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Reporting contingent liabilities in relation to a Government guarantee backing a previously approved £4 million borrowing facility and a new partially guaranteed borrowing facility of up to an additional £26 million for Historic Royal Palaces.

Statement made on 2 June 2020

Statement UIN HLWS252

Statement

My Honourable Friend the Parliamentary Under Secretary of State for Sport, Tourism and Heritage, Nigel Huddleston MP, has made the following Statement:

It is normal practice, when a government department proposes to undertake a contingent liability in excess of £300,000 for which there is no specific statutory authority, for the Minister concerned:

  • To present a departmental Minute to parliament, giving particulars of the liability created and explaining the circumstances: and

  • To refrain from incurring the liability until fourteen parliamentary sitting days after the issue of the Minute, except in the cases of special urgency.

The Departmental Minute I lay today is in respect of two matters:

Firstly, to provide the House with notice that Historic Royal Palaces’ previously approved £4 million overdraft facility, whereby Government act as a guarantor, has now been called upon and thus the guarantee has been activated as a result of COVID-19.

Secondly, to provide the House with retrospective notice of a new contingent liability of up to £20.8 million created by my Department. This is in relation to a new borrowing facility of up to £26 million for Historic Royal Palaces whereby Government provides the lender with a guarantee of 80% against the outstanding balance of the finance.

Historic Royal Palaces (HRP) is a charity established by Royal Charter. By virtue of a contract entered into on 1 April 1998, it carries out the functions of the Secretary of State for Digital, Culture, Media and Sport under Section 21 of the Crown Lands Act 1851 of managing the unoccupied Royal Palaces.

The £4 million guarantee was originally placed in 2002 and was intended to safeguard HRP’s business from a sudden and serious decline in economic conditions affecting HRP’s admissions income. Since that date, the guarantee has been extended on a rolling basis. Following the laying of a Departmental Minute and Written Ministerial Statement by the then Heritage Minister on 15 September 2016, the £4 million guarantee was last renewed for a period of 5 years.

As a result of COVID-19, HRP closed all of the palaces in its care on 20 March 2020. As HRP receive no grant-in-aid from Government and are entirely dependent on admissions, visitor related spend and events, they have therefore lost their main sources of income. Whilst HRP currently have reserves of c.£33 million, the use of these reserves before they mature would not be cost effective and lead to financial penalties being incurred. The £4 million overdraft facility with Barclays Bank has therefore been put in place to meet their immediate cash flow requirements in April and thus the £4m guarantee has been activated.

HRP expects that the current crisis will exhaust all of their reserves within the current financial year. The new guaranteed borrowing facility of up to an additional £26 million will enable HRP to allow their reserves to mature and invest in the business. The guarantee will be available for a period of two years and HRP will only enter into borrowing facilities at such times and within such monetary limits as the Department shall agree.

HRP’s cash flow estimates showed that by the end of May they would have exhausted the existing £4m overdraft facility and be in urgent need of c.£1.4m to make payments due. Therefore, due to the urgency involved, the Department has authorised HRP to immediately draw down £4million from the additional £26 million facility to meet HRP’s immediate cashflow needs.

I am placing today a copy of the Departmental Minute in the Library of the House.