Civil servants expressed concern about the financial health of Kids Company “all the time”, the former minister in charge of overseeing public funding for the now-collapsed charity has said.
Kids Company, which worked to improve the lives of inner city youth, folded in August shortly after receiving £3m in emergency funding from the Cabinet Office, the latest in at least £42m-worth of public funding given to the organisation since its founding.
Responsibility for overseeing Kids Company was transferred from the Department for Education to the Cabinet Office in 2013.
Tim Loughton, a minister at the DfE from 2010 until 2012, told the Public Administration and Constitutional Affairs committee on Thursday that officials had repeatedly raised questions about the charity’s management during his time in office.
Asked by Labour MP Kate Hoey whether DfE civil servants had “either privately or more formally” sent “warning signals” about funding the organisation, Loughton said concerns had been raised “all the time”, and told the committee the charity had regularly approached the DfE asking for emergency help.
He said: “Looking back at some of the papers, I had a submission in July 2010 when they said that they desperately needed some more money and they were looking for a direct grant. So we took advice on this. The advice from officials was very clearly that that would not be appropriate for a whole host of reasons.
“It wouldn’t be fair to make a special case of Kids Company when there were many other youth charities having financial difficulties, it could be open to legal challenge by other youth organisations, [and] also, at a time when the new government’s approach […] was to wean various charities off substantial public funding and try to make them more sustainable and more self-sufficient, this would be going the other way, and it might deter Kids Company from taking more steps to raise private funding rather than relying on public funding.”
Loughton said he had warned against making further direct grants to Kids Company, instead asking the organisation to enter into a competitive round of funding with other charities.
And he told the committee that he had made it “absolutely clear” that funding received by the charity in 2011 would be the last from the DfE, in order to prevent it from become a “public funding junkie”.
“Subsequently, for reasons I do not know, and for others you will have to ask, they received a direct grant from the DfE and subsequently further direct grants then from the Cabinet Office and other parts of government, specifically against the advice and the whole rationale for giving them breathing space funding between 2011 and 2013. I just cannot see the basis on which they were given further funding.”
The committee also heard from Cabinet Office minister Oliver Letwin, who authorised two final grants of £4.265m and £3m to Kids Company earlier this year.
The final £3m was the subject of a formal objection from the then-Cabinet Office permanent secretary Richard Heaton, who sought a rare ministerial direction to put his concerns over the funding on the record.
Letwin explained the conditions attached to the £4.265m grant, which was soon followed by a fresh request for more cash. The Cabinet Office ordered an external firm, Methods Consulting, to review the organisation before telling the charity its funding would be tied to an outcomes model.
“Ever since I became involved in June 2014 my aim has been to put an end to this long process, back to 2002, of a series of special grants of one kind and another,” he said.
"And that’s what I insisted on as part of the £4.265m. I refused a further such grant when asked for it. And I only accepted the proposition of a total restructuring involving getting rid of the CEO, getting rid of the chair of trustees and putting in new financial controls. I was very clear we had to put an end to it.”
Labour MP Paul Flynn asked Letwin where the “buck stopped” for the continued funding of the charity in spite of concerns about its financial management.
“If you’re asking about those two grants — they’re my responsibilty,” Letwin said. “I take responsibility for those. The other ministers across the ten years or so before me who made decisions will also, presumably, take responsibility.”
The Cabinet Office minister told the committee that he continued to believe Kids Company had done worthwhile work, explaining how he had been “immensely moved” by a visit to the charity’s offices as shadow home secretary in the early 2000s.
“They were trying to do some of the things we subsequently tried to do with [the] Troubled Families [programme] — to knit together the statutory agencies, get people over drug and alcohol dependency, trying to provide just the simplest kinds of love and help. And I thought that was a very, very valuable thing for the voluntary sector to be doing.
“I continue to believe that, notwithstanding all the many things which have come out which are very much less than good […] I still think underneath that there was something very valuable being done.”
A report published last week by the separate Public Accounts Committee called on the government to carry out a “fundamental review” of the way it makes grants to the voluntary sector.
Future grants should, the committee recommended, take more account of the geographical reach of a charity as well as its financial management.
And they also urged the creation of cross-government register of grants to allow departments to “easily identify charities receiving large amounts of government funding from single and multiple sources” and help them share information on a charity’s past performance.