The Welsh Government's Initial Funding for the Circuit of Wales Project

The Welsh Government has provided over £9.3 million to support the development of a motor racing circuit in Ebbw Vale and has agreed a further £16 million of repayable finance. But, according to a report by the Auditor General for Wales today, there have been significant shortcomings in the way the Welsh Government has managed the associated risks to taxpayers’ money.

To date, the Welsh Government’s initial funding support for the Circuit of Wales (CoW) project has comprised:

• a £2 million grant to the Heads of the Valleys Development Company (HoVDC) to help its CoW project meet costs associated with site planning and development, provided in October 2012;
• a bank loan guarantee agreement, under which the Welsh Government paid over £7.3 million to HoVDC’s bank in April 2016. The Welsh Government is entitled to demand repayment of this sum, plus interest, from HoVDC; and
• an agreement to provide £16 million of Repayable Business Finance to HoVDC, if the CoW project meets certain conditions before the end of March 2018. However, the CoW project’s latest funding proposal to the Welsh Government does not include drawing upon any of this finance.

The report acknowledges that the Welsh Government appropriately commissioned extensive advice and considered a range of benefits and risks before deciding to provide this initial support to the CoW project. But its appraisal of the information which has underpinned its funding decisions to date was flawed. The Welsh Government followed established procedures for supporting ministerial decisions in most respects, but some key information was omitted from submission papers. Also, some gaps in information have created additional risks as the public funding commitment has increased.

The report concludes that, once decisions were made to provide initial financial support to the CoW project, the Welsh Government did not do enough to manage public funds properly. Funding arrangements did not provide strong enough security for public money; conditions applied to different funding streams were inconsistent and, where they were in place, weren’t always enforced.

The Welsh Government’s understanding of the companies involved in the CoW project was limited. The Welsh Government allowed payments by HoVDC to related companies, including almost £1 million to Aventa Capital Partners Ltd, without enough evidence that services provided to HoVDC represented value for money. And the Welsh Government arrangements for authorising payments to HoVDC itself were insufficiently robust.

The report concludes that the £2 million grant awarded to HoVDC included £300,000 to acquire FTR Moto LTD, a motorcycle engineering company, which was inconsistent with the grant scheme’s purposes. The Welsh Government has been unable to explain to the Auditor General’s satisfaction why it permitted a property development grant to be used by HoVDC to acquire a motorcycle engineering company in Buckinghamshire. Funds transferred to FTR were later written-off in HoVDC’s accounts and then, in October 2016, FTR went into administration.

The report does not assess the merits of the Welsh Government providing further publicly funded support to HoVDC or review the viability of the business cases for construction and operation of the race circuit. It also does not test assurances made by the developers about job creation and economic activity arising from the overall Circuit of Wales scheme, of which the race circuit project is a part.

The report does not directly examine the conduct of individuals or entities connected with the project. However, during the course of the audit work, and in response to concerns raised with the Auditor General by a Member of Parliament, certain payments were examined to establish whether they involved the use of public funds. It was established that these payments did not constitute the use of public funds.

Today’s report makes five recommendations to the Welsh Government for improvement, including:

• ensuring that submissions to Ministers for decision approval include all information relevant to any proposed expenditure that may be novel, contentious or repercussive; and
• asking companies applying for financial support whether any transactions involving public funds are to be conducted through related companies, and then undertaking robust due diligence where this is proposed.

Auditor General, Huw Vaughan Thomas said today:

“Using public money to support private infrastructure projects in Wales can help boost regeneration and economic development. In doing so, public financing needs to be managed robustly, with proper standards of scrutiny, vigilance and oversight.

“It’s unfortunate that, in the case of the Circuit of Wales, we have identified significant shortcomings and so the Welsh Government needs to learn from my report, particularly if it decides to provide any further support for the project to progress.”

Ends

Notes to Editors:

• The Circuit of Wales is an ambitious venture to construct a car and motorcycle racing circuit on moorland near Ebbw Vale in Blaenau Gwent. The racing circuit is intended to be of a high enough standard to accommodate a range of motorsports, including motorcycle world championship racing, although it will not be constructed to Formula One motor racing requirements.
• This report sets out the key matters relating to the Welsh Government’s management of its initial financial support package for the Circuit of Wales project. We have focused our audit review on how well the Welsh Government has made decisions to provide initial financial support; managed risks by applying conditions and assured itself that funds provided were used for the purposes intended.
• Although not the external auditor of the Heads of the Valley Development Company Ltd or various associated companies, the Auditor General has statutory powers to follow the public pound and to assess compliance with Welsh Government funding terms and conditions.
• The Auditor General is the independent statutory external auditor of most of the Welsh public sector. He is responsible for the annual audit of the majority of public money spent in Wales, including the £15 billion of funds that are voted on annually by the National Assembly. Elements of this funding are passed by the Welsh Government to the NHS in Wales (over £5 billion) and to local government (over £4 billion).
• The audit independence of the Auditor General is of paramount importance. He is appointed by the Queen, and his audit work is not subject to direction or control by the National Assembly or government. 
• The Wales Audit Office (WAO) is a corporate body consisting of a nine member statutory Board which employs staff and provides other resources to the Auditor General, who is also the Board’s Chief Executive and Accounting Officer. The Board monitors and advises the Auditor General with regard to the exercise of his functions.