Lessons from Greensill Capital Contents

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Chapter 4: Other matters raised by our inquiry

Cost to government

205.Lord Myners provided us with his estimate of what the cost would be to the taxpayer from the failure of Greensill. He argued that “The accumulated losses from Greensill for the taxpayer, in my judgment, are going to be north of £1 billion, of which nearly a half will come as a result of the BEIS Department’s scheme to accredit Greensill as a lender under the coronavirus loan scheme”.306 He then provided an estimate of the indirect costs, as he saw them:

You have the externalities, the indirect costs, the cost of having to rescue the steel industry from its saviour, Mr Gupta, and the cost of dealing with the social implications of closure of plant, if necessary, or the net present value of up-front subsidies to keep the steel industry in its current form operating. We are going to be talking about a figure, I would have thought, somewhere in the region of £3 billion to £5 billion. The direct cash out of the door relating to Greensill is going to be in the order of £1 billion or so, I would guess, on the basis of the current knowledge we have.307

206.However, these estimates did not accord with the view of the Treasury. Charles Roxburgh told us on the direct costs that:

In any insolvency, there are typically creditors. The administrator has released the following figures, quoted in dollars. They owe $8 million to HMRC. They owe two local authorities about $168,000. They owe one foundation trust $10,000. Those are the public sector creditors that we are aware of. Over $8 million is £5.5 million to £6 million. That is the total exposure. Some of that will be recovered, so that will not be a total loss. Those are the direct costs, £5 million to £6 million, of which there will be recoveries.

There will be some losses to the public sector arising from the job losses. We do not know. It depends how quickly people get jobs and their personal circumstances, so we do not have an estimate for that. On the pharmacy programme, we did have to bring forward some drawings of cash. It is not a cost; it is just a reprofiling of the cash drawings. There is a little bit of lost interest, but a relatively small amount on that, so there is a small cost to that.308

207.In a follow-up letter, he also remarked that:

The “statement of administrator’s proposal” dated 6 May […] indicates a preferential liability related to employee wage and related claims against GCMC. This liability is indicated to be $2.1m and the document notes that “a significant element of these claims will be subrogated to the Secretary of State, following payment of employment-related claims by the Redundancy Payments Service”. This is a reference to a programme operated by the Insolvency Service in which, if an employer has gone formally insolvent, employees can apply for money they are owed. As with the liabilities referred to in the previous paragraphs, there may be recoveries.309

208.On the indirect costs that will be borne by the taxpayer if other businesses fail as a direct consequence of Greensill’s failure, Mr Roxburgh has told us in a follow up letter that “the Government guarantees 80% of lenders’ exposure on losses under CBILS and CLBILS. That is, should a borrower default on their obligations to the lender, then the Government provides the lender with 80% of the outstanding balance of the loan.” However, Mr Roxburgh also told us that “there is an investigation under way into Greensill’s activities and while that investigation is ongoing the CLBILS guarantees are suspended.”310

209.When pressed on the range of costs described by Lord Myners above, Mr Roxburgh told us “I do not know how Lord Myners came up with that number. We do not recognise it.”311

210.The July 2021 report by the NAO noted that “Greensill, through its administrators, has denied making loans outside of the scheme rules, and it contests the [British Business] Bank’s provisional conclusions and questions the fairness of its decision-making.”312

211.At present, the Treasury appears confident that the direct costs of Greensill’s failure to the public purse will be limited. The indirect costs will relate to the guarantees provided under the CLBILS scheme, which are currently suspended. However, we note that the rationale for the suspension of those guarantees is contested by Greensill. It is also too early to assess what additional costs to the public purse might crystallise.

Treasury’s knowledge of the system

212.The Greensill episode has also drawn attention to potential gaps in the Treasury’s preparation for actions it could take at a time of economic crisis.

213.At the beginning of the Covid pandemic, the Government did not have schemes to support business already designed and ready to go; the Treasury was designing schemes as they went along. A 2016 exercise into pandemic preparedness did not involve an economic exercise or a blueprint for business grants.313 It therefore is not surprising that the Government was urgently searching for different ways to support the UK economy, including investigating avenues when they were unsure as to whether or not they would be useful.314

214.It appears that the Treasury may not have been able to rely on the Bank of England to provide expertise on supply chain finance. Sir Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England, told us:

When we had the first approach, I have to say that I did not know much about Greensill and supply chain finance, but we were very keen to understand what they did, whom they did it for, whether it was a general problem and, indeed, whether we were starting to see problems with small businesses that could not access supply chain financing, invoice financing or other ways of dealing with their working capital.315

The Bank of England also did not have the data available to estimate the number of SMEs depending on supply chain finance, or such finance provided by Greensill in particular. Sir Jon Cunliffe went on to tell us:

It was right to try to investigate whether there was a general problem with supply chain finance. I will be honest: we did not know or have the information. One of the things we told the Treasury early on is that it is very difficult to get a precise estimate of the number of SMEs that depend on this or, indeed, the number of SMEs that depend or depended on Greensill.316

215.The impact of the pandemic exposed some gaps in the Government’s knowledge about how some financial products and entities interact with the real economy. Some of those gaps may be filled by improved data collection, as we have recommended in Chapter 2. However, the Treasury has a different remit to the regulators, and its information requirements may also therefore differ.

216.While the nature of the next civil emergency is unknown, the Treasury should consider what information it needs, in the planning for, and provision of, public support for potential future emergencies. In doing so, it should liaise with the Cabinet Office to ensure that major emergency planning exercises involve consideration of the potential economic impacts and policy response.

The Permanent Secretary’s mobile phone

217.Responding to a Freedom of Information request, the Treasury noted that it could not provide the text responses from Sir Tom Scholar to Mr Cameron between 5 March and 7 April 2020.317 It said that this was because “on 1 June 2020, Mr Scholar’s mobile phone had to be reset, after being automatically locked when an incorrect password was entered several times (this is a standard security feature on Treasury mobile phones)”.318 Sir Tom told us that the wiping of his phone tended to happen after the password had been changed, which is required at regular intervals. He guessed that similar wipes happened around “once a year on average”.319

218.However, Sir Tom attempted to reassure the Committee by saying that:

The important thing to say is that, at the time in March and April last year, where there were messages, including incoming ones, that were of any substance and relevant to Government business, in each case I copied them from my phone on to the official record, and we have released a number of these. In particular, there was one exchange about a possible leak of the Greensill approach to the Treasury. There was another where Mr Cameron told me that they had a specific proposal to put to us. In each case, I copied that into an email and shared it with Charles, as the official leading it, so I made sure that anything that needed to be recorded for the official record was recorded, and that was not lost when the phone was reset.320

219.It is reported that “in response to a Freedom of Information request from the PA news agency, the Treasury said that its IT desk reset 117 of its approximately 2,100 mobile phones in 2020.321

220.We are concerned that it appears that Government records, held on the phone of the Treasury’s Permanent Secretary, are subject to deletion based on lapses of his memory. The Permanent Secretary acted correctly in transferring messages of any substance to the official record. We recommend, however, that the Government reviews its policies and use of information technology to prevent the complete deletion of Government records by the misremembering of a password to a phone, given that this may be a wider problem. Though we have absolutely no reason to believe it in this case, the wiping of information under these kind of circumstances could have the unfortunate consequence of leading some to the suspect it to be deliberate. To be very clear, the committee does not believe this to be the case in respect of the Permanent Secretary.

Government records?

221.Since the records of Sir Tom Scholar’s messages to Mr Cameron had been lost from his own work phone, we asked Sir Tom to give his permission for Mr Cameron to release his records of those texts to us. Sir Tom told us “I am certainly happy to ask him to send me a copy of what he has, and then we will release it in accordance with the Freedom of Information Act in the usual way”.322

222.We pressed Sir Tom on why it should be handled in this way, rather than the relevant texts being given to the Committee directly. He argued that:

The information that we are talking about is Government information, and it just so happens that we do not currently hold it. If he is prepared to share the information with the Treasury, which I imagine he will be, it will be as if we had held it from the beginning and we will treat it in exactly the same way as we have treated all other information that we hold.323

223.In a response to the Committee’s request for these emails, Mr Cameron replied: “I have provided Tom Scholar with a record (and the content) of messages he sent to me, so it is now appropriate that Sir Tom handles this request”.324 The texts were subsequently released by the Treasury on 18 June 2021, under the Freedom of Information Act.325

224.Though we welcome the release of the redacted texts lost from Sir Tom Scholar’s phone, we find his arguments as to why only the Treasury should have released the records held by Mr Cameron unconvincing. First, these records were no longer Government records, since they had been deleted. Secondly, a Committee’s powers to call for persons, papers and records are exercised independently of the Freedom of Information Act.

The impact of transparency around lobbying

225.In the course of his evidence to us, the Chancellor expressed concern about whether the inquiries into Greensill might alter how firms engage with Government. When asked if he thought the Greensill episode might change the way firms feel about engaging with Government, he replied:

Yes, if every informal conversation is essentially the subject of a public interview. People might be more reluctant to share private or prospective thoughts with Ministers, which might help inform policy and provide broader context on what is happening, if they think it cannot be private. We will have to see. It may well serve to have that effect.326

Expanding upon this point, the Chancellor told us:

Whether it is trade unions, trade organisations or civil society, it is important for the policymaking process that people feel they can engage with Ministers and officials. Policy is better as a result of that. Often, informal conversations as part of that process or people providing a private perspective on things can help with the policymaking process.

It has certainly been my experience over the last year, making policy in very difficult circumstances, that I have in particular benefited from conversations that I have had with trade organisations or trade unions at pace to develop various scheme. If people feel they cannot or that it would come under enormous exposure, it might serve, as you said, to have a chilling effect on it, which would be disappointing and damaging to the policymaking process.327

226.However, when we pressed on this point, he told us:

I completely agree: transparency is important. That is why we have a set of guidelines and frameworks in place that manage that. The question I was asked was, “Does this, on the margin, make businesses less likely to want to engage with the Government, if they feel there is not a space for private conversations about policymaking processes that might be specific to their industry or have commercial sensitivity?” I cannot answer that question; I am not an external party. We are all used to that degree of transparency and scrutiny. Is it conceivable that businesses or other organisations may react differently, as a result of all of this? It is perfectly plausible. I could not rule that out.328

227.In his evidence, the Chancellor suggested that firms may feel less able to engage with Ministers for fear of the public scrutiny brought to bear in this case. That may be a risk, and there may need to be a balancing act to ensure the free flow of information where necessary. But those approaching Government for support from public finances for policies in their personal or corporate favour should expect public scrutiny and transparency. Any other approach runs the risk of appearing to be in conflict with good governance.