29. The Royal Opera House is now at the lowest point in its long and distinguished history. This is not a reflection on artistic standards: the performing companies have striven, sometimes successfully, to maintain their quality in the face of exceptionally adverse circumstances. The Committee received many differing and incompatible accounts of where responsibility for the crisis lay. Sir Jeremy Isaacs and Sir Angus Stirling fiercely contested the accuracy of the portrayal by Lord Chadlington and the current Administration of a previously fragmented and financially irresponsible management system. They attributed the crisis to underfunding from the public purse, indifference from the Arts Council and a steep decline in private subvention.[114] Lord Gowrie stressed that the Royal Opera House was a private company: the Arts Council had to avoid having a "hands-on" relationship which might have made its officers or members "shadow directors" with consequent liabilities in case of insolvency.[115] There is no future for the Royal Opera House unless someone accepts responsibility for the sorry train of events we have described.

  30. The Board of the Royal Opera House is composed of men and women who are unremunerated and seeking to oversee its work in time "carved out of our professional lives".[116] The House is a charity and so the Directors are charitable trustees.[117] As trustees, they are required to "act reasonably and prudently in all matters relating to the charity" and "should exercise the same degree of care in dealing with the administration of their charity as a prudent businessman would exercise in managing his own affairs".[118] They are also non-executive Directors of a company, who "should bring an independent judgement to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct".[119] Thirdly, they are Directors of an organisation which receives public money and so must assume the additional responsibilities associated with the proper use of public money. Finally, they are volunteers. In short, the Directors have chosen the standards against which they should be judged. The Committee believes that, as a body, the Board of Directors has fallen severely short of those standards. In addition, we question the vigilance of the Charity Commissioners.

  31. We heard numerous suggestions that the Royal Opera House is under-funded from public and private sources. At the Board's meeting on 30 October 1997, it was argued by a Director or Directors that "the root of the problem was chronic underfunding of the House's activities from public sources". Sir Jeremy Isaacs attributed the severe difficulty in part to "a steep decline" in private subvention.[120] Lord Chadlington took a somewhat different view in evidence to us on 4 November, stating clearly that "this is not a question of underfunding; it is a question of overspending".[121] The Arts Council grant to the Royal Opera House has fallen in real terms since 1993-94. However, this reduction has not come out of the blue, nor is it unique to the Royal Opera House. The lottery conditions of July 1995 required the House to demonstrate its financial viability during closure assuming annual grant increases of 1 per cent in cash terms, in other words, a real terms reduction.[122] It is true that private donation income for normal activities has fallen, but this was the predictable result of the additional development appeal. The Trust stated that the down-turn was in line with budgeted projections.[123] In June 1996 Sir Jeremy Isaacs presented plans for the closure period based on resources for the closure period of £15 million a year grant from the Arts Council, £2.5 million a year from the Trust and the Friends plus the £20 million lottery grant for the entire closure period.[124] We have received no evidence to suggest that any of these figures have dropped significantly below these levels since then. It is thus disingenuous at best to attribute any deterioration since then to decline in public or private subsidy.

  32. In view of the pivotal role of the closure plans in the current crisis and the differing accounts given in evidence, we obtained at the conclusion of our inquiry the Board minutes from January 1995 onwards and have examined the evolution of the closure plans by reference to them. The relevant excerpts are summarised in Annex 1. The impression given by those minutes is starkly at odds with the accounts of Sir Jeremy Isaacs and Sir Angus Stirling. Sir Angus claimed that the touring option was considered from the outset and was not an afterthought. We have been able to trace no consideration whatsoever of the touring option by the Board prior to December 1995.

  33. As early as March 1995, the Board had received preliminary indications that the Arts Council preferred the Lyceum option to the temporary theatre option. In May 1995 the General Director presented a choice between the Lyceum and the temporary theatre. The Board was told that the Secretary of State for the Environment would "probably" call in the planning application. The main fall-back options were described as postponement or a temporary theatre somewhere else. In May, the Board was asked "to take a firm view in June" on the temporary theatre. In June, it was asked "to take a firm view in July" between that option and the Lyceum option. In July, the Board decided to apply "now" for planning permission, but seek an option on the Lyceum. In September, the House declined to put in a planning application in order "to call the tune on rent levels".

  34. At that stage, it was recognised that "the worst possible outcome" would be for the Tower Bridge project to fall through and for the Lyceum and the other possible venue of the Dominion to be lost as well; the Administration was asked to seek an option on one of those theatres. In October, the Board was told that it risked "being grievously exposed" if planning permission was delayed; the Lyceum was no longer available. Apart from Drury Lane, no other option was then referred to. In November, Sir Angus Stirling told the Board that "it would be completely unacceptable" for there to be no fall-back option; an option on the Dominion would be retained until December. In December, at the prompting of the Arts Council, the Board considered options for a "worst case" scenario-"suspended animation" or complete closedown. The latter was shown to be better than the former in cash flow terms. At that meeting in December, the Board agreed to adopt the suspended animation option; it disassociated itself with the Tower Bridge site, because the necessary commercial supporters were in doubt. On 4 January 1996, the House announced publicly that the Tower Bridge Theatre was "unlikely ... to be ready for occupation in September 1997" due to the owners' inability to secure a tenant after 1999 and that performances in a variety of venues were being considered.[125] At that month's Board meeting Sir Jeremy Isaacs confirmed that planning was proceeding on the assumption that the Tower Bridge site would not be available; Sir Angus Stirling said that it was "unlikely" to be a viable option. The Administration had to plan for the nomadic option.

  35. It is therefore clear that, contrary to the impression given, the Tower Bridge site had been side-lined before the then Secretary of State for the Environment, Mr John Gummer, called in the planning application. The House acknowledged publicly at the end of January that the Secretary of State's decision only "confirms the probability ... that the theatre" would not be completed in time for the companies' closure seasons.[126] The criticism of the Secretary of State's actions by Sir Jeremy Isaacs seeks to hide the abysmal failure of the Board and the Administration to find a home for the companies. The Board rejected the Arts Council's sound advice to settle for the Lyceum. They prevaricated over the Tower Bridge planning application and failed to secure an option on an alternative venue. The Board did not discuss the nomadic option until the very end of 1995. They were then unable to secure other potentially desirable theatres such as the Palladium. The Board achieved what it had called "the worst possible outcome" and one which was "completely unacceptable". It became, in its own phrase, "grievously exposed". It was left with plans for the Royal Opera described in April 1996 as "reduced and fragmented", which were, at best, financially precarious. From our examination of the minutes of its meetings, we conclude that the Board of the Royal Opera House (with the exceptions of Mr Gavron and Mrs Duffield) and the Administration demonstrated incompetence in their handling of the closure plans in 1995. The disastrous misjudgements made then meant that the companies were condemned to a nomadic option which could have been avoided and which shows signs of being financially disastrous. The failures of the Board in 1995 are responsible in considerable measure for the House's current crisis.

  36. The Arts Council is responsible for monitoring the management and artistic health of the Royal Opera House and for the allocation of public funds.[127] Its stewardship of public money provided the Arts Council with both an opportunity and a duty to seek to ensure the healthy management of the House, but as Mr Walker-Arnott observes, the Arts Council, "while quite entitled to seek improvements in the general and financial management of the House, has failed to make any appreciable impact over a period of at least fourteen years".[128] The Arts Council's own 1992 appraisal recommended improved management practices and that these "should be in place before any increased funding, whether capital or revenue, is considered".[129] The management recommendations were not implemented in full, yet a capital grant of £55 million was agreed. This was a violation by the Arts Council of conditions which the Council itself had set.

  37. As the Walker-Arnott Report demonstrates,[130] the Arts Council imposed proper preconditions to the lottery grant relating to financial viability in the closure period, but then failed to treat them as preconditions. The Committee is concerned at this serious shortcoming in financial control of the lottery grant. This state of affairs with regard to the lottery grant to the Royal Opera House also raises the question of to what extent financial control is satisfactory for the other lottery grants by the Arts Council. This matter appears to be ripe for inquiry by the National Audit Office. Furthermore, there are important lessons to be learnt about the responsibilities of those running other organisations in receipt of lottery money.

  38. Lottery payments to the Royal Opera House began in February 1996 at the very time when the House's ambitions for the closure period lay in tatters. The Walker-Arnott Report observes that "perhaps the difficulties which arose in respect of closure would have been avoided if the Arts Council of England had rigorously stuck to its precondition ...".[131] We regard this as a generous understatement of the Arts Council's slackness in monitoring the allocation and expenditure of public funds. Without venues being finalised, the financial plans for closure were little more than make-believe. Lord Gowrie assured us that the management of the House was "the subject of continuous and active dialogue with the company".[132] Sir Angus Stirling vigorously disputed this, citing cases where Lord Gowrie was unavailable to discuss urgent business. He believed that there had been "no substantive dialogue and no positive assistance" from the Arts Council.[133] We are not impressed with this complaint. The Opera should have made it its responsibility to keep its own House in order. Nevertheless, it appears at times to have been a dialogue of the deaf. Lord Gowrie told us that "my first responsibilities are to the integrity and excellence of the companies".[134] We cannot accept this interpretation by Lord Gowrie of his duties and responsibilities. The first responsibility of the Arts Council was to ensure the proper use of public funds at its disposal, both grant-in-aid and lottery money, and the integrity of the financial position of the organisation in receipt of those funds. Without such integrity, the very future of the artistic companies is in question. We applaud much of the work done by the Arts Council under Lord Gowrie's chairmanship. Nevertheless, in not satisfying itself that the Royal Opera House was taking the necessary steps to control its deficit and ensure its financial viability during the closure, the Arts Council did no service either to the Royal Opera House or to the public purse.

  39. When Lord Chadlington became Chairman of the Royal Opera House in September 1996, the organisation's financial position was already insecure. The recommendations of successive studies to ensure proper budgetary control had been adopted either inadequately or not at all. The organisation continued to fall between two stools, lacking either mechanisms for firm financial control at the centre or genuine autonomy and responsibility for the performing companies.

  40. There had been no Finance Director in post since that spring. All the preferred options for the closure period had fallen through. There was a deficit in 1995-96 of £3.1 million. For none of this can Lord Chadlington be blamed. However, we are not convinced of the adequacy of his efforts to alleviate the plight. In view of his criticisms of the adequacy of financial information and financial management, Lord Chadlington should have appointed a new Finance Director with greater urgency, instead of permitting nearly a year to elapse. We also believe that he was at fault in failing to review fully, and insist on revisions to, the plans for the closure period, a failure which ensured that a fragile financial position became acute.

  41. The Royal Opera House has had appointed to its Board and its senior administrative posts men and women of considerable distinction in business and public life. Sir Jeremy Isaacs has a high reputation from his period as Chief Executive of Channel 4. Sir Angus Stirling was responsible for running a £100 million business as Chief Executive of the National Trust.[135] Lord Chadlington founded and runs a large and successful public company. They were drawn to the House by their love of opera and ballet, their admiration for the unquestioned quality of the companies. This admiration appears to have dulled their critical faculties with regard to the management of a major organisation dependent in considerable measure upon public funding. It must be asked whether their duty as charitable trustees, to exercise the same care as they would as prudent businessmen managing their own affairs, has been consistently and adequately fulfilled. If the Royal Opera House were subject to the usual constraints of a business, or indeed of the overwhelming majority of arts organisations, it would now be insolvent. It has been salvaged, for the time being, at any rate, by the generosity of private donors, apparently and somewhat questionably including donations previously intended for the redeveloped House, arriving to save the Board and the senior management like a deus ex machina.