Source · Select Committees · Public Accounts Committee
Recommendation 18
18
Deferred
Department has not updated borrower failure assumptions since December 2022 despite new insolvencies
Conclusion
The Department has not updated its assumptions on borrower failure since December 2022, for example, in light of the number of insolvencies to date.44 We therefore asked what actions it would take for borrowers in financial difficulties. The Department told us it would need to make decisions on a 39 C&AG’s Report, para 14 40 Qq 41, 42; C&AG’s Report, para 21 41 Q 41 42 Qq 21, 32 43 Qq 37–39 44 Qq 92, 93; C&AG’s Report, para 2.20 14 case–by–case basis. It said that it would not hesitate to use all the financial levers it had to get the maximum of taxpayers’ money back. It would, for example, be willing to initiate insolvency procedures for those who started defaulting on their loans, except if there was a policy objective not to because of the impact of the insolvency on the wider sport or cultural area. In such cases, it would go to ministers for a decision.45 The Department told us that it and its loan agents would carry out negotiations on individual insolvencies, supported by external advisers as required, and that the loans team within the Department and loan agents included professionals with experience of insolvency.46
Government Response Summary
The department will revisit its strategic repayment forecasts and undertake further cost, repayment and insolvency modelling through the department’s strategic review by December 2025.
Government Response
Deferred
HM Government
Deferred
4.1 The government agrees with the Committee’s recommendation. Target implementation date: December 2025 4.2 Each year the department makes a number of adjustments as part of its Annual Report and Accounts to reflect each borrower’s individual circumstances and recognise an expected credit loss, in line with International Financial Reporting Standards (IFRS 9). This work considers a number of factors, including external probability of default scores obtained via a credit rating agency to assess how much we expect to recover on each loan. For 2024-25, the department has also manually adjusted the expected credit loss for borrowers where there are unique circumstances, not reflected in credit scores, that could impact on future repayment. 4.3 However, the end of the repayment holiday period in September 2025 for all borrowers provides the appropriate time to revisit the department’s strategic repayment forecasts. DCMS will be undertaking further cost, repayment and insolvency modelling through the department’s strategic review. 4.4 The government agrees with the Committee’s recommendation. Recommendation implemented: March 2025 4.5 The government has been clear that these loans must be repaid, and it remains committed to taking all necessary steps to safeguard taxpayers’ money. This principle has consistently guided the department’s decisions, which have focused on maximising financial returns to the Exchequer. 4.6 With regard to future additional financial support, after a strict and thorough assurance process, grants are typically awarded to support specific projects or activities; therefore, the CRF and SSP schemes have been kept separate from other grants intended to deliver a public benefit in line with their respective funding purposes. The department has no current plans to provide further direct loans to sport and culture organisations or the sector more widely. The loans previously issued were a pragmatic response to exceptional circumstances.