The future financial performance of the LLDC

Meeting: 
Plenary on 2015-03-11
Session date: 
March 11, 2015
Reference: 
2015/0802
Question By: 
Gareth Bacon
Organisation: 
GLA Conservatives
Asked Of: 
Boris Johnson (Chairman, LLDC) & David Goldstone (Chief Executive, LLDC)

Question

Beyond the current deal with West Ham for use of the Olympic Stadium, what other major economic activities could the LLDC engage in to maximise return for the taxpayer?

Answer

Answer for The future financial performance of the LLDC

Answer for The future financial performance of the LLDC

Answered By: 
Boris Johnson (Chairman, LLDC) & David Goldstone (Chief Executive, LLDC)

Boris Johnson (Chairman, London Legacy Development Corporation):  There are all sorts of ways in which the LLDC will be getting revenues in and one of the big achievements is that all the sporting venues are now on a sustainable, private-sector financial footing.  As David [Goldstone] has been saying, the LLDC will become a net contributor to the GLA budget from 2021/22.  The stadium is expected to cover its costs and to return a small profit by 2016/17.  I am very bullish, as I say, about the receipts that are coming in overall from the area.

Gareth Bacon AM:  The budget indicates that over the next two years the £17 million or so that we are holding in reserves at the moment - and Mr Goldstone probably knows what is coming because we had this at the Budget Committee - will be used for in-year expenditure, meaning that by 2017/18 there will be no reserves in the LLDC.  There is a £7.2 million budget gap indicated for that year.  It does coincide with the Stadium becoming fully operational and West Ham United playing their first season there that year.  Will that be enough to cover the £7.2 million gap?

 

David Goldstone CBE (Chief Executive, London Legacy Development Corporation):  That is juxtaposing, maybe, two things that are not directly connected.  The use of reserves is something we have agreed with the GLA.  We are a functional body of the GLA and our funding effectively flows directly through the GLA.  We have agreed that we do not need to hold a separate pile of reserves sitting in the LLDC’s account because, if such issues arose where we may need reserves, we would look at our own expenditure and would try to manage things on our own account first of all and we would then have a discussion with the GLA centrally.  It would seem inefficient to have cash sitting in our account as a reserve in the long term.

 

Gareth Bacon AM:  With respect, Mr Goldstone, there are other mayoral functional bodies as well - the Fire Authority, to take an example at random - and they maintain reserves.

 

David Goldstone CBE (Chief Executive, London Legacy Development Corporation):  Yes, I am just saying that in our case.  I am not commenting about other functional bodies.  I do not have responsibility.  However, in our case we have agreed that we do not need to hold what was, as you say, around £17 million of reserves sitting in an LLDC account.  We are trying to set all our activities up so that they are in the long term financially sustainable in their own right.  That is the objective.  It is looking across the whole range of our activities, each individual facility and each venue.  For example, the employment and skills activities do not pay for themselves, but we are making sure the budget overall does and setting things up on a commercial footing will help support that.

 

In relation to the Stadium, obviously, the 2016/17 year is the financial year in which the new arrangements and the permanent arrangements come into play, but they are not in play for the whole year.  West Ham will start playing matches there at the end of the summer.  With the arrangements that we have with the operator, really the first full normal year will be 2017/18.  It will be the year after because the arrangements will have been in place.  We are looking at the Stadium reaching the position where it can - and it has a long-term business plan - cover its own costs and return a small surplus.  That is through a multitude of events.  We have the West Ham long-term agreement in place.  We have the UK Athletics agreement in place for a home for UK major athletics events each summer.  We have an operator that is incentivised commercially to bring in footfall, bring in events, bring in revenue and make the Stadium financially viable.  That is our objective and that is what is behind the plan.

 

Gareth Bacon AM:  That is more or less what I said, but how will the £7.2 million gap in 2017/18 that is currently in the business plan be covered?  Will that be covered by the Stadium being fully operational in that year?

 

David Goldstone CBE (Chief Executive, London Legacy Development Corporation):  If the Stadium performs beyond what is currently planned, which is definitely possible, then that would contribute to that.  That is 2017/18 and we are going into 2015/16.  We have a couple of years of development when we will make sure that we do not put ourselves in a position where there is that sort of gap.

 

Boris Johnson (Chairman, London Legacy Development Corporation):  Is it fair to say, David, that the variable that has proved most promising for us is the land receipts?

 

David Goldstone CBE (Chief Executive, London Legacy Development Corporation):  Yes.

 

Boris Johnson (Chairman, London Legacy Development Corporation):  There, if current trends continue, we may enjoy further benefits that have not been predicted and may be in an even stronger position.

 

Gareth Bacon AM:  It is more likely to be the property and land values rather than the Stadium that closes the gap?

 

David Goldstone CBE (Chief Executive, London Legacy Development Corporation):  More likely.

 

Boris Johnson (Chairman, London Legacy Development Corporation):  I am just speculating, but on current trends it is certainly true that the land values have been very strong.

 

Gareth Bacon AM:  The issue of the reserves is an interesting one.  This is a question for you, Mr Mayor.  It is an unusual model for a mayoral functional body to have no reserves pile.  It is not something that necessarily causes me huge concern because I accept what Mr Goldstone says about it being a wholly-owned subsidiary, effectively, of the GLA, but is it really standard policy for the GLA where there is a mayoral development corporation (MDC) for there to be no reserves held at that MDC?  The reason I am asking you, of course, is that we have just set up another one at Old Oak Common.

 

Boris Johnson (Chairman, London Legacy Development Corporation):  We do not see any need for the LLDC to hold reserves in the way of other functional bodies.  I make no comment about the Old Oak and Park Royal Development Corporation (OPDC).  We may pursue some arrangements there.  In the end, it is all part of the same ball of wax.  This is all the same dosh, frankly.  It is a bit of an academic consideration.

 

Gareth Bacon AM:  Yes and no, Mr Mayor.  I accept what you are saying again.  Yes, it is all part of the same ball of wax.  That is absolutely right.

 

However, looking off into the future, a future Mayor may decide to set up other MDCs going forward.  If the thinking is that MDCs are to hold no reserves of their own and will call on the GLA every time they might overspend or might get into some trouble that they do not foresee in the future, is that likely to limit the possibility of any future MDC being set up?

 

Boris Johnson (Chairman, London Legacy Development Corporation):  Any future Mayor would be constrained.  You cannot possibly set up a MDC that is going to impoverish the GLA if you want to run the GLA successfully.  Any future Mayor will have to realise that, as I say, this is all part of the same ball of wax.  The funding is finite and it makes no particular sense.  I assume that any Mayor would want to be chair, as I am, of all MDCs and therefore would not allow one body to become so badly financially run as to impoverish the GLA.  It would be totally absurd.