Where next for government grants?

Kids Company: a hard case

The Public Accounts Committee (PAC), which scrutinises government spending and value for money, has today published the report of its investigation into government funding of Kids Company. Sadly this is only the end of the beginning: there are further reports to come from Parliament’s Public Administration and Constitutional Affairs Committee (PACAC) and the Charity Commission.

There is much anger and dismay in the report; justifiably so. But on this occasion I am more interested in what the PAC suggest government should learn about its grant making in the future. Inevitably, the Kids Company fiasco is now starting to impact more broadly, and we would do well not to act hastily: hard cases make bad law.

‘This must never happen again’

The PAC is clear that steps must be taken to ensure that the situation never occurs again – a clearly desirable aim, but ‘never‘ sounds difficult to achieve. There are five recommendations.

1. Undertake a review

The government should undertake a fundamental review of how it makes direct and non-competitive grants to the voluntary sector. The review should consider:

• how government can ensure grant making processes are fair and equitable
• how government assesses the financial sustainability of a charity once the grant period finishes (and not just on the financial data included in the grant application)
• when funding a charity that provides innovative services which have the potential to be replicated, it sets clear conditions for how and when this needs to happen
• when a national charity is providing services with predominantly local characteristics, advice should be sought from local bodies working in that area to validate value for money.

2. Set up a register of grants

The government should develop a register of grants to the voluntary sector so that it can easily identify charities receiving large amounts of government funding from single or multiple sources and share intelligence on charities’ past performance.

3. Improve evaluation

The government should improve the way it monitors and evaluates the performance of grant-funded organisations, including looking at the balance between self-reporting and external evaluation. It should ensure that organisations have robust and transparent mechanisms in place for measuring their own performance.

4. Follow established procedure

The government should not provide or appear to provide funding commitments without referring the funding request to the appropriate funding department so that the requirements of HM Treasury’s manual Managing Public Money are met.

5. Be transparent

If the government decides to use special powers to grant funding, it should provide a transparent case for its decision and report regularly on the use of these powers.

There is much to agree with in these recommendations

Indeed, some concur with things NCVO has been saying for some time. Greater transparency is top of my list: sunlight is the best disinfectant. Government is a great advocate for open data, but more could and should be done to show where and with whom public money is being spent. A register of grants may well be the best way to do this; we have previously suggested transparency clauses in contracts.

It seems equally sensible to improve the way that we monitor and evaluate the way government works out whether it is getting good value. We’re not short of ideas here – for example, having a theory about why what you do makes a difference. The trick will be to remember that better is not the same as more. If grants end up looking more like contracts, we’ll lose what is special and different about grant funding in the first place.

Maybe government could learn from charitable foundations. Lloyds Bank Foundation, for example, argues that a good competitive grants process means that they only fund the most impressive voluntary organisations. It could also learn from what it is doing well, not just from its failures; this guidance from NHS England on grantmaking to charities is, frankly, brilliant.

Direct and non-competitive grants to voluntary organisations are almost certainly rare; reviewing their use seems sensible. I feel cautious regarding the suggestion that the financial stability of the organisation at the end of a grant should be a factor for consideration; it would be counter-productive if this precluded the sort of risk-taking that grant mechanisms enable.

Is this just a voluntary sector issue?

I don’t think that this is just an issue about charities; the proposals should apply to all recipients of public money. Particularly as most government grant funding doesn’t go to charities.

The government’s own accounts (the ‘Whole of Government Accounts’) show that for the last year available, government spent £56.3bn on grants/subsidies. £2.2bn of that to charities, the rest went to the private sector. We should increase transparency across the board, and in doing so strengthen the hand of all those that want to follow the money.

We need to protect and strengthen government grant making

Amid what appear some sensible ideas from the PAC, my concern nevertheless remains that grant making becomes tainted: poor value for money; prone to cronyism; lacking rigour. And we move further down the road of contracts, blithely ignoring both the benefits of grant mechanisms and the deficiencies of contracting. There is room for both.

So, here are five reasons why we should use grants. It’s a post from 2013 that’s as relevant as ever, as NCVO evidence is that government grant funding continues to decline. I hope the fallout from Kids Company does not hasten that decline further.

Postscript: a very good point from Alistair Heron – this is really a story about outsourcing

@ncvoaidan @karlwilding Great, balanced comment Karl. Let's not make this just about money to charities, but transparency on outsourcing.

— Alistair Heron (@Al_roar) November 13, 2015

An essential read for all involved in #VCS #Commissioning #grants @DHgovuk @NHSEngland https://t.co/SyF3XFpal5 thanks @karlwilding @NCVO

— Olivia Butterworth (@LiviBF) November 17, 2015