Palace of Westminster: Restoration and Renewal

Earl of Kinnoull Excerpts

Tuesday 6th February 2018 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, it is a pleasure to follow noble Lord, Lord Dobbs. What a sparkling contribution that was in the gloaming of this very interesting debate. I add my name to the long list of those praising the work of the Joint Committee in producing a very readable report on this complex subject that frames the issues well.

I have a great interest personally and professionally in heritage buildings and objects. I have seen many, insured many and repaired many. I fully accept—as I think we all do—that the Palace of Westminster needs major works, and I want to see all the necessary ones done immediately. I have had the basement tour—and, rather differently from some others, I have had many similar basement tours in other royal palaces and heritage buildings. It is interesting to note that, among those others, I assure noble Lords that many have similar challenges to those we have here. However, I am afraid that I want to address the Deloitte costing information contained in the independent options appraisal. That is home territory for me and my interest was sparked by a feeling that the costings were open to question.

With different financial information flowing from revised costings, the correct strategy for the care of our Parliament building will no doubt emerge. It may not equate wholly to any option on the table today—which was said with greater eloquence by the noble Lord, Lord Butler of Brockwell. In any event, it is a huge sum of money and we need robust and fully tested numbers to examine the issue properly.

I turn initially to the Deloitte costings for the full decant option. There are quite a few points but I will talk briefly about only two. The first is a small one, but with a big cost. Assumption E5 makes it clear that there is no additional cost for policing the two new buildings. I note that, if we increase the policing cost by a third of what it costs to police the current parliamentary estate, which would seem to be about proportionate, that across the build would be an extra £100 million. Assumption A53 covers the decant and reoccupation costs. This assumes that two buildings are purchased for the decant period and £331 million is spent fitting them out. At the end of the decant period they are sold for exactly the same price. There is no assumption about the cost of borrowing the money to buy and hold these buildings and no attempt to estimate any increased cost of working due to the business disruption of being delocalised—a point very ably made by the noble and learned Lord, Lord Hope of Craighead.

I could talk further about that assumption. After ringing around some agents, I found that the notional cost of buying 500,000 square feet of space across two buildings in our area—around half of the aggregate space of the Parliament building—could be estimated at being in the order of £600 million. Borrowing at 3% for 10 years would be a straight £180 million. Renting the same space at £70 per square foot—another figure checked with an agent—for 10 years would cost £350 million. These calculations just give directional guidance on the quantum of what has been left out, as what will actually be done is different. But it will be of that order and is a large sum that is not reflected in the full decant option. Thus the 2014 Deloitte decant option costings may have been considerably understated.

I now turn to the Deloitte remain on site costings. Here I feel that the model may have overstated matters. Again I shall talk about only two concerns. The first relates to the treatment of inflation. For the 2014 Deloitte numbers, this is taken as 3.64% for the whole period, whichever option is chosen. The totals of each option are made up of the number of 2014 pounds estimated to be spent, and then an inflation amount is added, depending on when the money is actually due to be spent. For example, let us assume that it costs £1 to knock a nail in today. The pound spent today on construction work will appear as £1 in the overall totals. For a nail knocked in in 32 years’ time, the £1 is inflated and will appear as £3.14 in the overall totals.

Any option that takes longer will be disadvantaged by this method of totting up the money. This is why businesses look at things, as well as on this basis, in net present cost terms, which takes account of the time value of money. This would make a huge difference to the costs of every option, in particular the remain on site one. Indeed, this can be seen directionally in the only net present cost number in the independent options appraisal, which is the whole-life costs number on page 19—where, interestingly, the remain on site option is the cheapest.

A further concern I have is in the treatment of risk. This is defined in paragraph 84 of the Joint Committee’s report as,

“to allow for changes to the budget as a result of unforeseen changes to the Programme’s scope, delivery or schedule”.

That, in other words, is very much what the noble Baroness, Lady McIntosh of Hudnall, talked about. Including VAT, risk for the remain on site option is £1.75 billion. I feel that we must be able to manage things better than that, and indeed I do not understand why the risk on scope, delivery or schedule cannot be better managed for all the options. I note that this is a major factor in making the remain on site option look less attractive, and in general this needs very careful consideration. So I am afraid that I feel that the Deloitte costings are significantly open to question.

But we must make progress and we need to pass the problem to the governance structure envisaged in paragraph (6) of the Motion immediately. Along with many noble Lords, I ask those involved to get on with it rapidly. As a risk professional, I observe that risks are additional, so the longer we delay the more risk there is of a catastrophic failure. This governance structure must then be trusted to make decisions. However, I submit that it should not feel constricted by paragraph (4) of the Motion, which rests on the rickety base of the 2014 Deloitte numbers.