European Centre for Medium-Range Weather Forecasts: Contingent Liability Notification
(Limited Text - Ministerial Extracts only)
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The Secretary of State for Science, Innovation and Technology (Peter Kyle)
I am tabling this statement for the benefit of hon. and right hon. Members to bring to their attention two new contingent liabilities for the activities of the Department of Science, Innovation and Technology and the European Centre for Medium-Range Weather Forecasts, hereon referred to as ECMWF.
The UK has agreed to fully fund the construction of a new headquarters for ECMWF on the University of Reading campus. This was a political commitment made to member states at the ECMWF council meeting in December 2021. To enable this, an agreement for lease has been negotiated with UoR to secure land and rights to build.
ECMWF is an independent international and intergovernmental organisation supported by 35 states, including the UK. ECMWF are considered experts in their field and attract talented scientists and engineers from across the world. The provision of the new ECMWF HQ will ensure approximately 270 to 300 skilled roles remain in the UK along with significant investment in the UK economy over the life of the building, generating a net present value of £97 million. The continued hosting of ECMWF will help to maintain the UK’s reputation as a world leader in weather and climate science.
Two indemnities are required by the university. The first is due to the university having incurred costs on the basis that the Department will subsequently complete the project. The costs cover relocating their art department to make space for the HQ and carrying out significant works in clearing the site by, amongst other things, demolishing existing buildings, removing asbestos and other contaminants and decommissioning services so that the site will be ready for development. The university are seeking an indemnity to ensure they would be partially reimbursed, should the project not be completed. They will not move forward with the project without this protection so, without these indemnities, the deal to secure the site would be jeopardised along with the project as a whole.
This indemnity will be triggered should the Department not achieve specific planning and construction milestones by specified deadlines. Since the planning requirements are nearly fulfilled with the grant of planning already in place, the risk of this indemnity crystalising is considered to be very low. The maximum costs to the Government are £14.4 million including VAT. If crystalised, the cost is likely to be the full capped value.
The detailed planning consent application was made in October 2023, with the grant of planning received on 24 July 2024. A six-week period following grant of planning permission during which the decision to grant planning permission could be judicially reviewed will expire in early September 2024. In the event that that period expires without an application for judicial review being made, this indemnity will fall away entirely. This is considered to be likely given that the planning application was not contentious.
The second indemnity relates to vacation and handover of the HQ at the end of the 50-year lease. If ECMWF does not vacate the premises at the end of the contractual term of the lease, or if the lease is otherwise determined before the end of the contractual term, and UK Government cannot return the building to UoR with vacant possession because ECMWF do not vacate, UK Government would be liable for UoR’s associated costs. Given ECMWF’s privileges and immunities, the inviolable status of its premises and the uncertain basis of its occupation of the property under domestic landlord and tenant law, UoR are concerned about their ability to recover vacant possession after the end of the lease if ECMWF were to remain in occupation. This risk is being held by UK Government as part of the lease agreement.
The UK would be under an obligation as host nation to provide alternative accommodation to allow ECMWF to move before the end of the tenancy, unless they depart the UK. There is a strong possibility that the university would agree to extend the lease or agree a new lease. UK Government and ECMWF are obliged to work together to avoid this kind of situation.
Costs in the event of this occurring are uncapped. Property and legal costs are estimated by the Government Property Agency to be around £500,000, or £600,000 including VAT. Other costs cannot be estimated at this stage due to the uncertainties involved. Costs comprise liabilities, expenses—including solicitors’ and other professional costs—claims and damages. Losses, including any diminution in UoR’s interest in the property arising as a result of the breach of covenant to provide vacant possession at the end of the lease, would also have to be covered. The Department would be responsible for such costs.
Although the agreement for lease and lease will be entered into by the Secretary of State for the Ministry of Housing, Communities and Local Government, the Department as ultimate sponsor and funder of the project will have budgetary responsibility within Government for them, and will be responsible for any payments due under the first indemnity and second indemnity. The Department are seeking approval of the indemnities as ultimate sponsor and funder of the project.
The Government will be subject to the new contingent liabilities, and I will be laying a departmental minute today containing a description of the liabilities undertaken.
[HCWS55]