The Government's funding of Kids Company Contents


1.By treating Kids Company as a special case the government missed opportunities to help other children. The C&AG’s report shows that Kids Company regularly received significant sums of money from central government, far in excess of grants paid to other charities. Charities and young people across the country are likely to have lost out because of the special attention Kids Company received from successive governments. Kids Company only worked with children in two London boroughs and Bristol yet received around £4 million a year from central government. In 2011 Kids Company received a grant of £9 million over 2 years from the Department for Education, while national charities received far less from the same funding round (for example, Barnardo’s received £4.2 million for the same period). From 2013, Kids Company no longer had to compete for government funding. Although Kids Company was not the only organisation the Department funds in this way, the others – such as ChildLine, which receives £2 million a year – are national organisations. Government repeatedly made grants to Kids Company to secure its longer term sustainability and to reduce its dependence on government grants, but this never happened and instead the government gave more and more to the charity at the expense of others. Kids Company also received support from other parts of government. The Department for Education and the Department for Work & Pensions seconded staff to Kids Company and HM Revenue & Customs even wrote off its tax bills.

2.There was insufficient scrutiny of what Kids Company was delivering for taxpayers’ money. Until 2013 the government relied heavily on Kids Company’s own assessments of its performance. The Department for Education considered that very few people doubted the quality of Kids Company’s achievements and that the charity’s highly innovative work with extremely vulnerable people did provide value for money. But we are very sceptical on the charity’s inflated claims about what it achieved. The metrics government used to assess Kids Company’s performance were severely ill-judged and the Department seems to have taken Kids Company’s claims at face value. When the Cabinet Office took over responsibility for the grant to Kids Company in 2013, one of its key concerns was that the charity was not good at, or interested in, measuring its outcomes and the real world impact on children. The Cabinet Office for the first time made efforts to introduce a greater focus on assessing outcomes from the charity. Yet by the time the charity closed, 13 years after the first funding from central government, it still had no proper means for measuring its impact.

3.Government ignored Kids Company’s serious cashflow problems and failure to make itself financially sustainable and continued to fund the charity to keep it afloat. The government’s external reviews of Kids Company found that it had an appropriate governance system, but also that it had a serious cash flow problem. In 2014, for example, a review found that the charity had no reserves and could go bust at any time. The Department for Education conceded that it should have examined the charity’s financial position more closely before 2013 given on-going concerns. As long ago as 2005, a senior manager at the charity had raised concerns to Department but these were not dealt with in the way they should have been. In April 2015, in an ill-judged and gullible move, the Cabinet Office paid its whole £4.3 million grant to Kids Company in one go, rather than quarterly as had previously been the case, because the charity showed a “willingness to make plans”, including looking at how it could reduce costs. The then Cabinet Office Accounting Officer acknowledged that this “now looks like a naive thing for me to have done”, especially when it emerged that the numbers the Cabinet Office had based the £4.3 million grant on were not accurate at the time the grant was made. Kids Company returned to seek more emergency funding from the Cabinet Office just 2 months later. As the charity had not met some of its grant conditions, the Cabinet Office refused this request. When the charity developed more specific plans for restructuring, the Cabinet Office still believed it should not receive more money as they were not convinced, from previous experience, that the restructure would happen. However, ministers considered the charity was worth one last chance: in the words of the Accounting Officer, ministers “took the view that it was a punt that was worth funding”1 and directed the Accounting Officer to make the £3 million grant payment in July 2015. Six days after receiving the money Kids Company closed down.

4.Accounting Officers across government failed to stand up to ministers. Although in some circumstances ministers can decide which charities they wish to support and how to fund them, it is always the job of Accounting Officers to determine whether the support provided represents value for money for the taxpayer. Yet for many years Accounting Officers did not challenge whether decisions to fund Kids Company represented good value for money, and therefore did not seek a direction from ministers. The Department for Education told us that up to 2013, as Kids Company had won competitive bids for schemes and delivered the outputs required, the question of seeking a ministerial direction had not arisen. When the charity failed to win funding through a competitive process in 2013, the Department for Education presented a “public interest case” for ministers on whether to fund Kids Company via a direct government grant rather than through competition. This case did not include an assessment of value for money. It was not until June 2015, that the Cabinet Office finally advised ministers that a £3 million grant to Kids Company was not value for money and sought a ministerial direction. The Cabinet Office had also considered a ministerial direction when making the payment of £4.3 million in April 2015, but decided it was not necessary. We look forward to examining the relationship between Accounting Officers and Ministers when we take evidence on a forthcoming National Audit Office report on accountability for taxpayers’ money.

5.Funding decisions were not based on evidence nor did they follow due process. Kids Company lobbied government for funding over many years. Ministers of successive governments had made clear their support for Kids Company and it is a matter of public record that there were a number of letters to successive Prime Ministers. Although ministers asked officials to consider options for funding Kids Company, Accounting Officers claimed that they were under no pressure from ministers to make direct grants to the charity without a competitive process. We find this barely plausible. With hindsight Accounting Officers considered that more caution should have been exercised in using powers to make uncompeted grants or in making commitments to fund charities, and that “evidence first, decision second” would have been the better way round. Indeed it would. In the case of Kids Company decisions were made to fund the charity and then departments had to develop ways of making the funding available including whip-rounds across government.

6.It is particularly alarming that the Department carried on handing over money for years despite there never being a model that could be replicated across the country. Developing innovative practice to help vulnerable groups is important but needs to be tightly monitored, fair and transparent. We support government funding of innovative and new practices to help vulnerable young people. However, Kids Company was a 13 year experiment which cost the government £42 million and we saw no evidence that children outside London and, at the end, Bristol had benefited from the government’s investment. We were concerned that Kids Company did not develop techniques that could be picked up by other organisations, when replication of its services was a condition of its funding. We do not believe that would have happened in a non-London-based charity. Children in other parts of the country had just as difficult needs as those supported by Kids Company, but no attempt was made to fund them in the same way.

7.The government failed to learn lessons from Kids Company until the end. Many government departments had a relationship with Kids Company but there appears to have been no knowledge-sharing about the charity across government, for example when the Department for Education transferred responsibility for the charity to the Cabinet Office. The government also failed to act on intelligence from local authorities; we were disappointed to find that departments had not formally spoken to local authorities to find out how Kids Company was operating on the ground or why local authorities had generally opted not to fund the charity. While government gave £42 million to Kids Company, local authorities gave just £2 million over the same period. In Bristol, Kids Company had failed to achieve registered provider status, and so the Council had terminated its contract. The Cabinet Office took responsibility for Kids Company’s funding in July 2013 and adopted a more systematic approach to overseeing the charity. But the concerns identified and raised by the Cabinet Office in 2015 were not new and, in any case, this was too little too late. For the Cabinet Office a lesson learned was that the government would not fund a charity like Kids Company now unless it was solvent, at arm’s length from Government, and sustainable without hand-to-mouth Government funding.

© Parliamentary copyright 2015

Prepared 11 November 2015