1.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).
2.The arts, culture and heritage sectors were hit hard by the COVID-19 pandemic. Museums, galleries, cinemas, music venues, nightclubs, theatres, arts centres and heritage sites closed their doors to visitors on 23 March 2020 when the UK entered the first national lockdown. Many organisations in the sector have been entirely or mostly closed for over a year. Without targeted support, the Department expected large-scale financial failures arising from the pandemic during 2020–21, with many organisations likely to close permanently if support was not available by September 2020.
3.In July 2020 the Culture Secretary announced a £1.57 billion package, the Culture Recovery Fund, to help the UK’s cultural, arts and heritage institutions survive the pandemic, supporting their long-term sustainability. The fund’s primary objective is to rescue cultural and heritage organisations at risk of financial failure in the financial year 2020–21 due to COVID-19. To determine the overall package the Department considered various scenarios about activity in the sector and the pandemic’s impact. Its worst-case scenario assumed that social distancing measures would remain until the end of March 2021 and that demand would remain at 40% of pre-COVID-19 levels. As it turned out, this worst-case scenario was exceeded, with social distancing extended and venues unable to open beyond that date.
4.The Department chose to make funds available in the form of revenue grants, capital grants and loans. The main criteria for receiving funding were that organisations were financially viable before COVID-19, had a clear plan for future viability, and had exhausted all other funding options. They also had to demonstrate that they were either “culturally significant” (recognised as internationally or nationally excellent) or essential to the cultural fabric of a place. The Department delegated decision-making about individual awards to four arm’s-length bodies, with sector-specific expertise and grant-giving experience: ACE; Historic England; the National Lottery Heritage Fund; and the British Film Institute. The Department is accountable for this fund.
5.The Department and ACE told us that the fund represented an unprecedented level of investment into the arts and culture sector in one go. We therefore asked how it had used the experience of the Culture Recovery Board to design the fund and whether the Board had the right expertise given members seemed primarily to be drawn from arts organisations. Sir Damon Buffini outlined how the Board’s membership combined individuals with arts and finance experience, including the chairs of all four arm’s length bodies. Some members had finance experience, including in the arts and culture community. He explained that the Board’s role was to provide overall assurance that the scheme achieved the balance of timely intervention with rigorous due diligence and process. He considered that the Board had the expertise and balance that it needed to assess both the cultural significance and the financial viability of organisations. ACE told us that it had assessed applications against the criteria of cultural significance, financial need and financial viability and Sir Damon was confident that proper due diligence and rigour had been applied to the application process.
6.We recognised that the Department’s actions would have long-term impacts on many different organisations and we questioned it about how it had updated its plans given that its worst-case scenario for the sector had been exceeded. The Accounting Officer told us that she remained the principal accounting officer for all the funds being distributed through the Culture Recovery Fund. She said that any long-term decision about any organisation that ended up in difficulty would come to her to assess in the normal way. She considered that the Department had done the best job it could, with the information available, to mitigate all the potential risks. The Department told us that it had made adjustments where it made sense to do so to support organisations, which then had to resubmit updated plans on their eligible costs to the Department.
7.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. It told us that the fund was stretched further than it had anticipated at the time it was agreed. 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. ACE and Sir Damon told us they had put “extensive processes” in place for monitoring, with data resulting communicated back to the Department.
8.The Department wrote to us to explain that ACE was now responsible for managing £252 million in loans. 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. 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. We asked ACE about its responsibility for managing a loan book of this size and potential complexity, given it had 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.
9.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. 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. Sir Damon was confident that successful applicants for loans had enough flexibility in their financial forecasts to repay the financing. 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.
10.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. 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. 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.
11.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. 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 and awards to October. 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.
12.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. However, we have received evidence of organisations receiving funding almost 12 months after they had closed.
13.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. 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.
14.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. 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.
15.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; and some unsuccessful applicants were disappointed with the feedback about why their applications were refused and the lack of an appeals process; 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. We asked the Department and ACE about these issues. 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. 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. It also acknowledged that its counter-fraud measures meant recipients had to provide bank details for each instalment of their grant.
16.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. 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. The Department reported to us that its arm’s-length bodies had distributed £1.2 billion to 5,000 organisations. 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. It said that all applicants that met its financial criteria and cultural significance criteria had received funding.
17.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”.
18.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. 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 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.
19.We questioned the Department about the assessments it had made of the long-term impact on supply chain organisations. 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. 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. 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.
20.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. 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.
1 C&AG’s Report, Investigation into the Culture Recovery Fund, Session 2019–21, HC 1241, 12 March 2021
2 C&AG’s Report, paras 1, 8
3 C&AG’s Report, paras 1, 9, 12
4 Q 31, C&AG’s Report, para 1.7–1.8, 2.2
5 Qq 60, 63
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
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
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
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
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