Eighth Report - COVID 19: Culture Recovery Fund

We are concerned about the Department’s and Arts Council England’s ability to manage the significant and ongoing loan book commitments created by the Culture Recovery Fund. As a result of repayable finance awarded under the Culture Recovery Fund, Arts Council England is now responsible for managing £252 million in loans over the next two decades. Loan recipients will not be required to pay back money for the first four years of the typical 20-year loan term. Arts Council England has no previous experience of managing a loan book and says that the extra financial skills it needs to manage the loans are now largely in place. While the Department believes it can manage the risk of default, and Arts Council England is confident of its mechanisms to alert it to risks of non-payment, neither have sought to utilise the considerable loan management expertise that already exists elsewhere in government. Recommendation: In its Treasury Minute response, the Department should set out how it will make sure it has the resources in place to take on the new responsibilities for managing loans, and how it has drawn on learning from across government about managing the operation and future risks of its loan book commitments, including risks of organisations defaulting.

In implementing the fund during the pandemic, the Department’s need to act quickly to provide funding to applicants while also protecting taxpayers’ money meant some applicants’ experiences could have been better. The Department announced the fund in July 2020, with the intention to pay successful applicants by the end of September 2020. While officials should be credited for working at speed and delivering a programme with low fraud levels, mistakes were made, particularly in relation to the fund’s accessibility. For example, the language used on the grant forms were not well geared to commercial organisations; the Department had intended that the money would be distributed more quickly, unsuccessful applicants did not receive clear feedback to understand why their bids were rejected, and recipients faced continuing requests for information such as proof of bank details for each instalment of a grant, resulting in unnecessary duplication of documents. Recommendation: In its Treasury Minute response, the Department should set out what more it is doing to communicate with those who were unsuccessful in 6 COVID 19: Culture Recovery Fund securing funding and streamline its funding processes to cut out any unnecessary demands on recipients that slow down funding, consistent with protecting taxpayers’ money from fraud.

The Department lacks a comprehensive understanding of the coverage and impact of its funding on parts of the sector which found themselves without funds. The Department and its arm’s-length bodies have distributed around £1.2 billion to 5,000 organisations and the Department is confident that all applicants that met criteria for cultural significance and sound finances received funding. But the Department’s analysis of how the funding has been distributed is incomplete. For example, the Department has only partial knowledge about the fund’s impact on freelancers, commercial organisations, supply-chain businesses and festivals. Festivals are making difficult decisions about whether to risk their survival by going ahead this summer, but the Department has not modelled the cost of underwriting festival indemnity insurance. Recommendation: The Department should write to us within three months setting out what it intends to do to support those that were under-represented in terms of the funding they received from the Culture Recovery Fund such as freelancers and festivals.

It remains to be seen whether the Department has achieved its objectives for the Culture Recovery Fund and secured longer-term value for money. The Department and its arm’s-length bodies are looking to build on the new relationships they have made with stakeholders, including many organisations they have not previously worked with or funded. The Department claims that the fund has definitely been value for money already on the basis that it is supporting the survival of organisations and that no organisations that received funding and are “culturally significant” have failed. Yet it could not tell us how it would be measuring the value for money achieved by the fund. The Department’s evaluation of the fund is due to report after the first two rounds have been distributed and round three has been awarded. Capturing what the Department has achieved through the fund and learned about the culture sector will depend on research that has clear value for money criteria, including measures for the impact on jobs and freelancers. Recommendation: The Department should set out: • in its Treasury Minute response, the metrics it is using to evaluate the performance of the Culture Recovery Fund against its initial objectives; and • once its evaluation is complete, what it will do to apply lessons to achieve value for money from its Culture Recovery Fund spending for the whole sector including subsectors that may have been missed.

The taxpayer’s investment in the sector, and the Department’s future role in overseeing it, present a huge opportunity for the Department to step up its support and advocacy for the sector. The Department has gained a lot of new information and understanding about the sector, which it could put to good use. We want to see the Department apply what it has learned from the Culture Recovery Fund to build the economic potential of the sector. In addition to the sector’s importance to the COVID 19: Culture Recovery Fund 7 domestic economy, we are particularly thinking about the sector’s export potential and the varying levels of cultural and heritage resources across the country. To make the most of this opportunity requires effective action, oversight and advocacy by the Department. Recommendation: The Permanent Secretary should write to us by the end of 2021 setting out: • what she sees as the key challenges facing the sector following the Department’s Culture Recovery Fund investment; • what opportunities the fund has offered for the Department to be a better advocate for the vibrancy of the creative arts and culture sector in all parts of the country; and • how the Department will realise future cultural and economic impacts, including for export, from its investment. 8 COVID 19: Culture Recovery Fund 1 Oversight and management of the Culture Recovery Fund

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Digital, Culture, Media and Sport (the Department), Arts Council England (ACE) and Sir Damon Buffini, chair of the Culture Recovery Board, about the Culture Recovery Fund (the fund).1

The Department acknowledged that the changing pandemic scenarios around issues such as the return of international visitors, reopening and social distancing had changed the economics for organisations in receipt of grants or repayable finance.12 It told us that the fund was stretched further than it had anticipated at the time it was agreed.13 ACE told us that it was working with some organisations for the first time, and would continue to look very carefully at who they were and what they were doing.14 ACE and Sir Damon told us they had put “extensive processes” in place for monitoring, with data resulting communicated back to the Department.15 Managing the loan-book

The Department wrote to us to explain that ACE was now responsible for managing £252 million in loans.16 Although the take-up of loan funding was lower than the Department originally predicted, it forms part of the £92 billion total of COVID-19 loans across all of Government.17 Sir Damon Buffini explained that the loans had a 20 year term, with a low interest rate and no repayments for two to four years.18 We asked ACE about its responsibility for managing a loan book of this size and potential complexity, given it had 6 Q 27, 28, 39 7 Qq 22, 39 8 Qq 25, 41 9 Q 31 10 Q 39 11 Q 25 12 Q 47 13 Q 68 14 Qq 50, 51 15 Q 39 16 Department for Digital, Culture, Media and Sport submission page 1, para 3 17 Qq 33, 72; C&AG’s Report, COVID-19 cost tracker (as updated 17 May 2021, available at www.nao.org.uk/ covid-19/cost-tracker) 18 Q 38 10 COVID 19: Culture Recovery Fund not previously had to manage a loan book on this scale. ACE told us it was working closely with the Department and HM Treasury to ensure it met the Government’s standards. It acknowledged it needed extra skills and said it was recruiting specialists who would be permanent appointments.19

We questioned the Department about its assessment of the profile for default on loans and what plan it and ACE had to tackle organisations defaulting on their loans. The Department told us that it had developed a profile of default. It said it would take a prudent approach to valuation of the loan book over time and would be including loans in the Department’s accounts as part of its 2020–21 spending.20 We heard good explanations from ACE and Sir Damon of what they considered were the safeguards against the risk of organisations defaulting on their loans, for example extensive due diligence on the financial projections of each organisation and ongoing monitoring of their financial situation.21 Sir Damon was confident that successful applicants for loans had enough flexibility in their financial forecasts to repay the financing.22 ACE also believed it had mechanisms to alert it to risks materialising. ACE insisted that it expected organisations to pay back loans over the period of the funding agreement and that the loans would not be translated into grants.23

We asked the Department about its long-term plans for the loan book, as our experience has been that Government has generally had issues at times managing loan books.24 The Accounting Officer confirmed her accountability for the fund’s loans but said it was too early to say what the plans were for long-term management and could not give any commitments about whether or not the Government would sell on the loan book.25 We asked the Department whether, given the scale of COVID-19 loans across Government, it had learned lessons from other Departments about managing its loan book. It told us it regarded the scale of COVID loans in the fund as “a mere minnow” but acknowledged it was a lot of money for the sector, and said that as ACE had close and long- term relationships with many of the organisations that had received loans it considered this was unusual compared to other loan schemes rolled out across Government. Nonetheless it said it wanted to follow excellent practice and was very keen to learn from good practice in other Departments about how they were handling loans.26 Acting quickly to provide funding and applicants’ experiences

The Department had considered that the end of September 2020 represented a cliff- edge for the sector, with many organisations in the sector likely to run out of money and close permanently if support was not available by then.27 We therefore questioned the Department about its timetable and whether it had been over-optimistic in trying to distribute funding by September. The Department accepted that it had made changes to its plans “mid-flight”, and acknowledged that it had revised its target for making decisions 19 Q 37; C&AG’s Report, para 2.16 20 Qq 43, 44 21 Qq 38, 39 22 Q 45 23 Q 38 24 Qq 36, 39 25 Qq 31, 36, 72 26 Q 72 27 Q 24, C&AG’s Report, para 8 COVID 19: Culture Recovery Fund 11 and awards to October.28 It said it had been concerned about some sectors that needed funding much more quickly, and pointed to its scheme supporting 136 grassroots music venues which opened, closed and paid out funding in August 2020. It told us that its arm’s-length bodies had also offered emergency support for organisations that could not wait. It said the main reason not all of the funding for round one had gone out was that payments were made in instalments.29

We asked the Department what it had learned about setting and communicating realistic deadlines. It considered that what mattered to organisations was knowing that they were going to get funding. It acknowledged that it had given advance notice about when allocations would be announced and then had not been able to meet that date. It said it had learned it was better not to inform organisations about when allocations were announced before it was certain what it would be able to do, which required it to have completed all due diligence.30 However, we have received evidence of organisations receiving funding almost 12 months after they had closed.31

We asked the Department whether in retrospect it had struck the right balance between applying due diligence and how quickly funding reached organisations. The Department and ACE assured us that they were not aware of any organisation that had fallen into difficulty because of the timing of the receipt of an award.32 ACE told us that at the start of the pandemic it had made an emergency response fund of up to £160 million available to organisations from April onwards as a stopgap to manage, for example, cashflow challenges. It believed this funding gave the sector some time before the Culture Recovery Fund came along.33

We asked about the low level of fraud in the fund and whether the Department’s focus on due diligence had led to this low level. ACE explained it had a dedicated counter-fraud resource and had so far identified no fraudulent payments at all. It said it had received and investigated 46 allegations of fraud; it temporarily withheld three grants of which one case was referred to the police.34 ACE emphasised the importance of due diligence and said it did everything it could to meet the strictest criteria on counter-fraud and made no apology for having stringent counter-fraud measures right through the process.35

We received good evidence from a number of bodies about their experience of the fund and the challenges they had faced. For example some had struggled with the language of the grant form, which seemed to be geared to the not-for-profit sector or larger organisations;36 and some unsuccessful applicants were disappointed with the feedback about why their applications were refused and the lack of an appeals process;37 Other successful applicants, were asked to prove their bank details on each payment instalment or to provide milestones for a diversity plan before receiving the grant.38 We asked the 28 Q 24, 25, 46 29 Qq 24, 46, 76 30 Q 78 31 Royal Albert Hall submission 32 Qq 46, 76 33 Qq 24, 76 34 Qq 75, 76 35 Qq 49, 76 36 Q 47; “#WeMakeEvents” submission, page 2; A V Matrix submission, pages 1–4; Written evidence submitted by Kirklees Council, page 1 37 Qq 20, 22; “#WeMakeEvents” submission, page 3; A V Matrix submission, pages 1–4 38 Q 49 12 COVID 19: Culture Recovery Fund Department and ACE about these issues.39 The Department asserted that it had wanted to make the process of application as easy as possible and it had done what it could to make the guidance navigable. It told us arm’s-length bodies had given organisations time to get to grips with guidance and ran workshops for applicants to attend.40 ACE explained that it communicated with unsuccessful applicants about what they had failed on, but acknowledged its feedback had not been extensive, saying that it had to assess a large volume of applications in a very short time. ACE confirmed that it had no appeal process for its decisions about the fund.41 It also acknowledged that its counter-fraud measures meant recipients had to provide bank details for each instalment of their grant.42 The coverage and impact of the fund

We asked the Department whether some organisations had been excluded from the support offered by the fund and whether certain regions or sectors had been under- represented in the applications.43 We also asked whether it should have a relationship manager function for parts of the sector which it knew less about, such as more commercial organisations.44 The Department reported to us that its arm’s-length bodies had distributed £1.2 billion to 5,000 organisations.45 It told us that success rates for applications were higher outside London and the south-east. ACE pointed out that 70% of successful applications were from outside London and considered that it had made significant investment across the country. The Department was not aware of whether organisations from particular areas did not apply but might have, adding that local cultural significance was an important criterion in assessing bids.46 It said that all applicants that met its financial criteria and cultural significance criteria had received funding.47

The Department considered that the regional breakdown of all the success rates in awards for the applications it had received suggested that there were parts of the country that had less ‘cultural and heritage fabric’ than others. It asserted that the fund aimed to support existing organisations at risk of failure, rather than to create new cultural infrastructure where it did not currently exist, but described this as providing “interesting food for thought for future Government policy”.48

We challenged the Department and ACE on what they had done to support parts of the sector including freelancers, commercial organisations, supply chain businesses delivering the technical aspects of the sector’s activity (for example, sound and lighting for events) and festivals.49 The Department described how ministers decided that the fund should focus specifically on institutions to preserve the long-term security of organisations that would provide employment in the future for freelancers within the cultural sector. ACE told us that over the last year, separate from the Culture Recovery Fund, it had invested £51.7 million in 13,464 individuals and freelancers. The Department claimed 39 Qq 20–22, 47, 49 40 Q 47 41 Qq 20, 21 42 Q 49 43 Qq 19, 56, 79 44 Qq 17, 47, UK Theatre and Society of London Theatre submission, page 2, para 4.1 to 4.4, UK Music submission pages 1–13 45 Q 61, Department for Digital, Culture, Media and Sport submission page 1, para 3 46 Qq 57, 58 47 Qq 16, 19 48 Q 56 49 Qq 1,4, 18, 65, 73; A V Matrix submission, pages 1–4; UK Music submission pages 1–13 COVID 19: Culture Recovery Fund 13 that, for the second round of the fund, 100,000 freelancers would be supported until June 2021 through the awards organisations had been given, although it had not yet verified the estimate, provided by bidders.50

We questioned the Department about the assessments it had made of the long-term impact on supply chain organisations.51 It told us that supply chain organisations had been eligible to apply for the fund where they were culturally significant, but we had seen evidence that applicants from such organisations, which often supported numerous freelancers, had felt their cultural significance had not been understood and they had been refused funding.52 The Department told us that its arm’s-length bodies had assessed whether the services applicants provided were predominantly for the heritage or culture sector, whether those services were scarce or particularly innovative and their relevance to the sector.53 ACE explained that the “ecosystem” of the sector had large and small and differentiated sorts of organisations. It acknowledged that, over time, it needed to make sure that the supply chain was represented.54

We asked the Department what the obstacles were to setting up a Government-backed insurance scheme for live events, given that many festivals, in particular outdoor ones, were struggling because they were unable to get insurance this year and would have to make decisions about whether to go ahead.55 The Department could not update us about any change in policy, but said it was conscious of the issues and had been listening to the sector on an ongoing basis and that it was for ministers in discussion with HM Treasury to decide how to prioritise public funding to support the sector. The Department told us it had not modelled the cost of underwriting of festival indemnity insurance.56 50 Q 1 51 Qq 9, 65 52 Qq 9, 18, 47; A V Matrix submission, pages 1–4; 53 Q 18 54 Q 73 55 Qq 3–5, 7–9 56 Q3–5 14 COVID 19: Culture Recovery Fund 2 Proving value for money and maximising impact Achieving objectives and securing value for money

We asked the Department to tell us how it would be evaluating the success of the fund and its value for money, for example measures of the impact on jobs, freelancers and supply-chain organisations. The Department told us that it had awarded a contract to Ipsos MORI, BOP Consulting and Ecorys for the evaluation, which would be completed this financial year. The evaluation would be both a value for money assessment and a process review, to learn lessons about the fund and what it had achieved.57

The Department said it wanted to satisfy itself that organisations in need were supported and that it achieved its objective of supporting a significant proportion of the cultural sector through a very difficult time. It also told us it wanted to test the fund’s regional impact, how far the Department had reached organisations it did not normally have a relationship with, the long-term impact of the fund, and the impact of its support on what it described as “the wider ecosystem and cultural ecology”.58 It advised that it could not yet share with us the details of the questions that the evaluation would cover, but would write to us once they had been settled.59

We queried whether the Department ought to have set its value for money criteria for the evaluation earlier in the process. The Department told us that it had been assured of the value for money of its spending at all times, and never doubted that the funding had been value for money. Sir Damon considered the fund “has achieved its goal”. The Department said its evaluation would assess the extent of value for money, rather than whether or not the fund was value for money.60 Its firm contention was that the fund’s fundamental impact was to offer at least some assistance to all the organisations that met its financial and cultural significance criteria and that it had been critical to the survival of “many thousands” of organisations. It believed that no organisation that was approved for funding had subsequently become insolvent.61 Support and advocacy for the sector

We asked ACE what it had learned about the sector. It told us that for round one of the fund, about 40% of those organisations it funded were new to it, and for round two of the fund, 23% were new to it.62 The Department also told us that the fund had been able to support a broader, larger proportion of the sector than it had anticipated at the beginning.63 In its view, one of the few silver linings of the pandemic had been the depth and breadth of the relationships that it and its arm’s-length bodies had built with stakeholders in the sector, which it wanted to build on.64 57 Qq 9, 59, 60, 65 58 Qq 60, 65 59 Q 65 60 Qq 59, 64 61 Qq 15, 16, 62 62 Q 48 63 Q 68 64 Qq 48, 74 COVID 19: Culture Recovery Fund 15

We questioned the Department about the future of the sector and what it saw as emerging risks, given the pandemic situation exceeded the worst-case assumptions when it set up the fund. The Department replied that it did not want to see its investment wasted, and it was now supporting organisations’ reopening and restart costs. ACE told us it was seeking to understand how it could best channel its ongoing investments to make sure that arts organisations, museums and cultural organisations would thrive as they came out of the pandemic. It also said it was concerned about consumer behaviour, where it needed further work and data. It told us that cultural organisations had shown flexibility in their planning to engage with audiences in different ways over the last 14 months, and some organisations had looked at restructuring and worked towards more sustainable business models coming out of the crisis.65

We asked what plans ACE had for its funding in future years and how its future funding could build on innovation, given the effect of the pandemic on the sector. ACE told us that it was very interested in the shape of what it described as “the cultural ecosystem” of the sector across the whole of England, with large, small and different types of organisations, including supply chain organisations. It said it had a 10-year strategy which it would deliver between now and 2030. It explained that it was optimistic yet realistic given the challenges and wanted to take learning from the pandemic and organisational learning about new technology, live performance and digital performance.66

Nationally, the sector contributed £34.6 million to the UK economy in 2019.67 We therefore challenged the Department about its role in overseeing the business aspects of the sector and what it was doing to build the sector including exploiting its export potential. The Department told us there was “food for thought” in how it built on some of the new links it had developed, including with the more commercial end of the arts sector. It considered that the Department and its Ministers were “the biggest cheerleaders for the creative industries across Government”. It told us it was very proud of the sector’s successes and was committed to promoting the significance of the creative industries as an export industry and for regional economic growth.68 65 Qq 67–69 66 Qq 69, 70, 73 67 C&AG’s report, para 2 68 Qq 74, 79 16 COVID 19: Culture Recovery Fund