Department for Digital, Culture, Media and Sport loans helped many organisations survive the initial months of the pandemic, but "a high degree of uncertainty" remains over how much of the £474m paid out will be recovered, a report from the National Audit Office says.
DCMS – which dropped "Digital" from its name as part of last year's machinery of government changes – provided around £2.6bn of support to the culture and sports sectors to help them keep afloat between October 2020 and March 2022.
Of that aid, long-term loans worth £256m were made to 37 culture bodies while 83 sports bodies received a combined £218m. The loans were made through the Culture Recovery Fund, the Sport Survival Package and the Rugby Football League Loan Scheme.
The largest loan to an individual borrower across all of the schemes was £40m paid out to Historic Royal Palaces. The biggest individual sports loan was £21.5m lent to the Horserace Betting Levy Board.
The loans, which have average terms of 15 years, were brought together in a single "loan book" in 2021. Some recipients have yet to start repaying them and several have already gone into liquidation.
An NAO update says that while 97% of "scheduled" repayments have been made, and 11 loans – valued at £3.8m – have been repaid in full, DCMS now does not expect to recover up to £29m of loans issued to nine insolvent borrowers. A further £11m in future interest will also be forgone.
Rugby clubs London Irish, Wasps and Worcester Warriors were responsible for the vast majority of the loans made to borrowers who became insolvent. DCMS projected that 5% of borrowers using its loans would fail in the first three years. The NAO report says that four years after the programmes started, the fail rate is 7.5%.
Because some borrowers are not due to start repaying their loans until next year, the NAO said that looming first-payments may mean DCMS needs to respond to "a greater number of difficult cases".
The department has a single team in place to manage loans from the schemes. In June this year it introduced a loan-management system overseen by PwC as part of a £2.8m contract.
The NAO report says DCMS is charging loan recipients simple interest of 2% on the loans and that if there are no further insolvencies, the department will receive £78m in interest between 2025 and 2046.
But the watchdog says DCMS has "not yet considered" scenarios that might cause costs to rise because of defaults or periods of higher risk where some borrowers may need closer supervision or intervention. It says such work should include identifying and planning for a situation where the cost of managing the loan book outweighs the benefit of continuing to do so.
The report also cautions that "high levels of staff turnover to date" mean DCMS needs to embed lesson-learning from its loan-book experience to offset "loss of insight" from churn over the lifetime of the loans.
NAO head Gareth Davies said that while DCMS's Covid loans had been a lifeline for many organisations, the department had more work to do to ensure that its loan-book was properly managed.
"Government issued loans to the culture and sports sectors in extremely demanding circumstances, helping many organisations survive the immediate threat of the pandemic," he said.
"It has since made progress in achieving 97% of the repayments scheduled to date. However, with all borrowers scheduled to start repaying next year, and ongoing risks to future recoveries, government should strengthen its longer-term plan for protecting taxpayers’ exposure."
Sir Geoffrey Clifton-Brown, who chairs parliament's Public Accounts Committee, said that although the loans had saved many organisations from "near-certain failure", the loss of up to £29m of taxpayers' money so far was "concerning".
"DCMS should continue to keep a close eye on English rugby union clubs that have been teetering on the edge," he said. "Given the public money at stake, the department has more to do to show it has a long-term plan for managing and recovering loans across the sectors."
Among its recommendations, the NAO says DCMS should make modelling the expected costs of the loan book over its lifetime "a priority". It says the modelling should include both one-off and ongoing costs for DCMS and its loan agents Arts Council England and Sport England, as well as for external providers.
The NAO says DCMS also needs to plan for a clear series of interventions for responding to different scenarios where the loss of public money may be a risk.
A DCMS spokesperson said: "As the NAO rightly recognises, the department stepped in to provide financial support to sporting and cultural organisations during the pandemic. This helped organisations that needed it most.
"To date, we have recovered the vast majority of repayments due and we will see all borrowers begin their repayments by this time next year.
"We will continue to work closely with borrower organisations to ensure the taxpayer funded covid loans are repaid."