Dan Corry: Kids Company shows the danger to Whitehall of focusing on outputs over outcomes

Senior officials Richard Heaton and Chris Wormald faced a tough time at PAC on Monday over the government's funding of Kids Company. Dan Corry – former head of the Number 10 Policy Unit and now chief executive of New Philanthropy Capital – argues that the charity's good intentions made it easier to avoid questions about effectiveness and decent management

By Dan Corry

03 Nov 2015

At the end of October, the National Audit Office published its review into the funding decisions the government made with respect to the charity Kids Company. It makes for a remarkable document. 

Kids Company was established in 1996, and in total received £46m in government funds, along with millions more from private donors. But the charity collapsed financially in 2015, and the NAO review picks through more than a decade of official concerns about the charity’s financial standing.

One table towards the end of the document lays out each instance of civil servants raising worries about continuing to fund the charity, as well as each subsequent apparent over-ruling by ministers. Now, ministers disagreeing with official advice is not an uncommon event in my experience as both a former civil servant and a special adviser. But when it happens repeatedly, and about funding the same organisation, things certainly feel a bit ‘uncomfortable’ to say the least.

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On six occasions, starting in 2002, civil servants shared concerns that financial management was poor at Kids Company; that conditions attached to previous government grants had not been complied with; that the charity was poorly structured and showed little willingness to change. There were other warnings over the years, too, although not raised directly with government: The Pilgrim Trust withdrew funding in 2002, alarmed at some of the practices it had seen, while New Philanthropy Capital’s private research for Kids Company in 2006 raised its own questions about the charity’s financial security (it was shared with Kids Company staff and trustees at the time and never intended for any other eyes, but found its way to journalists anyway).

Despite all this, money continued to go to Kids Company. And it is because of all this public money and all these warnings that Richard Heaton, formerly permanent secretary at the Cabinet Office, found himself before a parliamentary committee on Monday. He was joined by Chris Wormald, permanent secretary at the Department of Education. It was Heaton who had sent a ‘letter of direction’ – the civil service’s nuclear option – to his ministers in July 2015, formally cautioning against making the last £3m grant to the charity. He was over-ruled, through a rarely used "ministerial direction", and Kids Company went bust less than a week later.

The committee’s questions for both turned on a few simple themes: why had such an official expression of concern taken so long to materialise, how had things been allowed to develop unchecked for so long, and why did ministers nevertheless sign off the cash?

Naturally, this put the officials in an awkward position. For one thing, it shone a light on funding decisions which now seem unwise, and for which they were responsible. For another, even though officials did issue warnings, it would be unprecedented, professionally unwise and against the civil service ‘ethic’ simply to pass blame up to the ministers who decided not to listen. In that world senior civil servants tend to show off their brilliance at avoiding the questions rather than saying what they really think. It is hard to see what else they can do.

This difficulty was evident in yesterday’s session.

It was a rough ride for both officials: "Your judgement has been flawed and flawed and flawed," insisted one committee member. Heaton and Wormald argued that funding to Kids Company was reliant on structural improvements at the charity (although this improvement was never forthcoming) and that ministerial directions were considered even before one was issued (but never came to pass until this year). With ministers themselves up before various select committees in the next few weeks, the plot can only thicken.

Equally depressingly – from an impact-obsessed NPC point of view at least – Chris Wormald conceded that most of the information on which the government judged the charity "was around outputs not outcomes". In other words, they heeded the figures provided by Kids Company about the number of young people they saw – numbers now seriously challenged – but not any evidence about the good this did.

The government is by no means the only funder who falls into this trap. But charity evaluation remains, for the most part, very poor.

NPC has pointed out many times that those things which make charities admirable – the passion that brings people to the sector, the mission to relieve social problems affecting others  – can also be a barrier to proper scrutiny. We have heard the same opinion expressed in numerous ways over the years: when someone is working so hard to make the world a better place, do they really need to waste their time evaluating and proving the impact of what they are doing? Surely the important thing is that they are doing it at all?

Kids Company has shown – admittedly in an extreme form – the folly of this approach. Few doubt the good intentions of the charity, but talking about good intentions made it easier to avoid questions about effectiveness and decent management, with disastrous consequences.

That is no good for the beneficiaries, who needed robust, high-quality support. Nor does it help the other charities squeezed out of funding by Kids Company. And it ultimately left civil servants in the invidious position we saw yesterday. There is no easy answer, but one tweak to the system could protect everyone a little bit better.

When the government dishes out major grants to charities, it should get some independent advice first, from experts who can look over the books and check the social impact of that charity. The advice should also be published: that way, officials and ministers won’t just be making better informed decisions, but will introduce a transparent system which demonstrates the robust information which helped them do so.

This sort of system worked pretty well when I was a special adviser at the old Department of Trade and Industry. It wasn’t perfect, but ministers and civil servants alike recognised the benefit of showing that the firms who got taxpayers’ cash were solvent and worthy of help. It also helped the government defend itself against accusations of favouritism, because it would have been difficult to justify supporting popular but failing firms, even if anyone had wanted to.

Senior civil servants won’t want to be subjected to this sort of grilling again any time soon. So they’d be wise to look carefully at the road ahead – charities will still need funding, and good ones deserve support to deliver excellent services. The tricky bit is linking them together.

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