The Department for Business, Energy and Industrial Strategy has published an exchange of letters between its permanent secretary and the business secretary, concerning a ministerial direction for a fund to support small businesses affected by the coronavirus crisis.
Alex Chisholm, who was BEIS perm sec at the time, wrote to Alok Sharma on 23 March following the Budget in which chancellor Rishi Sunak announced grants worth £10,000 for small businesses that could be affected by the outbreak of Covid-19. Around 730,000 businesses that were eligible for either small business rate relief or rural rate relief could claim.
But Chisholm, who has since been named chief operating officer for the civil service, said he would need a written direction from the secretary of state to press ahead with the fund.
While there was “good policy rationale” for the announcement, he said as accounting officer for the department, it had not been possible to demonstrate ex-ante that the fund was likely to represent value for money.
Accounting officers must determine that policy proposals demonstrate value for money to the standards set out in the Treasury’s Managing Public Money guidance.
“At this point in time, it is understandable that it is not possible to confidently estimate the extent to which this funding will help small businesses successfully navigate the impacts of Covid-19. Given the unique circumstances we find ourselves in, there is no evidence on which to base a reliable assessment of the likely net impact of the fund,” Chisholm said.
And he added that while the grants would provide a “welcome lifeline” for some businesses, there were “uncertainties around the extent to which this will be the case”.
“It is inevitable that some funding will end up with companies that would have carried on regardless, without any palpable net growth stimulation effect, or will go to businesses that will eventually fail anyway,” he added.
“The absence of available evidence means that weighing possible benefits against costs cannot yield a reliable measurement of value for money on an ex-ante basis. This means that I cannot give you the necessary assurances that this proposal represents value for money within the tight confines of MPM. MPM therefore requires me to seek your written instruction to proceed.”
Chisholm also said there were “doubts about the full feasibility of this scheme”, given the speed at which local authorities were expected to distribute the funds, and the challenges of delivering a new scheme effectively during a pandemic.
“The guidance and support that [the Ministry of Housing, Communities and Local Government] and BEIS will provide will seek to mitigate these difficulties but realistically cannot expect to eliminate them,” he said.
But he said there were “legitimate reasons” to green-light the scheme, which must come from a minister. These included government’s responsibility to do “whatever it can to support vulnerable small businesses”, and the need to maintain business confidence during the Covid-19 crisis, he said.
Responding the same day, Sharma agreed there were “broader issues” to consider, which could not form part of Chisholm’s assessment of the scheme.
“We know that many small businesses are suffering as a result of the unexpected economic shock caused by Covid-19. Government has a responsibility to support these businesses and this grant funding will, as you point out in your letter, provide many small businesses with valuable and timely financial relief from the impact of Covid-19,” he said.
“This is a key component in the government's comprehensive response to this evolving economic situation which is designed to support the economy through this time of crisis.
“I am therefore directing you to work closely with [the Treasury] and MHCLG to deliver this scheme with immediate effect managing the identified risks as best you can.”