival summer. Over eight million people were admitted instead of the six million of the estimates, even though the Gardens opened late. Gross revenue for the season was over Ł1.25 million which was, after deducting operating expenses, the equivalent to 43 per cent. of the aggregate capital expenditure and liabilities. The Company was even able to repay Ł270,000 of the Ł1,232,000 loan it had received from the Government. [6] Even this success, however, was not an unmixed blessing for it encouraged the Government to believe that if the Gardens were kept open for several years the loans could be largely recovered.. The L.C.C. did not wish to commit themselves to permanent Gardens but were ready to participate in a further experimental period to gauge normal demand; it was made clear that Ł40,000 was still to be the limit of the L.C.C. loss. The Lord Privy Seal had said that substantial loan repayments would be an essential condition for continuing the Gardens. In fact, when the Company produced estimates of expenditure and revenue for the next two years, it seemed that on a conservative estimate (i.e. half the Festival Year attendances) the Gardens would about break even over the two years with possibly some small debt repayment. The talk was now less of substantial repayments than of slow amortisation over a generation.[7] However, the risk of further loss seemed small--attendances would have to drop to nearly a third of the 1951 figure to produce a loss--and as any surplus seemed better than nothing, the Treasury favoured continuance. [8] In the autumn of 1951 Ministers agreed that legislation should be introduced to enable the Gardens to be continued for a period of up to five years subject to a break at the end of two years if the Government or the L.C.C. should so desire. The L.C.C. and the Government agreed that the existing Company should continue to operate the Gardens though with a reconstituted Board. These decisions were confirmed by the new Government after the General Election in October and Stage III of the Company's history began.

[1] He shortly became Lord Privy Seal and remained responsible for the Gardens.

[2] He was given two months' salary on leave (taxable) and six months' salary (tax-free) as compensation.

[3] Crud. 8277.

[4] GS.250/208/01C, p. 176-7.

[5] GS.250/208/01C, p. 40.

[6] i.e. the full Ł1,570,000 authorised by legislation had not been taken up. In addition, ol' course, the Company owed the L.C.C. Ł200,000.

[7] GS.250/208/01E, p. 37.

[8] ibid, pp. 93-5.

TREASURY HISTORICAL MEMORANDUM No. 2--continued

15. Under the new regime, the Minister of Works, Mr. Eccles, became the Minister responsible for the Gardens. For a time administrative responsibility was, if anything, rather more tangled than before; although the Permanent Secretary of the Ministry of Works came into the picture as adviser to his Minister, the Lord President's Office which had always dealt with Festival affairs continued for a time to work for the Minister in those matters instead of the Ministry of Works. And, of course, the Festival Office still had its responsibilities under the loan agreement. Mercifully, from about January 1952 the Lord President's Office slipped out of the scene.

16. The Minister of Works had strong views on the reconstitution of the Board. In the first place he wished to treat it as entirely independent and he therefore objected in principle to the inclusion of officials; it should be composed primarily of businessmen. Secondly, he thought that the Board should be an effective executive body and therefore that its members, who had hitherto been unpaid, [1] should now be paid sufficient to ensure that they regarded themselves as having some personal stake in the success of the Company. The Treasury could not accept the first proposition. The loan agreement and the majority shareholding of the Government would still, it was true, give enough power to ensure that the Company acted within the framework of Government requirements so that it was agreed that it was not necessary to provide a voting majority of Government nominees. But the Treasury thought it essential, as an additional safeguard, to have one Treasury or departmental nominee on the Board, [2] and it wanted this nominee to be Mr. Campbell who was a member of the old Board and was now Controller of the Festival Office. The Treasury felt the more strongly on this point since the Public Accounts Committee had regarded Festival Gardens as a case where a Treasury nominee from the outset might have been useful. Finally, the Minister of Works acquiesced in this. In the end the new Board consisted of the existing Chairman-cum-Finance-Director (Sir Charles King), and the existing managing director (Major Joseph), two representatives of the L.C.C., Sir Gerald Barry, now an independent member and not a Festival Office representative, an accountant who had been a senior war-time civil servant, and a lady from the entertainments world. Mr. Campbell asked for specific terms of reference. The Treasury suggested, therefore, that Mr. Campbell's duties should be to follow the affairs of the Company with the particular aim of satisfying himself that they were being properly conducted. He should give periodical reports to the Festival Office [3] or to the Minister (if anything important arose) as to what was happening, especially if he should not be satisfied with the way things were going or if any unforeseen problems arose. The object of his presence on the Board was to enable the Minister and the Festival Office to learn of any unsatisfactory or unforeseen developments earlier than they otherwise might. The Treasury, however, insisted that Mr. Campbell was a departmental, not a Treasury, nominee and that instructions should be given to him by the Minister. The Minister, however, wished to emphasise the collective responsibility of the Board. He thought it was sound Company practice to rely on this and not to seek to assign from outside the Board any specific responsibility to individual Directors. But it was understood that if Mr. Campbell learnt of anything which seemed to him inconsistent with Government policy or with his loan responsibilities he would have to report to the Minister. In recognition of the doctrine of collective responsibility, the Chairman dropped his title of Finance Director.

17. This arrangement did not work happily. In particular, Mr. Campbell felt that, in order to avoid any possibility of further disasters, the Board should regularly have before them information not only about allocation and payments but also about commitments. Neither the chairman nor the accountant on the Board thought this necessary. When questioned by the Public Accounts Committee, Mr. Campbell admitted that he was not getting enough information as a Director to enable him to carry out the Ministerial directive but that if other members of the Board were satisfied he would not press his own dissatisfaction. Mr. Campbell had written to the Minister on the matter and as it later transpired--though needless to say not at the P.A.C.--the Minister had written "if Mr. Campbell is not satisfied he should resign." Mr. Campbell with Treasury support pressed home his request and in due course the information about commitments was supplied. In fact, there was not really much danger of the Company's financial control slipping badly for the chairman and the accountant on the Board, for all their other faults, were clearly conscious of their financial responsibilities. But Mr. Campbell felt reasonably enough that no further financial disaster could possibly be risked. And the Treasury supported him, less because of the fear of financial trouble than because of the necessity for asserting sufficient control over the Company to satisfy the P.A.C.

18. Now that the expenditure side of the Gardens was more or less under firm control, [4] revenue began to give trouble. Even though 1952 was a fine summer, attendances at Ł2 million were nowhere near the conservative estimate which had led to the decision to keep the Gardens going. There was a very small operating surplus in 1952 but after allowing for capital expenditure and other items, the result of keeping the Gardens open for 1952 was to increase the total loss by Ł80,000. The Treasury

[1] The first Managing Director was paid but his successor, Major Joseph, was not. Even under the new dispensation, Major (now Sir Leslie) Joseph preferred to accept simply Ł500 p.a. director's fees plus expenses instead of a proper salary. Later the Board proposed to pay him Ł2,000 p.a. for his part-time services (plus expenses) and the Treasury objected. He continued, therefore, on the old basis.

[2] The Ministry of Works refused to appoint a real Ministry of Works nominee to the Board.

[3] i.e. to himself in his other capacity.

[4] It should be noted that the Treasury insisted on a ceiling to the capital expenditure of the Company for 1952 and 1953 and obtained a solemn assurance from the Company that it would observe it. The need for this limit arose partly from reasons of" control "and partly because of the national policy of restricting capital investment.

TREASURY HISTORICAL MEMORANDUM NO. 2--continued

thought the Gardens should close without further ado, but Ministers decided, on the recommendation of the Minister of Works, to keep them going during 1953, Coronation Year; if attendances were at the 1952 level there should be a very small operating profit.

19. New arrangements for controlling the Company in Stage IV of its existence were now necessary. For the Festival Office would disappear at the end of the financial year 1952-53 and Mr. Campbell would be moving to other work and would have to come off the Board. The Ministry of Works was to take over residual Festival affairs and the Permanent Secretary of the Ministry would thus become Accounting officer for Festival expenditure. The Permanent Secretary set out the rough demarcation between the Board and the Ministry. The Ministry would be in the position of a Bank with an interest to protect in a business concern and it would see that the loan agreement [1] was properly observed. If it appeared to the Ministry that the continued opening of the Gardens was likely to add to the deficit instead of to the refund, the Treasury and the Minister would be warned so that Ministers could decide whether to keep the Gardens open. The Ministry would not accept any responsibility for the business steps taken by the Board to run the Gardens. The Minister of Works and the Permanent Secretary were strongly opposed to having another civil servant on the Board in place of Mr. Campbell. The Treasury realised that failure to replace Mr. Campbell might well be criticised by the P.A.C. but they acquiesced in it since the Minister's lack of confidence in his nominee on the Board had caused so many difficulties. The Minister of Works wrote to the Chairman setting out the division of responsibility between the Company and the Ministry and emphasising that though the Chairman no longer held the title of Finance Director, he would be regarded as having a special financial responsibility for the Company's affairs.

20. Early in January 1953, the Minister of Works was authorised by his colleagues to discuss with the L.C.C. the possibility of their taking over the Gardens after the 1953 season, as the Government should not continue to be concerned with them even if they were successful. In fact, attendances in 1953 were far below those of 1952 for the first few weeks of the season and the total for the season was Ł0.25 million lower even though the price of admission was drastically cut halfway through. In the end the loss on the 1953 season was Ł39,000. When the Ministry discussed take-over terms with the L.C.C. their negotiating position was therefore weak. Under the original agreement with the L.C.C. the Company was obliged to reinstate Battersea Park. When the settlement between the Company and the L.C.C. was negotiated the L.C.C. had not yet decided how much of the Gardens and Fun Fair they intended to keep. They suggested that the Company should pay them a lump sum of Ł130,000 to cover their reinstatement obligations and that they should pay the Company Ł20,000 for betterment features [2] The net amount payable to the L.C.C. was later reduced to Ł100,000. The Ministry of Works advised that this offer should be accepted since it would be much less than the expense to which the L.C.C. could put the Company if it wanted to. The Treasury accordingly agreed. It was undoubtedly wise to end the whole miserable business quickly instead of letting it drag on. But the settlement was a good bargain for the L.C.C. The L.C.C. decided to keep a smaller Fun Fair going and some features of the Gardens, though the Gardens would be free. of access to the public. Immediate reinstatement, including some improvement, would cost about Ł120,000 which meant that the L.C.C. got for almost nothing the capital assets involved in the Fun Fair and the Garden features. However, the L.C.C. was taking a risk and if the Fun Fair was not a success the L.C.C. would later have to bear itself the full cost of reinstatement. In fact a new commercial company was formed, headed by Sir Leslie Joseph, managing director of the old Company, to run the Fun Fair for a 21-year term in return for a "substantial" annual payment to the L.C.C.

21. In addition to the settlement to cover reinstatement obligations, the Government also had to pay the L.C.C. all but Ł40,000 of the L.C.C. loan since Ł40,000 was the maximum amount of loss to be borne by the L.C.C. In the end the whole Gardens affair cost the Government nearly Ł1.25 million. [3]

[1] It had been generally agreed that the clause in the agreement restricting the disposal of revenue should now be waived since revenue and not loans now formed the whole of the Company's income.

[2] The L.C.C. had already paid for two permanent features it wished to retain--a restaurant and a theatre.

[3] Ł1,245,759 (i.e. including loan interest written off).

TREASURY HISTORICAL MEMORANDUM NO. 2--continued

II. WHY DID THINGS GO SO BADLY WRONG ?

THE SHORTCOMINGS OF THE COMPANY

22. Some of these may seem peculiar to the circumstances of Festival Gardens but I think they are all worth listing.

23. (i) The time factor.--Much time was originally lost in discussing the abortive five-year plan but the agreed basic scheme was adopted at the end of June 1949. The Company was not, however, incorporated until November 1949 and the architects and quantity surveyors were not formally appointed until the end of January 1950. Within three weeks of their appointment the architects and surveyors had to produce a sketch plan and a bill of quantities which were inevitably no more than "intelligent speculation" about the quantity of work to be performed. This made increases over the tender price inevitable. It also meant that when the contractor started work on 1st April he had not got detailed drawings to work from; moreover only part of the site was then available. Thus progress during the vital summer months of 1950 was slow and the Company was far more vulnerable than it need have been to winter weather--which proved bad, as English winters usually do--to shortages and rising prices of materials and to difficulties of labour supply. The need to open on time led to inflated costs and to the change from a fixed price to a cost-plus contract (see (iv) below).

24. Some of the early delays were the fault of the various authorities and not merely of the Company. But it should be noted that where any big construction work, especially open-air work, has to be finished by a fixed date trouble will be inevitable unless the initial planning and drawing are completed quickly. It is no good gambling on winter weather.

25. (ii) The Company had quite inadequate control of its own financial affairs. This ignorance is demonstrated by the fact that Sir Henry French afterwards confessed that he was for some months under the impression--completely wrongly--that Mr. Campbell was acting as Finance Officer to the Company. The accountant's investigations into the Company found that the Company had failed to keep full, complete and accurate accounts and records for all commitments involving expenditure, as it was required to do under the Loan Agreement. The Company's records were not adequate to supply the Lord President with all material details of its activities as required under the Agreement.

26. (iii)The first Managing Director of the Company, whose previous experience was in the theatrical world, had not the right qualities for the job and was inadequate. No Finance Officer was appointed for a long time.

27. (iv) The Company changed from a fixed price to a cost-plus contract without informing any of the Government authorities. The way the changeover happened is a comment on the general financial inefficiency. In December 1950 the Company had written to the contractors to confirm the payment of additional costs caused by difficulties outside the contractor's control and by approved action taken to accelerate the work. It was not until March 1951 that it transpired that the quantity surveyors and the contractors interpreted this letter as putting the Whole contract on to a cost-plus basis. The Company then agreed that in view of the misunderstandings and the importance of completing the work to time, there was no other course but to change, or confirm that a change had been made in, the terms of the contract to a "cost-plus" basis. The change was formally made.

THE SHORTCOMINGS OF CONTROL

28. (i) The nature of control.--In retrospect officials considered that the main mistake was to have a company at all; the Gardens should have been run by the Festival Office. The Treasury in the early stages did emphasise the desirability of normal Exchequer control but the Festival Office produced convincing reasons why it could not run the Gardens itself. The main difficulty was the granting of concessions in the Fun Fair which was a process not suitable for parliamentary question and answer. Undoubtedly a company such as the Festival Gardens Company is a contradiction in terms, for while it is a commercial affair it is not subject to the commercial sanction of liquidation but can call instead on additional Government assistance. [1] The Treasury is always reluctant to abrogate direct financial control but there may nevertheless be other occasions when a quasi-commercial, Government-financed company is necessary. Control over such a company cannot be sufficient to avoid any possibility of inefficiency, even serious inefficiency, but it can and should be adequate to avoid financial scandals. A company can be given day-to-day freedom in its operations and yet be obliged to keep to an expenditure ceiling and to submit information about expenditure, revenue and commitments so that the authorities can tell if anything is about to go badly wrong. The point about the Festival Gardens is not, therefore, whether there should have been a company at all but where, granted that the company was set up, control over it went wrong.

[1] See a letter from Mr. Campbell GS.250/208/O1A doc. 149. A director of the Company had asked what would happen if the loss exceeded Ł100,000. Mr. Campbell was authorised by the Treasury to reply that "while H.M. Government retain the right to close down the scheme at any time, the estimate of a loss of Ł100.000 was no more than an indication of what might be the position at the close of the scheme and that, should the worst come to the worst and it looked as if the loss would be greater, it would not be the intention of H.M. Government to put the Company into liquidation and call on the Directors to meet any loss."

TREASURY HISTORICAL MEMORANDUM NO. 2--continued

29. One point needs emphasising here. Treasury officials have said that Festival Gardens were an object lesson in what happens when financial control is deliberately forsworn. I think this opinion conceals some confusion of thought which was partly responsible for the trouble. For all departments tended to act as if they were not responsible for controlling the company when in fact at the beginning a great deal of time and thought was spent in ensuring that there was a close control through a tight Loan Agreement. Having established the control, however, nobody bothered to exercise it effectively or, as far as the Treasury was concerned, to see that it was being exercised. On any similar occasions I suggest that the Treasury and other Departments concerned should be absolutely clear in their minds about the degree of control they are trying to exercise.

30. (ii) Initial vetting of the scheme.--The Treasury's opposition to the first scheme of all--the long-term one--was vehement (see paragraph 1). When the revised scheme came up the Treasury was still very doubtful about it on general grounds. But from the papers it seems that the Treasury did not give the scheme" the layman's scrutiny "which it later averred that it had given. The estimates of cost were taken at their face value when by intelligent cross examination it might have been elicited that, as later transpired, the estimates were only a guess made without any detailed examination of the site or drawings of the layout or examination of what would be in the Fun Fair. These estimates like the first ones were not worth the paper they were written on.

31. (iii) Budgeting for a loss and a loan--At the beginning and at least until November 1950 the emphasis was on the amount of the final loss and even this was a tentative amount; there was no warning that the ú100,000 was a maximum that must not be exceeded. [1] This emphasis on loss concealed the complete unreliability of the June 1949 and March 1950 estimates of expenditure while the emphasis on the adequacy or inadequacy of the loan concealed the implications of the November 1950 estimates. Estimated expenditure rose rapidly and this increase in itself made the sums involved in a given margin of error bigger but as long as increases in expenditure were balanced by increases of revenue, or as long as it did not seem likely that an increase in the loan would be required, no one bothered very much. In my view this error was fundamental and provides one of the main lessons for future experience. Financial control depends on control of expenditure, not on budgeting for a loss or calculating the adequacy of a loan. Later in its career the Company was given a ceiling for its capital expenditure and if there had been such a ceiling from the start, it is unlikely that the troubles would have reached the dimensions they did.

32. (iv) The composition of the Board.--The accountant who reported on Festival Gardens was very critical of the organisation of the Board; it consisted, he pointed out, of 13 unpaid advisory directors all of whom were busy men in other directions and none of whom was specifically asked to undertake particular responsibilities. He laid stress on the desirability in such a company of assigning to individual Board members executive responsibility for various sides of the Company's work. Officials, in commenting on the accountant's report, agreed that the Board was representational rather than executive but thought there might have been equally great difficulties in a functional Board even if men could have been found prepared to serve. The balance of advantage between the two kinds of Board is probably a matter of opinion and if the Board had ensured that it had an efficient managerial organisation working for it the question would probably not have arisen. Certainly one lesson is that in choosing a Board for such a company it is no good relying simply on the choice of apparently good people. Sir Henry French, for example, with his lifetime in the Civil Service must have seemed a wholly admirable choice. And two of the Government nominees, who were after all equally culpable with the rest of the Board, were the senior officers of the Festival Office which had responsibilities under the Loan Agreement. If any similar company were formed again with Government money and therefore without the normal commercial sanctions, the financial responsibility of the Chairman of the Board should be solemnly and explicitly affirmed. In the second half of the Gardens' career, this was done. The emphatic assignment of financial responsibility is more important than the existence of Government nominees. There may sometimes be a case for having Government nominees on a Board [2] but Festival Gardens are an example of the failure of relying on Government nominees. In the early stages of the Festival Gardens Company the Government nominees did not prevent financial disaster. In the later stages the Chairman of the Company was made responsible for finance, and for all his other shortcomings, he seems to have taken this responsibility seriously; in these circumstances the unedifying friction between him and Mr. Campbell served no useful purpose but blurred responsibility. If the Treasury want information to assure it that the affairs of a Company are being properly conducted, it would do better to ask for it through the sponsoring department or, in certain circumstances, direct rather than through a "spy" on the Board.

33. (v) The staff of the Company.--In the light of the experience with Festival Gardens, there seems to be a strong case for the sponsoring department, if necessary with Treasury help, to exercise some "nursing" function with staffing and accounting arrangements in new, Government-established companies just as the Treasury does with new Government departments. [3]

[1] See footnote on page 7.

[2] This point is generally discussed in the P.A.C. 4th Report 1950-51 and the Treasury Minute thereon. File HF.279/021.

[3] See Minutes of Evidence before P.A.C. 19.6.51, par. 7158 and paragraph 10 of Treasury Minute on P.A.C. 4th Report 1950-51.

TREASURY HISTORICAL MEMORANDUM NO. 2--continued

34. (vi) The loan agreement.--The loan agreement, whose provisions have already been listed, was very tightly drawn. One official in one of the inquests suggested that it was so tight that the Festival Office had no time to ensure its proper observance so that in fact it was not observed. [1] This verdict is not, however, really a criticism of the loan agreement: this agreement simply gave complete legal authority for financial control while the crucial point was that nobody was prepared, whether for lack of time, staff or will, to exercise control. As it was, the agreement was a formality and the dilatoriness in completing the agreement--it was not signed until November 1950--was a symptom of this. That part of the agreement which was observed--the forecasts of expenditure and revenue for the next month--was not the crucial part for the purposes of financial control. The information that the authorities were entitled to ask for but did not--information about future commitments and expenditure--was much more important. The only way in which the agreement might have been improved was perhaps by the addition of a clause giving some control over basic contract procedures, which would have prevented the sudden switch to cost-plus.

35. (vii) The division of departmental responsibility.--Responsibility was, until the last stage when the Ministry of Works took over departmental responsibility, badly blurred. The general understanding was that the Festival Office, whose Director General had signed the Loan Agreement on behalf of the Lord President, and on whose vote the Festival Gardens came, was responsible for supervising the Loan Agreement. They did in fact always receive the monthly expenditure and revenue budgets that were supplied under the Agreement. The only occasion when the Festival Office asked, as they were entitled to, for further information was in November 1950 when things were beginning to look badly wrong. On this occasion the Lord President's Office, which throughout tended to make confusion worse confounded, came between the responsible Minister and the Accounting Officer and the Festival Office henceforth never attempted any real financial control at all. In April 1951 the Festival Office made it quite clear that it did not regard itself as responsible for such financial control as the loan agreement envisaged nor could it indeed exercise it with its existing staff. Responsibility for control remained uncertain in the next stage of the Gardens' career, when the Festival Office and the Minister of Works were both involved; it was only in the last stage when the Ministry of Works took over from the Festival Office that responsibility was clearly laid down.

36. On any occasion when responsibility for a company is not absolutely clear cut, the Treasury should itself make sure that it is laid down in writing from the outset exactly who is expected to do what. If there is a sponsoring department it is not, of course, the Treasury's job to supervise the company but the Treasury should satisfy itself from time to time that the duties of supervision are being properly fulfilled. It is to some extent a reflection on the Treasury that after the Gardens' scheme had been going for nearly 18 months, it was necessary to hold a meeting to discover where financial responsibility lay. The Treasury did realise that it had made a mistake in not pursuing matters after the November 1950 estimates of cost appeared [2] but I think something more than this was necessary and necessary earlier in the day.

M. M. G.

[1] See also para.28 above.

[2] Sir William Eady thought that the Treasury should have realised, apart from anything else, that the loans authorised to the Company had become inadequate to meet the new estimates of expenditure, in spite of the higher revenue estimates.