Public Administration and Constitutional Affairs Committee
Oral evidence: Whitehall’s relationship with Kids Company, HC 433
Tuesday 19 November 2015
Ordered by the House of Commons to be published on 19 November 2015.
Members present: Mr Bernard Jenkin (Chair); Ronnie Cowan; Oliver Dowden; Mr Paul Flynn; Mrs Cheryl Gillan; Kate Hoey; Kelvin Hopkins; Mr David Jones; Gerald Jones; Tom Tugendhat; and Mr Andrew Turner.
Questions 549 - 797
Witness: Tim Loughton MP, former Parliamentary Under-Secretary of State for Children and Families, Department for Education, gave evidence.
Q549 Chair: I welcome our first witness today on the question of Kids Company and the conduct of the counter-parties. Please could you identify yourself for the record?
Tim Loughton: I am Tim Loughton, Member of Parliament for East Worthing and Shoreham, and sometime Parliamentary Under-Secretary of State for Children at the DfE until 2012.
Chair: We are going to ask some fairly precise and short questions, and if you can keep your answers pretty short that would help. If I think you are going on for too long I will pull you up; forgive me for that.
Tim Loughton: I am sure you will, Chairman, yes.
Q550 Ronnie Cowan: Ms Batmanghelidjh said that you visited the charity. What was the nature of these visits?
Tim Loughton: I visited the charity when I was the shadow Minister for Children with other shadow Ministers and MPs, probably in 2008, 2009—something like that. I also shared a number of platforms with Camila Batmanghelidjh in that role, and I visited once when I was the Minister after they had received funding in the grant round in 2011.
Q551 Ronnie Cowan: The nature of the visits; were they fact finding?
Tim Loughton: Fact-finding visits supposedly to try to find out what they were doing, why they supposedly were doing such a good job, as we were constantly told, and hopefully to meet some of the kids who benefited from their services, which was always the missing element in any visits to Kids Company, I am afraid.
Q552 Ronnie Cowan: As a result of those visits, did you believe they were delivering a good service?
Tim Loughton: Well, it was difficult to tell. I dealt with lots of different children and youth charities, and the key feature of any of those visits would usually be to meet a lot of the kids that they were looking after as their ambassadors to show that they are doing an effective job. I remember the first time when we went to Kids Company we went for lunch and one was expecting to meet a lot of these kids, and to be able to interact with them and find out exactly what they were getting on with. Mysteriously, they were not there. When I went to visit the offices of Camila Batmanghelidjh and had a one-to-one meeting with her in her tent inside the office, expecting to see some children who she would want to tell me their stories, again they were missing. It always was disappointing and gave rise to certain queries as to why these were not in the front line of people that she wanted us to see and have a proper discussion with.
Q553 Ronnie Cowan: During this time they were continuing to receive money?
Tim Loughton: They had been continuing to receive money over many, many years, correct.
Q554 Ronnie Cowan: In 2011 you wrote that they were doing remarkable work and then in 2012 you recommended they were not given a sizeable grant. What changed in that period?
Tim Loughton: I recommended they were not given a sizeable grant, and certainly not given a direct grant, on several occasions in 2011 and 2012. They were given in my time the award from the competitive round of grant funding, which was announced in February 2011, against my better judgment. Subsequently, there was an exchange of letters from Camila Batmanghelidjh writing to me thanking us for our generosity and saying how marvellous they were, to which I penned a formal reply that had various conditions attached in it and at the end said, “Keep up the good work.” The prospect of a Minister who had just had to award a large sum of money to a charity then writing a letter saying, “We don’t think you are doing a good job,” was not a realistic one, so within that letter I had also said, “I look forward to seeing the results of how this money is going to be used,” and that they would not be getting further funds and various other riders, and that was the context in which that comment was written.
Q555 Chair: Can you just say when you visited?
Tim Loughton: When I saw her on a one to one was—I have notes here—in the spring of 2011. It was March 2011. At some time in opposition, I went down there with other colleagues in either 2008 or 2009, just as a fact-finding tour. Those are the only two times I physically went to a Kids Company premises.
Q556 Chair: You had cups of tea with her.
Tim Loughton: Apparently I had cups of tea with her in her tent, yes.
Q557 Paul Flynn: Could you describe this tent? It sounds rather exotic.
Tim Loughton: Well, it is very nice. It is very odd, but this is a rather drab office block in Southwark, I think, and then you go into her office and it is rather like an Arabian desert tent with lots of cushions and tea lights around, and you sit cross-legged on the cushions.
Paul Flynn: It sounds like a shrine, really.
Tim Loughton: A shrine would be one way of putting it. It is an unconventional office, Mr Flynn, anyway.
Paul Flynn: Yes, I missed out on the experience, unfortunately.
Chair: We do regard this as a very serious matter.
Q558 Kate Hoey: You visited in 2011. Was your letter in 2011 written after your visit or before the visit when you said these things about—
Tim Loughton: I saw her on 10 March and I wrote her a letter in April, subsequent to the visit.
Q559 Kate Hoey: Right, which Mr Cowan has already mentioned. In that same letter you obviously also said that you warned her that there was no guarantee that central Government would continue to fund local youth services after 2013 and you explained that the transitional funding that they had was made available because they were delivering services of national significance. Given that Kids Company really only operated within the boroughs immediately surrounding Southwark—indeed maybe only Southwark and Lambeth, with perhaps the odd child from a nearby borough—where did the national significance come in?
Tim Loughton: In fact I saw some papers and looked back at the figures the other day. The biggest number of clients, as they relayed to us, were in Southwark, Lambeth and Wandsworth. They also had several hundred clients they were supposed to be looking after in places like Brent and Camden as well, and of course they had the operations in Bristol. They were trying to set up other operations around the country in places like Brighton as well because I was approached about that. On the face of it, it went beyond the remit of just south of the river, but clearly the concentration of their facilities and what they were doing was south of the river.
Q560 Kate Hoey: Would you have described it as a national organisation?
Tim Loughton: I think at a stretch you could describe it as a national organisation, but with a heavy focus on London, particularly south London.
Q561 Kate Hoey: Presumably you were aware, having been a shadow Minister and so on and being interested in this whole area, that Prime Ministers generally—previous and past, and potentially future at that time—were all great supporters of Kids Company?
Tim Loughton: Yes, and she was always quoting the great panoply of heavyweight politicians, celebrities and other people who were her supporters and financial donors as well. Camila Batmanghelidjh, of course, was almost the poster girl at the Big Society summit that the Prime Minister held in May 2010 within weeks of the election. She was very high profile and hence on numerous—
Kate Hoey: You knew all that?
Tim Loughton: Yes, and on the submissions I received when we were considering funding for Kids Company there were constant references to her letters to the Prime Minister, the Deputy Prime Minister and various others. She was a frequent correspondent with people in positions of power.
Q562 Kate Hoey: One final point: do you recall at that time any of your civil servants either privately or more formally sending any warning signals to you?
Tim Loughton: All the time.
Kate Hoey: It was, “Come on, be careful here.”
Tim Loughton: All the time. I would get submissions when the subject of Kids Company came up because at various junctures they approached the Department for Education saying, “We desperately need emergency funding otherwise we could go out of business.” This was quite regular. 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 were looking for a direct grant. We took advice on this. The advice from officials was very clearly that that would not be appropriate for a whole host of reasons, such as because it would not 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.
Also, at a time when the new Government’s approach—this was why we came up with the transition grant, as it was called later that year—was to wean various charities off substantial public funding and to try to make them more sustainable and more self-sufficient, this would be going the other way, and might deter Kids Company from taking more steps to raise private funding, rather than relying on public funding. In fact, the whole tenor of the approach was Camila Batmanghelidjh saying she wanted to change the model of how they were funded. Typically, in the years up to 2010, they had income of about £12 million of which about £8 million came from various private sources and about £4 million—
Chair: We know a lot of this. Can you make the point?
Tim Loughton: The point I am making is that she wanted to change the balance from £8 million private and £4 million public to £10 million public and £2 million private, so this was part of a constant approach that she wanted to get more money from the public rather than having to rely on private donors.
Q563 Chair: Just to clarify one thing, when was the Bristol centre opened?
Tim Loughton: I don’t know.
Chair: I think it post-dated your period. I do not think Bristol was an item.
Tim Loughton: Could well be; I am not aware. Certainly I never had anything to do with Bristol.
Chair: Okay. I just wanted to clarify that.
Q564 Mrs Gillan: The NAO report looking at Kids Company said that in autumn 2010, as they were getting to the end of a grant period, a DfE Minister asked officials to consider offering Kids Company a single tender grant and apparently officials decided it would be difficult to justify favouring Kids Company above the other organisations, as I think you have already alluded to. Which DfE Minister asked officials to look into this?
Tim Loughton: It might have been me in terms of looking into it, which is not to say that that is what we wanted to do, but we had been approached to make a direct grant. I had advice as early as July of that year when they had approached the DfE and the advice was very clearly that we should not give it, and I agreed with that advice. We did not go along with any direct grant then. Then, because we were about to launch the transitional funding grants for children and youth organisations, we said that they should put in an application for that along with everybody else on a competitive basis. What I was keen to do was to close off any opportunities of why we should have to give them a direct grant and treat them as a special case in contrast to everybody else who would then be able to apply for the competitive round at the end of the year.
Q565 Mrs Gillan: Did you involve any other Ministers at all?
Tim Loughton: Sarah Teather and I were both part of this, but although I was responsible for youth organisations, the grant rounds included various other family and relationship organisations as well. She was responsible for some of the things there, so she was my senior Minister in that respect. She was Minister of State in our part of the Department and we both absolutely agreed that they should not get any direct funding.
Q566 Mrs Gillan: Did you have any opposition from any other Ministers?
Tim Loughton: No, I do not think we discussed it with any other Ministers. The Secretary of State would have seen all the submissions. The Secretary of State was not one who was particularly interested in youth organisations, so this was not a matter I discussed with him at that stage, but he would need to have signed off any eventual decisions at all parts of this process.
Q567 Mrs Gillan: If you had concerns about this organisation and you knew your Secretary of State was signing off on this, did you ever have a conversation with him, or did you send a submission up to the Secretary of State saying that you had serious concerns about this charity?
Tim Loughton: I wrote comments back on the submissions, which he had sight of, about the concerns and agreeing with the very explicit advice from Ministers as to why it was not an advisable option to give them a direct grant. My views were absolutely clear at every stage as to why we should not be funding them directly like that.
Q568 Mrs Gillan: Obviously, we are looking at Cabinet Office involvement in this. At any stage during the time you were responsible for this area was this discussed at all with Cabinet Office officials or with Cabinet Office Ministers?
Tim Loughton: I had no Minister-to-Minister discussions at all. It is a bit of a grey area, I have to say, as a new Minister—you were an experienced Minister when you came back into Cabinet—how all these grant processes work. Lots of things went on behind the scenes and you were given submissions, and then we launched the funding round and saw the short-listed applications. Then we got the final results of where the money should be paid. As to how that process worked, all sorts of cogs went into motion of which we were not privy.
I would say one thing. Certainly, if you look at the letters from Camila Batmanghelidjh and various submissions, people like Steve Hilton at No. 10 were always copied in. She would frequently write to him and other Ministers as well. The No. 10 Policy Unit was apparently—I was not aware at the time—holding meetings with Kids Company representatives and other local authorities to which I and officials from the DfE, as far as I am aware, were not privy as well. Various other things were happening that were not on the radar for me and the DfE because they were interested in Kids Company beyond just the DfE, which was the funding Department in most of this.
Q569 Mrs Gillan: Having basically put a question mark over this organisation and then knowing that other parts of government were interacting with this charity, did you not at any stage have a conversation with Steve Hilton, the No. 10 Policy Unit or anybody else to issue those warnings? In other words, was there no mechanism? I am interested in the mechanism here. There was no real mechanism for you to connect through to the No. 10 Policy Unit or special advisers that you knew were meeting this charity?
Tim Loughton: No, and certainly nobody from No. 10 rang me up to ask for my views or for a meeting on any of the issues. It was only subsequently that I found out in later submissions—going back over my papers recently, as I asked to do—that there had been meetings involving the Policy Unit at No. 10 and Kids Company. It was just slightly odd that things—this was not the only case—that affected your brief and your Department were happening without your knowledge in No. 10 or other parts of government.
Q570 Mrs Gillan: How did you feel? You left the Department in 2012 and in 2013 the Department contributed £1 million to a cross-departmental direct award to this charity. How did you feel that the concerns that you had raised back in 2010 had been addressed? Do you think they were taken into consideration at all, or do you think that the opposite took place?
Tim Loughton: I found it extremely frustrating and annoying, and I think that events have subsequently vindicated the caution that I, officials and others showed at the time. As I said, I was approached on several occasions to grant direct or emergency funding to Kids Company, and on every occasion I resisted that and that was the clear advice from officials. On my watch, it was only the competitive funding from the transitional youth round where they were granted; I had severe reservations about that, but it became a bit of a fait accompli. I made absolutely clear in my comments and specifically in my letter to Camila Batmanghelidjh, which the Committee has seen, that the funding they received in March 2011 would be the last funding from the Department for Education. It was our policy that they should be weaned off public funding anyway, but absolutely they should not expect to continue being a public funding junkie, effectively, as they had become.
We then, in the summer of 2012, shortly before I left office, started to formulate the next funding round, which would come after the funding ended in March 2013 from that round. At one stage, there was not going to be a further funding round, but because there were a number of youth and other charities that were facing very difficult circumstances and there was a cliff edge, effectively, if the funding would go to zero, we were able to find some money to have a further limited funding round. I made it very clear at that stage—I referred to Kids Company as problematic—that groups like Kids Company should not be part of that funding round and that it should be very focused on various youth organisations doing work that, if they were not there to do it, would have to be picked up by other public institutions. As a result of that, when the funding round went through after my time, Kids Company did not get any funding. That was absolutely right.
Then, subsequently, for reasons I know not and for others you will have to ask, they received a direct grant from the DfE and subsequently further direct grants from the Cabinet Office and other parts of government, specifically against the advice and the whole rationale for giving that breathing-space funding between 2011 and 2013. I just cannot see the basis on which they were given further funding.
Q571 Mrs Gillan: Is there any documentary evidence of what you have just told the Committee?
Tim Loughton: Obviously I am not privy to any documentary evidence subsequent to September 2012, so all the discussions about how that funding round was formulated and decisions were made was a matter for my successors—I was not part of that. It was very clear in the letter that you have seen to Camila Batmanghelidjh and other submissions that the point we made to her was that was it. That very generous grant she got for those two years from 2011 to 2013 was meant to tide her over.
Q572 Mrs Gillan: Just to summarise, the reason why was because you were not receiving and had not seen proof of the extensive work that she claimed she was doing. You were not satisfied that the outcomes justified taxpayers’ input.
Tim Loughton: Yes. There were very serious concerns about how effective that money was compared with that for other groups. She received substantially more than any other youth organisation in that grant funding round. She received almost a third of all the funding that went to the 18 successful youth organisations in 2011, 2012 and 2013—by far the lion’s share. She had done very well and yet there were other youth organisations doing some very good work with some equally traumatised and damaged children and young people that were producing all sorts of performance indicators, and more importantly actually producing the children to be able to tell us their story as well. Unless she changed her ways— We made it very clear what she needed to do. She needed to establish a relationship with the local authority, and she needed to produce evidence that local authorities could then use in order to commission her services. Most youth organisations would have that sort of relationship, but only if they can show the job they do. They would have to probably downsize their operations as well. All the way through this, she failed to take on board any of that advice. She never went to a commissioning model with local authorities. She never downsized, constantly saying she preferred to close down the whole operation rather than have to shrink it into a more manageable and sustainable size. At no point did she appear to have taken on board the advice and the conditions that were attached to any of the funding, certainly in my time.
Mrs Gillan: Sorry to labour the point, I just have a final point—
Chair: I must ask you to give swifter answers. We are not going to get through otherwise. It was a very detailed answer and I appreciate it, but please keep them short.
Q573 Mrs Gillan: Just a final point: you made very clear to all your colleagues and everybody you came in contact with that you did not feel that this organisation produced results that would justify taxpayers’ money going into it, certainly to the level that it did.
Tim Loughton: I did not have the evidence to be able to justify it. I am sure they did some good work for some people, but whether it justified the amount of money, we never had the evidence to back that up.
Chair: You meant no?
Tim Loughton: Which is a no.
Q574 Chair: Can I follow up? You talk about contact with special advisers in No. 10, and you named one in particular. What role do you think special advisers played in all this?
Tim Loughton: I don’t know. As I said, various meetings and contacts with Kids Company and others happened between various people at No. 10 to which I was not privy, or given reports about or whatever.
Q575 Chair: Okay. At one stage you said in the process of allocating these grants, first of all a lot happens behind the scenes. What happens behind the scenes?
Tim Loughton: It is a strange process and I have to say—although it is no excuse—that as a newish Minister you are getting used to the job of being a Minister, having been in opposition for so long, as to how the whole civil service works. Then, within a few months of that, you are faced with, “Here is £100 million that we are going to be giving out to various organisations,” many of which I knew and had dealt with in opposition. It goes through various rounds and ultimately you are given the results of the analysis carried out by officials as to which groups should get funding and which should not, and how much funding they should get. At the end of it, this is the result. It is a fait accompli at that stage. What I was able to do was to query some of the groups that I knew got no funding at all to ask them on what basis they had failed.
Q576 Chair: Sorry, my question was about something different. You said that before the process starts, first of all a lot happens behind the scenes. What happens, first of all, behind the scenes?
Tim Loughton: It is a three-part process.
Chair: Or was that just a throwaway remark that does not mean very much?
Tim Loughton: No, it is a three-part process. First of all, organisations are invited to submit draft bids.
Chair: But why is this behind the scenes?
Tim Loughton: Because Ministers do not get to see the detailed bids.
Chair: Oh, I see; that is what you meant. The whole lot goes on—
Tim Loughton: Or the analysis on which it is based to come up with those decisions.
Q577 Chair: So the bids arrive to you as submissions.
Tim Loughton: You get a submission that will say, “We have had x number of people. These are the people applying for x amount of money. We have decided that these are the ones who we should take forward to submit a full bid,” and then they are shortlisted again and then there is the final result.
Q578 Chair: Okay. A whole lot of work and preparation is done by officials before you see any visible effects of the decision to allocate this money in principle?
Tim Loughton: Yes.
Q579 Chair: As a perhaps rather inexperienced Minister—that is perfectly understandable—you might not have been on top of all that at the outset. If you were living your life again, you would get on top of that earlier.
Tim Loughton: I think in retrospect one would be asking much, much more searching questions, and as to how one can say absolutely no way could I countenance something like that. The trouble is when you have a high-profile charity like Kids Company whose chief executive has been round the Cabinet table next to the Prime Minister—
Q580 Chair: I am asking you for a hunch here. How much do you think what the officials were producing for you was what they thought No. 10 wanted or your Secretary of State wanted, rather than what you wanted?
Tim Loughton: Well, on every submission I got there was a disclaimer that effectively said that Camila Batmanghelidjh has very close links with The Evening Standard, Metro and other people high up in the media, and that she would be in a position to create some uncomfortable press for the Government. It was very clear that all the time—
Q581 Chair: But no reference to No. 10, the Prime Minister or the Cabinet Office?
Tim Loughton: No, because submissions do not work like that. There are conversations between various officials, special advisers and others between Departments. I went through all my papers. I have to say—I think you heard this from the current permanent secretary at the Department for Education—that it was slightly chaotic as to finding those back papers. I asked for all the papers relating to Kids Company in my time at the Department for Education. There were clearly quite a lot of papers missing, which I could recall and which I asked for, including the letter that Camila Batmanghelidjh wrote directly to the Prime Minister to which I have referred before. Some of those were eventually found. None of the submissions that had my own comments on—Ministers tend to manually write their comments on their submissions—were available, only the actual clean submissions themselves. There was nothing there that would have given—
Q582 Chair: Can I say we regard this as a very serious failure of administration on behalf of the Department? Our predecessor Committee did an inquiry in the last Parliament about record keeping and historical memory. We made some very strong recommendations about this and the Government seemed to accept them. We take very seriously that this does not seem to have occurred. We will follow that up. Thank you for that. When you referred to things happening in No. 10, what did you mean by that?
Tim Loughton: I come back to the point I was just making. Kids Company was exceptional in that it was very high profile and had very high-profile “backers”. When you as a Minister see Camila Batmanghelidjh around the Cabinet table at No. 10 as part of the Big Society summit, when you have a reception as was held in 2011 for Kids Company at No. 10, and when policy advisers or people from the No. 10 Policy Unit are apparently having contacts with Kids Company of which you are not aware, clearly the pressure is on that this is a charity that needs to be looked at a bit more favourably. In that light, that is why I say that it was a bit of a fait accompli when the funding round results were presented in front of us. That is why all I could do was in my letter to Camila Batmanghelidjh to put down the stipulations I did: first, you are not going to get any more funding; and, secondly, we are going to second an official from the Department for Education to go and work inside Kids Company, ostensibly to help her to explore other sources of funding that did not rely on the public purse, but also to try to find out exactly what was going on within Kids Company and to get some evidence as to how this money was being spent.
Q583 Chair: What you are referring to is, it seems to me, a diffusion of accountability. You were the Minister signing off the submissions, but there was interference—and even interference that you did not know about—so it would have been quite difficult to hold you accountable for handing out money if all that interference was going on.
Tim Loughton: Yes.
Chair: Thank you for that. Moving on, David Jones, we may have covered the topic of your question, but ask something else if you wish to.
Q584 Mr David Jones: Yes. The November 2010 grant, which was £8.97 million over two years and which was made, as you say, with a view to weaning this particular charity off dependence on grant funding, was made at a time when I think advice was given by officials that they accepted that if that funding was not made, Kids Company would go bust—that it was insolvent.
Tim Loughton: I did not have detailed advice as to its financial solvency or otherwise. Again, in retrospect, that is perhaps somewhere where we should have asked some more questions.
Q585 Mr David Jones: If I may interrupt there, the NAO report says that briefings to Ministers in 2002, 2005, 2007, 2010, 2012 and 2015 show that officials accepted Kids Company’s assertions that it would become insolvent without Government grant funding. That is what the NAO says—that you had a briefing to that effect.
Tim Loughton: Kids Company on numerous occasions were saying that unless we came up with some money, they would close down operations in part or in whole. Now, as to the extent of her funding, it was a bit of a day-to-day existence. Literally, she was relying on a cheque coming in from various donors at the end of the month in order to pay salaries in some cases. Clearly, in terms of a conventional charity running reserves and other such prudent measures, that did not apply to Kids Company. As to whether they were technically insolvent or not I was never aware. They were certainly in a financially precarious short-term position for all the time I was there and beyond.
Q586 Mr David Jones: To repeat, the NAO report says that officials gave you briefings that they accepted that Kids Company was insolvent.
Tim Loughton: I have looked through all the briefings I have and there is no mention of financial insolvency positions or anything like that. There is mention of her saying that they would have to close or curtail operations unless they got a cash injection.
Q587 Mr David Jones: Essentially, what these Government grants were being used for was cash flow for Kids Company?
Tim Loughton: I think in many cases, yes, as I say, because if she did not get cheque injections by the end of the month, we now know that various salaries were not paid and people were then being paid late and so on and so forth, and having to rely on an awful lot of goodwill.
Q588 Mr David Jones: How comfortable were you with that?
Tim Loughton: Of course I would not be comfortable with that, but I did not have a detailed briefing as to the exact finances of that operation. She was always boasting about getting all this money from all these private donors, so she always seemed to muddle through somehow, but never took the opportunity to be able to get the finances of that operation on an even keel for the long term. The way to have done that would have been to have reduced the operations. They seemed to be just taking on all comers coming through the door regardless of whether they had the means to fund that, let alone all the other rather nefarious things that we now know that funding was going on.
Q589 Mr David Jones: That particular grant was significantly more than grants given to other similar charities, some of them operating at a national level. In fact, it was more than double the nearest grant given to another charity.
Tim Loughton: Correct.
Mr David Jones: How comfortable were you with that?
Tim Loughton: That is what I queried and that is why I say it was a bit of a fait accompli because there were other very worthy organisations that just did not make the cut at all. She also put in for more than one grant. She put in for three different categories for which those grants were available. Something like £17 million, I think it was, went to the youth part. That was the largest part, but there was also parts for safeguarding and family relationships. There were about seven or eight different groups. She applied for funding of £3 million a year under the family relationships heading and £3 million a year under the child protection and safeguarding heading, which is somewhat ironic subsequently, and also £550,000 a year under the strategic partner heading where the Department had various organisations that were strategic partners for delivering all sorts of different projects to the Department. None of those grants were successful, so the only grant that she was successful on was this very large one within the youth sector and, as I say, it gobbled up almost a third of all the youth sector funding for that grant.
Q590 Mr David Jones: Did you signify to any of your colleagues that you were uncomfortable with that?
Tim Loughton: I did, and I specifically queried why certain other organisations that had put in, which I knew well and rated the activities that they did, had not got anything at all, but basically when we got those final figures, that was it. There was a feeling as well that this bought a couple of years’ breathing space as an absolute last chance for her to sort out her finances, given all the pressure from outside. Basically, if we had said, “No, we are not going to give any money to Kids Company at all,” that was not an option; I would not have been able to have made that call and got away with it. Should that have been a resigning matter or something like that, that is another matter, in retrospect.
Q591 Mr David Jones: Who made that clear to you?
Tim Loughton: I had discussions with officials, who were always very conscious of how high profile and important a charity this was, how the implications of it failing went beyond just the Department for Education, and how there would be all sorts of rather uncomfortable ramifications in the press.
Q592 Mr David Jones: On the one hand, officials were advising you that the charity was insolvent; on the other hand, they were advising you that it would be rather dangerous to refuse to make the grant?
Tim Loughton: As I say, I was never advised that technically the charity was insolvent.
Q593 Mr David Jones: I have to say, just to remind you, that that is what appears from the NAO report.
Tim Loughton: I have not seen any submissions that came to me, which I have been going through, or those that have been submitted to me that say, “Minister, this charity is insolvent,” because that would have certainly thrown up a lot of red lights on the basis of why we are funding an insolvent charity. They absolutely said that this charity has financial problems and quoted the chief executive as constantly saying, “Unless we get this money we are going to close down or reduce our operations.”
Q594 Chair: But all that just points to a system that was trying to be blind to what was happening. Sorry, I am butting in on your question, but do you think that the civil service, in trying to serve the Government of the day, was trying to be blind to what were the facts of the case?
Tim Loughton: I think that is an unfair term. There were various conflicts going on here where you have some officials who are trying to do a dispassionate job and produce evidence for Ministers to make decisions. They have steers from Ministers as to what their priorities should be, but there is quite a lot of noise going on outside the Department about why certain charities—in this case Kids Company—are something of a special case and there are implications, as I say, well beyond the Department if it were to fail.
Chair: Okay. Anything else, Mr Jones?
Mr David Jones: No, that is fine.
Q595 Ronnie Cowan: To come back on that, you are saying it was too high profile and it could not be allowed to fail. The implications of its failing were too great, but when it actually did fail the implications were not that great at all, were they?
Tim Loughton: The threatened implications were potentially quite big and I am not sure that the Committee has seen the letter that Camila Batmanghelidjh wrote to the Prime Minister at the beginning of 2011 when this funding round was on.
Chair: We have.
Tim Loughton: You have. Well, perhaps I can quote from that letter two paragraphs that I picked up on in particular where she said, “If we don’t have the extra £4 million my trustees will close down our programmes. This is likely to be further destabilising, especially since the media are continuously looking for a narrative to puncture the Big Society concept, whereas Kids Company potentially could be recognised as an ideal model of a charity delivering front-line services to challenging clients”. She went on, “If the trustees force Kids Company to close its street-level centres, it will have huge implications in the neighbourhoods we are in. I am keen to help your Government as it thinks about the best ways ahead for vulnerable kids and I don’t want to be pitched against you by the media by default”.
Q596 Ronnie Cowan: But she would say that, wouldn’t she? She is after the money.
Tim Loughton: Well, she would say that but—
Ronnie Cowan: Surely the Government should have been looking into those claims and either backing them up or debunking them, not just turning around and giving her this money based on what she said.
Tim Loughton: The point I am making is that there were veiled threats there that certain people took seriously and the—
Paul Flynn: It is not much of a veil.
Tim Loughton: Not terribly well veiled, I suppose, as well.
Q597 Ronnie Cowan: It is money with menaces then, is it—a veiled threat? If I threaten Government they will give me money.
Tim Loughton: Well, I have described it as Danegeld elsewhere, I think, that she was constantly coming back for money or else.
Paul Flynn: She would describe it as blackmail.
Chair: Order, please.
Q598 Ronnie Cowan: It just seems strange. I am very new to this. I have never been a Minister so I, from outside looking in, would expect the Government to be auditing these companies and coming to a rational decision that says you are worth this money, you are doing good with this money and we can see what it is achieving, not looking at this unorthodox, high-risk model, as it has been termed, and saying, “Because you have threatened that we might get some bad publicity through this, we are going to continue with your funding.”
Tim Loughton: I think the problem with Kids Company as well is it was an unconventional charity. Now, that turned out to be something of a cover for were they actually doing a good job and that was why—
Q599 Ronnie Cowan: We have seen this before—unconventional characters who are more flamboyant or outgoing and it tends to blind better judgment—so are we learning from this?
Tim Loughton: “Charismatic” is another term that has been used. One of the reasons for my concerns was that the rest of the youth sector and people that I rated within the youth sector—I have worked with them for many, many years—were always very cynical and sceptical towards Kids Company because they appeared to have a lower threshold of proof in order to get money from public funds. Because she was constantly saying, “We are dealing with deeply damaged children who have been failed by the conventional local authority services and who are off the radar,” in some ways that basically said, “Look, I am the expert. You do not understand what we are doing. Just let us get on with our job”. In retrospect, everyone should have said, “Hold on a minute, you should be treated no differently. These are the performance indicators that we would expect from any other organisation like you. You need to adhere to them.” That applied to virtually every other charity. It should have applied to Kids Company, but I understand previously when the previous Government insisted on performance indicators being produced she turned around when she got the money and said, “I am not going to waste any resources on all that bureaucracy and if you force me to do it I will go to the press saying that the Government want me to come up with all these bureaucratic measurements rather than spending money at the sharp end on the kids where it is needed, so back off again.” That was the sort of bullying attitude that I am afraid they took and too many people did not stand up to.
Chair: Mr Dowden, I think you want to declare an interest.
Oliver Dowden: Yes. May I first declare an interest? I was a special adviser in Downing Street between 2012 and 2014, although I was never directly involved in the allocation of funds to Kids Company.
Chair: Can I press you on one thing? Did any documents about Kids Company or any discussions about Kids Company happen in your presence?
Oliver Dowden: They may have done. I do not want to say no, but I cannot explicitly recall it. Given the nature of the meetings that I was in, it was quite possible that issues relating to Kids Company may have arisen, but I never directly advised the Prime Minister on issues relating to Kids Company.
Chair: Thank you very much.
Q600 Oliver Dowden: The phrases “unorthodox” and “unconventional” have been batted about quite a bit. What was your understanding of unorthodox and unconventional in relation to Kids Company? What do you mean by that?
Tim Loughton: Well, she was supposedly dealing with kids who were off the radar of the system. A conventional approach would be a local authority commissioning a specialist children’s charity to provide certain therapeutic work, certain alternative to schooling work, dealing with gang culture or whatever it may be, so clear commissioning—this is the service we need you to provide to this child and this is the result we need you to produce. She was not commissioned and despite exhortations she did not go to local authorities to say, “We can now deal with these kids living in your area and we can get them back to school, get them out of gangs, get them off drugs or whatever.” Basically, she claimed to be doing all that and in some cases I am sure she probably did, but they were not accountable to a local authority for their clients, effectively. She was doing difficult work with troubled children, but it was not measured in a way that one would see it measured by other people who were paying for that service.
Q601 Oliver Dowden: When you say “unorthodox” and “unconventional”, your interpretation is that it relates to the nature of the commissioning of the work and the manner in which it was audited, rather than anything in relation to the conduct of the charity per se. Is that correct?
Tim Loughton: You are right. Two things: certainly, the unconventionality about it was how the whole charity operated, and not as a service provider for an obvious commissioner. The treatment and the therapists that they employed I never quite understood as well and, of course, there is a whole question mark over her own qualifications and whether she was directly looking after any of the clients there. This was not a therapeutic environment where a child went for psychological support in a normal consulting room or whatever. As we now know, there were various payments and handouts that, again, you would not normally get within a children’s charity, but this was seen in her slightly unconventional way of running things as an effective way of therapy. That is why she claimed to be so different and that is why it was always so difficult to get a handle on it.
Q602 Tom Tugendhat: In addition to the grants, the Department for Education provided other types of support to Kids Company when you were a Children’s Minister. Between 2010 and 2011 you assisted in procuring consultancy advice for the charity from KPMG and, of course, as you mentioned already, seconded a member of staff. You personally, I believe, offered to connect Kids Company with potential philanthropists. Would all this be true?
Tim Loughton: When I went to have a cup of tea in the tent with her, I said, as I have set out in the letter, “You need to look at other sources of funding. That is one reason why we want you to agree to have a secondee. If I come across people who would like to give money to Kids Company on a private basis in order to make you less reliant on public funds, of course, I will pass on their names.” It was nothing more serious than that. She also approached me at that stage, because even before the new grant had come into effect she was saying, “We will still need more funding than this”. She promulgated the possibility of getting a loan from the Treasury, which I said I would look at, but I thought she did not have a cat in hell’s chance of getting it so that was pie in the sky. I was being helpful without any real prospect of getting that sort of funding.
Q603 Tom Tugendhat: With the KPMG consultancy, was that a usual thing to do?
Tim Loughton: I was not aware of that and, again, I had no part in setting its remit. I did not meet them, so I was rather surprised when I saw that cropped up in later references.
Q604 Kelvin Hopkins: You touched on some of these questions earlier, but I want to explore them a bit more. You have publicly stated that No. 10 overruled the Department and insisted the funding should be paid. Can you substantiate that? How would you substantiate that?
Tim Loughton: As I said, because there are no directives that say, “You must now pay this grant,” that is not the way it happened, and that is why I put it in terms of there being a clear feeling that if we were to say no to the competitive grant round, that would be not acceptable. Very clearly, in light of everything I have said, by the importance and the nature of this charity, we had to go along with giving them some money, and I felt that it was more transparent to be able to do that as part of a competitive process where they could make their case against various other charities, rather than just a direct grant where you would have to make a special case. I thought that they should not be treated as a special case, which was why we did not in all my time there.
Q605 Kelvin Hopkins: Is this all word of mouth or was it documented?
Tim Loughton: There are no documents that I found that clearly say, “You must pay this money to Kids Company”. I would not expect to have found that and I certainly do not recall having seen any.
Kelvin Hopkins: It is a continuation of the sofa-style Government of Tony Blair, in effect, to have a chat with the right people?
Tim Loughton: You may say that; I could not possibly comment, Mr Hopkins.
Q606 Kelvin Hopkins: How usual is it for No. 10 to intervene in this way? Is it just this particular example?
Tim Loughton: As other previous Ministers around the table will attest, there are certain things that happen where No. 10 takes an interest for all sorts of entirely benign, I am sure, reasons, where announcements appear in the press to do with your brief and your Department of which you are not privy first. Occasionally, that happens to all Governments.
Q607 Kelvin Hopkins: Well, we can pursue that. You have touched on why No. 10 were so keen to support the charity, but there are two possibilities in my mind. One is that the Government were committed to this Big Society theory, concept, movement, and wanted Kids Company to continue to be a flagship for the Big Society. Or was it simply the pressure from Camila Batmanghelidjh that they did not want to be the Government that pulled the plug on Kids Company and received all the public odium that might arise?
Tim Loughton: I think both those factors apply. She was seen as, some people have put it, a poster girl for the Big Society. In retrospect, I think that was a poor judgment but clearly she was a high-profile charity on the face of it doing good work for underprivileged children. Secondly, one of Kids Company’s strengths was, as I said, it had a high profile in the media and high-profile media contacts starting with the chairman of the trustees, who you have already interviewed. This has not been referenced, but I have alluded to it as well. Alan Yentob was despatched to see me in December of 2010 to strongly suggest that I might not want to not fund them, to put it one way. There was a consciousness that it would be damaging if they were not supported and failed, and there was quite a lot riding on the Big Society, which I wholly supported, but whether they chose the right candidates to promote it is another matter.
Q608 Kelvin Hopkins: I have just a couple more questions. The tone of your answers is noticeable as well; I hope that can somehow be interpreted in the record. One final question: were no alarm bells being rung by local authority children’s services, safeguarding committees, or the local police, who must have known what appears to have been going on? Were they not saying to the Government, “Come on, this is not right”?
Tim Loughton: I think you have seen documents as well from local police saying, “You are doing a good job. Could your centre stay open for longer?” for example, and no doubt there was a displacement benefit from that. If you have some kids who have been more problematic on the streets attending a youth centre or whatever and it is being run properly, hopefully it is going to help to deter antisocial behaviour or whatever. On the face of it, there is some clear good that is being achieved there.
I think the biggest factor, though, is the fact that local authorities did not commission her and for all the other major youth organisations that we dealt with, many of whom got grants in those rounds, their model is very much one of offering expert services dealing with difficult to reach children and young people, and they will be commissioned by a local authority to deal with those kids who they could not deal with directly within the local authority. That relationship did not exist for Kids Company, whereas it did for many other youth charities. We said, “You need to change your model and to be able to show your evidence so that local authorities will say, ‘Yes, we will commission you to look after X number of kids’”. That did not happen and that obviously made Kids Company stick out like a sore thumb.
Kelvin Hopkins: In retrospect, it now appears from journalistic reports that drugs were involved and gangs were involved, and it surprises me that the police, local authorities and children’s services were not aware of this.
Chair: What is the question, please?
Kelvin Hopkins: I have finished. Thank you, Chair.
Q609 Chair: On that question, did it not occur to you, say, to ask Ofsted to go and inspect this charity, or to send the Children’s Commissioner in to have a look at the safeguarding issues or to ask CQC to do a clinical audit?
Tim Loughton: The Children’s Commissioner would not have a remit to inspect. That was not part of her brief. Ofsted no longer inspected youth services. That had been changed some years ago—I think that was a bad move. CQC may have had a role here, but a lot of the therapeutic things she was offering were not strictly under the remit of CQC, and this is a real weakness.
Chair: She called herself a clinical director.
Tim Loughton: Well, you can call yourself a clinical director, but if you are not actually performing clinical functions that are regulated by CQC—
Q610 Chair: Do you think that would have been something worth finding out?
Tim Loughton: This is the weakness in the system. It was a moot point because personally I think that youth services should have continued to have been inspected by Ofsted. The trouble is that youth services were reducing substantially at the time, so it was a bit of a sensitive issue. I do think one of the lessons very clearly from the Kids Company experience is that youth organisations that are dealing with large quantities of public money and carrying out functions that in other scenarios could be inspected by Ofsted or CQC should be subject to public inspection and scrutinised in a much more rigorous way than they are now. She chose not to be.
Q611 Gerald Jones: Looking back with the benefit of hindsight, could I ask what lessons you feel the Government should learn from its dealings with Kids Company? Perhaps you could give us two or three succinct areas in which you think those lessons could be learned.
Chair: With the emphasis on succinct.
Tim Loughton: Okay. The first lesson was the one I have just given about how you inspect and monitor that you are continuing to get value for money and that the services are efficacious.
Secondly, absolutely there must be clear-cut performance indicators that apply to all similar charities and voluntary organisations. I have made reference in my submission as well that I think the thing that we lack is a common matrix of how we assess how well these organisations are doing with the children. It is not how well the organisation is surviving; it is the outputs for those children. What we lack is a common matrix as to how we assess those children across different organisations. It was something I struggled with in the Department of trying to come up with positive achievements that you could assess kids for rather than just all negatives as is the case now.
I think if you are going to give direct grants rather than a competitive funding round, it has to be far more transparent and you have to be able to show a public interest far better and more transparently than has been the case here. I also think that the funding Departments—responsible Departments—should be absolutely free to make the decisions themselves without having to look over their shoulder for outside influences. It is not just the case in Kids Company; it is other parts of the Government where No. 10 or whoever else may be showing slightly too close an interest.
Q612 Paul Flynn: Very briefly, was your departure from the fine job you were doing as Children’s Minister connected in any way with your attitude to Kids Company?
Tim Loughton: I haven’t a clue, Mr Flynn. There are all sorts of conspiracy theories going around of which that is just one, but I was very sorry to leave the post if that is your—
Q613 Paul Flynn: Finally, we have been recipients of Ms Batmanghelidjh’s blackmail as she has described it—a mixture of psychobabble or emotional blackmail; guilt tripping. We were fairly contemptuous of the quality of the presentation. Why on earth were Prime Ministers and others impressed by her?
Tim Loughton: Your three-hour grilling of the chairman and Camila Batmanghelidjh revealed an awful lot of inconsistencies and U-turns, and the weaknesses there. Alas, successive Ministers were—I have used the term—mesmerised, I think, by the image and the talk that she talked, and I include myself in that, and we should have been far more scrutinous and asked rather more searching questions.
Q614 Paul Flynn: Where does the buck stop for this waste of public money?
Tim Loughton: I think there is a shared responsibility throughout the Government. The system does not get beneath the skin of some of this and I think it is too easy to commit a grant to an organisation and then not monitor it properly. So there is the whole way that officials monitor this. Ultimately, Ministers are the ones who must take the responsibility for signing off public money being given to charities such as this. Which particular Ministers, as I have described, is a complex nature of who knew what and did what to whom when.
Q615 Mrs Gillan: May I ask you a final question? If you had received a direction from the Permanent Secretary of the Department on this, do you think that that money would have gone forward to the charity? What would have been your reaction to receiving—
Tim Loughton: Entirely hypothetical, but I did see a submission where the Permanent Secretary at the time, as the accounting officer, was approached as to whether a direct grant would be acceptable, and the submission said that no objection had been raised. Hypothetically, apparently it was not an issue at that stage. I think when it very clearly should have become an issue subsequently is when in my time at the Department we very clearly said that direct grants would not be appropriate and that the 2011 to 2013 funding was the last substantial funding she should expect from the Department for Education. Why subsequent decisions were made to give direct grants is where the real question mark is, and that is why I am not surprised that officials dug their heels in to say, “Hold on, this should not be happening.”
Q616 Chair: Just to be clear, the subsequent payments were not made by the Department for Education were they?
Tim Loughton: I think one payment was made in 2013, because my understanding is that a decision was made to continue the VCS funding after March 2013 when it came to an end for Kids Company, and then subsequent grants were made by other Government Departments and then it became the responsibility of the Cabinet Office. I was the Minister for Children and Young People responsible for all youth services and everything else. The responsibility for youth services at some stage in 2013 was—I think it was the wrong idea—transferred from the DfE to the Cabinet Office.
Q617 Chair: I am going to come to that in a minute. To be fair on your Department, the 2013 payment was made on a cross-departmental basis and No. 10 was by that time holding the ring. Is that fair?
Tim Loughton: I don’t know, because I was not privy to exactly the mechanics of how that worked. All I know is what I have learnt from these investigations.
Q618 Chair: I will come to you in a minute, Cheryl. What effect did the Kids Company issue have on the transfer of this budget from DfE to Cabinet Office?
Tim Loughton: I would doubt it had any great bearing. There were reasons why various people wanted to eject responsibility for youth services from the Department for Education in my time—something I strongly resisted—quite separate from Kids Company.
Q619 Chair: What were those reasons?
Tim Loughton: The Secretary of State was not a big fan of having youth services within his department.
Q620 Chair: Well, maybe the Secretary of State did not want to carry on funding Kids Company.
Tim Loughton: You will have to ask him whether that was a material reason as to who decided—
Chair: Certainly his special adviser has already made it clear to us that he was not a supporter of Kids Company.
Tim Loughton: I think it was very true that the special adviser was not a supporter of any youth organisations, of which Kids Company was but one. It was an issue that was rarely spoken about between the Secretary of State and other Ministers.
Q621 Chair: Do you feel that around the Secretary of State there was a generic hostility to this kind of funding; it was not directed at Kids Company?
Tim Loughton: There was hostility to youth services and youth organisations generally, which I am sure is a large part of why they were then ejected. I cannot attribute that directly to the Kids Company financing.
Chair: A quick supplementary.
Q622 Mrs Gillan: I was a former Minister in the Department for Education and Employment, and I do not recall in the time I was there any significant area being moved to the Cabinet Office. While you were a Minister, were there discussions about moving this on a regular basis to the Cabinet Office?
Tim Loughton: None at all.
Mrs Gillan: None at all, so it came out of left field.
Tim Loughton: Absolutely, but quite a lot of other responsibilities from the DfE of which I was the responsible Minister have now been dissipated to at least half a dozen other Government Departments.
Q623 Mrs Gillan: Could you list those for us?
Chair: Well, you might send us a note because we are running out of time.
Mrs Gillan: Yes, if you could send us a note.
Chair: Could you send us a note about that?
Tim Loughton: Sure.
Mrs Gillan: Also where they went.
Q624 Chair: Can I ask one last question? It is striking in your evidence to us over the past hour and a bit that you refer to Kids Company frequently by Camila Batmanghelidjh’s name or even just her. What contact did you or your Department have with the trustees?
Tim Loughton: I had absolutely none other than the visit I received in December 2010 from Alan Yentob. Every time I visited Kids Company, although it was only once in opposition and then subsequently, it was purely with her. One would have fleeting, “There is our director of such and such,” and, “Hello,” or whatever, but there were never any other people there. I think that is the whole essence of Kids Company. If you look at the press analysis of articles on Kids Company, it is all about Camila.
Q625 Chair: We will make our judgment about that. I am just asking you some questions. When the forms come in applying for funding, do the trustees put their signatures to these forms as a trustee?
Tim Loughton: I don’t know because I do not see those forms. I would presume they would be signed off by trustees rather than just the chief executive.
Q626 Chair: But isn’t one of the lessons to learn from this that in assessing the viability of a charity there should be an assessment of its governance, and the resilience and strength of its corporate governance?
Tim Loughton: I agree with that and as a Minister one perhaps naively made the assumption that officials covered all those bases so that when they are putting recommendations to you about funding, they have satisfied themselves that financially the charity is in a stable enough position and the governance is suitably compliant that they should justify being given public funds.
Q627 Chair: What would be contained in a submission about the governance of the charity?
Tim Loughton: Again, I do not recall any great detail about it. There is usually in a submission a description about the history of Kids Company, what it supposedly does and that it has had previous funding x, y and z. I do not recall reading any great screed about who all the trustees were and that they have had an audit of their governance and things like that. Again, perhaps that is a question I should have asked.
Q628 Chair: In order not to breach precedent, we will not ask for the advice given to Ministers, but could you go back and look at one or two of the submissions and give us your assessment in retrospect about the quality of those submissions and drop us a note about that, particularly on the question of governance and contact with trustees?
Tim Loughton: I had to make a special arrangement to go into the Department to look at my former papers, so you want me to go and do that again with that specific—
Chair: Well, could you? I think it would be jolly useful.
Tim Loughton: If the Committee would find it useful I will do that.
Chair: If the Department would prefer to just give us the submission in these exceptional circumstances, we would, of course, accept that, but you have the right to go and see them and we do not. Thank you very much.
Tim Loughton: Thank you.
Chair: We will take a short adjournment and come back in two minutes.
Examination of Witness
Witness: Rt Hon Oliver Letwin MP, Chancellor of the Duchy of Lancaster, gave evidence.
Q629 Chair: Welcome to what we anticipate will be the final witness in this inquiry, although that may always change. Could you identify yourself for the record, please?
Mr Letwin: I am Oliver Letwin, Chancellor of the Duchy of Lancaster.
Chair: Thank you very much for being with us. We are going to go straight on with our first question.
Q630 Paul Flynn: I confess that I am a great admirer of your work as a Minister because of your intellect and your integrity, which are not attributes shared by all Ministers. That is why I find it very surprising—the Committee met for three hours with Ms Batmanghelidjh and some formed the conclusion that she was an obvious confidence trickster with little to offer, except the emotional blackmail and psychobabble that she produced in great reams in the time we saw her—that you have been a long supporter of Ms Batmanghelidjh and Kids Company, and that you named her as your hero of the year in 2002. Why?
Mr Letwin: I can certainly explain that. When I was shadow Home Secretary—I think you and I had encounters at that time about various issues—in 2001, 2002 and 2003 I visited Kids Company I think on three, but perhaps two, separate occasions for some hours. They were then operating in a small way in, I think, four arches that they had converted for use. I met a large range of the kids and also the people who were helping them. I was immensely moved by what they were doing for those kids who had been deprived almost every kind of emotional support that all of us would take for granted as children and indeed as parents. They were trying to do some of the things we subsequently tried to do with Troubled Families—to knit together the statutory agencies. Partly they were trying to get people over drug and alcohol dependency; partly they were trying to provide just the simplest kinds of love and simple help. I thought that was a very valuable thing for the voluntary sector to be doing. I continue to believe that, notwithstanding all the many things that have come out that are very much less than good and that no doubt we will be talking about, underneath that there was something very valuable being done.
Q631 Paul Flynn: We have all been touched by the evidence of an unmet need and the depth of the problems among these young people. In particular, the book by Harriet Sergeant gives a vivid account of the pain and misery and the failures of society involved with these young people. But the evidence that has emerged recently is that Kids Company was letting down these young people. They weren’t even there; they only turned up to collect their money. That need was not being met by them. What is your opinion now of what has happened with Kids Company over the years?
Mr Letwin: I think there are two things, one of which is obscuring the other. The first—I will explain this in much more detail as we go through—is that it became entirely obvious after the end of the last Parliament that it was completely financially mismanaged and I think more evidence of that has come out. We had always known that it had very precarious finances and was just living on cash flow, but that it was grossly financially mismanaged became clear only after the election. That has obscured the fact that underneath—I continue to believe this—good work was being done for children in great need, and I think it is important not to get this out of perspective. There was much that was wrong, but there was also much that was good. My concern throughout this has been to try to preserve the good without continuing the wrong, and the clearer I became as the process went on about how much was wrong, the more steps I took to try to put it right.
Q632 Paul Flynn: To what extent was your judgment and that of the Government affected by the fact that Ms Batmanghelidjh was described as the poster girl of the Big Society concept, an idea whose time never came. Do you think now that the concept of Big Society will be buried with the remains of Kids Company?
Mr Letwin: Absolutely not. You and I never agreed about Big Society. I believe it is alive and flourishing in our country, and that there are thousands—perhaps tens of thousands— of voluntary groups and social enterprises the length and breadth of our country that are part of the fabric of society and do an immense amount of good.
Chair: We have had the exchange about the Big Society. We want to concentrate on this inquiry.
Q633 Paul Flynn: You mentioned your time as shadow Home Secretary, and I was astonished that as someone who was caught in possession of so many intelligent ideas your career flourished instead of withering, which is the fate of most people in that position. I have watched your progress with continuing astonishment and I wish you well.
Could you say what knowledge you had of the clinical expertise of Ms Batmanghelidjh herself and the people she was farming the children out to? We have heard of a psychiatrist, charging huge sums of money whose chief remedy was to tap his patients on the side of the skull with his finger as a kind of a voodoo remedy. Were you into assessing the value of the treatment she was giving and the work she was giving, and its effect on the young people?
Mr Letwin: Obviously I am not competent either as a Minister or in any other way to assess the exact value of particular interventions. What we were trying to do in the £4.265 million grant—that is the grant before the end of the last Parliament—by including a whole series of outcome evaluations and insisting on that as a condition of that grant, was to get to the point where we discovered whether, for example, Kids Company was doing what it claimed to be doing, which was helping people not to be NEETs—not in education, employment or training—and helping to wean people off drugs and alcohol and so forth. We set out in I think it is annexe H of that grant, which the Committee has a copy of, a series of impact and outcome evaluations that included the number of qualifications gained and so on by the children. That had not previously been there and that had been worked on over the past couple of years with Kids Company and they accepted those as what they were then going to measure. Of course, they never got around to it, because they went bust eight weeks later, but that was what we were trying to do and that would have been the way to tell whether what it claimed to be doing for the children was being done.
Q634 Paul Flynn: Ms Batmanghelidjh has repeatedly said that she was caring for 36,000 children. What is your judgment of how many she was caring for?
Mr Letwin: I don’t know. I never believed the numbers that we were given on that. When it came to it in the crunch, in the terrible moment when Kids Company did go insolvent, my concern then was with the most vulnerable kids. In fact, I spoke to one of the members of the Committee who happens to be a local MP and to other local MPs about it, and I asked my officials to do intensive work with the local authorities in the three London boroughs and in Bristol. It turned out that there were about 1,909 cases, if I remember correctly, of kids sufficiently vulnerable in the care of Kids Company in one way or another to be reviewed and taken over with the £200,000 grant I gave to the local authorities. That is one measure.
I think it probably is true that the Methods Consulting figures, which were repeatedly monitored by Methods Consulting, give a more accurate picture of the number of interventions. For example, I think in schools they were probably covering about 10,000 children, but that is very different from looking after individual children. There was a distinct gap between the claims for the numbers that were going on in public and what was really happening. I was relying on the Methods Consulting data, not on the claims in public from the beginning.
Q635 Chair: What should we make of a charity that so exaggerates its activity to the public? What does that tell you about, for example, how much interest the trustees are taking in the accuracy of the marketing of the charity?
Mr Letwin: I think it is not unusual in the voluntary sector for charities to make the most of whatever numbers they get. It is a very important point that this was a charity that was raising in the year 2013, according to National Audit Office figures, £17 million—£16.96 million—from private sources, quite apart from the £4 million-odd it had from Government. You do not raise that kind of money without being a salesperson.
Q636 Chair: Just a minute. You were a banker and if you had produced a prospectus to raise money, sometimes from other charitable funds and indeed from the Government, for the flotation of a company, you would be prosecuted for putting statements like that into a prospectus.
Mr Letwin: They were not put into prospectuses. What came to us was the Methods Consulting figures, not these figures.
Q637 Chair: But as a banker, what would you think of a company that put up billboards advertising how brilliant it was with completely inaccurate figures of its activity?
Mr Letwin: I would think anybody that put out completely inaccurate figures was doing something very wrong, but I do not think that Kids Company was putting completely inaccurate figures.
Chair: It is a bit like Volkswagen describing their emissions.
Mr Letwin: Sorry, maybe you have misunderstood what it was that I was trying to say about their figures. I think she conflated a whole series of different figures in order to get the biggest possible figure and to give an impression that went beyond what it looks like when you look at the detail. We were, and I suspect that donors were, looking at what was actually presented by Methods Consulting.
Q638 Chair: So you would be looking at things like the annual accounts?
Mr Letwin: We were indeed looking at the annual accounts.
Q639 Chair: The annual accounts said they had 36,000 clients.
Mr Letwin: They did and I assumed that they in some sense or other had 36,000 clients. I thought you were asking me the question not was there some sense in which that figure might be justified, but rather were there really 36,000 people who were individually being looked after inside Kids Company on a day-by-day basis. I never believed that and the accounts did not say that.
Q640 Paul Flynn: We have just been told that the Cabinet Office took over part of the responsibilities. We are trying to find out where the buck stops for these huge amounts of money being given out. Ms Batmanghelidjh has, presumably accurately, described her method of raising money from Government as blackmail. A letter that we have seen that was sent this year was saying that if the funds don’t arrive from Government, there would be riots on the streets and Government offices might be burned down. This would be regarded as demanding money with menaces in most cases, but this was her technique over a period of years. Were you, as a Government, blackmailed by her clever strategies?
Mr Letwin: I think I can prove that I was not, in my own case. At the moment after the end of the last Parliament—now we are talking about 19 May 2015—when the chair of trustees, Alan Yentob, made contact with the Cabinet Office and said they had run out of the £4.265 million and they needed some more money, he specifically directly asked me for more money. On 22 May, having been alerted to this, I had a conversation with him in which I said no. The reason I said no was that I was not being in any way blackmailed or otherwise influenced by his assertion at that time that he was going to go insolvent if we did not pay that money, because I had said that the £4.265 million was the last ever such grant and I meant it.
Q641 Paul Flynn: But it didn’t happen. They had money four or five days before they collapsed.
Mr Letwin: No, sorry, then we moved to a completely different scene of action where the new donors, Stuart Roden and others, appeared on the scene with a completely different proposition—they were going to put £3 million of their own money into a restructuring fund, which we would match with £3 million Government money. The £6 million would be used to meet the accrued liabilities—the old staff costs, the pay bill, the redundancy costs and so on—to downsize the organisation dramatically to get to the point where with £10 million, not £24 million, of funding each year, they could start building up reserves by downsizing their activities. I made it a condition in that grant that the chief executive was removed, because by this time I was completely clear that it was grossly financially mismanaged, that a new financial controller was in total charge of all the finances—that person was in place; Camila Batmanghelidjh had resigned by the time we paid over the £3 million—that the chair of trustees was replaced, and that three other trustees came in, two of whom had serious financial experience from the past.
At that stage, having refused to entertain the suggestion that we should give another grant because they said they were closing, and hence not being blackmailed, I did take seriously a proposition from the new donors that we could get together and restructure this thing with a completely different management so they could carry on the good work without the financial problems that had come to light.
Q642 Paul Flynn: But the good work was not going on. We have had a mountain of evidence that they were not dealing with more than a very small number of children and in most of the cases they were just handing out packets containing anywhere between £10 and £200; that they were employing 600 staff, a great deal more staff than they had children to look after on most days there; and that the scheme was not working. What measurement did you take of the outcomes? The very people they should have been helping were being neglected and some had been damaged.
Mr Letwin: As I have said, we were very concerned. I was personally very concerned that as a condition of the £4.265 million grant that the outcomes framework we put in place be measured. If the charity had successfully restructured, it would have gone on measuring those outcomes and then we would all be able to know a year or two later whether it was actually doing the good work that I believe, underneath all these problems, it was doing.
Q643 Paul Flynn: But you had been shelling out money all these years to her.
Mr Letwin: Correct, and I was determined to put an end to that.
Q644 Paul Flynn: She was a saleswoman, she was a confidence trickster. She is a person who got money out of Government by threatening them. She threatened you and we are told that one of the documents that the Children’s Minister had said that she is very well thought of by The Evening Standard, for goodness’ sake. That was how she influenced Government in order to blackmail money out of you. Aren’t you ashamed of yourself?
Mr Letwin: I have described to you the fact that when I was told it was going to go insolvent if we did not give another grant of the kind we had given just before the end of the Parliament, I refused it. I don’t think I can have been blackmailed into anything.
Q645 Paul Flynn: It went on for a very long time when the money was coming.
Mr Letwin: May I just respond to that? It is a very important point. I made two decisions about the £4.265 million grant and the £3 million grant. 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. That is what I insisted on as part of the £4.265 million. I refused a further such grant when asked for it and I accepted only the proposition of a total restructuring involving getting rid of the CEO and the chair of trustees, and putting in a new financial controller. I was very clear we had to put an end to it.
Q646 Paul Flynn: Where does the buck stop for the exceptionally generous treatment given to Ms Batmanghelidjh? Is it the Prime Minister? Is it Prince Charles?
Mr Letwin: If you are asking about those two grants, they are my responsibility and I take responsibility for those. The other Ministers who made decisions across the 10 years or so before me will also presumably take responsibility.
Q647 Paul Flynn: Who are they? Can we get them before us? Who do you think is responsible for this vast waste of public money?
Mr Letwin: You have just had one of them before you and presumably you could ask a whole chain of Ministers stretching back to 2002. I take responsibility for the ones I gave; there were two and I have described them.
Q648 Chair: You said that you had done all this work on the outcomes from the conditions applied by the April grant. Is that what I understood?
Mr Letwin: Yes, April 2015, the £4.265 million.
Q649 Chair: Then you had assessed the outcomes of the fulfilment of the conditions of that grant?
Mr Letwin: No, sorry, let me be very clear. There had been a long process before this of work between the Cabinet Office, when it took over responsibility for youth policy in 2013, and Kids Company to try to put in place an evaluation.
Q650 Chair: I am asking a very simple question, which is that the April 2015 grant had conditions attached to it for outcomes to be measured.
Mr Letwin: Yes, that is right. They were to be measured from June onwards.
Chair: From June onwards? You implied that they had been—
Mr Letwin: Yes. By June I had replaced the chief executive, put in a new financial controller and—
Q651 Chair: Yes, but the point is the outcomes had not been fulfilled, the conditions had not been fulfilled.
Mr Letwin: Nobody ever got to measuring them. We replaced the entire management.
Q652 Chair: All right. I just wanted to clarify that. Another example is about the quality of the clinical work that was done here. We know now that Ms Batmanghelidjh had no formal clinical qualifications yet she called herself clinical director and all the clinical decisions were subject to her control. We have one example of someone being referred after email counselling to a hypnotist in Harley Street at hundreds of pounds a session. What gave you confidence that there was any clinical discipline in this organisation?
Mr Letwin: That is evidence that has come out since, of which I was not aware at the time of the £4.265 million grant.
Q653 Chair: You were funding a charity that claimed to carry out clinical work. What evidence did you have that this was a bona fide clinical organisation?
Mr Letwin: Most of the work that it was carrying out was of the kind that I had seen with my own eyes back when I had been to see it and was not of a clinical nature. Yes, there were some clinical interventions. The total numbers of those clinical interventions are not enormous at all in the context of the totality. In the grant agreement of 2015-16, clinical support was meant to be for 400 clients only, compared with a schools programme for 10,000 clients, health and nutrition for 3,000 meals a week and so forth. It was a small component. I am obviously not in a position to judge the value or otherwise of specific clinical interventions. I am not a qualified clinician of any kind.
Q654 Chair: But nobody in government made any assessment of that?
Mr Letwin: Part of the point of the outcomes evaluation framework was that for the first time there would be proper evaluation of what was achieved for the children, which is the measure, I suppose.
Q655 Chair: But the condition you set for outcome evaluation was never fulfilled.
Mr Letwin: Those conditions were set a few months before the charity stopped operating, so we don’t know, of course, what would have happened if it had managed to survive, as I hoped it would.
Q656 Ronnie Cowan: We are going to touch on this later, but we are now on the topic. In April they were given £4.3 million and you quite correctly said this was on the condition they were put on a more sustainable financial footing and also that they implemented better measurement of value for money. Isn’t that rather a cart before a horse? Should we not have been making sure those things were in place before we gave them the £4.3 million as one grant?
Mr Letwin: I should explain that the end-to-end business review, which was the first part of what you have just referred to, was designed to get them into a condition where they would never ask for another grant because they would downsize activities to match, and indeed be slightly under, what they could raise from the private sector so that they started building up something that they had not had and we knew they had not had, which was reserves. Clearly we had the choice when I made the decision about the £4.265 million either to let the charity go under, because it was clear that at that time—I think the NAO report makes this abundantly clear—if we had not given it that money it would have then become insolvent, or to put those conditions in, get it to do the end-to-end business review and get into a position where it did not come back for more.
Ronnie Cowan: The whole grant in one block.
Chair: I am sorry but I have to stop you there. Kate Hoey has to go to the statement on Northern Ireland, so we need to get her question first.
Q657 Kate Hoey: Thank you. In 2002 you praised Kids Company in a speech and you said that the essence of the charity is its autonomy that would be lost if you tried to make it into some kind of bureaucratic straitjacket. Do you want to tell us what you mean by a bureaucratic straitjacket and do you still think that now? Does it still fit in with your views?
Mr Letwin: Yes, I do. The statutory sector, which does fantastically valuable and necessary work, inevitably has to operate on the basis of laws, rules and methods. I don’t say bureaucracy in any way accusatorily; it is just how one has to work in the statutory sector. To my mind, the point about the voluntary sector is it deals with human beings much more in the round, human to human, and it does that and can do the kind of work I witnessed in those years at Kids Company, and has done in many other places, because it is not bound by that sort of rule. Inevitably that means it does not have the degree of organisation that you get in the statutory sector, but it may have a degree of effect you can’t get in the statutory sector, too. As you know and I know, not just in your constituency but in many others around the country, there are people, in particular kids, who desperately need that kind of human-to-human contact and can’t always get it from an organised bureaucratic process. That is what I meant then and I still believe that.
Q658 Kate Hoey: There are an awful lot of charities that do brilliant work and struggle to get a tiny amount of money to help to continue their good work, and they were seeing all this time this huge amount of money going to one charity.
Mr Letwin: I agree with that and that was why I was absolutely determined from the time that I became involved in these decisions to put a stop to that and to get them to the position where they were raising more in private donations than they were spending each year so they could build up a reserve and never come back to the Government. I agree with you.
Q659 Kate Hoey: What are these bureaucratic straitjackets within Whitehall that you were conscious that you did not want Kids Company to be part of?
Mr Letwin: I did not want to see someone from a Whitehall Department, local government or whatever trying to run Kids Company or any other charity, because when you start running the thing for it, you will turn it into an aspect of the bureaucracy and it will not have the character it had.
Q660 Kate Hoey: What is the difference between giving it autonomy and then making it accountable for public money?
Mr Letwin: I think these bodies do need to be accountable for public money. That is why I insisted on putting in the evaluation framework.
Q661 Kate Hoey: You accept that it had not been publicly accountable?
Mr Letwin: I think it had been accountable for outputs through the Methods Consulting review of the outputs, but in my view that is insufficient and that is why I was determined to put in outcome measures so we knew what it was doing for the children—the very questions that have been asked previously by the Committee.
Q662 Kate Hoey: Your kind of defence if you were in a court of law—much more important than a court of law—is that it was handed over to your office from the other Department and that you set about making it more accountable and sorting it out. Is that what you are saying?
Mr Letwin: Yes. That is what I was trying to do.
Kate Hoey: But you did not get the chance to finish because it went bust?
Mr Letwin: Correct. That is the truth. Incidentally, I should just make it absolutely clear, because there is a welter of different times and dates and so on, that if you look at figure 3 from the Public Accounts Committee report it shows all the grants over the years. You will see that there were two grants in 2013-14 and 2014-15 that were multi-department grants that did involve the Cabinet Office and did occur after Kids Company—because of the change in youth policy and it coming to the Cabinet Office—became in some sense the responsibility of the Cabinet Office, but I was not involved in either of those. As it happens, I got involved from the time in June 2014 when Chris Grayling wrote to me, after a visit that he had made to Kids Company, and asked me to see Camila Batmanghelidjh. There are two grants specifically that I am responsible for.
Q663 Kate Hoey: Have you been in touch with her at all in the last six months—any telephone calls from her to you?
Mr Letwin: Six months, I can’t say. Certainly not since the time when Kids Company went insolvent, no. I have, of course, like everyone else here, seen appearances on stage and screen by Ms Batmanghelidjh.
Q664 Kate Hoey: Have you had any conversations with Alan Yentob in the last month or so?
Mr Letwin: No.
Q665 Mr David Jones: You are currently an honorary governor of Sherborne Girls School. I think that is only over the last two years. Previously you were a full governor.
Mr Letwin: I was a trustee and governor of Sherborne School for Girls from, I think from memory, 2001, four years after I became an MP locally, up until 2012. I would like to draw the attention of the Committee to the fact that in 2012, before youth policy transferred to the Cabinet Office, I retired as a trustee and governor, and I have not since then had anything to do with the decisions of the school or governing body decisions, and I have not attended any governing body meetings. I became a so-called honorary governor, which just means that I had long service and am a patron, so to speak, of the school.
Q666 Mr David Jones: Being a full governor is also a trustee of the school?
Mr Letwin: Exactly. At that time, before 2012, I was a trustee.
Q667 Mr David Jones: Is the reason for your resignation or your stepping down as a full trustee the fact that youth policy was transferred to the Cabinet Office?
Mr Letwin: No, it was not the reason but, of course, if I had not already stepped down by time youth policy did transfer, I would have had to have stepped down then. If you look at the declaration of ministerial interests, which you and I have both made on many occasions, you will see that in 2011 I am registered as a governor, hence a trustee, and in 2013 I am registered as not a governor any longer, just as an honorary governor. I would have had to do that at whatever exact date in 2013—I think it was July 2013—youth policy transferred to the Cabinet Office in order to avoid any suggestion of a conflict of interest. As it happened, I had retired anyway by that time because I had been doing it a long time.
Q668 Mr David Jones: Just as a matter of clarity, Sherborne Girls School has strong links with Kids Company. I think that is right?
Mr Letwin: As a matter of fact, at the time that I retired as a governor, I didn’t know that it did, and to this day I don’t know whether before I retired as a governor it did have any contact with Kids Company. But I am certainly aware, because I have been told by the current chair of governors, that in the recent past, and maybe going beyond that, it did make donations to Kids Company in kind by offering reduced fee places and things like that.
Q669 Mr David Jones: Yes, it provided bursaries for Kids Company clients. I think it was a favoured charity. I think that Sherborne Boys School also has links with Kids Company. Isn’t that right?
Mr Letwin: I don’t know. I am nothing to do with Sherborne Boys School. I am not a governor or trustee of that and never have been.
Q670 Mr David Jones: I think it provides a building to Kids Company for a peppercorn rent, which was used as a base for the Kids Company’s urban academy.
Mr Letwin: It may do.
Mr David Jones: Did you not know that?
Mr Letwin: No.
Q671 Ronnie Cowan: Central Government gave Kids Company £42 million; local government in the same period of time only £2 million. Do you think local government seemed more reluctant to hand over money to a charity maybe they knew more about because it was on their patch?
Mr Letwin: I think there is no doubt at all that from a very early stage Kids Company had a poor relationship with local government in some of the places it operated in.
Q672 Ronnie Cowan: Do you know why?
Mr Letwin: Accounts differ. I think that people inside local government were not keen on some of the things that Kids Company did. When I met Camila Batmanghelidjh in July 2014, I certainly heard her say that she was accusing them of failing in their statutory duties, which I didn’t think was the case. I imagine that did not engender good relationships.
Q673 Ronnie Cowan: Is there not maybe a case to be made that local government would be better taking care of charities in their own area rather than central Government handing out these wads of money?
Mr Letwin: I think there is a very good case to be made for the devolution of funding and I have asked my colleague, the Minister for Civil Society, to conduct a full review to learn the lessons from the whole of this episode.
Ronnie Cowan: That is what we are trying to do. We are trying to learn lessons for improvement in the future.
Mr Letwin: I was just going to say that obviously that review will have to take very full account both of what the PAC has already reported and what this Committee will report in due course. I am sure that one of things we should look at is the question of how far central Government and how far local government should be involved.
Q674 Ronnie Cowan: Maybe a mistake was made in the past.
Mr Letwin: At this stage, I don’t know what that review is going to conclude or what this Committee is going to conclude, but I am entirely open-minded to the proposition that we should devolve more of the responsibility for funding to local government. It is an arguable case.
Q675 Kelvin Hopkins: The National Audit Office identified “a consistent pattern of behaviour each time Kids Company approached the end of the grant term”. In 2002, 2005, 2007, 2010, 2012 and 2014, Kids Company lobbied Government for a new funding commitment. If officials resisted, the charity would express fears of redundancies and the impact of service closures to Ministers, while making similar comments in the media. A grant would then be awarded to Kids Company. Why do you think Kids Company persisted in this strategy?
Mr Letwin: I think that was their strategy and that was precisely what I was attempting to put an end to. I do not think it is a good way to do business. That is why I was determined that they do a full end-to-end business review and reduce their expenses so that they were within what they were raising from private financial sources, and therefore they were able to establish a reserve so they couldn’t do that and did not need to do that. I completely agree with the National Audit Office about that.
Q676 Kelvin Hopkins: The obvious answer is that the Kids Company persisted with the strategy because it actually worked. What is surprising is that it worked on six occasions with different Governments and at no point did somebody say, “We are not going to be blackmailed”.
Mr Letwin: That is not true. As I have mentioned, there was a point—I would not put it in those terms—when I said no. I said no when I was approached for money on just that basis directly after the end of the Parliament because I had already made it totally clear to them that the £4.265 million was the last time any such special grant was going to be awarded if I had anything to do with it. That was precisely what I was trying to get to an end of.
Q677 Kelvin Hopkins: I am obviously pleased, but hindsight is a wonderful thing. Do you think that the Government, looking back on it, would think they did not behave well?
Mr Letwin: I am not going to sit here and start criticising the strategy. I agree that it is not the right way for the Government to relate to any outside body. My view was that we should make that the last such grant for just that reason. Of course, at that time I did not know, because I was relying on the report and accounts and the PKF Littlejohn report and so on, that there was gross financial mismanagement in addition to the precarious financial situation we all knew about. Once I discovered that, I was only willing to proceed with the restructuring on the basis of a complete removal of the chief executive and the chair of trustees, and a new financial controller and a complete change in the way the thing was run. By that time I was clear that the existing management could not achieve what I had hoped it would achieve on the basis of the £4.265 million.
Q678 Kelvin Hopkins: There were large sums of public money and it had been going on for 12 years. Perhaps the previous Labour Government should have been more careful as well. Is that fair?
Mr Letwin: This is a joint responsibility of successive Administrations—now three different Administrations. I can only take responsibility for the two grants that I made and I have given you the most honest account I can of why I made them.
Kelvin Hopkins: I could pursue that, Chair, but I won’t.
Q679 Chair: Can I make the point that this was a very high-profile charity that had access to Ministers and that Ministers when in opposition had used in order to promote the political party, and that why celebrities get invited on to political platforms is to enhance the brand of the party? At what point does this become a conflict of interest?
Mr Letwin: I can only say that while it is true that this was a high-profile charity and while it is true that both the Labour Administration and the coalition Administration had all sorts of links with the charity of the kind you are describing, when I came to make these decisions I did not feel the slightest conflict of interest. Had I felt such a conflict of interest, I would not have said no when Alan Yentob said after the election that if I did not give them another grant he would go bust; I said to him, “If so, so be it.” I could not have said that if I had been caught in a conflict of interest.
Q680 Chair: But if a political figure has become both emotionally committed to a charity or any organisation for whatever reason, and has used that charity or organisation in order to promote him or herself and his or her political party, isn’t it quite difficult for there to be an objective assessment of whether to give that organisation or charity public money?
Mr Letwin: I did not find it difficult. Let me describe to you the circumstances. I was sitting in a car in my constituency on the car phone. I took the call from Alan that my office had arranged followed his approach to the Cabinet Office. He said, “If you don’t give us some extra money now we will go bust almost immediately.” I said, as I say, “So be it.” I had made it clear that the £4.265 million was the last such grant and I did not find it difficult to make that objective assessment. In fact, what was going through my mind was, “If you have run out of that money already then this charity must be being financially mismanaged to a very severe degree,” as indeed has turned out to be the case, notwithstanding all the information that purported to show the opposite on which I was relying when I gave the original £4.265 million. If I had known about the financial mismanagement that subsequently came to light when I was asked to approve the £4.265 million, I would never have approved that grant. I would not have found that difficult either.
Q681 Chair: We will come to that in a minute. The point I am making is: how many charities in financial difficulties that are in receipt of Government funds are going to get put through to you by your private office?
Mr Letwin: The reason it was put through to me was—you are absolutely right—that this was a charity that was able to make contact with Ministers and knew how to do so and so on. It is not unknown, but it was exceptionally true.
Q682 Chair: I had a meeting with charity chairs, heads and chief executives on Tuesday at which they expressed a degree of distress and anger about this whole episode, which really struck me because many of them have burned the midnight oil dealing with the bureaucratic straitjacket that you were kind enough to release this charity from. They were not ascribed unorthodoxy or autonomy in their applications for grants and they got nothing or fractions of the amount of money. In fact, Kids Company got most of the money under this budget. How do you think they feel about this? They could not get their calls put through to the Minister for the Cabinet Office and the Chancellor of the Duchy of Lancaster.
Mr Letwin: First, just to correct the point about “most”, in the year in question—2015-16—when both of the grants that I was responsible for occurred, there was a total of £18.7 million of uncompeted grants given by the Cabinet Office in that year, so actually less than half of that went to this charity.
Q683 Chair: One third of youth sector funding went to one charity because they could get their call put through to the Chancellor of the Duchy of Lancaster.
Mr Letwin: That probably relates to the DfE statistics.
Chair: Yes, but the point is that this charity had unprecedented access and that is why they got the money.
Mr Letwin: No, that is not why they got the money. It is perfectly true that they had unprecedented access. Well, I don’t know about unprecedented. They certainly had significant access; that is obviously true. I don’t think that is why they got the money and, in the case of my decisions, it certainly is not why they got the money. They got the money because I believed, going right back to my exposure personally first hand—
Q684 Chair: Yes, but you would not have been giving this attention to this charity if it had not been on the platform with the Prime Minister, if you had not been enamoured of it, as an example, and if she had not been your hero. Don’t you see that people can’t see this as an objective assessment? How can we possibly trust you with an objective assessment of this situation? The visuals are not good, are they?
Mr Letwin: I think Ministers are under an obligation to try to do what they think is in the public interest, not to try to generate a particular view in public.
Chair: We will come to that.
Mr Letwin: I took the view that this charity was doing valuable work and that it was worth trying to give it this one last chance of continuing that work. I don’t think that is in any sense the kind of judgment that Ministers are not there to take. I think it is the kind of judgment that Ministers are there to take.
Q685 Ronnie Cowan: Back on the £4.265 million that was given out prior to the 2015 general election, four, five, six weeks later it is back saying, “We need more money.” Did you ask them what happened to the £4.265 million in that short period of time?
Mr Letwin: Yes, I did, as a matter of fact, and it became perfectly clear that they could give no proper account of why they had failed so dismally to raise the private financing that they had expected to raise in the interim.
Q686 Ronnie Cowan: What had they done with the £4.265 million?
Mr Letwin: They were spending about £24 million a year, so over the course of a couple of months they were chewing through that sort of amount of money. What went wrong, as I understand it now, was that they did not succeed in raising the private funds that they had expected to raise, and they did not look like they were about to raise the private sector funds that they had previously been hoping to raise. That was their problem. They were living hand to mouth and the funding was collapsing under them.
Ronnie Cowan: That wasn’t new.
Mr Letwin: Yes, it was new in the sense that up until that moment of them running out of funds, or being about to just after receiving the grant, all the pattern for that had been what we heard from the NAO a moment ago, namely that they would get towards the end of the year—they would be able to survive for 10 or 11 months and then get a grant. This was different. This showed total financial mismanagement.
Chair: We are going to come on to all this a bit later, but can I bring in a very short question from David Jones?
Q687 Mr David Jones: In reply to Mr Hopkins you said that you were aware that Kids Company would be insolvent in the absence of £4.265 million, but you were not aware of the level of financial mismanagement within the company. According to the NAO report, there were repeated briefings to Ministers that officials had accepted the company’s assertions that it would become insolvent without Government grant funding. If a company, irrespective of whether or not it is a charity, is in that sort of condition with poor reserves—in fact in some cases negative reserves—repeatedly over a long period of years, does that give you comfort that it is being properly managed?
Mr Letwin: Many charities, alas, do survive on a very hand-to-mouth basis. Of course, it is desirable that every charity should have reserves, although interestingly they get criticised if the reserves are too big. But as a result of the difficulties of continuing on the basis of private funding, many do operate hand to mouth, so in itself the fact that the cash flow was very tight is not a sign of financial mismanagement. It is a sign that it is doing business in a way that is not satisfactory, and that is why I agreed with Mr Hopkins that we needed to put it on a different footing, which is precisely what I was trying to do—to get out of the Government giving it any special grants whatsoever. I did not think it should go on doing so.
Q688 Mr David Jones: I understand that, but clearly it must be the case that if a charity or company is so badly run that it is constantly having to approach Government for financial support, it gives you some sort of inkling that maybe the management needs to be replaced. Wasn’t that a consideration perhaps you should have arrived at on considering the first grant application you were responsible for?
Mr Letwin: I have often asked myself that question and I think my answer is no. Up until then I think there was a strategy that they were following, which is exactly the one that Mr Hopkins drew out of the NAO report, that they planned raising a lot of the private money—and they were raising an enormous amount of private money—and then coming along to Government for a dollop extra.
Mr David Jones: Relying upon you for cash flow.
Mr Letwin: Yes, that was what they were doing. I don’t think that is a desirable way to do business. I was trying to put an end to that way of doing business, but it is not in itself a sign of financial mismanagement. It may be a sign of quite cunning financial management, just of a particular kind, which I don’t happen to think is the right way to do business. The situation I was faced with after they ran out of money directly after the end of the last Parliament was quite different. That showed that they had no idea what was actually going on. They could not raise the private funding they were expecting to raise and therefore I lost all confidence in their financial management, which is why, as a result of the whole restructuring, I insisted on the replacement of the chief executive, the financial controller and the chairman of trustees. You don’t do those kinds of things if you think somebody is managing correctly.
Q689 Mr David Jones: So you retained confidence in their financial management on the occasion of the first grant application that you were responsible for?
Mr Letwin: Yes, I did. Incidentally, I did that partly because I knew that the history was that they had always just scraped by, but partly also because I read the accounts and I read the PKF Littlejohn report and so I had no basis for assuming that their financial governance was other than reasonably okay within the limits of a charity. It transpired subsequently that I was quite wrong about that, but I did not know that at the time and I do not think anyone else knew that at the time.
Q690 Mr David Jones: Did you read the submissions from officials?
Mr Letwin: Of course.
Q691 Mr David Jones: Mr Loughton has told us that all the submissions that he received had a caveat from officials saying, “This charity has close links with Metro and the Evening Standard.” Did your submissions have that caveat?
Mr Letwin: No, but you have to understand that in relation to the £3 million grant, which I know the Committee is very well aware of, officials advised me against doing it. I had to issue a ministerial direction.
Q692 Mr David Jones: And on the first occasion?
Mr Letwin: On the first occasion officials looked at it and took the view that it was value for money, so I did not have to issue a direction. They did not suggest to me that I was making this decision because of some concern with the popular press.
Q693 Mr David Jones: So they didn’t advise you about the Evening Standard and Metro?
Mr Letwin: No. I would not expect to see a submission of that kind in the Cabinet Office, I have to tell you.
Q694 Gerald Jones: Mr Letwin, Tim Loughton has claimed that No. 10 overrode the concerns of the Department for Education to ensure that Kids Company received or secured funding in the period 2011 to 2013. Could you tell us what was the involvement of No. 10 in the funding decision at that time?
Mr Letwin: The funding decision in the DfE?
Gerald Jones: No, DfE-raised concerns.
Mr Letwin: The answer is I have no idea. If you are talking about 2011-12, I don’t know. The two grants I know about are the 2015-16 grants—the £4.265 million and the £3 million—and those were decisions I made. I have a conversation with the Prime Minister every day of the week. I certainly discussed Kids Company with him. I was well aware, as the whole world is, of his support for Kids Company, but I made the decisions. They were my responsibility. Nobody told me to do it and that is the end of the matter.
Q695 Gerald Jones: But specifically concerns were raised by the Department for Education and No. 10 overrode those concerns.
Mr Letwin: As I say, I know of no reason to suppose that No. 10 did any such thing, but I don’t know because I was not a Minister at DfE and I was not in No. 10.
Q696 Gerald Jones: So you are not aware of any concerns of that nature.
Mr Letwin: No. Sorry, I am perfectly aware of what Mr Loughton said to you a few moments back because until I came over here I was watching it on the TV. As I say, I do not know the history of what happened up to the time that I got involved and took responsibility. I do know absolutely clearly that I made these two decisions and nobody told me to do so.
Q697 Chair: Can I just clarify something from what you said earlier: when did you first become involved with Kids Company funding?
Mr Letwin: In June 2014.
Q698 Chair: Our previous witness told us that the previous cross-departmental grants were meetings convened by No. 10.
Mr Letwin: Possibly, but not by me.
Chair: But not by you.
Mr Letwin: Correct.
Q699 Chair: We need to be absolutely clear about that. According to the NAO, the meetings for those cross-departmental grants were convened by No. 10, but not by you. Who would have convened those meetings?
Mr Letwin: I don’t know. What I know is that the Cabinet Office was involved in two of those grants, as the Committee is aware, in 2013-14 and 2014-15. The Ministers who would have been responsible then were Nick Hurd, who was then the Minister for Civil Society, and Francis Maude, who would have signed off as Minister for the Cabinet Office.
Q700 Chair: Could you send us a note about which officials, special advisers or Ministers were involved in convening meetings about Kids Company before your involvement?
Mr Letwin: I will endeavour to find out.
Chair: Thank you very much.
Q701 Paul Flynn: Can I say that probably the most interesting and revealing piece of evidence you have offered us this morning is news on another one of the exotic places where you conduct your ministerial business. We know you open your mail in the park, but it is interesting to know you also do business from a harbour wall somewhere. But the rest of your evidence could be summed up by saying, “Not me, guv; nothing to do with me; not on my post; not in my term of office”. If it is not you, who is it?
Mr Letwin: On the contrary, if I may say so, I have said in no uncertain terms that I was personally responsible, first for making a grant of £4.265 million with official support and—
Paul Flynn: Yes, but can I make the point? We have heard so much about the money.
Chair: You made a very strong charge against him. Let him answer, please.
Mr Letwin: And for deciding, against official advice, to issue a direction, which is my responsibility. I have taken complete responsibility for the two things for which I am responsible. I don’t think you can do any better than that.
Q702 Paul Flynn: What you miss out, and you have repeatedly, is what the Public Accounts Committee said—that Kids Company had no interest in measuring its outcomes and that it still had no proper means of measuring its impact. The money is bad enough—that they conned more money out of you than organisations like Barnardo’s, which is remarkable—but the main charge is they were not doing the work that they were paid to do and they were wasting money on a gargantuan scale, with 600 staff, for goodness’ sake, and at the most fewer than 2,000 children there, which was usually just on Friday when they were picking up their money. It was not working and it is a myth to say that it was. You were certainly part of the Government and the Government had responsibility for keeping this charity going and giving it a respectability it did not deserve.
Chair: That is a speech. Are you getting to a question?
Paul Flynn: Isn’t there any sign of penitence from you that you did something wrong by boosting this company and making it attractive to other donors?
Chair: A quick yes or no.
Mr Letwin: No.
Chair: Moving on, we may have covered some of these questions already, Andrew, so perhaps we could go swiftly through this.
Q703 Mr Turner: Kids Company failed to secure funding through a competitive process in 2012. This was because the charity’s bid did not reach the required standard of quality. Following what is known as a public interest case, it was awarded £5.4 million. That was before you came on the scene. What involvement did No. 10 have? We have had that you don’t know what happened in 2013, but it is quite questionable what happened between Tim Loughton’s disappearance and your appearance. That is not right. Given the Kids Company funding bid had failed on the grounds of value for money, why were you persuaded by a public interest case that did not assess for value for money or opportunity cost for the public purse?
Mr Letwin: As I say, I can’t say anything about that specific grant because I didn’t decide about it and I didn’t read any submissions about it. But in relation to the £4.265 million grant, where you could ask the same question, I guess, and where I was responsible and did read the submissions, my view was the only basis on which we could award that was as the last such thing and that it was allied to this end-to-end business review to put the finances on a different basis so that we did not have to do it again. That was where I thought the public interest lay—a managed way of keeping Kids Company going with no further recourse to public funds.
Q704 Mr Turner: It is obviously easy to have retrospective help but wouldn’t you, as a senior Minister, have known that there was this history that included Tim Loughton, who apparently was concerned? Did you look at previous submissions or did you look only at the submission when you were sitting in the chair?
Mr Letwin: I should distinguish. The only submission I looked at was the submission to me about the grant I was making, but I would not remotely want to conceal the fact that I was very much aware of the history stretching back to 2002—a long period across two successive Administrations—of these grants. As I say, I came to the conclusion that was not the right way of going about business and that we should put an end to it, and that was what I tried to do. I tried to grasp that nettle.
Q705 Mr Turner: We have had only one Minister who has come here and given us evidence, but there is the possibility at least that evidence could be given, or perhaps could not, from other Ministers that there was an ongoing problem and yet either they do not seem to have been effective or they did not think it was a problem. What would you say has happened?
Mr Letwin: As I say, I can’t comment. I have no idea what conclusions Labour Ministers reached over their years. I listened to Tim Loughton speaking, as you have, so I have heard what he had to say. I don’t know what other Ministers would say in the interim between then and my taking over. What I am clear about is that across that very long period, rightly or wrongly, a series of Ministers took the view that Kids Company was doing some valuable work. If they had all thought across all those Administrations that it was not, I don’t think they would have administered those various kinds of grants, nor would it have won the various competitions that it engaged in if officials had not thought it was doing some valuable work. But having said that, I came to the conclusion this was not a way we could carry on and I tried to change that. As I say, in my case I could tell I meant that and you could tell I meant that because when they asked me for some more money on the same basis, I said, flatly, no.
Q706 Mr Turner: Richard Heaton told the PAC that Government should be careful about grants “contributed to by a whip-round across Departments because that tends to take the attention off—it tends to remove it from the mind of individual Departments”. How far might this description apply to the 2013 cross-government grant?
Mr Letwin: I think that one of the things we need to review—no doubt your Committee will comment on this and I think the PAC to some degree commented on it—is the question of whether there should ever be any cross-departmental grants for charities? That is one question. The next question is about the Charities Act and what it permits to be done within the Cabinet Office. Then there is the question of devaluation that was raised earlier. I think there is a whole series of issues that need to be raised about how we do these things in future.
Q707 Mr Turner: Prior to the public interest case being put together, Ms Batmanghelidjh wrote to the PM warning that the levels of risk are really too high and stating that these poor neighbourhoods remain socially explosive. As far as you can judge, how seriously did No. 10 take these warnings?
Mr Letwin: I don’t know what the view of people inside No. 10 was about that. My own view was that the suggestion that there would be some massive explosion was incorrect. That is one of the reasons why I was quite happy to say no once I discovered that there was a very serious problem of financial mismanagement. But I did take seriously and have always taken seriously the view that it was doing some important work in those areas. I should mention that before I authorised the restructuring grant, the £3 million grant, I went to see the then acting leader of the Opposition, who happens also to be a local constituency MP, and took her mind on it, and she took the view that it was very considerably important.
I think there were a lot of people around who had reason to know something about the situation who thought that it was probably doing important work. I don’t think there were very many people who believed—certainly I didn’t believe—that there would be some massive social revolution if Kids Company were to cease operation. I was extremely concerned to make sure that the most vulnerable children were carefully looked after. As I mentioned, 1,909 of those cases were handed over and I pay immense tribute to the work that Cabinet Office officials and the children’s services departments of the three boroughs and Bristol did in picking that up. That was obviously vital.
Q708 Mrs Gillan: Can I just get clear in my head why youth policy was transferred to the Cabinet Office and at whose request? Who made that decision?
Mr Letwin: That is a very interesting question that occurred to me, having listened to Mr Loughton today, and I can’t give you a complete account at the moment. If you would like, I will write to you about that. My sense is, thinking about it—I am literally talking about thinking about it outside before coming in the door—that there were probably two allied reasons. One is that the National Citizen Service is under the Minister for Civil Society within the Cabinet Office and I suspect as a tidying-up it was seen that having youth policy in a different place from the National Citizen Service was an oddity and that therefore there would have been a reason for moving either the National Citizen Service over to DfE or vice versa. Secondly, I am conscious that the DfE, particularly under the previous Secretary of State, was particularly concerned to become focused on educating people and less on other things that are important for kids and young people. I will write to the Committee and confirm this or otherwise, but I suspect that the DfE may have been quite happy to see it transferred to the Cabinet Office and be allied with the NCS. But, as I say, that is just my first reflection and I don’t want to mislead the Committee. I will write to you and give you the best possible account I can.
Q709 Mrs Gillan: Thank you. Could it be that this charity was now being considered to be beyond the funding capability of the Department for Education and that so many doubts had been cast on it that had been expressed internally within the Department for Education that it was best to move it to another Department where it would continue to get funding?
Mr Letwin: I don’t think that can really be the case because DfE remained an important funder through 2013-14, 2014-15 and 2015-16, so it would have been possible to have a range of Departments funding it. Whether it was right, as Mr Turner has raised, is the important question. I don’t know.
Q710 Mrs Gillan: That plays into the Richard Heaton statement, “contributed to by a whip-round across the Departments because that tends to take the attention off”, which was the quote about the result of cross-departmental meetings.
Mr Letwin: As I have said, I do think it is a serious issue that we need to review and obviously I will take very seriously what this Committee says about it, but in any case I think we need to look very carefully at the question: should there be always just one Department, in the case of one grant, that is totally responsible?
Q711 Mrs Gillan: I have listened very carefully to what you have been saying and I am interested about the Cabinet Office in this relationship and why they even got the £4.265 million and, despite you saying no, then got £3 million on the premise that they were going to restructure. You said that you knew they made exaggerated claims because you knew she was giving this impression regarding fundraising. You have said, “I never believed the numbers that were given,” referring to the numbers of children. You said, “I have always known its finances were precarious,” and you have also said, “I agree it is not the way to relate to an outside body.” Yet you thought it was appropriate to sign off the £4.265 million grant when you had an audit trail that showed that this organisation was always coming back for ad hoc Government assistance. Do you think that was the correct discharge of your duties?
Mr Letwin: Yes, I do. All those statements are true but, of course, they neglect to add the light in the light and dark photograph we were presented with, that I continued to believe and still believe today, that it was doing much valuable work and I was trying to continue that. It is important that at that time, although I did indeed recognise the precariousness of its financial situation, which is not uncommon in the charity world, I had before me documentary evidence about its so-called financial management in the form of audit reports and the PKF Littlejohn report. I think you and I have worked together for long enough in government for you to know that I study these things quite carefully. I studied those things carefully. I could not see any sign from that that this thing was exceptionally financially mismanaged, so I thought it was worth trying to get it on to a stable footing in the way I have described, without recourse to a Government grant.
Q712 Mrs Gillan: I have to concur. You are very diligent. You read every piece of paper that comes across your desk. When you read the audit reports, they consistently contain those veiled warnings that come from auditors that would make you immediately want to look at it a bit more carefully.
Mr Letwin: No, on the contrary. I have read, as your Chair knows very well, a very large number of reports of accounts across my total career and I did not see these as saying that, but there is a further point that is of some significance and I think oddly contrasts with some evidence you were given on Tuesday. When we were just at the point of giving the £4.265 million grant, the then finance director of the Cabinet Office was in contact with the auditors and with the chair of the audit committee in order to be clear with them whether—they knew that he was asking them about the potential grant—there was any reason why we should not award such a grant. I believe you heard evidence to the contrary, which I think must come from either the conversation not being with the person who was giving the evidence or some failure of memory because, since the evidence was given to you, I have taken the trouble to interview personally the then finance director of the Cabinet Office, who is now in charge of the Government Property Unit. Not only has he confirmed to me that he had that conversation but also there is a contemporaneous email, which I can send to the Committee if you wish, that testifies to that fact. So, I am absolutely clear that the evidence we were getting from the auditors was not evidence of something that was financially mismanaged in the way that it has now come to light that it was.
Q713 Mrs Gillan: On the PKF Littlejohn review of Kids Company, I understand correspondence between Ms Batmanghelidjh and Nick Hurd, who was then the Minister for Civil Society, shows that the Government decided to withhold £500,000 until the review was completed. I would like to know what assurances you were seeking from PKF Littlejohn in that review.
Mr Letwin: I don’t know what assurances Nick Hurd sought from them because I wasn’t involved at that stage. I do know what was produced. That is what I had in front of me and I went through that in some detail, and have been through that in pretty exhaustive detail. I am very clear that if you read that report in its entirety—I am obviously happy to go into however much detail you want about that—there was apparently a sound basis for saying that although this charity did not have large reserves and was living precariously and had cash flow issues, which clearly comes out and we knew anyway, its financial governance otherwise was in reasonably good shape.
Q714 Mrs Gillan: Weren’t you surprised that the report did not assess the effectiveness of the Kids Company policies and procedures at all? That was missing from that report.
Mr Letwin: Do you mean the effectiveness in the sense of outcomes?
Mrs Gillan: No, the effectiveness of their policies and procedures in terms of outcomes, but also how the money was spent.
Chair: If I may supplement this, the original remit given to PKF was to look at the governance of the charity and that was not referred to at all in that report, or it was described as this rather weird word “appropriate”, which does not suggest it was effective.
Mrs Cheryl Gillan: You were going to base your funding decision on the outcome of that review.
Mr Letwin: Not the outcome. That review was completed in March 2014. My decision on the £4.265 million was in April 2015, more than a year later. I had no part in commissioning the review. I don’t know exactly what they were asked to do. What I had before me was the report that is called a review of “financial and governance controls”, so I read it that way. It could have said, “This charity is grossly financially mismanaged; the trustees are out of control of its finances”. It does not say any of those things.
Mrs Gillan: But it wouldn’t say that.
Mr Letwin: Well, it could say things that were like that or very much like that, but it didn’t do anything of the kind. Any reader of that report, taking it at face value, would say that it gave a reasonably clean bill of health. If you compare it to the management of many other charities, it looks okay. We all know now what I didn’t know from reading that report and what I didn’t get from the audit reports, which is that actually the charity was grossly financially mismanaged. Of course I accept that, but that was not clear from the report.
Q715 Mrs Gillan: I just go back to say that that report, which was not a clean bill of health, coupled with the statements I read out before that you have made in this hearing, surely must have set off some warning signals in your head. I also heard you say distinctly, “I had replaced the CEO, I had put in different financial—”
Mr Letwin: That was afterwards.
Mrs Gillan: Yes. Do you not feel that you were too close to this charity and that this charity was getting very special treatment because it had been used as a figurehead in the past for our party? Do you not feel that you were biased towards doing whatever you could to save this charity, notwithstanding what was probably beginning to emerge as a huge catalogue of failure right back to 2002?
Mr Letwin: I don’t think I was biased to do that. I was doing that because I believe, and I still believe, that it was in the public interest that this charity should continue but without further recourse to public funds. I think that was the right thing to have happened.
Q716 Mrs Gillan: But in fact it did have recourse to public funds twice under your management.
Mr Letwin: But the restructuring fund was wholly different because it depended on what had been achieved at the time when it was given, which is a series of things that by that time the charity itself was proposing, namely the removal of the chief executive and the replacement of the financial controller and the replacement of the chair of trustees and the additional trustees. That is a pretty big set of shifts, which of course puts it on a completely different management basis and that was the only basis on which by then I believed it might be possible to survive. I should add that that was being done at a time when there was a group of mainly new donors who were bringing £3 million of their own money to match our £3 million to be the restructuring fund. So I had some confidence at that stage that that could carry forward. What I didn’t know, of course, was that a few hours after we had put in our money there would be the very serious allegations of safeguarding, and the rest is history.
Q717 Mrs Gillan: What checks did your officials make to ensure that the £3 million from the wide variety of donors that were coming up to back Ms Batmanghelidjh had actually been put into the charity before the £3 million was released from Government funds?
Mr Letwin: We had specific undertakings from each of the donors involved and I had met face to face with two of them who were responsible for a large part and one of those, Stuart Roden, had underwritten another large part. So we had very strong confidence that the £3 million would come forward.
Q718 Mrs Gillan: But it had not gone in at the stage the grant went into the charity?
Mr Letwin: It literally had not gone in. It was due to go in the next day.
Q719 Mrs Gillan: But it had not.
Mr Letwin: It had not but it was due to go in the next day.
Mrs Gillan: And it never did.
Mr Letwin: The only reason it didn’t—you can check this with Stuart Roden, I think—was because the charity itself, having received these allegations, said to the donors of the £3 million that they were not going to be able to raise the other funds and the restructuring would not work, and that therefore they should not put their money in.
Q720 Mrs Gillan: But surely one of the principal rules is you do not put matched funding in from Government until you know and have seen that that matched funding is in? You may have had all the assurances in the world—you are a kind man and you would take those—but the truth of the matter is the Government funding went in and it was never matched by the people who came forward afterwards, because of circumstances, granted, so it was done the wrong way round.
Mr Letwin: No, I don’t think it was, because we were told on the day on which the decision was made that if we didn’t make the decision that day, as opposed to the next day, the charity would cease operation because it had to meet its pay bill on 30 July.
Q721 Mrs Cheryl Gillan: Once again, somebody else fell for Kids Company and Ms Batmanghelidjh.
Mr Letwin: No. I am absolutely confident that if those allegations had not arisen in the next few hours that £3 million would have come in and we had written undertakings to that effect.
Q722 Chair: In the small company world that I used to operate in, the matched funding would have gone in in escrow in some form to provide assurance for that, but I think you have made your point about that. Can I just clarify a couple of things? You have repeatedly said the Cabinet Office was in contact with the auditors. Do you mean Kingston Smith, the auditors of the company?
Mr Letwin: Yes, just before the £4.265 million grant, the then finance director spoke to Kingston Smith.
Q723 Chair: A partner who came in front of us on Tuesday was adamant that there had been no contact.
Mr Letwin: I am aware of that, and that is why I was saying I was surprised by that evidence. I think it must arise from either a lack of memory on the part of the person who was testifying, or from the person who has been spoken to not having told that person that there was this contact.
Q724 Chair: We have been in contact with them again and they have reiterated that there was no contact.
Mr Letwin: All I can do is to suggest that the Committee should ask to talk to the then finance director of the Cabinet Office and hear his side of the story. I will send the Committee the contemporaneous email that he sent. You understand I was not party to that conversation.
Q725 Chair: I am not accusing anybody of anything, but there is just a mismatch of the evidence.
Mr Letwin: Exactly. All I can do is to tell you that I have talked to him. In my experience, he is a ruthlessly honest person. He says he had that conversation and he said it at the time.
Q726 Chair: All right, we will clear it up one way or another. The second thing is that it should be emphasised that I think the Minister was then Nick Hurd who oversaw the holding back of the £500,000 until after the PKF report had been delivered. I am still not clear what assurances you were expecting from this report.
Mr Letwin: It was not that I was expecting assurances from it. I was trying to make the judgment when the £4.265 million grant was being made whether I could achieve, through that grant, an end to this long process of special grants through the completion of the end-to-end business review and a downscaling of the total amount of expenditure to be below the income so that the charity created reserves. Secondly, I had to judge whether the then management was capable of doing that job once they had done that business review. Now, the only basis on which I could judge whether the management was able to do that was the audit reports and the PKF Littlejohn report was therefore what I relied on.
Q727 Chair: You took assurance from the PKF report?
Mr Letwin: I looked at the report and it appeared to give a reasonably clean bill of health to the charity.
Q728 Chair: But now you say that it did not uncover the financial state of the business, and if you had known more about the financial vulnerability of the business, you would not have given the money?
Mr Letwin: Correct. If I had known that the donors were going to disappear at the rate they appeared to be—
Q729 Chair: What was wrong with the PKF report? Was it the way it was commissioned or was it just a defective report?
Mr Letwin: I do not say either of those things. All I can say is—
Q730 Chair: It must be one or the other, because the Cabinet Office commissioned it, you relied on it and you acted on it, and now you say it did not tell you what you should have known.
Mr Letwin: Clearly what I am saying is that the report gave a fairly clean bill of health. We happen to know now that the financial management was not as good as one would have hoped.
Q731 Chair: So what was wrong with the PKF report?
Mr Letwin: I am not saying that there is something that the professionals did wrong. I am saying that the report did not reveal the situation that has now come about.
Q732 Chair: The Government spent money on this report, so more taxpayers’ money went out the window for a report that purported to provide assurance that it could not provide. Now, either the—
Mr Letwin: When you say “could not provide”—
Chair: It failed, didn’t it? It did not tell you what you needed to know.
Mr Letwin: That is correct. It did not tell me what we needed to know.
Q733 Chair: Was it poor commissioning or was it the way that PKF slightly changed their remit in order to not give assurances quite as fulsomely as they might have done and then the Cabinet Office missed reading between the lines? Do you think PKF thought, “Well, this is a very popular person. We do not want to get between the Prime Minister and Camila Batmanghelidjh. There is a lot of political risk in this. This is the answer they really want; we will give them the answer they want”?
Mr Letwin: No, I have no reason to suspect that at all.
Q734 Chair: Then what was wrong with the report?
Mr Letwin: The report gave a reasonably clean bill of health and it turned out the charity was mismanaged.
Q735 Chair: Do you think it was good value for money? Was that report good value for money?
Mr Letwin: I do not think it was good value for money, because it did not reveal the picture that ultimately transpired.
Q736 Chair: Will you be trying to get some money back from PKF?
Mr Letwin: I do not know whether that is contractually possible or not.
Q737 Paul Flynn: One of the descriptions I remember at the Committee on the auditors’ report was rather like the question asked of Mrs President Lincoln— “Apart from that, what was the play like?”—because they had gone into this financial chaos and the extravagance on the scale there, and missed it all out. They came out and said it was all right: “Oh yes, someone gave her £302 for a pair of shoes,” and as there was a receipt for it, that was okay. However, no one made a judgment on whether that was a sensible use of public money—to spend on that scale. People had £1,000 here, people were sent off on holiday there, and that was all missed.
Chair: Any comments on that, Minister?
Mr Letwin: I do not think I have any further comment on that, but may I just say something that reflects on things that came out after your Tuesday session, because I think there was an error?
Chair: Yes, please tell us.
Mr Letwin: I think it was noted in the Tuesday session that on page 16 of the PKF report there is the statement that the calculation of accommodation costs includes gift in kind, which is not a cash transaction and therefore should be excluded. But what did not seem to come out in that evidence is that if you look back at page 6, where the recommendations and the responses are listed, what happens is that Kids Company makes perfectly clear in its response, and I quote, “In calculating the percentage appropriate to allocate, we have included gifts in kind in our assessment of the whole delivery cost. However, we are not asking the Cabinet Office to reimburse us for funds we have not ourselves spent”. It went on to say, “If the Cabinet Office prefers to exclude gift in kind costs in the starter calculation, we are happy to reassess in that way”. In other words, this was a technical presentational issue and not a substantive issue.
Chair: I understand that point and I am glad you put on the record. We have also understood that point as well.
Mr Letwin: Excellent.
Q738 Oliver Dowden: Alan Yentob has said he met you in December 2014 and you said, “We are not going to be able to give you any money and this year is going to be the last.” Why did you decide that Kids Company was no longer something the Government should be funding?
Mr Letwin: As I have said to the Committee, my view was that it is no way to do business in the end—to have repeatedly a charity come back to the Government and say, “We are going to collapse unless you give us some money”. You just cannot go on that way. The charity has to be put on the basis that in Tim Loughton’s evidence he was rightly, I think, giving you, namely transitional funding, okay, but to get to the point where it is on its own feet. Of course then charities can compete and tender for Government programmes in an ordinary way, but there should not have to be recourse to special grants. So I made it quite clear to Alan Yentob then, as I did throughout the process leading up to the £4.265 million grant, that that was it and, crucially, that they had to do this end-to-end business review so that we got to grips—they got to grips as trustees—with what they would need to do to their expenditures to bring them into line with their private donations so that they could establish a reserve and move into a different kind of action. That is exactly what I was trying to achieve.
Q739 Oliver Dowden: Did you not fear, given that the previous track record of this organisation that kept coming back for Government money, that despite your best endeavours it might slip back into that process again?
Mr Letwin: No, I did not, because—this it comes back to a point that Mr Hopkins was making earlier, reflecting the NAO—I do not think that the Kids Company, up until the time I am talking about, had been doing that by mistake, I think it had been doing it as the NAO reported: as a conscious strategy. I think that I had managed to persuade Alan Yentob that that had come to an end and we were not going to do that anymore. I do not know—how can I know?—whether he really believed me. He certainly would have believed me after I said a flat no to his request for further funding just after the election on the same basis. I hoped and I thought then—I think I still think now—that he probably did understand that I was telling him the truth when I said, “That is it,” and I was telling the truth.
Q740 Oliver Dowden: Just a specific point, Mr Yentob said he regrets that he did not get this message earlier and suspects the Government did not want to “tell us directly”. How did the Government communicate this message to Kids Company?
Mr Letwin: This message was exactly as he says, I think, communicated by me to him in a meeting. I am not quite sure whether it was the one of 22 December, although I think it probably was, but I probably reinforced it in a meeting I had with them on 18 February, before I made the grant in April.
Q741 Oliver Dowden: So it was all done orally, not through some form of memorandum or something?
Mr Letwin: Yes, although the £4.265 million grant also reiterates that very, very plainly.
Q742 Chair: It is interesting that when you told him that he was not going to get any more money, you then gave him some more money.
Mr Letwin: No, sorry, what I told him was that I was willing to seek to give him the £4.265 million, but that that was it, and it was on this basis.
Q743 Chair: Yes, but that was not it, was it? You subsequently gave him more money.
Mr Letwin: No, I did not give them more money on that basis at all. What I did was to refuse giving the money on that basis.
Q744 Chair: I am not talking about the basis. All I am saying is—
Mr Letwin: I am sorry, the then—
Chair: It is understandable that he did not quite hear the message that they were not going to get more money from the Government, partly because you obviously were reserving your position in some way, on that basis, as you have put it. Also, whatever you said about not giving more money, you then subsequently gave more money, so it is not surprising he never heard this message.
Mr Letwin: Not to them. I refused to give them more money. I then only gave the restructuring grant on a matched basis once the chief executive, the chairman of trustees, three of the other trustees and the financial controller had been placed into a totally new management.
Q745 Chair: But this is rather like a family looking after a profligate maiden aunt, and however spendthrift she is and however the family try to tell her the money is never going to be there, they just keep giving her more money.
Mr Letwin: This is an analogy that is going to lead both of us into difficulties, but if I may say so, it is not like that, because in this case the aunt disappeared from the scene.
Q746 Mr Turner: When did these—including Mr Yentob’s successor and Ms Batmanghelidjh’s successor—materialise?
Mr Letwin: What happened was that before I gave the grant, whenever it was—sorry, I gave it on 30 July 2015, so before 30 July 2015—Camila Batmanghelidjh had resigned “with immediate effect”. I think you have copies of the relevant document. By that time, the new financial controller, the chief restructuring officer—so-called—Colin Whipp, had been in for at least two weeks, so he was in charge of the new finances. He had supplied me with, for the first time in the process following the end of the Parliament, a month by month and quarter by quarter cash flow. We had obtained undertakings from the £3 million fund providers and we had been through one by one the donors that were going to donate the £10 million on a regular basis for the first year and with some considerable assurance for the second year. It was on that basis that I gave that restructuring grant.
Q747 Mr Turner: And Mr Yentob?
Mr Letwin: He was scheduled to disappear—it was a written agreement—by the time that the donors of the £3 million restructuring fund became trustees, at which stage Stuart Roden was going to become the chair. Their condition was that in order to do that—in order to take over as trustees—the financial controller had to complete the restructuring as planned.
Chair: Moving on to the letter of direction, David Jones.
Q748 Mr David Jones: You received fairly trenchant advice from your permanent secretary that the further grant should not be paid. You issued your own letter of direction and you said that you took confidence from the changes that Kids Company had undertaken to make in terms of its leadership, management and governance.
Mr Letwin: Yes.
Mr David Jones: Is it not the case that several grants had been made to Kids Company on condition of achieving long-term sustainability, but notwithstanding that, they had consistently failed to achieve that long-term sustainability? Didn’t you feel that, frankly, given their track record, it was not wise to accept that they were likely to change their procedures?
Mr Letwin: This comes back to the question of who they were. By that time, I had entirely lost confidence in the previous management, so I would not have taken any confidence that they would do that, but they were not going to be managing it. There was going to be the new chief executive—the current one had disappeared—and there was already a new financial controller, in whom I already some confidence having received detailed information from him in a way that previously we had not received from the charity. I was confident that the people who were putting £3 million of their own money in would be sure, when they became chair and other trustees, that it was properly used. Look, I accept entirely that officials took a view and it was—
Q749 Mr David Jones: That was the correct view, was it not?
Mr Letwin: We will never know.
Q750 Mr David Jones: I think it is fairly clear, given that the company—
Mr Letwin: No, I do not agree.
Mr David Jones: —has gone bust, that view was entirely correct.
Mr Letwin: No, I do not agree. The reason why it went bust was because the allegations led to the fleeing of all the donors. Had the allegations not arisen and had it been restructured by the new management in the way in which it was going to be, history only would tell whether it was then a sustainable format without Government intervention, as we all hoped. I do not know. I cannot promise you it would have been, but nobody can tell whether it would not have been. That was not the issue. The issue was how much faith one put in that result, and officials, perfectly properly, took the view that they did not think there was enough confidence. I am a Minister. I am paid to be a Minister and to take decisions. If I override my officials in a direction, I have to publish that on gov.uk for the world to see. I am taking personal responsibility, as I have before this Committee, and do before the nation. I took the view that this was worth trying.
Q751 Mr David Jones: So you still do not accept that your decision was wrong?
Mr Letwin: No, I do not. No, it was a decision that might well have turned out, in practice, to have been an abundant success, if events had not unfolded in the way they did with these very serious allegations.
Q752 Mr David Jones: To revert to the point that the Chairman made a moment ago, in that case, why did you not wait until the £3 million had come in from the private donors or why didn’t you ensure, as he suggested, that it was at least placed in an escrow account?
Mr Letwin: First of all, I had a written undertaking from them that they were coming; secondly, they were due the next day; and, thirdly, it would not have made any difference to the question of whether the charity went bust when it did. Had they put their £3 million in, there would simply be £6 million sitting there. I hope, incidentally, that we may be able to recover a substantial proportion of the £3 million. We are currently in discussion with the official receiver about that. Only less than a third of it has been paid out so far and we will seek recovery of as much as we can of the rest.
Q753 Mr David Jones: That one third was paid out for salaries?
Mr Letwin: Correct.
Q754 Mr David Jones: In fact, the terms of the grant were subject to fairly stringent conditions and they specified what payments could be made.
Mr Letwin: Correct, yes. Accrued liabilities, basically, and the restructuring costs, and accrued liabilities included salaries.
Q755 Mr David Jones: But that did not include salaries.
Mr Letwin: Yes, of course it did. Yes, it included the liabilities—
Q756 Mr David Jones: That was not what Mr Yentob said. What Mr Yentob told us during his session was that they had negotiations with the Cabinet Office and informed the Cabinet Office that in fact they were making that payment. There were specific discussions.
Mr Letwin: They did inform us that it was for salaries, and we accepted that as legitimate because the idea was that the £6 million restructuring fund would meet the accrued liabilities, including the liabilities of existing staff, plus the redundancy costs for the staff, so that they could downsize the operation massively from £24 million to £9 million of expenditure to be in a position where when they were raising £10 million and they were building up a reserve of £1 million a year. That was the guts of the restructuring plan, and of course you can only get to that, as in any business or charity, if you meet the accrued liabilities up to the time when the restructuring occurs.
Q757 Mr David Jones: Mr Yentob said that he told the philanthropists not to put in their own money after the sexual abuse allegations.
Mr Letwin: He did, after the allegations, correct.
Q758 Mr David Jones: How do you feel about that?
Mr Letwin: I do not feel one way or the other, in the sense, as I say, had he told them that they should put their £3 million in, there would then be almost £6 million sitting in the charity and both they and we would be seeking to get back as much of our money as possible, but it would not make any difference to the outcome.
Q759 Mr David Jones: Frankly, the undertakings that you took from those philanthropists were worthless.
Mr Letwin: No, no, they were very much worthwhile, in the sense that had the allegations not occurred, the other £3 million would have come in and the restructuring would have proceeded, and I believe that there is a very good fighting chance that the charity would have been put on a totally sustainable basis thereafter under completely new management.
Q760 Mr David Jones: Again, don’t you think that it would have been prudent—wouldn’t you have been advised this by your lawyers—to have in fact seen that money as hard cash, or alternatively in terms of an escrow, before you paid that over? Would that not be normal business practice?
Mr Letwin: No, because our liabilities were not increased by whether they did or did not put the £3 million in that day, and I am absolutely—
Q761 Mr David Jones: But you might have avoided losing that £3 million, albeit you may be recovering some or part of it.
Mr Letwin: No, I do not believe so. The insolvency came about because the charity did not have, in the opinion of its new financial controller—a serious guy from BDO, Stoy Hayward—at that time any prospect of raising the £10 million a year it needed to be solvent once those allegations had come in. That was the problem. Whether it had had £3 million or £6 million in the restructuring fund would not have made any difference to the outcome at that stage. It did not increase our liabilities.
Q762 Mr David Jones: You still believe that your decision was correct?
Mr Letwin: In the light of the information I had at that time of that day, yes. Had I known—obviously, had the Charity Commission, which it now turns out knew the day before, told us earlier that day—that these allegations were in place, obviously I would not have made that payment, but they did not or nor did Kids Company, and therefore I did not know.
Q763 Mr David Jones: Why would you say that the charity consistently failed to adapt its business model, notwithstanding all the warnings that it received from you and your predecessors?
Mr Letwin: As I said, I had thought, and I think there is still an element of truth in this, that for many years it did so as a matter of strategy, and the strategy—I think Tim Loughton gave evidence about this to you—of the charity was to maximise its appeal to public funds and always to try to expand itself on the basis of raising some private funds and then coming along and looking for some public funds. That was what I was trying to stop. Now, at which point it started being grossly financially mismanaged and got into a genuine tailspin I do not know. Clearly that had happened by the time Parliament ended and it then called for more money.
Q764 Mr David Jones: Isn’t the truth of the matter that the charity expected the Government to hand over money when it came back asking for more—in other words, that it knew a sucker when it saw one?
Mr Letwin: I think it certainly did expect to get more money over the years, as I have mentioned in responding to Mr Dowden. I gave such clear messages to the charity in December and February, and in the grant agreement for the £4.265 million, that it is unlikely that they thought that that would happen again, and I did not detect any great surprise when I told Alan Yentob that we were not going to give them any more money when he had asked for it.
Q765 Mr David Jones: Don’t you feel that they took you for a sucker in June?
Mr Letwin: No.
Q766 Chair: It has to be pointed out that of course it was Alan Yentob, the chair of the trustees, who advised the other funders not to put their money in.
Mr Letwin: Correct.
Q767 Chair: Do you feel that that was in respect of the agreement that you had made with the trustees and those donors? Was that not a breach?
Mr Letwin: I do not think it was a breach of any actual agreement. As I say, I do not think it increased our liability to any noticeable extent.
Q768 Chair: Okay, you have made the point. In terms of the risk analysis, for one allegation to tip a major charity with £23 million of income a year from viability to unviability, this was a pretty precarious charity.
Mr Letwin: Of course it was precarious. Had it not been precarious, I would not have been seeking the removal of its chief executive, the replacement of the financial controller and so on.
Q769 Chair: Yes, and you were in the process of completely transforming the governance and management.
Mr Letwin: Correct.
Q770 Chair: So this was a very high-risk proposition?
Mr Letwin: Eminently, if it had not been—
Chair: There were already questions being raised about the reputation of the charity anyway.
Mr Letwin: There had always been one or another question about the reputation of the charity, but I am, as you are, very conscious that when allegations had been made by former employees to the Charity Commission some while before this—
Chair: We will come to the detail of that in a minute, but make your point.
Mr Letwin: —on 16 July and PwC was sent in and so forth, we were in the position of checking with the Charity Commission whether it took the view that those allegations were sufficient to trigger a statutory inquiry. We were assured that they were not.
Q771 Chair: We are also talking about the fact that there had been public criticism of this charity from, subsequently it is clear, a very well-researched journalist.
Mr Letwin: Yes, there had been public criticism.
Q772 Chair: So this was a charity that was subject to quite a high degree of questioning—
Mr Letwin: Yes, that was part of the reason.
Chair: —and that was the whole basis of it, and indeed, the probity of it.
Mr Letwin: The probity was only challenged after the £4.265 million grant, and the financial mismanagement only came to light at that point. There were certainly criticisms of the charity before that, but there were no criticisms that I was aware of that were fundamentally undermining its probity.
May I just make a comment about the allegations of safeguarding? To have an allegation for a charity that is looking after kids that relates to safeguarding is not just any old allegation. That is obviously a very, very serious matter.
Q773 Chair: I appreciate that, but the Government itself had no means of evaluating whether this charity was good at safeguarding or not. They had done no inspection whatsoever.
Mr Letwin: The charity was subject to CRB checks like everybody else, for example. There was nothing unusual about the regulation of the charity in the sense it had trustees, it had the Charity Commission, it had CRB checks and so on.
Q774 Chair: We will come to that other point in a moment, but I just want to reiterate that Richard Heaton, the permanent secretary, told the Public Accounts Committee, “For it to succeed, it required the chief executive to step to one side, the trustee board to be replaced, management to have the grip to downsize an organisation, which is hard work and difficult, and no drop-off in philanthropic funding. It required all those things to come to pass for the restructuring to be successful and I did not think the probability was high enough to justify public money.”
Mr Letwin: Yes. The one item I would take issue with is the no drop-off in private funding. It was, on the contrary, scheduled to be raising only £10 million a year, not £24 million, and not therefore £17 million of private funding, but down to £10 million. Otherwise, yes, that is an absolutely accurate description and it was a matter of judgment at that time.
Q775 Mrs Gillan: You were just talking about the PwC report and you know that the Charity Commission received very serious allegations from former employees of the charity. The Charity Commission directed Kids Company to commission an external investigation from PwC. The Cabinet Office, as I understand it, withheld payment until the preliminary findings had been released of that PwC report. Given that the release of Government funds was going to be dependent on what was said in that report, what involvement did the Cabinet Office have in commissioning that report or designing the terms of reference?
Mr Letwin: None whatsoever. Let me slightly correct one point. You said that we withheld funding until we received the PwC report. It was not the PwC report on which our funding was contingent; it was a view from the Charity Commission. My officials spoke to the Charity Commission, who alone commissioned Kids Company to commission that report, and had alone at that stage received that report. The inquiry of the Charity Commission was, “Do you believe that the evidence—the state of affairs—revealed by that report is such as to make it necessary for you to hold a statutory inquiry?” When my officials were reassured that the Charity Commission did not believe it was sufficient to hold a statutory inquiry, we then went forward. Now, we received on 27 July—not 26 July, when they had reported to the Charity Commission—not from the Charity Commission, but from the new financial controller at Kids Company, a copy of the interim findings of PwC. It was not them that we were relying on, but the Charity Commission.
Q776 Mrs Gillan: The Cabinet Office’s written evidence to this Committee says that you were waiting for the preliminary findings of the PwC report.
Mr Letwin: Yes, but that is why I am slightly correcting, because we were waiting for that to happen, but we were relying not on reading it, but rather on whether the Charity Commission, which had commissioned it—
Mrs Gillan: You are dancing on the head of a pin on it though.
Mr Letwin: Yes, exactly. That is right.
Q777 Mrs Gillan: However, that preliminary investigation, on which you have taken evidence, lasted only for three days, although an intensive three days, and looked into only five of the eight allegations, and the Charity Commission clearly says they warned the Cabinet Office that the investigation was unfinished and there remained clear issues of concern. Why then was that advice effectively ignored and payment authorised?
Mr Letwin: No, no, we took that advice very seriously. But all the observations that PwC made in that report, if you read it, which obviously we are now both in a position to do, are observations about financial mismanagement and lack of financial governance and control—that is what has come out. By that time, as I have repeatedly said, I was quite aware, for other reasons, that the charity was being grossly financially mismanaged and that the picture presented by PKF Littlejohn report was not correct. I knew all that. That is why we were replacing the chief executive, the chair of trustees, other trustees, the financial controller and so on. It is a pretty remarkable thing to be doing and it was happening precisely because we knew it was financially mismanaged.
So the fact that PwC had brought to light yet more examples of financial mismanagement was, though interesting and important in retrospect, not decisive for my decision. The question I had to ask was: is the Charity Commission going to open a statutory inquiry, because if so, I cannot authorise the payment of funds to a body that is under statutory inquiry. I had to wait for the Charity Commission to do so, and that was why we checked with the Charity Commission whether this was sufficient to trigger that. It knew and we knew that the financial management of that charity had to be totally changed, and was being changed.
Q778 Mrs Gillan: That is the question, isn’t it? It was being changed. It had not totally been changed.
Mr Letwin: Well, it more or less had.
Q779 Mrs Gillan: The financial officer had only been place for two weeks, and yet that was considered to be a reasonable period of time, despite the fact that PwC had not finished its report, to release £3 million of taxpayers’ money to a charity that effectively went bust the next day, making worthless the provisions and undertakings that were made to you on the matched funding. Basically, you told the charity, “I am not giving you any more money.” You then said, “I will give you some more money on these terms and conditions,” and those terms and conditions were not fulfilled, but the charity still got that extra £3 million.
Mr Letwin: No, I do not think that is an accurate description. I agreed to match the funding from others to create a restructuring fund on the basis that the new financial controller was in place, and he was in place; on the basis the chief executive had resigned, and the chief executive had resigned; and on the basis that there was a clear plan to substitute—
Mrs Gillan: And the chairman of the trustees?
Mr Letwin: The chairman of the trustees to be substituted by Stuart Roden, who was putting a large amount of his own money into this restructuring fund. We were in a position where the person who would be the chair of trustees had a very strong interest in making sure that his money was properly used. There would be a new chief executive, because the old one had gone, and in the meanwhile, the total control of the finances—every aspect of the finances—was in the hands of the new financial controller. That was a completely different situation.
Mrs Gillan: I rest my case.
Q780 Chair: But the Charity Commission did give very clear warnings. Why did you still authorise payment?
Mr Letwin: It gave a clear description of what I knew to be the case, which was that there were many issues to be uncovered, but we knew that already. Had we not known that already, we would not have asked for the management to be changed, and indeed required it to be changed.
Q781 Chair: What do you think are the lessons to be drawn from this episode?
Mr Letwin: I think there are many different kinds of lessons to be drawn. Rather than speculate on those now, I want very carefully to consider the report of this Committee when it comes, the PAC report, which we have obviously started considering, and all the evidence that surrounds all that, but also the whole of the policy issues surrounding this. That is exactly what the Minister of Civil Society is beginning as the review, and obviously at a later date I would welcome the opportunity to come back to the Committee and discuss all that. I think there is a huge range of lessons to be learned from the whole episode of 11 or 12 years.
Q782 Chair: Very good, because when Jacob Rothschild was running his investment management business, his adage was, “Always cry over spilt milk.”
Mr Letwin: Yes, I knew that.
Chair: Which is why we are having this inquiry. May I suggest that there was a bit too much cross-reliance, as one might call it: too much of the Government relying on what other donors might be about to do; the Charity Commission thinking, “It must be all right, because the Government are giving their money”; and the Government thinking, “There is not a statutory inquiry at the moment, so it must be all right.” What do you think went wrong with the collective knowledge that was not gathered into one place to perhaps give better information?
Mr Letwin: I think that is one of the things we need to look at. I think we also need to look at the whole question of how audit reports and other reports are used by public agencies. There are a range of issues to examine here, which are deep.
Q783 Chair: I expect that you and I have both on occasion commissioned reports from consultants and accountants. How do we make sure that they give us the truth, rather than what we might want to hear?
Mr Letwin: I think we very much need to look at that. As I say, I do not want to make criticisms of the professionals involved. What I want to do is to learn how we can use better what they produce in future.
Paul Flynn: Could I ask a final question?
Chair: Yes.
Q784 Paul Flynn: You have repeatedly said that Kids Company were doing good work. What is your basis for that claim?
Mr Letwin: As I say, I had personal and direct experience of talking to the kids involved and seeing what was going on.
Q785 Paul Flynn: When was that?
Mr Letwin: Oh, some years back, certainly, but—
Q786 Paul Flynn: What year?
Mr Letwin: 2001, 2002, 2003.
Paul Flynn: Okay, but all the evidence is that they were not doing good work: the evidence of people who worked there, of those who examined it, of the journalists who—
Chair: Forgive me, we are running out of time.
Paul Flynn: But it is this question of this massive—
Chair: You have said this before; we have covered this before.
Paul Flynn: But we have not had an answer, have we?
Q787 Chair: We have not had an answer. We have tried to get an answer; we are not going to succeed.
What about this question of whether, once a Minister or an official has become emotionally—“She is my hero”—or politically involved with an organisation, shouldn’t they recuse themselves from making decisions about that organisation?
Mr Letwin: That is an interesting question. I do not think it would be sensible if every time a Minister comes to a view about the value of something and expresses that publicly, that Minister should no longer have any relationship to make decisions about that. On that basis—
Q788 Chair: There is a difference between having a relationship and using your—
Mr Letwin: But I had no relationship.
Chair: —powers to override the official advice. Come on, this was not just having a relationship; this was you deciding against advice to hand over money.
Mr Letwin: Yes, it was, but I had no relationship whatsoever with this charity.
Q789 Chair: But were you the right Minister to make that judgment to override official advice?
Mr Letwin: I think I was, in the sense that I had some knowledge of the charity, but I had no direct relationship with it and I had no indirect relationship with it. I had nothing to benefit from it.
Q790 Chair: I am afraid we may conclude differently. On the whole question of risk analysis, there is an awful lot of grant giving by Government and Government agencies. Where could we find the best example of risk analysis in grant giving, because there does not seem to have been capable risk analysis in this case?
Mr Letwin: That is an interesting question we should also look at—how to do risk analysis.
Q791 Chair: We are examining a system, and in a way, you are speaking not just for yourself but for all the previous Ministers and Governments who have funded this charity. You are speaking for a system that we may find has been blind to a persistent and long-standing failure in the concept of this charity. What do you think has contributed to that?
Mr Letwin: As I say, my ambition from the time I became involved was to put an end to that process and to change things so that this charity stood on its own feet. That is was what I did through the whole sequence of events that I described.
Q792 Chair: But I am really talking about the governance of the system. For example, having been in fund management myself investing in small companies, rather a similar business, there would be an account manager so that there was continuity of care for that account—it would not just be passed from pillar to post, as Kids Company was. Kids Company was passed around Whitehall like a hot potato and finished up in your hands. Do you think there is something to be learned from that?
Mr Letwin: There probably is, although I want to say—I guess I should put it on record—that the Cabinet Office officials who worked on it during the time that I was involved in it were very serious and knowledgeable and took their job very seriously. After the £4.265 million grant had been administered—indeed in the few days before it—one of them went in and looked at the situation in some depth over a number of weeks, and that was part of what convinced me, alongside the fact they had run out of cash, that there was a serious problem with its financial management to bring to Parliament.
Q793 Chair: Yes, and those officials no doubt contributed to the view of your Department that the money should not be given.
Mr Letwin: Yes.
Q794 Chair: We are certainly in no position to criticise your officials.
Mr Letwin: Nor, I want to state, am I doing so.
Q795 Chair: But what about how Whitehall persistently failed to understand the extremely poor governance of this charity? In the end, you came to that conclusion, despite the PKF report, which said it was all appropriate. How could we better make sure that it is not just chief executives but trustees who are held accountable for what information they are presenting to Government in claiming for grants?
Mr Letwin: I do think that comes back to the question of how we can better use reports like the PKF Littlejohn report and get them to be more revealing, because that is the only way that the Government are ever going to find out about anything that they give money to. Government cannot possibly do all of these investigations itself. The Government have to rely on people to do them who are professionally qualified, and we have to make sure that we are better at doing that.
Q796 Chair: Isn’t it also increasingly clear that the Cabinet Office is not really the right place to be handing out grants as it is too close to the political centre of power? The reason for having Government Departments, to go back to 1919 and the Haldane report, is because that was the best way of creating accountability, but this was not an accountable process. You are making yourself accountable, I am not denying that, but—
Mr Letwin: Yes, I feel highly accountable. I have been here for some time being accountable—and rightly—and I do not seek to dodge responsibility for this for one moment.
Q797 Chair: Very often we put this kind of activity into arm’s length bodies in order to insulate it from political patronage. This smacks of political patronage—the way this money was being handed out.
Mr Letwin: Certainly during the time I was involved, I do not think there was any political patronage at all, but if the Committee reports favouring a different structure, that is something we should take very, very seriously.
Chair: I think I have finished.
Mr Letwin: Thank you.
Chair: But I just want to thank you, Minister. You have been a good and truthful witness to us and we are grateful for that, however critical we may be.
Mr Letwin: Thank you.
Chair: Thank you very much.
Oral evidence: Whitehall’s relationship with Kids Company, HC 433 20