COMMITTEE FOR CULTURE, ARTS AND LEISURE

OFFICIAL REPORT
(Hansard)

Update from the Department of Culture, Arts and Leisure on funding concerns relating to the Armagh Observatory

10 April 2008

Members present for all or part of the proceedings:
Mr Barry McElduff (Chairperson)
Mr David McNarry (Deputy Chairperson)
Mr Dominic Bradley
Mr Francie Brolly
The Lord Browne
Mr Kieran McCarthy
Mr Raymond McCartney
Mr Nelson McCausland
Mr Ken Robinson
Mr Jim Shannon

Witnesses:
Ms Alison McQueen ) Department of Culture, Arts and Leisure
Mr Colin Watson )

The Chairperson (Mr McElduff):
We will now receive an update from departmental officials — Colin Watson and Alison McQueen — on funding concerns relating to the Armagh Observatory. Colin is head of museums branch, and Alison is acting head of sport, museums and recreation. I welcome the officials, and I apologise that the previous items ran over time significantly.

I refer members to the Minister’s response to queries arising after a meeting with the Armagh Observatory and Planetarium on 13 March 2008 and the letter dated 19 March to the Minister from the Committee following that meeting. After Colin and Alison have spoken, I will throw the meeting open to members.

Mr Colin Watson (Department of Culture, Arts and Leisure):
I apologise for being loaded with the flu. If my voice runs out halfway, I am sure that the Committee will understand.

Ms Alison McQueen (Department of Culture, Arts and Leisure):
I am nearly over the flu. Never let it be said that we have added to absenteeism figures.

Mr Watson:
Do not believe everything that you read in the papers, as they say.

There has been a great debate about the funding that the Department has allocated to the observatory for the next two or three years. The funding that has been made available for the observatory and the planetarium amounted to £250,000 in revenue, plus an extra £37,000 for minor capital over and above the funding that it received already. That represents a 27% increase in the budgets for the organisation.

That £250,000 represented an indicative allocation. As part of the budgetary process, each organisation has to provide the Department with draft business plans. The planetarium did so, but the chief executive of the observatory told the Department that he was unable to provide a draft business plan on the basis of the funding that had been made available to him by the board from the allocation.

The role of chief executives and their organisations is that they must produce draft business plans on which the Department can comment. The observatory produced a draft business plan that showed a deficit in the region of £130,000, and it said that there would be a growing deficit over the next two years. We had a meeting with the director and asked him to examine options for living within the available allocation. He produced an options paper, which arrived only yesterday. We have not had an opportunity to look at in any detail other than to say that it contains options for living within the available funding.

Ms McQueen:
It is fair to say that the 27% is an uplift on the total for the Armagh Observatory and Planetarium. It is then the responsibility of the board to decide how that extra money is allocated, either to the observatory or the planetarium.

Mr Watson:
That allocation is based on an assessment of need.

Mr D Bradley:
I am concerned about the situation in which the observatory finds itself because this matter is having a severe and negative impact on its work. The observatory is finding it difficult, under the circumstances, to recruit PhD students, who, I believe, bring extra funding to the observatory. There is also a problem with the recruitment of new post-doctoral staff.

You say that the observatory has been given an uplift of 27%, but that has to be seen in the context of five to six years of block cash funding and the rate of inflation. Twenty-seven per cent over five years works out at roughly 4·4%. That is an increase in revenue funding of only 24%, which is less than the rate of inflation if running costs, particularly in relation to salary increases, are taken into account.

The Department should have been aware of the difficulties that the observatory was experiencing — over five to six years, it has been bidding for in-year funding. According to what its representatives told the Committee at its meeting in Armagh, they submitted several bids last year: in April, May and, I think, also in July and November, all of which were turned down.

Therefore, the situation that has developed is the result of continuing underfunding over a number of years, and the 27% uplift, which you claim that the observatory has received, does not pan out as such in real terms.

Mr Watson:
You are correct to an extent, in that there has been a long history of the organisation not being able to operate within the baselines that were set. The original baselines for 2005-06, 2006-07 and 2007- 08, were £164,000 less than what the Department was actually supplying. We had to top up the budget for the observatory and planetarium by £164,000 — from £886,000 to £1·05 million. That was additional funding that had to be found in the Department in order to enable the observatory and planetarium to get to a situation in which they were — or said they were — able to operate. That £164,000 has been added into their baselines, on top of the £250,000. Therefore, the baselines have increased by £164,000 to get their funding up to that which they were already receiving, and another £250,000 was added on top of that.

The Department has also had to find an extra £511,000 in budgetary cover for the observatory and planetarium to cover non-cash costs. That is the depreciation cost to capital, arising to a large extent from the refurbishment of the planetarium. Therefore, the overall budget has increased from £886,000 to £1·8 million. Of that, £511,000 is not what you would call —

Mr D Bradley:
Is that all revenue money?

Mr Watson:
The £511,000 is not revenue; it is non-cash costs.

Mr D Bradley:
Will you explain a bit more about what is meant by non-cash costs?

Mr Watson:
It is an accountancy term. Non-cash costs cover matters such as the cost of capital, depreciation of assets, etc, and they are included in the balance sheet on the books. Nevertheless, they are still part of the Department’s budget.

Mr D Bradley:
I do not dispute that, but can they be converted into hard cash?

Mr Watson:
No.

Mr D Bradley:
Does that mean that, in this context, they are pretty meaningless?

Mr Watson:
It is not germane in the context of providing overall spendable cash, but, by the same token —

Mr D Bradley:
If you cannot balance the books, does that mean that those non-cash costs are no good to you and you have to use real cash?

Mr Watson:
Yes, but, by the same token, the non-cash costs still have to come out of the Department’s overall budget. If the Department has a £100 million budget, £500,000 of that is now non-cash costs.

Mr D Bradley:
What actions does your Department intend to take to remedy the situation?

Mr Watson:
We have asked the director to consider various options, other than the single option of the Department simply providing more funding, because that was the only option that was being suggested; no other options were considered.

Mr D Bradley:
There seems to be quite a discrepancy between what we were told by the observatory director at our meeting in Armagh and what you are telling us now. He told us that, in real terms, the 27% uplift does not apply when inflation and other increases in running costs are taken into account, but you are telling us that the Department has given them quite a boost in cash.

Mr Watson:
An increase in funding of 27% is, compared with other organisations that are funded by our Department, a fairly substantial increase. That is not to say that any of those organisations would not want more; certainly, the bids that we receive at the beginning of every year from all those organisations total a lot more than what the Department has available. Everybody would like more funding, but adding 27% — £250,000 — into baselines is a fairly substantial uplift.

The Chairperson:
We will come back to Dominic at the end of this round of questions. There will be three more questioners, then we will leave it.

Mr Brolly:
I want to know how the planetarium is expected to — or does —spend its money. We spoke to the public-procurement body — I think it was yesterday or the day before — and I gave them the following example of procurement. The director of the planetarium wanted a stud wall built — it was a very simple job, and he spoke to some local agency that was able to do it, and he got a quotation of £2,000. However, because he was obliged to go through the public-procurement process, it ended up costing £8,000.

If a job such as that is going to cost four times what it is worth, surely those who are in charge of funding — such as the Department — should reassess public procurement. Obviously, that figure gave the local service agency a margin. However, if a £2,000 job is actually going to cost £8,000, it will not be long before your 27% extra funding is spent.

Mr Watson:
We concur with what you have said. The Department has agreed — with Armagh Observatory and Planetarium — to examine any potential for delegations at very small amounts.

The public-procurement process must be followed when the cost of a job reaches a certain level. The Central Procurement Directorate has already gone through procurement processes, thereby saving organisations some time. However, we are examining the problems that you have mentioned.

Mr McCartney:
Francie Brolly has covered the point that I was going to make — we are of a like mind.

Mr McNarry:
Are you contradicting what the chief executive of the planetarium has said about his organisation’s financial needs? There seems to be quite a gap between your viewpoint and his. Do you envisage — even after a brief assessment — that the options that representatives from the planetarium gave you yesterday will open the door for new positive negotiations? Is their living within their budget, as they have expressed it, viable or detrimental to the planetarium?

Mr Watson:
It is actually the observatory that has the major difficulty.

Mr McNarry:
I used the term “the planetarium” rather than having to say Armagh Observatory and Planetarium each time.

Mr Watson:
We are not contradicting the chief executive. We have given the Armagh Observatory and Planetarium an extra £250,000 in this funding round, which is a 27% increase. The chief executive of Armagh Observatory said that, this year, he needs another £130,000 on top of what the board of governors allocated to him from that £250,000. We are looking for other options and examining whether it is possible for him to reduce his costs.

Mr McNarry:
I accept that you are not contradicting the chief executive. I will rephrase my question: do you share his opinion?

Ms McQueen:
It is his business — not ours — to know how much it costs to run his organisation. We will tell him that this is all the money that the Department has, and we will ask him to consider ways of cutting his cloth so that he can live within those available funds. The Department cannot seek increased funding until there is certainty that all other avenues have been explored.

Mr McNarry:
I understand that. The chief executive says that he needs x amount of funds, and you — who are in the powerful seat — are granting him x minus. If he agrees that he can live within that x minus, the Committee and the public would like to know whether that would create a fall in standards? How detrimental would such falling standards be to the overall project?

Ms McQueen:
We would have to get that assessment from the director.

Mr McNarry:
Do the discussions that he has had with you not represent such an assessment? Surely he is saying that although he will continue to live within whatever funds he is given, that will mean a fall in standards. Who is responsible for those falling standards — the Department or Armagh Observatory and Planetarium?

Ms McQueen:
We were provided with that information only yesterday, so we have not yet had a chance to read his assessment of the potential consequences.

Mr McNarry:
The information that you received yesterday is his assessment, based on the scope that you have given him. Effectively, you have cut his funding. I want to know whether standards will fall as a result of that cut.

Ms McQueen:
We have not made any cuts.

Mr McNarry:
You have cut what he is asking for, and I want to know how that will affect standards.

Ms McQueen:
I do not know whether standards will fall. I have not read —

Mr McNarry:
Will the service decline and standards fall? How will that affect the running of what is a most marvellous facility for Northern Ireland?

The Chairperson:
Dominic wants to briefly support your point.

Mr D Bradley:
At our meeting with the director in Armagh, the chief executive said that the 27% uplift is insufficient because the level of core funding from 2003-04 to 2007-08 has been systematically too low. My reading of that is that the observatory has been starved of funds over a period of time. It is now feeling the effects of that lack of funding, and your attempts to take up the slack have not been enough. I am surprised that, having received what you described as an options paper from the director yesterday, you came to this Committee meeting this morning without having read the paper and without having made an initial assessment of the proposed options. Surely this meeting was an opportunity for you to report to the Committee on those options.

Lord Browne:
I believe that the Armagh Observatory and Planetarium has a very important role to play in astronomical research. I welcome the fact that, at long last, a draft business plan has been submitted, because no matter what the current provision is, the observatory should make a strong business case for any future development that it plans.

I have read the Minister’s letter, and I think that we should welcome the fact that the funding has been increased by £250,000 as a result of the recent comprehensive spending review. A 27% increase on baselines is a considerable amount. By any yardstick, that is fairly generous. I would like to know how the observatory found itself in this financial position. How long did it take for it to realise that it was in this predicament? What has the capital expenditure been for the past three years?

It is up to the observatory to make a strong business case, and I would like that business case to suggest objectives and proposals on how to reduce the subsidy so that it can become more financially independent. I welcome the Minister’s statement. There has been a fairly generous increase in funds.

Mr D Bradley:
We must put the matter in the context of the lack of funding over many years.

Lord Browne:
Even in context, I fail to see how this matter has not been brought to people’s attention, given that there has been a problem for so many years.

Mr D Bradley:
That is what I said at the beginning; it has been. The observatory has been depending on in-year bids over the past five to six years.

Mr McNarry:
Does that mean that it is the fault of direct rule Ministers?

Mr Watson:
The observatory has not been relying on in-year bids every year for the past number of years. Like I said, at the beginning of every year, the Department found an extra £164,000 to add to the baselines that were agreed in the 2004 comprehensive spending review. Therefore, the observatory has received an extra £164,000 without even having to go through the bidding process. That £164,000 has now been added into the baseline along with another £250,000, so the spending review (SR) 2007 baseline is a substantial increase on the SR 2004 baseline.

Nevertheless, the director has come to the Department and said “It ain’t enough”. He says that he needs more funding to enable him to maintain the service standards. We have challenged him to look at the options and consider how the observatory can help itself a bit more, rather than simply come to us and ask for another £130,000, £160,000 or £190,000 — the figure could reach £250,000 by the time we are finished. If there is an opportunity for self-help, we will be only too happy to look at what we can do. We cannot guarantee any more funding at this point, because the allocations have already been set in SR 2007 and have already been made. That is not to say that we cannot examine it as part of in-year monitoring rounds. However, we definitely want to see the options and the quantum of the funding.

The paper arrived only yesterday. I was not in the office yesterday, so I have not had an opportunity to look at it. In any case, I would not want to come before this Committee having looked at something for half an hour and then try to come to some conclusions without giving it full consideration.

Mr McNarry:
I appreciate your explanation about why you did not look at the paper. It must be a one-man band if nobody else could look at the document and summarise it for you. However, we shall see.

Mr McCartney:
He might be a one-man band — do not invite the opportunity. — [Laughter.]

The Chairperson:
David, what question do you want to ask?

Mr McNarry:
In light of what has been said and the importance of that paper, does the Committee want to ask officials to send a copy of the paper or a summary of its options? We are in the dark on that matter. If that is in order, I propose that the Committee makes that request.

The Chairperson:
Are members agreed that we request a copy of the paper?

Members indicated assent.

The Chairperson:
Do you have any final points to make, Dominic?

Mr D Bradley:
How long will it take to assess the director’s options paper, and when can the observatory hope to hear back from the Department about the possibility of securing additional funding?

Mr Watson:
The first opportunity that the Department will have to identify any additional funding will be in the June monitoring round. One reason that we wanted to receive the options paper in April was to allow the Department to consider it, alongside all the other issues for June monitoring, in May.

Ms McQueen:
We can, hopefully, use some of the director’s arguments to help us.

Mr D Bradley:
Will you give us an undertaking that you will work closely with the director when you are considering those options?

Mr Watson:
We have been working closely with the director and will continue to do so. I have had numerous meetings with him in an attempt to resolve the issues, and those meetings culminated last week in the request for the options paper.

Mr McNarry:
I am anxious that services and standards do not fall. I appreciate budgetary needs, and I accept what was said about the efforts that have been made. We are not knocking hard for the sake of knocking. We want to see that no greater crisis develops at the observatory. Is there an assessment that you can give the Committee about the effect that the funding allocation — which we will agree eventually — will have on services and standards at the observatory? We want to hear your view on that matter, and we can then hear the observatory’s view. I believe that you have a duty to tell us your view. Money cannot simply be given out without its impact being assessed.

Ms McQueen:
There are targets that we ask each of the bodies to reach in their business plans. If they tell us that they will not be able to meet particular targets unless they receive a certain amount of funding, we can make the assessment.

Mr McNarry:
Will you inform the Committee about that assessment process, what the targets are, what the impact will be, and, if there is slack, where we then find ourselves? We do not want to be piggy in the middle between the Department and the observatory, because we are hearing two sides of a story. However, the duty of this Committee is to scrutinise and to base its conclusions on facts. Therefore, if we have the facts in writing, we can see what the observatory is saying.

Mr D Bradley:
There seems to be quite a discrepancy between the Department’s account of funding for that facility and the director’s account. That leads me to think that the levels of co-operation and communication that are required between the Department and the observatory do not exist. I hope that that situation will improve because I suspect that it might relate in some way to the two different and varying stories that we are getting.

The Chairperson:
Do you have any concluding comments to make, Colin?

Mr Watson:
Ultimately, the working relationships between DCAL and all its bodies are, and always have been, reasonably good. I do not think that there are variations — there are conflicting views on whether £400,000 is enough.

Mr D Bradley:
I think that £400,000 is a fair variance.

Mr Watson:
The facts and figures cannot be argued with — an extra £250,000 has been made available.

Mr D Bradley:
There is a variance in the views on finances, Colin. You have to admit that.

Mr Watson:
It is not a variation on the views of the money and on the quantum; it is a view on whether it is sufficient — that is where the difference lies. From a departmental perspective, if all the bodies were to receive a 27% uplift in funding, they would be extremely happy.

Mr D Bradley:
That would be the case if it were a true uplift.

The Chairperson:
I thank Colin and Alison for making this presentation and for responding to questions. I also thank the departmental officials for promptly coming to the Committee and engaging in this exercise.