Concerns over taxpayers’ £9.3m for Circuit of Wales
Watchdog raises serious questions over Welsh Government’s handling of public funding for racetrack project
The Auditor General for Wales has strongly criticised the Welsh Government’s handling of £9.3m in taxpayers’ money given to the Circuit of Wales project.
The financial watchdog expressed serious concerns about the Welsh Government’s “limited understanding” of the companies involved in the project to build a £430m racetrack in Ebbw Vale, one of the most deprived parts of Wales.
It also questioned why the Welsh Government allowed money to be used for projects that weren’t in line with the aims of the grant. In particular it questioned why: £300,000 of public funds had been used to acquire a motorbike firm in Buckinghamshire that later went bust;
Payments of almost £1m were allowed to another firm run by the Circuit of Wales’ director, Michael Carrick, “without enough evidence [they] represented value for money”;
The Welsh Government did not have any evidence of the firm buying in services “in a competitive and sustainable way” as required in the £2m grant offer letter;
Further, the Auditor General said “nearly half of the total value of payments to suppliers” was conducted “with or through related parties” and invoices were approved “without evidence of value for money”.
Altogether the project has received from the Welsh Government a grant
of £2m and a loan underwriting facility of £7.33m, which had to be paid to the project’s bank in full in April 2016 when the company was unable to pay the loan.
Economy Secretary Ken Skates is currently deciding whether to provide a further loan guarantee of £210m from public funds, without which the project will not proceed.
Those behind the project claim that together with nearby developments like hotels and leisure facilities it will create up to 6,000 jobs in one of the poorest parts of Wales, but critics – including Monmouth MP David Davies – doubt its viability.
The inquiry that led to the report was prompted by concerns raised with the Auditor General by Mr Davies.
The use of public funds from the initial £2m grant to buy motorcycle firm FTR Moto in Buckinghamshire came in for particular scrutiny in the report.
In April 2016, the Welsh Government issued an “incorrect and misleading” press statement to the Western Mail claiming no public money was involved in the purchase.
However, the report confirms for the first time that nearly £300,000 of public funds was used to buy the firm, which later went into administration with debts of £500,000.
Huw Vaughan Thomas, the Auditor General for Wales, says he does not believe there was any justification for allowing grant money intended to develop a racetrack on moorland above Ebbw Vale to be spent in such a way.
Earlier, officials had advised that the loan guarantee was “very likely” to be considered to be in breach of EU state aid rules and it was approved the same day.
The report said: “The Welsh Government has been unable to explain to our satisfaction why it approved grant funding intended for property development so that HoVDC could acquire a motorcycle engineering company.”
The Auditor General also criticises the Welsh Government over an arrangement under which one company controlled by Circuit of Wales frontman Michael Carrick awarded consultancy work worth nearly £1m to another firm wholly owned by him.
The rolling contract to undertake regulated investment fundraising was initially signed in January 2012 before any Welsh Government funding. It was not put out to competitive tender and Mr Carrick signed the contract on behalf of both parties.
However, two years later, after requests from the firm leading the Circuit of Wales proposal, the Heads of the Valleys Development Company (HoVDC), the Welsh Government authorised payments totalling nearly £1m from HoVDC to Aventa after an official stated in an internal note: “I’m now satisfied that none of the directors of HoVDC would personally benefit from these payments.”
The Auditor General questioned both the evidence for the assertion and the evidence provided to support the payments.
The report stated: “Invoices submitted by Aventa to the Welsh Government for payment approval simply comprised monthly payments of a retainer which, on their own, do not provide evidence of value for money or of services being delivered.”
Addressing concerns about how Welsh Government money was spent by the project, the report states: “Many companies providing services to HoVDC have direct relationships with current or previous shareholders, board members and individuals contracted to provide services to HoVDC and Aventa.
“We have identified nine such relationships between individuals and companies to whom payments involving public funds were made (by or on behalf of HoVDC) with Welsh Government approval, and two further relationships whose costs were deemed eligible but no
claims were submitted.
“We have identified that nearly half of the total value of payments to suppliers, excluding bank charges, made involving public funds through the PDG and the loan guarantee were conducted with or through related parties.” However, invoices submitted by related companies were approved by the Welsh Government for payment without evidence of value for money. In many cases, these invoices simply represented monthly retainers without evidence of any actual services being delivered.
In response, the Welsh Government told the Auditor General that officials “had satisfied themselves as to the value for money at the overall project level rather than at the individual service contract level”.
The Welsh Government also approved payment of business and travel expenses before evidence had been provided.
Under the arrangement, HoVDC would then submit actual invoices with its next claim and the Welsh Government would adjust the amount then paid.
Two expenses claims totalling £19,000 were approved by the Welsh Government and paid to HoVDC before the Welsh Government cancelled the arrangement because HoVDC failed to provide sufficient evidence to support the claims.
The Auditor General also criticises the Welsh Government for allowing officials who were championing the project to make funding decisions. He says the roles should have been separated.
Auditor General Huw Vaughan Thomas said: “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.”
The 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.