The Government's funding of Kids Company Contents

1Government’s funding of Kids Company

1.On the basis of a report by the Comptroller and Auditor General, we took evidence from Chris Wormald, Permanent Secretary at the Department for Education, and from Richard Heaton, Permanent Secretary at the Cabinet Office until July 2015, on the government’s funding of Kids Company.3

2.Kids Company was set up in 1996 and became a registered charity in 1998. It was set up to enhance the emotional health of young people through counselling, support and art therapy; and to help schools, and other educational institutions, address the emotional needs of young people.4

3.Kids Company has received significant funding from the public purse - at least £42 million since 1996 from central government departments; and at least £4 million from local authorities and lottery bodies. In 2013, Kids Company’s annual income was £23 million, of which 20% came from central government grants, 3% from local government and the remainder from private donations. The Department for Education oversaw grant funding for Kids Company until 2013, when the Cabinet Office took on the responsibility. After March 2013 government funding was through non-competitive, direct grant awards as Kids Company no longer met the criteria for competitive grant funding schemes.5

4.In June 2015, the Cabinet Office advised ministers that a further grant to Kids Company would not be value for money. Despite this, ministers directed officials to pay £3 million, to support the restructuring of the charity and secure its long term sustainability. The payment was made just 6 days before Kids Company closed down and was on top of an earlier grant of £4.3 million, which the Cabinet Office had paid in April 2015. Since closing Kids Company has passed 1,900 case files to local authorities and the Cabinet Office has given £200,000 to the authorities to support the transition of young people from Kids Company to other services.6

5.At the start of our evidence session we asked whether Kids Company had received special treatment from government departments. The Accounting Officer for the Department for Education replied “No, I don’t think it did”. The Cabinet Office’s then Accounting Officer commented that “It is entirely proper for Ministers to decide which charities in which sectors they wish to support”. Concerning the job of officials to then ensure that any such support was within the requirements of Managing Public Money, and implemented in a way that delivered value for the taxpayer, he told us “there was no special treatment at all”.7 He also described Kids Company as “a controversial charity” with “an unusual funding situation” and told us that it was no secret that Kids Company was a favourite charity of ministers and prime ministers.8 When pressed on the ‘special treatment’ question at the end of our evidence session, the Accounting Officer at the Department for Education commented that Ministers of successive governments had made clear their support for Kids Company. In terms of whether officials broke any rules or whether there had been anything improper, he stood by his initial answer that there was no special treatment. He added that “If you want to define special treatment as “Were people taking a special interest?” then clearly they were”.9

6.The charity received national funding despite only effectively operating, for most of its life, within two London boroughs.10 We were concerned whether it was fair to fund a local charity, for such a long period, with such significant amounts that could otherwise have been offered to charities or organisations elsewhere in the country.11 The Cabinet Office’s then Accounting Officer told us that if the charity had been able to demonstrate that what it was doing was achieving outcomes in society, other charities would have been able to copy it. He added that for this reason the charity sector in general needed to get better at measuring outcomes, so that models of delivery could be scaled up.12

7.We were also concerned that not only did the government repeatedly give money to Kids Company, but the amount of money kept going up, even though there were warning signs about the charity.13 Kids Company received around £4 million a year from government, significantly more than other charities which operate across the whole country. In 2011 Kids Company received a grant of £9 million over 2 years from the Department for Education, while national charities received far less; the second largest grant recipient from that round of funding was Barnardo’s, which received £4.2 million to cover the same period.14 The Department told us that it gives some £200 million a year to the voluntary sector and that Kids Company was receiving about 2% of this wider pot of money.15

8.From 2013, Kids Company no longer had to compete for government funding.16 It had also received emergency one-off direct funding from the government in 2002 and 2003.17 The Department for Education told us that it was not unusual for the Department to fund a charity directly on a non-competitive basis.18 It added that it funded a number of organisations in this way, including The Family Fund Trust which receives about £27 million a year, and ChildLine which receives £2 million a year.19

9.In 2011 the Department for Work & Pensions and the Department for Education seconded staff into Kids Company to oversee and help with not only their fundraising, but their corporate capacity. We asked what the Department for Education had learnt from these secondments. The Department told us that in its case a junior civil servant was sent there to help the charity develop alternative sources of income from the public sector, such as from local government. But that was completely unsuccessful.20

10.In addition, Kids Company’s accounts for 2003 report that HM Revenue & Customs wrote off its tax debts of £590,000. A review of Kids Company in 2014 by PKF Littlejohn, commissioned by the Cabinet Office and using information disclosed by Kids Company, highlighted that Kids Company had an arrangement in place with HMRC to pay off historical debts, but the amount of debt is unknown.21

11.In April 2015, the Cabinet Office paid £4.3 million to Kids Company in one lump sum, rather than £1 million a quarter as had previously been the case. It did this following what it describes as due diligence by its Finance Director, which concluded that the charity was unlikely to survive without such an advance payment.22 Although the charity did not produce plans to reduce costs at that time the Cabinet Office paid the grant in full because it considered the charity showed a “willingness to make plans” to reduce costs, including potentially withdrawing from Bristol.23 Of the £4.3 million, £1.5 million was intended to support the restructuring and downsizing the charity and the remainder was intended to go towards funding its charitable work.24

12.We questioned the wisdom of agreeing to give Kids Company £4.3 million in one go, with its known cash flow problems, and expecting it not to just come back in a couple of months saying it needed more funding for the next quarter. The then Accounting Officer for the Cabinet Office replied “… indeed two months later that is what happened, so it now looks a naïve thing for me to have done”. 25 By way of context for his decision, the then Accounting Officer stressed the work done by the Cabinet Office at the time to reassure itself that, if it paid the entire sum up front it “could get out of this a sustainable organisation that would be free of government funding”.26 He had considered seeking a ministerial direction on whether to pay the £4.3 million as one lump sum but “considered on balance that the degree of heavyweight support and expertise we were talking to led us to believe that there was a reasonable prospect that we could turn this charity around … and that the charity that would emerge would be fitter”.27 However, the then Accounting Officer also told us that “In one respect, the numbers that we had about the current financial position of the charity when we made the decision were worse, it turned out, than we had thought … I do not think we were deliberately misled, but nevertheless we were disappointed to find that the numbers on which we had based the £4.2(sic) million grant were not quite as they appeared at the time they made the grant”.28

13.He then described how he was “startled, shocked, and surprised” when, just six weeks after being paid the £4.3 million, Kids Company came back to seek more emergency funding. “It was astonishing that the charity had apparently spent our money and was already requiring more emergency funding from government”. As the charity had not met some of the conditions of the £4.3 million grant, the Cabinet Office’s initial reaction to the request for a further £3 million was “No, out of the question”. But then Kids Company returned again with a more specific and radical restructuring plan. The Cabinet Office still believed that too much was required for this plan to succeed and that the probability of successful restructuring was not high enough to justify public funding. The then Accounting Officer told us that he could therefore not sign up to the proposed restructuring, nor could he advise ministers to do so. However, he said that ministers “quite reasonably took the view that it was a punt that was worth funding. It was a prospect, even if it was a narrow prospect, that was worth giving one last chance to the charity”. 29 On 29 June 2015 the Cabinet Office received ministerial direction to pay £3 million grant to Kids Company. On 30 July Kids Company signed the grant agreement and the Cabinet Office paid the grant. On 5 August Kids Company closed and on 12 August it filed for insolvency.30

4 C&AG’s Report, paras 1.1, Figure 2

5 C&AG’s Report, Figure 1. Paras 7, 9, 10, 4.1-4.4, 4.15

6 C&AG’s Report, paras 11, 15, Figure 2

7 Q 1

14 C&AG’s Report, para 3.15, Figure 6

16 Q 19, C&AG’s Report, Figure 3

17 C&AG’s Report, para 2.7

21 C&AG’s Report, para 2.9

30 C&AG’s Report, Figure 2

© Parliamentary copyright 2015

Prepared 11 November 2015