Treasury Committee
Oral evidence: Work of UK Government Investments, HC 494
Tuesday 6 February 2024
Ordered by the House of Commons to be published on 6 February 2024.
Members present: Harriet Baldwin (Chair); Dr Thérèse Coffey; Dame Angela Eagle; Stephen Hammond; Danny Kruger; Keir Mather; Anne Marie Morris.
Questions 1 - 131
Witnesses
I: Charles Donald, Chief Executive, UK Government Investments; Jamie Carter, Director, Corporate Governance, Portfolio and Stewardship, UK Government Investments; Hannah Gray, Director, Special Situations team, UK Government Investments; and Holger Vieten, Director, Financial Institutions Group, UK Government Investments.
Witnesses: Charles Donald, Jamie Carter, Hannah Gray and Holger Vieten.
Q1 Chair: Welcome to this morning’s Treasury Committee evidence session on the work of UK Government Investments, which is the body that was created by combining the Shareholder Executive with UK Financial Investments. I will start by inviting our witnesses to introduce themselves.
Charles Donald: I am Charles Donald; I am chief executive of UKGI.
Jamie Carter: I am Jamie Carter; I am a director at UKGI with responsibility for corporate governance.
Hannah Gray: I am Hannah Gray; I am the director at UKGI responsible for what we call special situations, which is responding to companies in financial difficulties.
Holger Vieten: I am Holger Vieten; I am the director at UKGI responsible for the financial institutions group.
Q2 Chair: Perhaps I should start with you, Holger. You are going to be in charge of the NatWest float. Is that correct?
Holger Vieten: That is correct, yes.
Q3 Chair: Tell us about it. What do you know? What can you share with us?
Holger Vieten: At this point, we have been asked by the Chancellor to explore a retail offer. He announced that in the autumn statement. We are in the development and design stage. We are looking at various options of how that could be implemented. We have brought some advisers on board to help us in developing these options. We will then, in due course, report back to Ministers on that and await their decision.
Q4 Chair: Who are your advisers?
Holger Vieten: We have a number of advisers. We have legal advisers— Freshfields. We have a retail co-ordinator, which is Barclays, and an overall privatisation strategy adviser, which is Goldman Sachs. We also have a specialist retail adviser; that is a company called Solid Solutions, which has worked on many of the precedent retail offers.
Q5 Chair: Were they all chosen through a rigorous tender process?
Holger Vieten: That is correct. We have taken care to follow the procurement processes and guidelines. We have used competitive processes and have a panel from which we can recruit specifically in relation to NatWest.
Q6 Chair: Could you summarise for the Committee what advice you have received from these advisers?
Holger Vieten: At the moment, we are in the middle of the exploration phase, so we have not come to firm conclusions yet. It is very much a work in progress.
Q7 Chair: You have commissioned advice.
Holger Vieten: Yes.
Q8 Chair: You have not received any advice yet.
Holger Vieten: That is right, yes.
Q9 Chair: That is the stage we are at. You have not had any advice at all. We were told by James Bowler last week that UKGI was being advised, but you have not actually received any advice yet.
Holger Vieten: It is very much an iterative process. We have not received final advice. It is ongoing work on what the options for the structure or size are—for example, how it could technically be allocated and how retail investors could apply for it. We are working on all of these topics, but we are not at the stage where we have the final developed product.
Q10 Chair: The Chancellor has indicated that he is quite keen to see this happen relatively soon. What is the earliest that this could happen?
Holger Vieten: At the autumn statement, he said that he wants to explore this over a 12-month period, so that would take us to, I suppose, November this year.
Q11 Chair: You will still be exploring by the time we get to November.
Holger Vieten: Within that period, we have some windows where this could happen, but, as I said, the timetable has not been approved at this stage.
Q12 Chair: What is the earliest it could happen?
Holger Vieten: The very earliest could be around summertime, but we do not have an exact date.
Q13 Chair: When does summer begin? I would say June.
Holger Vieten: June, yes.
Q14 Chair: You could do this in June.
Holger Vieten: Potentially, it could happen in June, yes.
Q15 Chair: June is one of the options.
Holger Vieten: Yes.
Q16 Chair: NatWest has appointed a chief executive but the chief executive has not started. What date does the chief executive at NatWest start?
Charles Donald: NatWest appointed an interim chief executive for a 12‑month period, after the resignation of the previous chief executive. It has not yet made any statements to the market on how it is taking the process forward.
Q17 Chair: It has a new chair.
Charles Donald: A new chair has joined the board. He joined the board in January. He does not actually take over the formal role as chair until shortly before the AGM, which we are expecting to be at a point during April.
Q18 Chair: Do you agree, Charles, that it would be very difficult to do a retail offer of a bank that does not have a chief executive?
Charles Donald: It needs to provide clarity to the market on its proposals around either confirming the interim chief executive, or a process around appointing a permanent chief executive for the market to be comfortable, yes.
Q19 Chair: Colleagues may also have questions on NatWest, but I am going to move on to a different subject, which is around the choice that the Government made just before the pandemic to go into the satellite business and pay £400 million for an interest in OneWeb, which has now been sold to Eutelsat. I wondered what role UKGI has played in that transaction.
Charles Donald: UKGI has acted as an adviser to the relevant Department throughout the period.
Q20 Chair: You mean the Business Department.
Charles Donald: When it started, we were advising BEIS. The responsibility for OneWeb and now Eutelsat actually then moved to DSIT after the MOG change.
Q21 Chair: That is the Department for Science, Innovation and Technology.
Charles Donald: Yes. Our role in the early part, when the transaction was first in contemplation, was—
Q22 Chair: Which transaction? Do you mean the sale?
Charles Donald: Sorry; I mean the purchase of the stake in OneWeb. That was a transaction that was envisaged and we advised the Department in the period when it was considering the transaction. If you recall, there was actually a final decision to make the investment, which was the subject of a ministerial direction.
Q23 Chair: Was your advice that £400 million was not a good thing to do with taxpayers’ money?
Charles Donald: There was a set of analyses around the value for money of the transaction at that point of time, given what was known about the technology and the roll-out. That resulted, yes, in a ministerial direction.
Q24 Chair: Is it fair to say that UKGI was not enthusiastic about it?
Charles Donald: We were not in a position to confirm that it would be a value-for-money transaction at that point in time.
Q25 Chair: It happened and then the transaction occurred where OneWeb was effectively sold to Eutelsat. What role did you play in that?
Charles Donald: During the interim phase, so once the stake in OneWeb was under Government ownership, the Department appointed three non‑executive directors to the board of OneWeb. One of those non‑executive directors was an individual who works for UKGI.
Q26 Chair: It was not one of the four panellists today.
Charles Donald: It was not one of the four of us. Those three non‑executive directors represented the interests of the Department at the board of OneWeb. As time passed, and we are now into the period of 2022, the strategic options for OneWeb were examined by the board and the company.
Q27 Chair: Do you mean by the board of OneWeb?
Charles Donald: Yes, by the board of OneWeb, and the company, with UKGI providing advice to the Department through that period. Our corporate finance team, in conjunction with the shareholder non‑executive director sitting on the board of OneWeb, worked closely to advise the Department on the proposed transaction with Eutelsat, which was essentially a merger of OneWeb into Eutelsat. That was a transaction that needed to receive the approval of Eutelsat shareholders, given its scale and materiality. That was completed with a shareholder vote of the shareholders of Eutelsat, who approved the transaction in the autumn of last year. What that then left was the Department owning a shareholding in Eutelsat.
Q28 Chair: I believe that it is 11% of Eutelsat.
Charles Donald: That is correct. Again, UKGI has provided a shareholder non-executive director to sit on the board of Eutelsat to represent the Department’s shareholding in the company. That is an innovative situation, because I do not think that there has been a previous example of a UK Government official sitting on the board of a French publicly quoted company.
Q29 Chair: What was your advice in terms of the value that the UK Government got for 11%? Is that something where we can feel confident that we got our £400 million worth of value back?
Charles Donald: We were advising on a slightly different prospect there. We are putting our investment in OneWeb into a broader satellite business. I am not an expert on the geostationary nature of the satellite market, but my understanding is that OneWeb is a low-earth orbit satellite business, and other parts of Eutelsat are satellite networks that sit in other geostationary locations. Essentially, by putting the stake of OneWeb into Eutelsat, you access a much broader satellite market in terms of technology and breadth of product.
Q30 Chair: Can I ask the question a slightly different way then? Is the 11% holding that the British public, through your organisation, holds in Eutelsat worth more than £400 million?
Charles Donald: At the current time, given the market capitalisation of Eutelsat, it is not.
Q31 Chair: What is it worth?
Charles Donald: I do not have the exact figure to hand. Perhaps I could reflect the fact that, at the beginning of last week, Eutelsat made a trading statement to the market about its prospects. It withdrew its guidance for both profitability and revenues for the current year. At the moment, the market is essentially seeking to calibrate that announcement with the results that will come out from Eutelsat later this month. Then we will have a much more precise view on value.
Q32 Chair: What is your most recent estimate of what this holding is worth?
Charles Donald: It is in the tens of millions. I do not have the exact figure in front of me right now.
Q33 Chair: Could you follow up with a letter to the Committee on that, perhaps? What about this special share? It was reported in The Sunday Times this weekend that, effectively, the special share means that the UK Government have lost all influence over the intellectual property that was in OneWeb. Do you recognise that report?
Charles Donald: There was a golden share—there are various definitions of what golden shares provide—that the UK Government had in OneWeb when it made the original purchase transaction. That was retained. OneWeb today is essentially a subsidiary of Eutelsat and the Government retain their golden share in OneWeb, that subsidiary of Eutelsat.
Q34 Chair: Effectively, the UK taxpayer has paid £400 million for some intellectual property that now resides within a French company. Is that not correct? We have lost money on the transaction.
Charles Donald: At the current market capitalisation of Eutelsat, yes, we are not equating to the value of the original purchase. The shareholding in Eutelsat has a different long-term prospect from the shareholding purely in OneWeb.
Q35 Dame Angela Eagle: You clearly know what the current market capitalisation is, even if it is not exact to the day. You said tens of millions. Can you give us what your last view of that was? We put £400 million in and it sounds to me like you are saying that our current shareholding is worth tens of millions. Can you be more specific now, please?
Charles Donald: I apologise—I am afraid I don’t have the figure in front of me right now.
Q36 Dame Angela Eagle: You have just said tens of millions. You clearly have some figure in your mind. Could you tell us what it is, please? You can follow up with a letter but I want to know what you have in your mind now. You have clearly looked at it.
Charles Donald: It is a figure that is less than the £400 million.
Q37 Dame Angela Eagle: Come on—you just said tens of millions. You clearly have a figure in your mind and I want you to share it with the Committee, if you would, please.
Charles Donald: I think it could be in excess of £200 million, but I do not have the exact figure, I am afraid.
Q38 Stephen Hammond: At the time, you recommended to the Government that they swap their stakeholding and put it into Eutelsat. There must have been a valuation of Eutelsat at the time. What was the valuation?
Charles Donald: There will have been analysis, yes, of the valuation of Eutelsat and the prospects were looked at. Again, I do not have those figures in front of me.
Q39 Stephen Hammond: Could you put that in the letter, please?
Charles Donald: I will put that in the letter, too.
Q40 Keir Mather: Thank you all very much for coming this morning. I would like to ask you some questions about UKGI’s board membership of the Post Office Ltd. Mr Donald, I was wondering if you could share your top-level reflections of what the key lessons to be learned are from UKGI’s role within the Post Office’s governance, particularly in relation to the Horizon scandal.
Charles Donald: The first thing I would like to say is that the events of the Horizon scandal IT system and miscarriages of justice have clearly delivered some really horrific stories of human misery to individuals. We are all deeply disturbed by what we have read about and seen.
When I took over as CEO of UKGI in March 2020, I recognised at that time that the Post Office and the inquiry would be a significant element that would run through the period that I was in this role. I see my responsibility right now as making sure that the resources of UKGI are focused on the inquiry and delivering all the assistance and information that we possibly can to the inquiry, to make sure that the inquiry can do its job and find the answers to the problems and what happened.
Q41 Keir Mather: In relation to that inquiry and the evidence that was provided in late 2022, you said that your shareholder non-executive directors were appointed to bring a Government perspective to aid the POL board’s decision-making, but that their responsibilities were the same as any other shareholder under the Companies Act. Do you think that that says something about there being insufficient robustness in the role of shareholder and non-executive directors from UKGI in the Post Office Ltd? Is there some sort of fatal flaw in the character of how that shareholder role was carried out within the Post Office Ltd?
Charles Donald: In our engagement with the inquiry to date, at the beginning of the inquiry process—so when core participants were able to make opening statements to the inquiry, which was back in October 2022—we sought to try to provide as reflective an opening statement as possible. Those reflections resulted in a rather longer opening statement than some of the other core participants.
There are close on 95 or 96 pages of reflections in that opening statement, which set out our initial thoughts on the chronology of the period in which both ShEx and UKGI were involved in the role at the Post Office and then some thoughts on governance. I think that those principally relate to thinking about the themes that are so important for governance, which are the separation between the shareholder and the policy function, the need to strike an appropriate balance between the appropriate levels of visibility to the shareholder and then allowing the company also to do its commercial activities. There are a set of reflections there that set out our thoughts on how we approach the role.
Q42 Keir Mather: In relation to a more specific reflection on the role of non-executive director shareholders from ShEx or UKGI in the Post Office Ltd, I wonder whether you feel that those non-executive directors had the opportunity to exhibit sufficient robustness in saying, “There are inconsistencies here. Sub-postmasters consistently raised these concerns. We are not digging into what the detail is and getting to the truth of these matters”. Would you say that that was reflective of a flaw in the role of non-executive directors from UKGI or ShEx?
Charles Donald: The non-executive director on the board of the Post Office that ShEx and then UKGI provided is one of a group of people who sit around the board table. That individual has exactly the same fiduciary responsibilities as all the other board directors. Collectively, there are questions that we set out in our opening statement to be asked about the curiosity of the board. The way that a board structure works is that there has to be a strong level of trust between the executive and the board. There has to be a good, effective movement of communication from the executive to the board. Again, that is a theme that we reflected in our opening statement.
Q43 Keir Mather: I see, but I will just prise it apart a little further. I completely understand what you are saying about the fiduciary responsibility of the board members. In your evidence that you submitted, you also said that the role of the non-executive director was to bring a Government perspective to aid the POL board’s decision making. Would the Government not have a perspective that there were questions to answer in relation to inconsistencies that were arising as a result of what we know now to be the Horizon scandal? Do you not feel that there were questions to be asked there by the non-executive director in that capacity to aid the Government’s concerns, which they now seem to hold quite strongly?
Charles Donald: There were questions to be asked. We have to leave the inquiry to find out what questions were asked and what questions may not have been asked. We have not yet seen all the potential disclosure that the inquiry will see when it gets into its governance phase, which will begin, I think, in April. There are a whole set of questions that the inquiry will answer best at that time.
Q44 Keir Mather: Finally, in relation to the non-executive director responsibility, the Government have said that their capacity for oversight and accountability throughout this scandal was limited by the Post Office Ltd’s independence from the central arms of UK Government. How does that square with the fact that the non-executive director from ShEx or UKGI was specifically there to offer a Government perspective to aid the board’s decision making? Does it not rather undermine the Government’s argument that they could not exercise oversight when there was somebody on that board who had a responsibility to give the Government’s perspective on decisions that were made at the Post Office Ltd?
Charles Donald: I would come back to that point that the non-executive director acts as part of the board, but maybe I could ask my colleague, Jamie Carter, to talk a bit about, from a governance perspective, how we think about the role of the shareholder director in the context of the board overall.
Q45 Keir Mather: I will come to that in a moment. This might be an apt moment to turn to you, Mr Carter. In relation to the recent sacking of the Post Office’s chair, were you consulted by the Secretary of State in relation to that decision?
Charles Donald: That would be for me to take. The UKGI shareholder non-executive director and the shareholder team were involved in advising the Department on that decision, but the decision was taken by the Secretary of State, not by UKGI.
Q46 Keir Mather: When the Secretary of State has indicated that, with there being disagreements within the board, not just about Horizon but in regard to the entire business model of the Post Office Ltd, and needing to sack the chair in order to be able to deal with those more deep-seated problems, is that an assessment of where we had got to with the POL that you sympathise with?
Charles Donald: Probably the best way for me to answer that question is to go to what the Minister said in response to an urgent question on the Monday after the weekend. He said that the concern was actually about the governance of the Post Office going forward. I think he expressed a view that the current chair was not proving effective. He said that there was a choice between changing course or waiting and seeing whether the situation improved. The Secretary of State chose to change course. There was a view that new leadership was required for the board, but the Minister also said in response to a question at that time that he had confidence in the other members of the board and in the shareholder non-executive director.
Q47 Keir Mather: What do you think the implications are in regard to confidence in the board for the Secretary of State to have taken such a direct decision in sacking the chair?
Charles Donald: This is not specific to the Post Office board. The leadership of a board and the role of a chair is an absolutely critical component in the way that a board runs on a daily basis, the way it conducts itself, what its agendas are and how it operates. If you have a set of concerns about the leadership of a board, the answer is that you need to make a change to the leadership of that board.
Q48 Keir Mather: Mr Carter, I believe that this is for you, but if it is for Mr Donald, that is absolutely fine. Your submission notes that you have recommended postmaster representation on the board of the Post Office. I wanted to ask what progress you have made since that evidence was first submitted in late 2022. Given that that is your advice in relation to the Post Office, do you see increased employee representation on the boards of any other boards on which UKGI is represented becoming a part of your more general recommendations in the future?
Jamie Carter: There are two postmasters who sit on the board of the Post Office. They are appointed via a ballot of postmasters to represent them. In terms of wider representation, the UK Corporate Governance Code suggests that it is important that boards find a way of engaging with their stakeholders. It suggests several different ways in which it can be done, one of which is staff engagement.
It is not something that is widely done on our boards. As far as I am aware, the Post Office is the only one of our boards that does it. In truth, it is not something that has been widely done in the private sector either. It has been done a couple of times, but it has not been widely done. However, we require all our assets to either comply or explain, and on that one, comply with the corporate code in finding a way to engage with their staff. Most will choose to have a nominated board member who is responsible for staff engagement or find some other route to ensure that they comply with the corporate code.[1]
Q49 Dame Angela Eagle: I have one quick question on this. The non‑executive director would have been on the board when the High Court overturned the convictions of some sub-postmasters, which was a final definition that the scandal had actually happened and it was noticed by the courts. Surely the non-executive director ought to have alerted the Government at the time to the gathering problem. Did that happen?
Charles Donald: The non-executive director on the board of the Post Office at that time pushed the board to set up a separate committee on the litigation that the Post Office was engaged in. The information from that was being fed back to the Department. The Post Office board and the Post Office was also in regular contact with the Department at that time.
Q50 Dame Angela Eagle: Why did the Department not do more about it, since it knew at that time there was a serious issue?
Charles Donald: After the overturning of the convictions, there was then a set of actions that the Department took to look at the compensation issues and the overturned convictions. There were a set of actions that took place.
Q51 Dr Coffey: Is that when the inquiry was set up?
Charles Donald: The inquiry was set up at that time. The inquiry moved from being a non-statutory inquiry to a statutory inquiry. I think that that change took place in 2021.
Dame Angela Eagle: I wonder whether perhaps you could write us a letter and point out exactly what actions the non-executive director took when this became clear and what the Department was told about with respect to the person that you had on the Post Office board.
Chair: It can be the same letter as well.
Q52 Dr Coffey: Turning to your corporate finance work, could you explain which Departments are now used to going to you for advice, rather than going straight to external advisers. Do any still go outside?
Hannah Gray: Generally speaking, we are a first port of call for Departments to help them ascertain the scope and size of the problem that they are dealing with and then, if the matter is something in which there is a policy reason for them to dive deeper and for officials to work further on it, to ascertain whether it would be appropriate to take financial or legal advice at that juncture. In some ways we act partly as a triage assistant to the Department in the problems that they are facing.
Q53 Dr Coffey: Are you aware of any cases when you have not been contacted?
Hannah Gray: That is one where I cannot tell you because I might not know. Generally speaking, we have a team of quarterbacks, as it were, that links across Whitehall. That means that, even if we are not in the first meeting about an issue, generally by the second or third meeting somebody has asked whether we should be in that room. There are people who have worked with us who have encountered us through different cases who therefore are used almost as a safety net.
Q54 Dr Coffey: There is one wider thing that may not be quite so well known. Perhaps you could talk to us about your role under the National Security and Investment Act—so current and recent work in this area. That would be helpful.
Charles Donald: We have a small team of M&A practitioners—largely people who have practised and done M&A in the private sector who have joined UKGI. They advise Departments whenever a transaction gets triggered under the NSI Act. The monitoring and analysis around that is done by the investment security unit. Our role would only take effect once a Department asks us to join an advisory team after that trigger has taken place.
Q55 Dr Coffey: Do you see your role as solely being transactional, as opposed to advice on whether intervention may be necessary? Is it a “They will call you. Do not call them”?
Charles Donald: Yes. The role that UKGI has in those circumstances is essentially a corporate finance role. If there are, for example, undertakings that need to be put in place because the Act has triggered a calling in, our team will work with the Department on the corporate finance aspects. We have a very clear rule in UKGI that we do not do policy; we advise. Any of the policy matters will be handled entirely within the Department.
Q56 Dr Coffey: Can you share with us anything you are currently working on?
Charles Donald: I could perhaps give you a couple of examples of where we worked and where the conclusions have been reached and put in place. When Parker Hannifin sought to purchase Meggitt plc—that was a company in the aerospace and defence sector—there were a set of legally binding economic commitments that were put in place for Parker Hannifin to make sure that the UK’s role in the defence and aerospace sector was preserved through its ownership of Meggitt.
In the same sector, when Cobham was acquired by a private equity business and then it sought to acquire Ultra, which was another defence aerospace business, there were a set of national security concerns, and, again, a set of legally binding economic commitments were put in place. They focused on increases in engineering R&D and protecting highly skilled employees and apprentices.
Q57 Dr Coffey: Why is it national security to protect apprentices?
Charles Donald: There was a range of considerations with the activities of Ultra. There were both the economic considerations and the national security considerations. The apprentices are not part of the national security considerations but there was a range of protections across both national security and economic considerations.
Q58 Dr Coffey: Have you been asked to advise on the Vodafone and Three potential merger, with any legal commitments?
Charles Donald: We have been advising the Department on Vodafone and the acquisition that has taken place from the middle east sovereign wealth fund. There has been a set of conditions that have been put in place and announced on that.
Q59 Dr Coffey: You are not advising on specifically the Three link. Probably one of the more famous ones that has happened recently is Chelsea football club. Can you talk us through the process of the sale, because that involves sanctions? It would be useful to understand, on both security and investment, how you were involved in that. I know that the Office of Financial Sanctions Implementation is separate to you, but there must have been some overlap. Can you tell us how that worked?
Hannah Gray: We worked in a cross-Whitehall team, which involved the Office of Financial Sanctions Implementation and DCMS, supporting that sales process. Our work was to assess whether a licence could be granted to allow the sale of the club while maintaining the integrity of the sanctions process. That was a process that involved over 100 different parties, 12 credible bids and an ultimate sale.
The Department had set up a number of objectives—primarily that sale proceeds were to benefit Ukraine and to maintain the club as an asset of national importance. The proceeds of that consortium bid by Clearlake were approximately £4.25 billion, of which I believe £2.5 billion was put towards the benefit of Ukraine in a trust-type structure. The remaining amounts were to be reinvested in the club over the following 10 years.
Q60 Dr Coffey: I am not a Chelsea fan, I should say; I am a Liverpool fan. I wonder whether the Chelsea owners are questioning their investment now. Help us understand how that then gets controlled over time and what your role is in that.
Hannah Gray: We do not have an ongoing role in that. That is being maintained through the Department, which has a team that are monitoring to make sure that there is compliance, as I understand it.
Q61 Dr Coffey: You mentioned sovereign wealth funds a moment ago. Are there any sovereign wealth funds in the world that you would recommend to Government that they do not deal with?
Charles Donald: We do not have a monitoring role around sovereign wealth funds.
Q62 Dr Coffey: I am just conscious because you are the M&A experts.
Charles Donald: We seek to be the experts on M&A, yes, but that is a set of advices on transactions, as opposed to the suitability of ownership, which is for other parts of Government to express views on.
Q63 Chair: On the £2.5 billion that was put in trust for the Ukrainians, are you managing that as well?
Hannah Gray: No, we are not.
Q64 Chair: Who is managing that?
Hannah Gray: I am afraid that I don’t have that in my notes. I would have to come back to you.
Q65 Chair: You don’t know where the £2.5 billion has gone.
Hannah Gray: I believe that it is being held in a trust structure. I do not know who is managing it. I know that we are not.
Q66 Chair: You are not managing this trust.
Hannah Gray: That is correct.
Chair: Perhaps you could add that information to your letter, as to where and who is managing that.
Q67 Anne Marie Morris: Charles, can we look at your role in responding to bailouts? Perhaps we can take as a good example Bulb, which the Public Accounts Committee has already looked at. That was quite complex and in many ways you got lucky. A decision was taken in this rather unusual circumstance, where the Government effectively took on, indirectly, the responsibility for sourcing energy. They would instruct an AO to buy at spot rather than fix, which at the time looked very risky.
It has paid off and the result is that the taxpayer, we hope, but we will not know until 2024-25, will not be as much out of pocket as expected and potentially not at all out of pocket. That was a very unusual situation. What is the learning for you from that? This particular bailout for an energy company, which had them taking on the responsibility to provide energy to existing companies, is quite unusual. What have you learned that you would take forward should there be a future bailout of an energy company?
Charles Donald: Could I perhaps ask Hannah to answer, given that she runs that team?
Hannah Gray: Bulb went into a special admin regime, which is a slight variation on the normal Insolvency Act whereby, where there are other reasons that need to be in the mind of the insolvency practitioner who is appointed by the court, not only is the estate liquidated for the benefit of the creditors, but another element—in this case, the continuation of supply of electricity to the customers—has to be taken into account. We work with a lot of teams across Government, making sure that they are aware of the powers they have under the special admin regimes and what powers they do not have.
Once the Secretary of State has undertaken to put a company into a special admin regime, it is then in the hands of the court-appointed insolvency practitioners to do that. We then advise on how best to do that. We worked a long time with the Business Department, as it was then, in preparation for that, to try to make sure that all options were looked at prior to the company entering the special admin regime—it was a supplier of last resort transfer, where Ofgem could have mandated a better option—and to help it appraise whether this was the least worst alternative that was available at the time, given the facts.
Q68 Anne Marie Morris: One of the concerns that the Public Accounts Committee and NAO had was the preparedness, particularly the end state, and trying to, ultimately, find a buyer. It took about 10 months, I think, effectively, to find Octopus. What is the learning that you have taken from that? What would you look at doing differently with the parties you have described to stop that challenge on a future occasion?
Hannah Gray: In each situation, it is for the insolvency practitioner to run that sales process and for us to meddle as little as possible, because it is not our asset to sell, as it were. Making sure that people are clear on the way on what our options are and what our options aren’t is very important. It is also how we can then work swiftly to support the insolvency practitioner if there are requests from Government—for example the dowry structure that went with Octopus and that is now, we hope, going to be returned to us in September of this year. We hope that that will reduce the cost to Government to near to zero.
Q69 Anne Marie Morris: What worries me is perhaps similar to a point that was raised earlier by my colleagues, which is that this is taxpayers’ money. It feels like it is being handed off to the insolvency practitioners and you have let them get on with it. At one level, I understand that they are the technical experts, but, at another level, this is taxpayers’ money and you are advising the Government. I am surprised that it is as hands‑off as you make it sound.
Hannah Gray: We are as hands-off as we have to be under the legal framework of the Insolvency Act. That is not to say that, on the way into the process, we did not support the Department in testing very heavily with the insolvency practitioners that their fees were absolutely as low as they could be and asking them to be mindful of the fact that it was taxpayers’ money. We also work to seek to minimise the amount of friction in the interface with Government so that that is not an additional cost within the administration.
Q70 Anne Marie Morris: Moving forward, do you see any commonalities in the companies that the Government have had to bail out that will help you prepare for the future in how you are ready to deal with the next bailout that the Government give you?
Hannah Gray: Out of the about 200 companies that my team have supported—so departmental colleagues looking at those who have come to us with requests for support or potential failure over the last five years—approximately one in 10 has led to something happening. In each of those cases, we have sought to learn from the lessons of the past, building from the NAO reports on MG Rover in 2005 and through each of the subsequent interventions that happened, to professionalise our approach and have a rigour around it and a commonality, which is now seen within the HMT’s intervention framework.
We seek to make sure that we are doing these interventions based on facts that are independently assessed, we look at a range of options, and we look at which other financial stakeholders could take a part and who should pay a part before Government. If Government are the last resort intervention, we seek to make sure that that protects the taxpayer. If there is upside subsequently as a result of our intervention, we seek to make sure that the taxpayer has a share of that.
Q71 Anne Marie Morris: That is good news in terms of the process. However, what I am asking you is about hindsight, which would be a wonderful thing—would it not be great if we all had it? What is it that you have seen—whether it is by monitoring different industry sectors or by better relationships with Government Departments to give you earlier warning of businesses that they think are going to require a bailout? It is about being prepared to try to ensure that what might happen ideally does not happen, but if it does, to be prepared in a way that is above and beyond managing the process while it happens.
Hannah Gray: My team works constantly with departmental colleagues to filter in intelligence that bubbles up to us from the markets into their more formal monitoring processes—to your signs of early awareness, although there is a limit to that given the information that is available. Private company information tends to be quite stale and therefore we work hard to make sure we are talking to people in the supply chains, understanding where those vulnerabilities are. We work closely with the Cabinet Office markets and suppliers on the work that they do monitoring the critical suppliers in their supply chains.
We maintain that organic network of people that I mentioned previously so that there are colleagues who know about us—so we are in the meetings and can bring a commercial cynicism to the initial conversations with companies who come to Government asking for our support.
Q72 Anne Marie Morris: With regard to Government exit, clearly that is a very important piece to bake into all of this. How do you factor that in from the start to make sure that it is going to be deliverable on appropriate terms?
Hannah Gray: Yes, absolutely. You cannot intervene as a peer. It needs to be a bridge to something. The work that we do is to make sure that there is that independent verification of whether this is a sustainable business and whether this is something that will come out of whatever has caused its current bump in the road and will therefore be a route to exit. We cannot link ourselves into something where we are continually having to support, because that is just going to end up with an enormous hole that will need filling.
Q73 Anne Marie Morris: Charles, probably my last question is for you. The challenge inevitably for any bailout is the balance. There is a balance between the cost to the taxpayer and the risk of job losses and the impact on the wider economy. To what extent do you, as an organisation, advise Government in taking that quite difficult decision and providing the financial advice?
Charles Donald: A lot of the components of the advice around that end up being policy decisions. For Departments that are considering, for example, future employment in a sector, that is a policy decision, which you are absolutely correct needs to be weighed up against the costs of financial intervention, but we do not advise on policy here. We do the work on the corporate finance elements of an intervention or a transaction. The policy decisions have to lie with the Department and Ministers.
Hannah Gray: It is fair to say that, if the Department outlines its policy objectives and protecting jobs is a key element of that, the interventions that we will support them in designing are designed to take all of these different factors into account. Whenever we are doing intervention, it is not the best outcome. We are looking for the least-worst outcome to protect what is important to the Minister’s policy desires. Those are all balanced up in the advice that is put out by the Department with our support.
Q74 Anne Marie Morris: Do you evaluate the economic impact of these things? There will be a policy. You look at the best way of achieving that, but do you look at “If Minister does x or Minister does y, this is going to be the economic and financial consequence in the wider economy for that particular company and for the taxpayer”, so that at least, despite what the policy says, they know what their numbers look like actually implementing that policy?
Hannah Gray: I am not an economist, but my team works with the departmental economists and analysts to input into that what the financial outcomes may be, what the benefits may be and what the costs may be. They fit that into the VFM black box, so that that analysis is based on facts, as far as we can, to support them.
Q75 Danny Kruger: I am not sure which of you should answer questions about contingent liabilities.
Charles Donald: That is probably for me.
Q76 Danny Kruger: Help me understand, if you would, what the term means and how to quantify it. Am I right that according to your latest report, we have the best part of £500 billion—more or less, depending on whether it is on or off-budget—of risk that is classified as up to a 50% likelihood to materialise? Is that what we mean by contingent liability, and is that the right figure?
Charles Donald: I think that £514 billion was the number in our report. It divided into two categories of what we talk of as being an on-budget liability and then an off-budget liability. The significant majority of that £514 billion figure is on-budget liabilities. I think that it is about £490 billion. That is a liability that is in accordance with accounting standards, so it is included in any formal set of financial accounts. I should say that I am not an accountant, but, in accounting terminology, these are liabilities that are provisions, financial guarantees or insurance liabilities. They are formally accounting defined liabilities that sit in a set of accounts.
The off-budget liabilities are liabilities that are in accordance with accounting standards, but they are disclosed in the notes to the accounts because there is limited financial information around them. That is what is essentially a contingent liability, because there will be sets of things that will cause the contingencies to be triggered.
Q77 Danny Kruger: The contingent liabilities definition includes those on‑budget liabilities.
Charles Donald: In accounting terms, the contingent liabilities are the off-budget ones.
Q78 Danny Kruger: I see. That is a mere £23 billion. That is the definition. My next question to you is how it is calculated. I understand that there is presumably quite a complicated estimation that is based on the risk of it materialising, but also the timeframe over which it might materialise. Would it not be more honest and safer just to identify the maximum exposure that the taxpayer potentially has, rather than trying to do a finger-in-the-air exercise to estimate the probability of the liability falling due?
Charles Donald: In the process of the work done to try to identify these liabilities, we are dealing with known information. If it is a guarantee that could be triggered if a set of events take place, we know what the maximum exposure would be, but our role is to then try to define the parameters within which the triggers take place—
Q79 Danny Kruger: Forgive me for not having picked this up in your report, but do you quantify the maximum exposure that you then, as it were, reduce down to your estimate?
Charles Donald: We quantify the maximum exposure. Perhaps I could take an example: we did a report on nuclear decommissioning liabilities. There is a maximum exposure there of, I think, £263 billion. Because of the way that it is dealt with, there is an annual expenditure cost that is only about £3 billion, because this is over hundreds of years.[2]
Q80 Danny Kruger: Yes, exactly; I do appreciate that. The time value matters. It makes an enormous difference. The other thing that affects things is the discount rate. That changes every year and presumably very significantly affects the value of the overall liabilities. Again, could you talk me through how that is calculated? It feels like the range of the potential liabilities is huge, given the alterations that the discount rate might bring in. Is that fair?
Charles Donald: That is fair. For example, for those nuclear decommissioning liabilities, there were actually slightly different discount rates used in the different decommissioning activities of the entities that we looked at. It is fair to say that one thought going forward could be whether it makes sense to align the discount rates, because it may be more sensible and provide better information if the same discount rates are being used across the three activities.
Q81 Danny Kruger: I understand that there is an effort to move to standardisation of costs. Presumably different Departments have different ways of calculating their liabilities as well. I suppose my general question to you is whether you are satisfied. You made your report recently. Maybe the Government have responded. Please tell us if so and how, but are you satisfied overall with the way that contingent liabilities are being calculated? Do you think that, overall, the taxpayer is being well served by the way we do this, or are there improvements that you think are needed?
Charles Donald: We are satisfied with the information as it is currently there. As I say, the off-budget liabilities are based on known information. There are pointers to how things could develop over time. There are clearly concentrations and potential correlations across the portfolio of contingent liabilities. Would it be sensible to look at the triggers for those correlations and the concentration risks over time and think as to whether they can be better managed, or that the eventualities that they potentially provide for can be mitigated against by understanding those concentration risks?
By having done the work we have done, we are going to be in a better place to track future movements in the portfolio from the base level of understanding that we have today. I think that it will be possible to look at that portfolio and think about whether there are applications for risk management strategies that could be applied to that portfolio, and whether there are pieces of analysis that could be done that would enable Government Departments to get earlier visibility on warning signals that they should be picking up on across those liabilities. There is a whole course of potential work that could be done on the back of this base work to improve the management of them going forward.
Q82 Danny Kruger: That is helpful. I understand that local government liabilities are not accounted for in the current arrangement because, I suppose, in theory there are separate—well, they are not regarded as core government, so schools, for instance. There are other aspects of public life that, ultimately, would be the taxpayers’ responsibility if a liability were to fall in that are not accounted for. Do you think that potentially local government should be included?
Charles Donald: The scope of the report at the moment excludes two elements: the local authority liabilities that you have just described but also the liabilities for the devolved Administrations. In order to ultimately get to a complete picture, that would be a potential course of action to take to include those. If you think about the source for the work that we have done to date, which is working with 17 Departments and their report and accounts and finance teams, to take it out to that much broader scope is obviously a significant job of work relative to what we have done so far.
Q83 Danny Kruger: You think that that is going to happen or it would be appropriate.
Charles Donald: I do not know whether it is going to happen. That would be a decision that I think officials in the Treasury would make.
Q84 Danny Kruger: That would be an instruction from the Treasury team for that to happen. Lastly, what is your personal sense of where the greatest risks are? What should be keeping us up at night in terms of potential disasters that will fall on the taxpayer’s lap?
Charles Donald: One of the two big concentrations identified in the report were the nuclear decommissioning liabilities that I talked about. The second largest group of liabilities is around clinical negligence, so those are the two areas that would be most in focus.
Q85 Danny Kruger: Up to 50% is the definition. Where are we on those two in particular? I am sure that the answer is that it is complicated, but do your best to simplify how significant you feel those risks are.
Charles Donald: The best way to think about it is, “What is the current annual cost?” For example, I mentioned that, in the case of nuclear decommissioning, the annual cost is about £3 billion. In the case of the clinical negligence, it is somewhere between £2 billion and £3 billion on an annual basis.
Q86 Dame Angela Eagle: Who was the Minister who issued the ministerial direction on the decision to buy OneWeb?
Charles Donald: It was the Secretary of State for BEIS at the beginning of 2020.
Q87 Dame Angela Eagle: Who was that?
Charles Donald: It was Alok Sharma.
Q88 Dame Angela Eagle: Regarding the current value of the £400 million that we put in, if we look at share values for today, which value the parent company at €1.7 billion, 11% of that is €187 million, which is £160 million. That is today’s value of that £400 million investment, is it not? We have just looked it up.
Charles Donald: Yes, that is correct.
Q89 Dame Angela Eagle: It is under £200 million by £40 million.
Charles Donald: Yes.
Q90 Dame Angela Eagle: I want to talk about other contingent liabilities, such as the covid support fund, that you also have on your books. How is all of that going? I want you to particularly talk about bounce back loans.
Charles Donald: Perhaps I could clarify. There were two covid support roles—
Dame Angela Eagle: I want you to talk about bounce back loans.
Jamie Carter: Bounce back loans are run, as I am sure you know, through the British Business Bank. The British Business Bank is one of our assets. The bounce back loans sit on the balance sheet of the Department for Business and Trade because they were done on the Department’s balance sheet, not on the British Business Bank’s balance sheet. They are managed by the British Business Bank. There is an awful lot of work going on between the Department for Business and Trade, the Treasury, the Cabinet Office and the British Business Bank, working through the banks, to get that money back. That is ongoing.
One of the areas that has been raised throughout the process is around fraud. There is a lot of work ongoing to pursue fraud and to pursue the losses through credit risk.
Q91 Dame Angela Eagle: Given that they were 100% guaranteed, what incentives are there for the banks to recover those loans?
Jamie Carter: They were 100% guaranteed.
Q92 Dame Angela Eagle: The banks get all their money back whether they recover it or not. What is happening to increase the incentive for banks to get some of that money back?
Jamie Carter: The British Business Bank is working very closely with the banks to ensure they are meeting their requirement, which was to put in place their normal processes to pursue people who owe them money. There are things like audits happening to make sure they are doing that. It is not a case of taking that on trust. There is work happening to monitor that the banks and other providers are pursuing this money in line with the scheme rules.
Q93 Dame Angela Eagle: In March 2023, the Department for Business and Trade estimated covid-19 loan fraud to be at £1.1 billion. Just a few months later, it estimated it to be at £1.7 billion. That is a 43% increase in a few months. What is it now? What are your estimates of fraud?
Jamie Carter: I do not have the latest number for covid fraud, I am afraid.
Q94 Dame Angela Eagle: Why have you come to the Committee without all the latest numbers that we keep asking you for? Will you write to us about that? What is the last number that you can recall?
Jamie Carter: The latest number is the one that you have reported.
Q95 Dame Angela Eagle: It is £1.7 billion. That was a 43% increase in the estimate from March 2023 to June 2023. It is now February 2024. If the estimate is going up at the same speed, it will be rather higher, will it not? What is the last figure you have seen for covid fraud?
Jamie Carter: I am not sitting here with a number that I am trying to hold back. I genuinely do not have another number. I will have to write to you. I will add that to the letter. I am afraid I do not have that number.
Q96 Dame Angela Eagle: You are involved in managing contingent liabilities, but you are not sighted on how much of them are fraud. You do not routinely keep an eye on that.
Jamie Carter: There are regular ongoing discussions with the British Business Bank and our CLCC team. They also reported a number through their report and will be updating that in their next report as well.
Q97 Dame Angela Eagle: Lord Agnew, who used to be the Minister responsible in BEIS, said of the bounce back loans, “Schoolboy errors were made: for example, allowing more than 1,000 companies to receive bounce-back loans which were not even trading when Covid struck”.
Were you involved at all in any of the design of the bounce-back loan scheme, given that it is the British Business Bank that is managing it?
Jamie Carter: The design of the loan scheme itself was a policy choice. That was made by Ministers.
Q98 Dame Angela Eagle: Did you have any input? Clearly, because you made a policy choice not to do any checks at all, you ended up paying £60,000 a piece to 1,000 companies that are not trading.
Jamie Carter: UKGI does not do policy. We did not do the policy for the bounce-back loan scheme.
Q99 Dame Angela Eagle: Did you have any input on the design, which could have minimised fraud? The Minister at the time has been very excoriating about how no attempt was made to minimise fraud in this particular scheme. Did you have anything to say about that?
Jamie Carter: At the time, a trade-off was made between the speed of getting the loans out and the level of checks that could be put in place. The British Business Bank board wrote a reservation letter, which is a public document, setting out the issues that they saw were likely to arise as a result of the choice to proceed without fraud checks.
Based on that, given the extraordinary circumstances of the economy at the time, Ministers made the decision to proceed on that basis. That was how the policy choice was made. As I say, UKGI does not do the policy. We do the corporate governance.
Q100 Dame Angela Eagle: Corporate governance is partially about avoiding ridiculous fraud, is it not?
Jamie Carter: It is. We have been involved in trying to ensure that the British Business Bank has built up a fraud and financial crime capability, which it has done, and to ensure it works with the banks to bring back as much money as possible.
When the permanent secretary of then BEIS was in front of the PAC, she talked about the fact that the Department needed to have a standing counter-fraud capability. The Public Sector Fraud Authority, in many ways, meets that.
Q101 Dame Angela Eagle: How many people have been convicted of bounce back loan fraud?
Jamie Carter: Again, I do not know that number off the top of my head.
Q102 Dame Angela Eagle: Again, will you write to us with that?
Jamie Carter: Yes, we can.
Q103 Dame Angela Eagle: We know about the warnings that were issued by the Minister who was responsible at the time, the amount outstanding and the fact there are no incentives whatsoever that I can see for the banks to do any kind of chasing of this. They are owed back 100% of the money that they have paid out. That is what you give them, if they cannot get the loan repaid. What is the incentive in the system for fraudsters to be chased?
Jamie Carter: As I say, the banks are required to follow the same processes that they would normally follow in terms of retaining their money. There are criminal investigations into people who have undertaken fraud through the different criminal—
Q104 Dame Angela Eagle: At the time, Lord Agnew said, “we know that there are hundreds of anecdotal examples of directors of these companies taking the money out of the business, putting it in their private bank accounts, going off and buying a sports car”. That is the kind of fraud we are talking about with public money. Surely that must be chasable.
Jamie Carter: As I say, there are attempts to chase money through the criminal justice system.
Q105 Dame Angela Eagle: It seems to me that it is everybody else’s responsibility but yours. Surely a part of corporate governance is about not creating systems where fraud is so easy and where everybody who does the right thing can see the people doing the wrong thing getting massive rewards while they are chased for the last little bit of tax. This is entirely the wrong incentive system.
A Minister who was in Government at the time, who I am quoting, was saying how awful the control systems were. Surely it is an issue of corporate governance to get the Government their money back.
Charles Donald: Jamie sits on the board of the British Business Bank. The British Business Bank has put in place a number of processes and a fraud unit in order to place the appropriate level of pressure on the lending banks to ensure they are doing everything that they can to retrieve the money.
Q106 Dame Angela Eagle: What does that consist of? What is the appropriate level of pressure when they have a 100% loan guarantee? They are going to lose no money if they do not pursue it at all.
Jamie Carter: As I say, there are audits that go on. There are people who go in and check that the banks are following their processes that they say they are following. Guarantees have been removed where they have not been following the process.
Dame Angela Eagle: I would like to know how many guarantees have been removed. That would be a good thing. At the moment, there is not enough of an incentive for the banks to chase these people down.
Q107 Stephen Hammond: Good morning. My questions are probably for Mr Carter and Mr Donald. You have a very wide-ranging and diverse portfolio of shareholdings, which you hold on behalf of the Government and ALBs. Following on from Dame Angela’s question, what is the state of corporate governance in the Government’s arm’s-length bodies at the moment?
Jamie Carter: Undoubtedly, we have a very wide-ranging portfolio. Our portfolio has been chosen to include the largest and most complex assets in Government. Inevitably, there are challenges throughout our portfolio.
Broadly speaking, we are seeing a couple of things. First, we are trying to ever-increase and change the processes by which we do corporate governance. Throughout Government, however, we are also seeing a real clarification on all of the framework documents, the MOUs and things like that, to improve the state of corporate governance.
We tend to find that we are able to recruit high-quality people to our boards. There is no doubt that it is a challenging environment. A lot of our arm’s-length bodies are trying to deliver very challenging things.
Q108 Stephen Hammond: I absolutely accept that. Just to pick up on what you have said, in terms of the framework documents, you are responsible for giving guidance for best practice in terms of the setting up of corporate governance and framework documents. Is anything missing in the clarity of purpose in those documents? Where would you like to see improvements in corporate governance over the next year or couple of years?
Charles Donald: Perhaps I could take an element of that. We need to look at the boards of arm’s-length bodies. The principal area of focus should be on the skillsets and capabilities of the board. I made a reference earlier to the importance of the chair in the leadership of the board and the direction that that individual provides to the board. In my view, the combination of the skillsets that sit around the board table is one of the most critical elements of governance.
Q109 Stephen Hammond: Yes, absolutely. On any board, that is critical. Reflecting what Hannah said about ensuring that these individuals have—I think you used this phrase—commercial cynicism in some of the advice they give, in terms of the chair or the other non-exec directors, how do you ensure you get the right range of skills and experience?
If you are a non-exec director of a quoted company, it is pretty clear exactly what your primary and secondary responsibilities are. You have a fiduciary responsibility to put your shareholders first and you have a responsibility to give advice to the board second. Do the people that you are getting have that clarity? How are you ensuring that you are getting the right quality of people?
Charles Donald: First, fiduciary obligations of an ALB board are exactly the same as those in the private sector. There is then the additional overlay of the public sector obligations that an ALB board has.
Specifically for UKGI shareholder non-executive directors—we have 19 individuals who sit on most of the boards of the assets that we look after—we have sought to focus on a number of qualities. One is, where possible, that those individuals have prior board experience. When I came into this role in March 2020, I identified that there needed to be some work to develop and grow the skillset of that group of individuals.
We also set up a development programme for a group of individuals who, in time, would replace those people. We run two programmes that are essentially trying to do that: to grow and develop the board skills of those people to make sure they acquit themselves, as part of the ALB board, to the best of their ability.
Q110 Stephen Hammond: That is admirable, but to go back, if one of the criteria is to have previous board experience, do they also have industry experience? What were the other criteria used to recruit these 19 individuals?
Charles Donald: The UKGI shareholder non-executive directors sit on a board that should have a blended skill set. Each year, we make sure all of our ALB boards do a board evaluation. Normally, that must take place every three years. It is an externally facilitated board evaluation. That process should reveal what the skillset of the current board is, whether there are any skillsets missing from the group of people who sit around the board table and whether the way in which the board is operating is meeting the needs of the company.
Specifically to answer your question about the UKGI shareholder NED, that individual needs to have an understanding of the way that Government Departments operate and the expectations that they have of their representative on the board of an ALB.
Q111 Stephen Hammond: They would be clear that their first and primary duty is their responsibility to the Government. They are effectively the Government’s representative.
Charles Donald: Yes.
Q112 Stephen Hammond: I suppose that brings us back to some of the questions that we asked at the start. Did the UKGI representative on OneWeb recommend this deal? I assume there was a UKGI representative on the board of OneWeb.
Charles Donald: There were three Government-appointed non-executive directors on the board of OneWeb.
Q113 Stephen Hammond: Did they recommend this deal?
Charles Donald: The advice to the Department came from them together with the corporate finance team in UKGI working with the Department. The recommendation and the advice that went up to Ministers came from that combination.
Q114 Stephen Hammond: I have sat on a quoted board. I know that sometimes the non-executive directors do not agree with the executives and make that clear. I accept that there was a combination of advice, but the non-executive directors had a direct responsibility to the Government. I accept that they could not have anticipated the trading statement. The question that I am asking is whether they gave advice that said the Government should participate in the deal or that they should reject this offer.
Charles Donald: The board of OneWeb collectively approved the recommendation to enter into the transaction with Eutelsat.
Q115 Stephen Hammond: There were no dissenting non-executives.
Charles Donald: Not that I am aware of, no.
Q116 Chair: I was just wondering, in terms of the appointment of non-execs, what your view is, Charles, in terms of the recent report by the National Audit Office saying that there is not enough information to evaluate whether these appointments are being made in a timely enough manner. Certainly, the anecdotal feedback is that it can take a long time for some of these crucial roles to be appointed. When will we have a new chair of the Post Office, for example?
Charles Donald: You are correct that these appointment processes take a long time. There have been a number of comments from a number of different parts of the Government that suggest we should be looking at making sure these appointment processes are as prompt and efficient as possible.
One of the challenges is that the private sector has improved quite significantly the momentum around its own board appointment processes. If you have a candidate who is in a position to consider options for a private sector non-executive role and a public sector non-executive role, sometimes the offer for the private sector role can come somewhat sooner.
Q117 Chair: What can you do as an organisation to solve this problem that you have now identified?
Charles Donald: The first thing that we have already done is sit back and look at the future timetable for appointments across all our assets. We do not do every single appointment on every single board. It is important to say that across the assets in different Departments—
Chair: I mean the ones where you are responsible.
Charles Donald: Where we are responsible, we have set out 12 months in advance exactly what the timeline is. We now commence the process 12 months in advance of the appointment being needed at the board table. In most cases, if we do it with that sort of notice, we will get the timing right from one to another.
Q118 Chair: How many positions that you are responsible for would now be showing as vacant?
Charles Donald: We are currently working on five roles. We have been working on the chair of the NDA. We have been working on the chair of the National Energy System Operator. We have recently completed the appointment of the chair of the British Business Bank. There are five roles that we are currently working on. We have completed the chair of the UK Export Finance organisation, although there has not yet been an announcement. There will basically be a rolling set of vacancies that will start triggering over the next 12 months.
Jamie Carter: Just to be clear, when you talk about vacancies, you mean there are roles coming out; they have not all been vacant. At the British Business Bank, for instance, there was a chair in place until the day the new chair started. There was no vacancy.
Q119 Chair: Are there any vacancies?
Charles Donald: There is currently a vacancy at the Post Office.
Q120 Chair: That is the only vacancy.
Charles Donald: Yes.
Q121 Chair: When do you expect that to be filled?
Charles Donald: The Minister has said that he would like to make an interim appointment as soon as possible. In the meantime, a senior independent director is fulfilling the role of the chair.
Q122 Chair: To go back to where we started with Holger and the finance side of things, we are now 15 years on from the financial crisis. How big are your holdings in the finance businesses that were taken on to the taxpayers’ books at that time? What else do you hold beyond NatWest?
Holger Vieten: Today, we only hold NatWest. Everything else has been returned to private ownership.
Q123 Chair: Everything else has gone, including Bradford & Bingley and Northern Rock.
Holger Vieten: Yes.
Q124 Chair: It is just the NatWest shareholding, which is the legacy shareholding.
Holger Vieten: That is correct.
Q125 Chair: How much is that worth today?
Holger Vieten: It is around £7 billion. The Government stake as of Monday was 34.96%.
Q126 Chair: Charles, how do you see your organisation strategically? Do you see it as the sovereign wealth fund of the United Kingdom in terms of the assets that you hold? Do you see your role as being the guardian of a range of different basket-case organisations that have fallen in value because of a series of historical missteps by Ministers, financial crises and so on? How do you see your role?
Charles Donald: I see UKGI as, essentially, an in-house corporate finance and corporate governance advisory boutique available to Departments. That is the function that I believe we predominantly provide.
Q127 Chair: Would you measure your success in your role in terms of how successfully you earn a return on those investments, like a sovereign wealth fund would? How would you measure success?
Charles Donald: There are a certain number of companies within the portfolio that do generate a financial return to Government. For example, Ordnance Survey has paid dividends to Government. Since NatWest has recommenced its dividend-paying programme, it delivers cash on an annual basis to Government.
Q128 Chair: Do you honestly think that Ordnance Survey has maximised the value of its assets?
Charles Donald: I think that is still a work in progress.
Q129 Chair: Yes, I think it is still a work in progress. How would you measure the success of your organisation?
Charles Donald: The way that we measure the success of the organisation is, from the corporate governance perspective, whether the organisations that we are part of the boards of are thriving and delivering on the policy and delivery objectives that the owning Department has put in place for them.
The board of UKGI conducts an annual performance appraisal process, which is largely done by talking to the permanent secretaries at our client Departments, to ask whether we are doing the job and the tasks that Parliament has set us out to do.
Another way to measure our value is what we potentially save Government in terms of going to external advisers. As Hannah has described when talking about her team, we are instantly available to Government Departments. We can be brought into a situation in a matter of hours. We do not charge Government Departments for that advice. They can access corporate finance advice within hours, which then enables them to be advised on whatever course of action they need to take place.
Q130 Chair: You have 156 people. That figure has grown by about 50% recently. You spend £25 million a year delivering the service. Are you able to say how much that saves against what it would cost to go to an outside organisation?
Charles Donald: Perhaps I could just give you the updated numbers. Today, we are 146 people. We have come down from 156 12 months ago.
We benchmark the cost of our organisation against what we think external advisers would charge. If you do it on an hourly rate cost measurement, we believe we are somewhere between 15% and 20% of the cost of a set of external advisers. We have calculated that the advice provided by the FIG team—
Q131 Chair: What does “FIG” stand for?
Charles Donald: That is the financial institutions group, which is the team that Holger runs. If you took all the roles that we currently operate in that team and put them out entirely to external advisers, you would probably pay about £15 million a year to investment banks. We have calculated that Hannah’s team has probably saved the Government about £176 million over the last five years in external advice costs.
It is not always possible to benchmark it exactly to an external cost, but when we have looked at investment bank fees, consultancy fees and accountancy fees, those are the sorts of numbers that we end up arriving at.
Chair: I will conclude this session by saying that you are the custodians of a wide range of different organisations on behalf of the public purse. It does strike us, as a group of representatives of the public, that there have been a range of governance questions that we have felt that we need to hear from you further on by way of a letter. There have been a range of different processes that seem to have destroyed value for the taxpayer and potentially given away important intellectual property.
As a Committee, this morning’s session has left us with quite a lot of concern and questions about this incredibly important role that you do play in what are some of our most cherished sovereign assets. We look forward to hearing further from you by letter, but it is fair to say that we may have to have you back again sooner than it has been since we last spoke to you. Thank you very much.