Meeting documents

Councillor Bowles

Deputy Leader and Cabinet Member for Economic Development Delivery

To consider the attached information.

Contact Officer:  Andrew Small (01296) 585507

(a)       Decision(s)

(1)          That Council be recommended to authorise the Director with responsibility for finance, after consultation with the Cabinet Member for Finance, Resources and Compliance to review and make an assessment of the due diligence being undertaken by South Northamptonshire District Council.

(2)          That subject to the above assessment proving satisfactory and subject to suitable terms and conditions being agreed by the supporting councils and the necessary commitment to the scheme being given by each of them, Council be recommended to:-

·         Approve the inclusion of £2m within the Capital Programme as a provision to make a loan facility available to Silverstone Heritage Limited: and

·         Earmark £2m of unallocated New Homes Bonus for the above purpose.

            NOTE: A copy of the organisation’s business plan was appended to the Confidential part of the Cabinet agenda.

(b)       Reason(s) for Decision(s)

            Silverstone represents a significant hub for leisure, tourism, employment and high tech industry.  Its draw and impact in the region extends well beyond the administrative boundaries of the councils in whose areas the circuit is situated, with an economic radius of approximately 50 miles.  An estimated 36,000 jobs are dependent on Silverstone as the centre for UK motor sports and the home of Formula One.

            The leisure, recreation and employment businesses that depend on the venue generate significant amounts of business rates for the councils in the area, and the changes to the retention of business rates mean that the councils now benefit directly from the success of Silverstone.

            The support recommended for the Silverstone Heritage Scheme is recognition of the strategic importance of the venue to Buckinghamshire and Northamptonshire and the need to promote the venue and enhance its attraction in order to ensure the long term future of Formula One motor sports.

(c)       Alternative Option(s) Considered

            Not to make a loan facility available, but this was discounted for the reasons given above.

(d)       Relevant Scrutiny Committee

            Finance and Services.  However as this matter will be considered by Council, it is not subject to call in.

(e)       Conflicts of Interest / Dispensation(s)

None.

As part of a package of loan support provided by the four County and District authorities in whose area the circuit was situated, this Council had been asked to consider making a loan facility for £2m in connection with the establishment of "The Silverstone Heritage Experience".  The combined loan facility of £8m made up from the four authorities was required to secure provisional Heritage Lottery funding of £9.3m and would only be required in full or in part if private sector funding could not be obtained.   It was anticipated that the project would attract over 400,000 visitors to the area each year thereby bolstering tourism and the economic viability of the area.

It was proposed that the project would open in October, 2018, on the 70^th anniversary of the first Grand Prix being held at Silverstone.  The vision was to bring the extensive heritage of Silverstone and British motor racing to life through the creation of a dynamic, interactive and educational visitor experience, including:-

·         A permanent exhibition at the entrance to the circuit that would take visitors on an exciting two hour journey through motor racing at Silverstone set against the wider context of the sport, and in particular, the role that the circuit, its owners, the British Racing Drivers Club (BRDC) and the region’s motor industry have played in the development of the sport worldwide.

·         A collections and research centre, offering museum and archive-accredited storage for the unique BRDC archive and other important motor sport collections.

·         An extensive education programme which aimed to address the region’s shortage of engineers by inspiring the engineers of the future through its interactive teaching sessions, engineering teaching bursaries and awards programmes.  This would help to ensure that the region continued to be the focus of high performance engineering with a readily qualified workforce.

The Silverstone heritage Experience would serve as a catalyst, stimulating further development at Silverstone, for example, a new hotel and family entertainment centre.  Its marketing budget would also ensure that the attraction was promoted to a very large and diverse audience, helping to strengthen Silverstone’s and the region’s standing nationally and internationally.

Robust feasibility studies and a five year business plan had been prepared (with the assistance of sector experts) which had shown that the Silverstone Heritage Experience would deliver anticipated visitor numbers of 436,500 in its first full year of operation (2019).  Once open, it would be self funding, generating a healthy annual surplus, so it could easily service a loan of £8m paid back over a ten year period.  Nearly £11.5m gross visit impact to the local and regional economy was projected for 2019, with an additional 87,000 bed nights generated in the region.  The total number of jobs created by the project would be 78.

By virtue of the additional visitors the project would attract to Silverstone, it would help to secure the future of the Silverstone Circuit and its ability to continue to host the British Grand Prix and other national and international events which were crucially important to the region’s visitor economy (and woul underpin the performance engineering sector too).  Silverstone remained the only Formula One venue in the world to operate without Government or third party subsidies.

Silverstone Heritage Limited (SHL) (Registered Charity Number 1166279), was the legal entity to take the Silverstone Heritage Experience forward.  Its sole member was the BRDC.  The project was a top priority of the BRDC and in order to provide the project with as much support as it could, the BRDC had gifted the land (and the hangar building) with a value in the region of £2m, on which the Silverstone Heritage Experience would be built.

The project’s Round One application to the Heritage Lottery Fund (HLF) had been successful.  This had given SHL a grant of £446,000 towards the development of a Round Two application which had been submitted on 5 August, 2016.  The development of the Round Two grant application had been closely monitored by the HLF, and SHL was therefore confident of success, providing it had sufficient match funding (at least 80%) pledged by the time the bid was considered by the HLF Trustees Board in early November, 2016.

Without the support of the local councils, SHL would not have sufficient funds pledged and would lose the HLF grant and the project would fail.  The total remaining cost of the project was £18.46m of which a grant of £9.23m was being sought from the HLF.  SHL was therefore seeking support from AVDC, South Northamptonshire District Council, Buckinghamshire County Council and Northamptonshire County Council in the form of a ten year loan totalling £8m split between the parties.  The loan could be made on a contingent basis, assuming that the HLF application process completed successfully.

Up to two seats would be made available to the councils on the SHL Board of Trustees which also served as the project’s steering committee.  The loan could be paid back with interest by SHL over a ten year period.  It was believed that the project would generate significant positive PR for its partners, both prior to and post opening, as well as generating significant benefits for the region as already outlined in this Minute.

SHL had provisionally secured support from the HLF and now needed to demonstrate that 80% of the scheme funding was in place as part of the HLF’s final sign off process.  The practical deadline for SHL to achieve this was the end of October, 2016.

It was the intention of SHL to raise the balance of funding between the scheme cost and HLF funding through private donations and sponsorship, but fund raising in this way took time to achieve and could not be guaranteed to be secured within the window of opportunity available.  Without the guarantee in place, it was likely that the Lottery funding, and therefore the scheme, would fail.

Because of the importance of Silverstone to the surrounding and wider economies of the area and the importance that the Heritage Experience represented in terms of helping to secure the long term future of Formula One motor sports at the site, Silverstone Heritage Limited had approached the four upper tier councils that covered the circuit and had asked them to underwrite, via a loan facility, the funding gap for the scheme.  As mentioned earlier, the loan facility requested was £8m and each of the four councils had been asked to provide a facility for £2m.

It was the intention of SHL that the majority, or possibly all of the loan facility would not be required as a result of its own fund raising activities.  However depending on the extent to which fund raising was successful at the time that construction commenced, a balance might need to be drawn down.  The actual value drawn down would be split equally between the four councils supporting the scheme.  Any subsequent successes in raising funding or sponsorship would be used to part repay the actual amount of loan facilities drawn down early.

Because of the requirements of the HLF, it was not possible to have a legal first charge across the assets of the scheme, so any facility provided might only be secured by a second legal charge against some of the assets.  The HLF required the first legal charge in order to prevent the facility being sold or re-purposed without their consent so that the lottery funding could be protected.

Therefore depending on the amount of the loan facility actually drawn down, there was no guarantee that there would be sufficient equity in the venture to satisfy the legal charges should a default occur.  Whilst every effort would be made to secure some form of legal security, effectively, any loan granted by the councils should be considered as an unsecured loan.

In support of the business case and wider ambitions of the scheme to promote and retain Silverstone at the heart of Formula One motor sports, with all the economic and employment uplift this brought, the rate of interest payable on the loan was intended to be nominal.  The actual rate was still to be negotiated and would need to be satisfactory to all of the four councils involved.  However it was expected that, in order to ensure that the scheme succeeds, the rate applied would be above the actual costs of borrowing and provide some level of return to the councils, but would still be well below the normal commercial rates.

The due diligence on the business case presented by SHL was being carried out by South Northamptonshire District Council on behalf of the other councils involved, so as to ensure a consistent and shared understanding of the position.  This work was still in progress.

A summary version of the business case and numbers prepared by SHL in support of the Lottery application was circulated as part of the confidential Cabinet agenda.  It was necessary to resolve that in accordance with Section 100(A)(4) of the Local Government Act, 1972, the public be excluded from the meeting for consideration of the business case under paragraph 3 of Schedule 12A of the Act.  The business case was also being carefully scrutinised by the HLF.

Approval of any loan facility would be considered as capital expenditure under the Local Government Act, 2003 and would therefore require a variation of the Capital Programme.  In order to meet the deadline for raising the necessary project funding so that the scheme would qualify for Lottery funding, it was intended to report the matter direct to Council.  Funding for the scheme could be identified from the remaining balance on the New Homes Bonus reserve.  If supported, a sum of £2m could be transferred to Capital Balances.  At the point of repayment, the receipt would be classified as a capital receipt, whilst the interest payable would be treated as revenue and taken into the General Fund.

RESOLVED –

(1)  That Council be recommended to authorise the Director with responsibility for finance, after consultation with the Cabinet Member for Finance, Resources and Compliance to review and make an assessment of the due diligence being undertaken by South Northamptonshire District Council.

(2)  That, subject to the above assessment proving satisfactory and subject to suitable terms and conditions being agreed by the supporting councils and the necessary commitment to the scheme being given by each of them, Council be recommended to:-

·         Approve the inclusion of £2m within the Capital Programme as a provision to make a loan facility available to Silverstone Heritage Limited; and

·         Earmark £2m of unallocated New Homes Bonus for the above purpose.