The Department for Business, Energy and Industrial Strategy has published details of six ministerial directions instructing its permanent secretary to push ahead with extraordinary measures to tackle the coronavirus crisis.
BEIS yesterday published six sets of letters from former permanent secretary Alex Chisholm, and his successor Sam Beckett, raising concerns about six schemes providing grants and loans to businesses hit by the pandemic. In each case, business secretary Alok Sharma gave the green light to the scheme.
Through the letters, Chisholm sought permission for the department to press ahead with six programmes: the Coronavirus Business Interruption Loan Scheme; the Coronavirus Business Interruption Loan Scheme; the Coronavirus Large Business Interruption Loan Scheme; the Bounce Back Loan Scheme; the Covid-19 Local Authority Discretionary Grants Fund; and the Future Fund.
Perm secs must ask for a written ministerial direction when they believe a proposed policy or programme would breach the Treasury’s Managing Public Money guidance – for example, if a programme seems unfeasible or is unlikely to provide value for money.
The instructions are among 11 ministerial directions issued to department heads in a two-month period to spend funds outside usual Treasury money-management guidelines for coronavirus-focused schemes.
In the most recent exchange, Beckett, who became acting perm sec when Chisholm was promoted to civil service chief operating officer in April, said it was impossible to determine that the Future Fund represented value for money.
She said while an initial assessment of the scheme by the by the British Business Bank had shown the economic benefits would outweigh the costs, a stress test had revealed that assessment to be “too optimistic”. The revised assumptions showed a negative benefit-to-cost ratio – although a further assessment by economic consultancy Oxera showed the opposite.
“Both Oxera and BBB noted the unprecedented nature of current economic conditions and hence the uncertainty surrounding these assessments. For this reason, it is not possible to advise that one of the outcomes is more or less likely than the other, or to choose between them,” Beckett said.
“The range of plausible outcomes illustrates the sensitivity of the results to the underpinning assumptions and the uncertainty of the current economic context. As a result, it is not possible to determine that the scheme will be value for money.”
In his response, Sharma said the government’s action to support businesses through the coronavirus pandemic would be “central to limiting the impact by preserving jobs and businesses”. The Future Fund “presents an opportunity to further add to the benefits already being delivered through other schemes”, he added.
“In light of this, I support the introduction of the Future Fund despite the uncertainties around value for money that you have brought to my attention,” he said.
In all six cases, Chisholm or Beckett raised concerns about the value for money presented by the scheme in question.
But Beckett also said there were risks about the feasibility of the local authority grants fund, which is being used to give financial aid to small businesses that are not eligible for other coronavirus grants or loans.
In a letter on 1 May, Beckett said local authorities would likely encounter “difficulties… trying to administer efficiently and error-free a new scheme during a pandemic and [at] the pace which is needed to support businesses”.
She also said there were risks relating to regularity and propriety depending on the eventual level of fraud, error and non-compliance with state aid rules, “which cannot be reliably estimated in advance”.
Sharma said he had been given permission by the chancellor, via Treasury officials, for the scheme to go ahead. He said the scheme’s potential role “cannot be overstated given the seriousness of the economic circumstances that we face” because of Covid-19, and because many small businesses did not qualify for other funding.
State aid rules were also a concern for the business loan interruption scheme, which the European Commission had not yet formally approved. Chisholm told Sharma in March that discussions had provided “a degree of comfort” that it would approve the scheme, but a “medium-low risk” remained that state aid would not be granted.
And for bounce-back loans, Beckett warned in May that the risks to regularity and propriety criteria were “very high”, despite steps to mitigate fraud and error.
In both cases, Sharma said the benefits of forging ahead outweighed the risks. He said the government could not afford to delay the local authority scheme “even for a few days”, given the urgency of the situation.
The National Audit Office, which counted up the figure in a report last month, found spending on Covid-19 measures had added up to more than £120bn by the end of May.
BEIS has already published a ministerial direction for the Small Business Grants Fund. Chisholm said in March that it had not been possible to demonstrate that the fund was likely to represent value for money – but Sharma said the scheme was a “key component in the government's comprehensive response to this evolving economic situation”.