Oral evidence: Bounce Back Loans Scheme; and

Oral evidence, 5 December 2022.

Chair

Welcome back to the Public Accounts Committee on Monday 5 December 2022. This is our session looking at the annual report and accounts of the Department for Business, Energy and Industrial Strategy. We have just heard from some of the high street banks and lenders about how they handled the Bounce Back loans and their experience of them, which are part of our questions to the Department. However, the Department covers a wide range of activities across Whitehall, so we will spread our net further. Before we get into the meeting, do any Members have declarations of interest that they would like to make?

Sir Geoffrey Clifton-Brown

Good afternoon. I wish to declare that I have a green loan on photovoltaics. There is a feed-in tariff payment under that loan. It was taken out about 10 years ago.

Chair

Thank you, Sir Geoffrey. Any other Members?

Olivia Blake

I was, unfortunately, a Bulb customer.

Chair

That is as an individual customer, and it is not the main thing before us today, so that is fine. Thank you. Before we go into the main session, we have some topical issues to raise quickly. I ask Mr Nick Smith to kick off, briefly.

Nick Smith

Hello, everybody. Ms Munby, what update can you provide, please, on the sale of Bulb Energy to Octopus? What is the estimate of any additional costs to be met by the Government as part of the deal?

Sarah Munby

The update is that the process—running through bids and so on—has been completed. We know who the buyer will be, which is Octopus. We expect the transfer scheme, which is the precursor of the conclusion of the transaction, to go ahead on 20 December. Customers will continue to be served throughout. We are not expecting any disruption. On the cost, we will update fully on the next round of estimates on cost in due course. I do not have a new number to give to the Committee today. You will remember that the last number that we put into the public domain for Bulb was the £1.68 billion facility that we originally granted to the administrator at the start of the process. I do not propose to give a new number today.

Nick Smith

How have you worked with Ofgem and the administrators to ensure that the lessons learned from Bulb help prevent or better manage any future special administration regime, please?

Sarah Munby

As you might remember from this Committee’s own investigation into retail regulation, Bulb was the most challenging case of a recent energy supplier failure, but far from the only one—we had a large number of SOLR (supplier of last resort) processes as well. Ofgem, you might remember, took a quite full, independent lessonslearned exercise as a consequence of that work, which includes a whole series of recommendations, not only on the internal workings of Ofgem and how we work with Ofgem, but on the regulation of the retail market. Some of the lessons from that have already started to be put in place. Very recently—last month, I think, although don’t quote me on the date— Ofgem launched new minimum capital adequacy requirements and new regulations requiring the ringfencing of renewables obligation balances. Those are things that came up as part of the lessons learned processes. There is certainly more to do, and we hope not to find ourselves in another SAR situation.

Sir Geoffrey Clifton-Brown

Ms Munby, this is a slightly niche question so I will be very happy if you want to write to me about it. I don’t know how au fait you are with Newport Wafer Fab.

Sarah Munby

I am reasonably au fait; it depends how niche you are going to go.

Sir Geoffrey Clifton-Brown

If you are au fait with it, you will know that I asked an urgent question about it in Parliament last year. I asked you to use the Department’s powers under the Enterprise Act 2002 and the National Security and Investment Act 2021, which was in operation at the end of last year, to block the sale to the Chinese-owned company Nexperia. At the time, the Minister told me that you were not proposing to use those powers. Now you have announced that you are going to use them on security grounds, having allowed the company to take a stake in Newport Wafer Fab, to force the sale of that company. What has changed in the intervening period?

Sarah Munby

The appropriate way to answer that question is simply to say that the process for decision making under the Act is defined in law. For those who have not followed the case as closely as you, we recently published the final order in summary form on gov.uk, which outlines the reasons why the decision was made. Decisions under the Act have to be made on national security grounds; they cannot be made on other grounds. That is why the Secretary of State took the decision. I would not propose to give any further details, other than what is summarised in that order, which is in the public domain.

Sir Geoffrey Clifton-Brown

What reassurance can you give to the workers at Newport Wafer Fab that their jobs are safe?

Sarah Munby

The order asks for a divestment of a minimum of 86% of the holding. The elements of the order that aren’t in the public domain lay out the process and timings for how that divestment needs to take place. We will ensure that everybody involved, including those working at the company and the broader cluster, which is of very serious significance to the area, are kept well informed about what is happening. Of course, we hope that company will remain in operation a long time hence, but that will depend on the commercial processes that happen from now.

Sir Geoffrey Clifton-Brown

You are not able to tell us how long it will take or how it will happen?

Sarah Munby

No I am not, I’m afraid.

Sir Geoffrey Clifton-Brown

Given that it is under this Act and it is for security reasons, will we ever know your reasoning for making this decision?

Sarah Munby

Not more than is available in that order, although it is fair to say that the BEIS Committee has some further ability to interrogate the Department. That is being done under a special set of arrangements, given the potential security risks of discussing any of this in open camera.

Chair

We might want to link up with our sister Committee, and of course the Intelligence and Security Committee has licence to roam over this issue. Let us take that off to the Committee Corridor and do that through our own channels.

Nick Smith

I have constituents who work at Newport Wafer Fab. The staff association came up to Parliament last week, and their experience of Nexperia is that it is a very good employer. They said: “Nexperia have poured money into saving the factory, raised wages three times and paid bonuses that we never received under previous ownership, who, in our view, only sought to line their own pockets.” That is very, very strong support for the company. Because no real reason has been given yet on security grounds, they don’t understand what the Government’s thinking is. They are very unsure about this and very insecure in the run-up to Christmas, as you can imagine. If a buyer for Newport Wafer Fab isn’t found—the staff tell me there have been difficulties finding a buyer for the plant in the past—what is plan B?

Sarah Munby

I am not going to lay out plan B at the moment, while plan A is so very much under way, but it is worth saying that we are very cognisant of exactly the issues that you describe. I should say that the nature of decision making under the Act, and apologies for repeating the point, is not to weigh these things up in a careful balance of—it is a national security decision, and that is why we are not going to publish an explanation of that decision. That is not because the points that you raise are not well made or considered. There are lots of other forms of support that we provide to the semiconductor cluster in Wales. There is quite serious funding there through the Catapult, for example. There has recently been Strength in Places support. It is a part of the country where we have done a lot of other sorts of work. Should it come to pass that this process does not work in the way that we anticipate, we will look at all of those levers to see what we can do to support that area of Wales. But I do not have a “this is the answer” solution for you today. It is all being looked at.

Chair

We may want to pursue some of the information behind the scenes.

Nick Smith

We will.

Chair

Thank you, Ms Munby. Sir Geoffrey Clifton-Brown is next.

Sir Geoffrey Clifton-Brown

May I come back with one final question? Why didn’t your Department accede to my request and block the takeover in the first place, which would have been an awful lot easier than making the company divest its stake subsequently?

Sarah Munby

I would need to go back to the record to see exactly what was the reason, but all of these decisions are made under strong legislative frameworks. The reason will have been that at the time, under the legislation that applied at that point, the bar was not met for making an intervention of this kind.

Sarah Olney

I have been chatting to some of the small businesses in my constituency, particularly in the hospitality sector, and they are all extremely concerned about what happens to business energy support schemes from April onwards. I will not ask you for a full, detailed explanation now, but could you update me on timings? When do you expect to be able to make announcements? Also, what is the consultation process and how are you getting evidence from the hospitality industry?

Sarah Munby

For everyone’s benefit, we are currently working with HMT on what is ultimately an HMT review of the non-domestic energy support scheme. Ministers have talked about it becoming more targeted after April, and the question is exactly as you ask: what does that mean in practice and what does it mean for sectors such as hospitality? Our analysts have been doing very detailed work, with a great number of roundtables. I am absolutely sure that we have spoken to the hospitality industry, although I could not give you chapter and verse. I am happy to follow up to look at how exposed people are to increased energy prices, and how vulnerable they are in general—clearly, more economically vulnerable sectors will be more challenged—in order to provide a full evidence base to inform decisions by Ministers about what will happen after April. The original commitment was to publish by the end of this year— we expect to be on time with that—in order to give people a period of adjustment before any changes come into force in April.

Sarah Olney

So, before Christmas, hospitality businesses should know what the plans are—

Sarah Munby

Technically the answer might be before the end of the year, which is slightly after Christmas, but it is highly imminent.

Sarah Olney

It is the immediate post-Christmas period that many of them are most worried about. That is why this will help with the long-term planning. If I may—

Chair

I was going to bring Ms Blake in.

Olivia Blake

Thank you, Chair. I have a quick question that was raised with me after visiting a local pub. Access to the residential schemes is not available to tenants of pubs—individuals living above their properties. Do you have a view on that? Also, they seem to be getting charged more in their standing charges as well. I just wanted to raise that with you.

Sarah Munby

Thank you. I know we have discussed the specific issue of people who live above pubs. I cannot remember the exact answer, but I will make a general comment: where people get their support via a landlord, part of the legislation under the energy bills Act is to make it compulsory for discounts to be applied. If you are a landlord getting your energy through a domestic contract and you are benefiting from the energy price guarantee, you need to pass that on to your tenants. Equally, if you are a landlord getting energy through a business contract and you are benefiting from the scheme we just discussed, you need to pass that benefit on to your tenant. I will happily come back on the specifics of tenants in pubs.

Chair

That brings us to communal heating schemes, which are a business contract, but individuals pay individual bills. Is that covered by the Act?

Sarah Munby

Yes it is, and we have said explicitly that we will come back with an answer to what would rightly be your follow-up to that, which is what will happen in April to those people who are, as it were, secondary beneficiaries of a communal heating system that currently benefits from the non-domestic scheme. I don’t have an answer to that today, but we have said we will.

Chair

In most cases, people are paying individual bills—named and addressed. They are domestic users; it is just that the system is set up by the freeholder or the—

Sarah Munby

Exactly, and because the support provided under the two schemes is broadly equivalent today—today, whether you are a tenant of a landlord who has a domestic contract or of one who has a non-domestic contract, you are still receiving similar support—

Chair

This is not necessarily tenants; it is leaseholders—

Sarah Munby

Either way—sorry, I was using the term broadly; you are quite right—it doesn’t make a difference.

Chair

So you are saying that basically the communal heating scheme issue has now been resolved.

Sarah Munby

Until April, at which point, depending on what we do with the non-domestic scheme, we may need to come back to the question of what happens to the end user.

Chair

Well, plenty of people will be watching that and keeping in touch with you on it. Ms Olney has the last point.

Sarah Olney

I want to ask very quickly about postal services. Lots of my constituents are complaining that they are not getting their post. We have heard from local sorting offices, and my local postman confirmed this morning when I saw him, that there is a huge backlog and that they lack the staff to deal with it, partly because of staff headcount being cut over the last few years and months. Obviously, the planned strikes are going to make that a lot worse over the next month. What conversations have BEIS been having with Royal Mail about how they are addressing this?

Sarah Munby

It is worth saying, for the benefit of the record, that of course Ofcom are ultimately the regulator here and we don’t look after them directly in the Department. Ofcom, I know, are looking at exactly the sorts of issues that you are describing. BEIS officials and Ministers have met with Royal Mail to talk about these issues. And all of that will be declared in their transparency returns in the normal way.

Sarah Olney

Okay, thank you.

Chair

We now move into the main session, and I welcome our witnesses formally. We have obviously met Sarah Munby, the permanent secretary. She has been taking the floor till now, but she is now going to share the limelight with Gemma Peck, director for business growth at the Department for Business, Energy and Industrial Strategy—given Government priorities, that must be quite a busy job right now—and Tom Taylor, strategic finance director and chief financial officer at the Department for Business, Energy and Industrial Strategy. I want to kick off with this. One of our big concerns about your annual report and accounts is, of course, levels of fraud and error, so could you give us an update on the latest estimates of fraud and error for each of the covid grant schemes, Ms Munby?

Sarah Munby

You want me to start with the covid grant schemes as opposed to the covid loan schemes?

Chair

Yes, please. Obviously, we were discussing the latter just now with the banks, so that was quite helpful.

Sarah Munby

The covid grant schemes were the programmes that were put out primarily through local authorities. There were a number of waves of grant schemes; we normally think about them in three waves. Last time we were here, last year, at which point our accounts were qualified, partly because of the estimates of fraud on the LA grant schemes, we had applied an estimate of, I think, 11% across the three waves. We are now able to update that. For wave 1—these were the very early grants that went out at the very beginning of the covid crisis—the latest fraud and error estimate is 8.4%, and for waves 2 and 3, where last time we were just applying the results of wave 1 blindly to waves 2 and 3, which was one of the reasons we weren’t able to reassure you on the numbers, we are now able to give early estimates. These are not final estimates, but it’s 0.5% for wave 2 and a weighted average of 1% for wave 3. What that is demonstrating is that the later grants had very much lower levels of error and of—I am sure you may want to know why, and I am happy to talk further about that, but it’s overall a very significant reduction in exposure since what we talked about last year.

Chair

When will you have the final estimates? You have said these are not final. Obviously, they are not yet, but when will they be?

Sarah Munby

Just as we updated wave 1 between last year’s annual report and this year’s annual report, we will expect to update waves 2 and 3 for next year’s annual report.

Chair

“Update”—does that mean that that is the final estimate, or is it a moving target? It must be a moving target a bit, Mr Taylor?

Tom Taylor

You would expect to have a final estimate for wave 2—I’m just thinking of the chronology of it—and an updated estimate for wave 3; depending on how fast we do the reconciliation work with local authorities, it may turn out to be a final estimate. One of the interesting facts about having a so much lower estimated incidence is that there are diminishing returns in doing more and more sampling of it, because the confidence interval is already very narrow. So we may well find that we just, in next year’s accounts, plump for a final estimate on those.

Chair

Ms Munby, you rightly guessed that we might want to know why it has dropped from 8.4% to 0.5% and 1% depending on what they finally come out as in waves 2 and 3. What lessons have you learned and what did you do differently?

Sarah Munby

It is worth doing a minute on why it was at 8% in the first place. It is quite different from what you just talked about around loans: this is primarily error, not fraud. The reason why we are so confident on that is that if you think about what was actually happening, these were not application-based processes. It is not that people applied for a grant; local authorities paid out grants according to their ratepayer databases. The issue is not that people applied for grants that they should not have been allowed; it is that payments were made in error.

Chair

To do with definitions of the types of businesses?

Sarah Munby

It would be, for example, that you should have got the amount that was for a rateable value of x, but in fact your rateable value was y and the database at the time was not accurate enough to show that, so you got paid the wrong number—those sorts of issues. That is error and is not in line with how the scheme was meant to work, but it is quite different from deliberate fraud.

Chair

Has there been any attempt to recoup that?

Sarah Munby

Yes, although it is fair to say—I am sure you will want to talk about this more, as we go through—that we think the majority of that error will not be recouped. That is partly because it is not about going after deliberate fraud, but about recovering payments that local authorities made—primarily to legitimate businesses having a difficult time during covid, although not as accurately as we would have liked. The reason why error rates go down very much in later schemes is that many of the later schemes were more application based. In general, we mandated much higher levels of prepayment checking—checking the bank account and the data. And frankly, the databases just matured through running the first set of schemes. By the time we were doing the second and third waves, the databases were good—although no database is 100% accurate—whereas we started with something that was not as good as we would have liked because it was not designed for the purpose.

Chair

We love data; Sir Geoffrey is going to come back in a moment on that. We were just discussing the Bounce Back Loan Scheme and CBILS with the banks. How much have you recovered on those schemes in terms of fraud? We were hearing some interesting messages from the banks about how much effort they are going to put in to pursue such cases. What is your latest estimate on those?

Sarah Munby

Our latest estimate of fraud on the Bounce Back loans? The overall fraud rate across the book we describe in the accounts as 8%. It is worth footnoting that that is what we were able to evidence sufficiently to be reportable in the accounts. We think it could be higher than 8%, but 8% is the legitimate number under IFRS 9, so we report on that basis.

Chair

You have bottomed that one out as definitely fraud.

Sarah Munby

But that is the overall estimate of fraud, which is not the same as the estimate of fraud loss. That is because some people will have taken out a loan fraudulently—particularly with relatively minor fraud such as turnover—but they will still pay it back so there is not a loss to the public purse. The estimate overall of lifetime fraud loss is 4.24%. That is made up of 0.75% that has been concretely identified and 3.49%, which is our estimate of the fraud that we will go on to identify as we do more work.

Chair

I turn to Sir Geoffrey Clifton-Brown, who will pursue some of these matters.

Sir Geoffrey Clifton-Brown

Good afternoon, Ms Munby—well, we have already had an exchange. What have you learned from the Bounce Back business loans and CBILS to make to make the new loan more secure going forward?

Sarah Munby

I might turn to Gemma to talk about the Recovery Loan Scheme and the way it builds on the Bounce Back Loan Scheme, but may I make one comment before I do? It is important to recognise that many of the risks that have transpired through the Bounce Back process were identified at the beginning. That does not make it okay, but it was not that we were surprised by the fact that it turned out to be a scheme with an unusually high level of fraud. We knew that at the beginning; that is why it was subject to ministerial direction at the time. I think it is fair to say that while of course there are lots of lessons to learn around the detail of that, overall what we thought at the beginning is roughly what transpired. Gemma might want to talk about this.

Chair

For the record, so that people following our proceedings know, your letter with the British Business Bank and the Treasury of 30 November is useful in this context. Thank you for that.

Gemma Peck

I will take you through some of the general lessons from Bounce Back loans that informed how we have continued to manage that portfolio and that we have taken into RLS—the Recovery Loan Scheme. There are some more specifics on RLS as we have evolved the scheme. There are five general lessons. The first is that it was only possible to deliver a scheme at this scale and at the pace we did because we built it on existing infrastructure; it would not have been possible without that. That was the enterprise finance guarantee—the loan guarantee scheme we had had in existence for a number of years. Building on that helped us to deliver quickly, so it was clearly important to have such infrastructure in place, which we can dial up and down as we need it, countercyclically. The second lesson was around data management. It has been a significant exercise in a scheme of such scale. You were just asking the lenders about what data they supply. We estimate that it would be well in excess of 700 million data points on the Bounce Back Loan Scheme alone. Of course, it has taken time for us to evolve all the systems that we need to manage that data to seamlessly connect the British Business Bank’s portal to the 29 lender systems, which are all different. One of the things that we learned and adapted for RLS is, for example, the privacy notice that borrowers sign up to, to ensure that they give permission for us to share their personal data for the purpose of fraud prevention. We have applied that to future schemes. The third area of learning was around the dissolution objections process. You heard Anne Boden talking about that. Lenders were doing it, but we saw the value in having a bulk process that we ran centrally. That was set up at great pace. Initially, it was something that was run manually; we have now put it on a more stable footing and it is semi-automated. It is a process that we will be able to apply to future schemes. The fourth area is around lender accreditation and management. All the lenders that take part in British Business Bank schemes must be accredited. That has to be robust, but it also has to be proportionate and risk based. We have learned about how to make that work well. Then there are the data systems and the governance we need to manage lenders really effectively at this scale. You are familiar with the lender performance dashboard, which we iterated and shared with you privately a week or so ago. The audit systems that the bank has for the lenders have been in place since the start of the scheme, but have evolved to become more in depth, as has our governance. Earlier this year, for example, we created a new lender performance advisory board to support the bank in that work. The fifth general area is of course the counter-fraud and financial crime capability that we have brought in. We are able to apply that to future schemes. We have used that team to help to resolve things such as what HSBC mentioned earlier, where directors of dissolved companies were voluntarily wanting to make payments where the bank has helped lenders to reassure themselves about that process. Shall I quickly talk about RLS specifically and the three key changes in the most recent iteration of the Recovery Loan Scheme? It is worth saying that the RLS is very different from the Bounce Back loans, in that the credit checks exist and the guarantee is not 100%. The three big changes in the most recent iteration are: first, we have permitted the lenders to take personal guarantees for the loans, because we found that the prohibition on personal guarantees was causing us to displace commercial lending that would otherwise have happened; secondly, we have simplified the undertaking and difficulties test, so as not to block viable businesses; and thirdly, we have removed the portfolio cap, which used to limit the total proportion of a lender’s portfolio that could be claimed against the guarantee. In effect, that never needed to be used, but the impact of it was that the loans would not score for capital relief. By removing that, lenders may claim capital relief, which means that they can lend more to small businesses at better rates. As the scheme has moved to being less about recovery and more about business as usual, we have reduced the size of the guarantee, the businesses that can access it and the size of the loan.

Sir Geoffrey Clifton-Brown

That is good to hear. You have moved on a long way since the enterprise loan guarantee scheme, which the BBLS and all the others are based on, and you have learned as you have gone along, which is great. Will you tell us about the Public Sector Fraud Authority you set up? How effective has that been?

Sarah Munby

It is worth saying that we did not set up the Public Sector Fraud Authority; the Cabinet Office did, with support from HMT. We partnered them very closely. They have of course been involved in all the work that we have been talking about on grants and loans. I am sure that the Committee will be pleased to hear that they have been— I think it would be no exaggeration to say this—intimately involved in our counter-fraud work on the energy schemes that we launched recently. They are absolutely in from the ground up, sitting on our governance, our project approval processes and so on, to make sure that we have the very best of the Government’s expertise in this area applied from the start.

Sir Geoffrey Clifton-Brown

We are told that the British Business Bank has made several improvements to credit loss and guarantee schemes, including the utilisation of real-time data on arrears, which you are going to use in the RLS. That should improve the decision making as to who gets a loan. Will you tell us about that?

Gemma Peck

The data that we receive from the banks reflects the loans that they have offered, and the status of those loans. It is for the lenders themselves to determine whom they will extend a loan to. The British Business Bank does not have a role in that.

Sir Geoffrey Clifton-Brown

On the Consumer Credit Act issue you talked about and allowing businesses to self-certify their eligibility for the scheme, is that still in operation for the RLS, or not? Have you stopped that selfcertification for the reasons that I was questioning earlier?

Gemma Peck

Yes. The Bounce Back loan was a unique scheme to fit an extraordinary time. That is why the credit checks and the Consumer Credit Act requirements were suspended to enable the lenders to operate at much greater pace. That is no longer the case with RLS: normal credit and affordability checks and other regulations apply as normal.

Sir Geoffrey Clifton-Brown

NATIS, the National Investigation Service, received £13.2 million from you. Will they be able to produce data to calculate effectively the amount of fraud and non-payment in the loan schemes?

Sarah Munby

We will report on NATIS’s results. I have a few statistics to give you today: they have 558 open investigations; they have recovered £5.8 million, and we expect that number to rise and continue to tick over each year; and there have been 58 arrests by NATIS in connection with Bounce Back loan fraud. We will continue updating such numbers over time, so that you see what we get for the money we put into that service.

Sir Geoffrey Clifton-Brown

The Department for Work and Pensions spends several billion pounds a year on fraud. Are such sums as £13.2 million realistic?

Sarah Munby

That very much goes to the question of, on the one hand, wanting to pursue all fraudulent cases connected with Bounce Back loans and, on the other hand, wanting to do so in a way that is value for money. We are talking about relatively small loans—this was at the bottom end of the market by design—and most of the fraud was relatively minor. A good example would be turnover or applying for two loans, when people were only meant to apply for one. The question is, how far down the ladder do we go from the most serious organised crime? That is where we started NATIS working. So when we were speaking a year ago, NATIS were really focused on that. We have, through the extra funding, moved them down the ladder to get at a larger number of the next tier down of fraud. Of course, you can continue pushing down and down and down, but the money that you put in goes up and up and the benefit of what you do goes down. It is really important in particular to get after organised crime, where the fraud perpetuated on Bounce Back loans is a symptom of a wider set of criminal activities. It is also, of course, worth noting—I have said this to the Committee several times, so apologies for saying it again—that the activity done by BEIS, NATIS and the Insolvency Service is really the tip of the iceberg, because the majority of the recovery and anti-fraud activity is done by the lenders themselves, in the way that they discussed in the earlier part of your hearing.

Sir Geoffrey Clifton-Brown

Thank you for that, Ms Munby. You were present for the previous session, and I think we got a fairly clear sense in that session that there are differences in standards between the different lenders. Some have performed pretty well and others not so well. We did not get into this in the last session, because it was not really appropriate, but it is your Department’s responsibility to oversee these lenders, so what actions are you taking where lenders are not performing up to standard?

Sarah Munby

There are a few aspects to this that I would highlight. The first is where lenders are not up to standard in the sense of not complying with the terms of the scheme or not complying with the terms under which the guarantee should be applied. There, we have enhanced the audit processes that the British Business Bank uses to assess whether they are indeed fully in compliance with the scheme. We have done work on data to make sure that as claims come in, we are able to see which of the claims are most likely to be problematic and get back to lenders to check whether all those sorts of up-front KYC, AML things and so on that they talked about were done correctly at the time. So there is something about greater enforcement of the rules of the game, and all the data that goes alongside that. Once you are getting beyond that, what you are actually doing is working with the lenders very much in partnership. They all had positive things to say about the way that partnership is developing, which of course we would echo. The data is an important part of that, so that not only they can see how their performance compares, but you and, indeed, any member of the public can see how data compares. We talk to them all about why the data looks the way it does. The one thing that I thought perhaps they were slightly reticent to come forward and say bluntly but which I will say on their behalf is that you do have to be cautious about interpreting differences in the data, in a snapshot of time, as necessarily reflecting performance differences, because on the one hand you have different strategies employed at the outset of the scheme—for example, you talked quite a lot, in the earlier part of the hearing, about the difference between people who took on new customers versus those who did not. That is one example of a difference of approach. We certainly would not want to suggest that there was one right answer to that question; both choices were legitimate, and we were glad that there were lenders in the market who were taking new customers, because—I am sure you had the same—everybody’s postbag was full of people who could not access a loan. That is one thing. The second thing is that not everybody has identical processes here. You might have people who are identifying a higher level of fraud, or possible fraud, because they flag at a slightly different bar from somebody else. This is not a single programme in which everything is done exactly the same across lenders. Different lenders have different data sources. They have different sets of existing relationships and other relationships with customers. So I do think data is important and it is useful, but it is not a league table—it is a source of insight.

Sir Geoffrey Clifton-Brown

To absolutely test where all that is getting us to, when do you think your Department will be in a steady-state position and you will have virtually allocated the total amounts of fraud— not for the latest scheme, because that is still in existence, but for the other ones? I am talking about what the total level of fraud is really likely to be. It is great to see that it has come down significantly this year compared with your estimates for last year. When do you think you will get to an estimate that is pretty well accurate?

Tom Taylor

The estimate of fraud incidence at 8%, as the permanent secretary was saying earlier, we now believe is pretty stable, because it was based on sampling that was done by PwC and audited by the C&AG and has been refined since—but that work has now stopped. That of course is focused on Bounce Back loans. The reason for that is that we have plenty of evidence to show that the rates of fraud and error in the other schemes, which are CBILS, CLBILS and, indeed, the Recovery Loan Scheme—I was just looking at a table that shows that less than 1% of the Recovery Loan Scheme loan book is in default—is so vanishingly low as to not necessitate any further sampling effort. So we feel that the 8% is robust. What will change over time, as we learn more and economic conditions change, is the rate of loss. We originally assumed, perhaps with an abundance of caution, that 100% of the fraud and error estimate—11.5% as it was then; it is now 8%—would be lost. We now know that not to be true, and only 52% is currently tracking as lost. That is a really positive move forward since we appeared before the Committee last year. That is likely to change as the maturity of the repayments comes through and, as I said, because of macro-economic conditions more widely. I think that will continue to evolve, but I think the overall fraud estimate is pretty static.

Sir Geoffrey Clifton-Brown

That implies that everybody has come to a definition of fraud in these loans and everybody agrees to what it is. Is that the case?

Tom Taylor

It is suspected fraud. You can only truly prove fraud in a court of law, under the Fraud Act.

Sir Geoffrey Clifton-Brown

You have to have a motivation.

Tom Taylor

Exactly. This is about suspected fraud based on the evidence that we see and is a combined assessment among ourselves, the British Business Bank and the high street lenders.

Sarah Munby

And it is not the same, necessarily, as the internal work done by any individual bank flagging up fraud. We are not adding up the bank’s estimate; it is our own independent estimate based on the sampling work that we have done right across the portfolio. The point I was making about different methodologies is true but does not change the point that Tom was making.

Tom Taylor

It is also fraud and error—our estimate is fraud and error— so there will be some error in there as well, although not nearly as much as in the grants.

Sir Geoffrey Clifton-Brown

Presumably, there is a motivation on the lenders to get all this fraud out there as quickly as possible so that the guarantee is called, you pay it and they get it off their books and need not worry about it any more. Why is it taking so long for the banks to eliminate these fraudulent loans?

Tom Taylor

I think you heard them answer that earlier: they feel a public duty to make sure they are doing everything they possibly can to avoid taxpayer loss. Reputationally, it does not look good for them to have lots of fraud, or indeed error, in their loan books. Moreover, the strength of the partnership that Ms Peck has built up with the banks and the British Business Bank has generated a shared endeavour to drive out the recovery of as much of the loss as we possibly can recover.

Gemma Peck

Some of the lenders are keen to work with us to go above and beyond the requirements set out in the guarantee agreement, the lender manual and the recovery principles. We are collaborating with them on a couple of pilots to test what we call enhanced recoveries. One of those will involve engaging a third party to do some analysis of a sample of the Bounce Back loan book to see how much of those loans might be recovered through third-party recovery and to look at the value for money and scalability of that for us. In another pilot that is under way with a major lender, we have been testing with them the use of the compulsory liquidation of businesses to try to improve recovery rates. We will be able to make a full assessment of that in the new year. It is all part of our continued learning. We will identify whether or not either of those routes could be value for money and scalable.

Sir Geoffrey Clifton-Brown

I think you were in the room earlier; did you hear Mr Reid talk about pursuing the directors of companies that have filed for insolvency?

Gemma Peck

Yes.

Sir Geoffrey Clifton-Brown

Is that something new to you? Are you going to apply that across the board?

Gemma Peck

Yes. The Insolvency Service are major partners on this programme with us. They now have a dedicated investigation unit working on Bounce Back loans. For example, they have already achieved 391 director disqualifications and 119 bankruptcy restrictions on covid-19 schemes, the majority of which relate to bounce back loans.

Sarah Munby

Could I make one addition to that? Since December 2021, the Insolvency Service has had the ability to go after the directors of companies after the dissolution of the company. That helps here and we are using that, even in a case where the company has been wound up.

Mrs Drummond

Can I ask about the governance of the British Business Bank? Originally, it was not set up as a retail bank, yet it had to perform as a retail bank with no one on the board with retail banking expertise, except for one person—the chief operating officer, who then left. Was that a problem when giving out the loans, given that there was not that expertise there? Secondly, was it difficult for the retail banks to get the money? Thirdly, does that mean that you are going to change the nature of the bank and look at its governance in a different way?

Sarah Munby

Shall I start and then Gemma can jump in? I am not sure that I would totally accept the characterisation that the British Business Bank was acting like a retail bank through this process. The British Business Bank was always an enabler of lending and the scheme that Gemma was talking about earlier, which was the precursor to CBILS, CLBILS and Bounce Back, operated in a similar way, in that the actual lending decision was being made by the retail banks. However, in this case those credit check processes were not in place and that made it much bigger and more scaled operation, which put more risk into the system. We wanted more expertise and better expertise—that is what we were looking for—but that was not fundamentally different to what the British Business Bank had in any case. Do you want to talk about any specifics on that, Gemma?

Gemma Peck

That deep collaboration with the lenders was crucial in setting up the scheme in a way that would work for them, which meant the design and setting up of the schemes was expensive and intensive. Those relationships were there because the bank already worked with them on things like the enterprise finance guarantee and the Enable programme. Where it needed to draw on additional expertise, whether it be legal, fraud or operational, the bank rightly drew on those relationships, and it continues to do so, where appropriate and where it is best value for money. In the period since March 2020, when we were setting these schemes up, where opportunities for executive and non-executive appointments have come up, we have worked with UKGI, which runs the appointments process with the bank on our behalf. We have worked with them to bring in the right sort of expertise that reflects the organisation that the bank is now. You asked about governance. We have also adapted our governance accordingly, so very swiftly; instead of quarterly shareholder meetings, when we go through risk, finance and operations, we moved to monthly shareholder meetings. We have a business finance assurance board, chaired by the lead director general in the Department, where we go through the performance of the loans schemes and we bring in external expertise and a fresh perspective from people such as GIAA, the Government actuarial department, legal analysts and directors with major delivery experience. More recently, we have supplemented BBB governance with our lender performance assurance board, which brings together BEIS, the Public Sector Fraud Authority and the Treasury. That is where we talk through the lender performance dashboard and give that extra support and challenge to the bank in thinking about how it undertakes lender engagement.

Peter Grant

Ms Munby, I want to look at a specific area of your Department’s responsibilities that is very much on the frontline of the fight against fraud—the operation of Companies House. The Companies House annual reports always present to us an unqualified blessing that there has been an increase in the size of the companies registered and that there are more and more companies being registered all the time. It wrote that in your own Department’s report and referred to something similar about business birth rates. Do you have any reservations about the implicit assumption that a bigger companies register is a good thing? Do you see any potential downside to that?

Sarah Munby

Managing a bigger companies register could potentially, at some point, become more complex. Although, in the case of Companies House, I think a bigger register is also going to be—particularly once the Economic Crime and Corporate Transparency Bill comes into force—a stronger and more digitised register, where we can better cross-reference between different items and so on. In answer to your underlying question of, “Is the expansion of the register and the creation of more companies in general bad? Could that be bad?”, it is worth noting that it is something that we are seeing internationally as well; it is not just a phenomenon we are seeing in this country. The age that we are living in is one in which more people set up companies all around the world, so I do not think it is something I would judge as either a pro or a con really. It is good in the sense that we are seeing more entrepreneurial activity and it means that Companies House needs to be at the top of its game in order to manage an ever-growing register.

Peter Grant

What about the growing number of times that the Companies House register increases by one company when no company exists—when it is a completely fake entry on the Companies House register? How concerned are you about that?

Sarah Munby

The reason why we are introducing greater powers for Companies House to check the identity of directors is so that it is able to see when the same director is appearing in lots of different companies, link those records together and to pass on more information to law enforcement. That is exactly so we can crack down on any abuse of the register. I think we would all recognise that has been a challenge in the past and that is exactly what the forthcoming legislation is designed to address.

Peter Grant

Just to be clear, does the Economic Crime and Corporate Transparency Bill in its current form give Companies House the power to refuse to register a company? Secondly, is that power retrospective? Does it have the right to go back to the bogus companies that have been set up in the last few years and strike them off the register?

Sarah Munby

I think it depends on the definition of “bogus”, but for a given value of “bogus”: yes.

Peter Grant

Is that yes to both questions? Will the powers be retrospective?

Sarah Munby

Yes, it gives powers to Companies House to identity-check existing directors.

Peter Grant

What confidence can we have that those powers will be used? One of the powers that exists now is that it is a criminal offence to make a false return to Companies House. Can you tell us how many times in the last five years anyone has been prosecuted or convicted for that?

Sarah Munby

No. Perhaps unsurprisingly, I cannot give that number off the top of my head.

Peter Grant

Right. My information is that, first of all, it has been an offence since 2009. The first ever conviction for that offence was nine years later in 2018. The culprit was fined a grand total of £1,600 and ordered to pay legal costs, but had they pleaded guilty on day one, they would have been fined £1,600. As far as I can tell from Companies House publications, it publishes a lot of data about convictions for failure to make a return, particularly of confirmation statements and financial statements, clearly. I cannot find anything—there is certainly nothing in its annual report—about any prosecutions for making false returns. Given how rife we know the companies register is with completely—and blatantly obviously—bogus information, is it not time that somebody started to use the powers that are already there to prosecute these people?

Sarah Munby

I am not sure that this is going to be a super-satisfying answer because I have not analysed that question in detail, but we are putting in new powers not just to ensure that Companies House can do more things, but that it has the data needed to be able to do more things. Things such as checking identity up front—that is what lets you use your powers to actually pursue people. I am happy to reflect in more detail about whether it would be sensible to do things with the existing powers but I do think that the strengthening of the data in the register—the strengthening of checks—that is what will make it practical for Companies House to actually do the sorts of things you are describing.

Peter Grant

In the one conviction to which I referred, what the person did in that case was set up companies and falsely registered two people as directors who were then Ministers in the predecessor Department to BEIS. That was always going to be found out. Companies House have been aware for some time of companies who have got President Donald Trump, Jesus, Adolf Hitler or Donald Duck as a director. Companies House knows those companies are there, but it has done nothing either about getting them off the register or even speaking to the person who has clearly made false statements to create that company. You may be familiar with Graham Barrow, who I think has recently given evidence to the Economic Crime and Corporate Transparency Bill Committee. His research indicates that every week a thousand innocent people have their names and addresses falsely registered at Companies House as having agreed to act as directors of a company. Of course, that potentially makes them liable if the company then acts in a criminal way. Why is it that the powers that your Department ultimately has to enforce the law against submission of false information to Companies House are not being used, when it is very clear, and it has been made clear to Companies House, that this is a big problem and that this route is being used to commit fraud, first against businesses and also against innocent members of the public?

Sarah Munby

I think that I would like to get Companies House to support answering that question in detail. As far as I am concerned, the reason that we are legislating is in order exactly to give Companies House the power to check the identity of Donald Trump, to confirm whether or not an application is legitimate, and to prevent it if it isn’t. But I am happy to ask them to address your question in more detail.

Peter Grant

I would be grateful if you could ask them to write to the Committee in that regard, because I assume that it is not what you intended to say, but it almost looks as if we made a law in 2009 and in 2022 we are finally thinking about giving the law enforcement agency the power to collect information it would need to enforce that law. If that is the case, it seems an extraordinarily long time that we have been sitting with a law that could not be enforced, but I am quite happy if you could ask Companies House to write to the Committee in that regard.

Chair

We know that our sister Committee shares some of these concerns. I hand over now to Mr Jonathan Djanogly.

Mr Djanogly

I wish to move on to broader BEIS operational capacity. I brought this up in the last session, which is that in broad terms the Government Internal Audit Agency has highlighted that BEIS is increasingly moving from a policy Department to a delivery Department. GIAA notes that “This has resulted in a tension between operationalising promptly new schemes, grants and loans and putting in place robust processes and controls to mitigate the risk of loss through fraud and error.” Is that a fair reflection? And if it is, how are you proposing to change your operations?

Sarah Munby

I would agree with both parts of the statement, but perhaps not the link between them. So, it is absolutely the case that the Department has an ever-growing set of delivery obligations and that is meaning changes in the profile of people and skills to add more delivery expertise. It is also true that in a number of areas, given—frankly—the operating environment we have been in over the last few years, with covid followed by the challenges around energy prices in particular, we have faced tradeoffs. We have been talking about a great example of that today. That is not because we have been taking on more delivery responsibilities; it is because we have been operating in an exceptionally pacy, high-pressure environment, in which that trade-off between pace and controls is very sharp, Bounce Back loans being almost the quintessential example of that. I don’t particularly think that that has anything to do with the fact that BEIS is also rapidly growing its delivery responsibilities. On the latter point about making that trade-off, I do think that’s an area where we have learned lessons from the experience of covid. Indeed, that’s what we’ve been putting into practice with the energy schemes we’re launching now. We’ve needed to move very rapidly—equally, an urgent requirement for support. However, I think we have been better able to balance that against putting in enough up-front expertise. I talked about working with the Public Sector Fraud Authority—enough up-front data requirements. Indeed, we took some powers in the legislation to make sure that we could take all the data that we needed. And making sure that we have up-front auditing processes built in where needed. All those sorts of things—it’s kind of a real-life example of having reflected on what we would have done differently, where going slower and just taking more time isn’t an available option, but you need to make sure that the kind of infrastructure is in place before you click go.

Mr Djanogly

Thank you. The ICA gave a very helpful written submission. On fraud recovery last year, they point out that this Committee recommended that BEIS explained how it is going to recover fraudulent or erroneous grants or loan claims. And they say: “In its response, BEIS insists that the primary responsibility for recovery of onerous or fraudulent covid grant payments rests with the local authorities, while the recovery of fraud on the covid loan schemes rests with lenders. However, the problem of course is that both local authorities and lenders are acting as agents of BEIS for expenditure and loans reported in BEIS accounts, and under the ‘Managing Public Money’ guidelines, accounting officers are personally responsible for the resources of their own organisation, even when working with other organisations.” Does BEIS need to re-evaluate its approach here?

Sarah Munby

It is worth taking the two in turn. The responsibilities of the banks in regard to the Bounce Back loans were laid out at the time the scheme was launched: what they needed to do at the beginning, what they needed to do in follow-up—that was given greater specificity in the recovery processes. It would be a very poor decision to suggest that BEIS should launch a crosseconomy, “Go get Bounce Back loans”, separate organisation. It would have to be very large-scale. It would be less good than the banks. And frankly, it would tread, in terms that might well prove to be rather difficult to legislate for, on to the responsibilities of the banks. So we are not “saying” that the responsibility lies with the banks; it does lie with the banks. It is our job to enable, support and challenge the banks, through the work on data, through the auditing work that we do and through conversations like this one.

Mr Djanogly

Okay, let’s talk about data. Given the huge amounts now under your stewardship, how well does your reporting of performance against priority outcomes agreed at the last spending review allow us to understand the value for money and impact of your work? I have to say that when I look through your accounts, I find it very difficult.

Sarah Munby

It is always difficult to report in the way that you are describing against an organisation with such a wide range of kinds of responsibility. Everybody always wants me to be able to say, “BEIS just has three things we are really going after and they are measured on these three numbers.” The complexity of the organisation that I lead does not easily allow for that. The ODP—where we lay out our priorities and the metrics associated with those priorities and we have to report both internally, inside Whitehall, regularly, and then more broadly, on our progress—is the answer that exists to your question. Of course, internally, we also report in a much more granular way on all sorts of individual programmes, and while that doesn’t very easily summarise into some neat lines, it does allow us to test which teams, which programmes—who is hitting their targets and who isn’t.

Mr Djanogly

So why, for example, did you choose to report performance against your priority to “unleash innovation and accelerate science and technology” with only three, out of a possible eight, metrics featured in your annual report?

Sarah Munby

I might need to get a page reference from you.

Mr Djanogly

The Treasury has eight metrics, and you reported on three of them. Why won’t you have covered all eight?

Sarah Munby

I don’t know which eight or which three—

Mr Djanogly

Perhaps you could write to us on that.

Sarah Munby

Yes. One thing I would just—

Mr Djanogly

Let’s move to a more general aspect. Why does the performance analysis in your report and accounts not actually show how well partner organisations, particularly your arm’s length bodies, are contributing to your objectives? We are moving away from the metrics for a second.

Tom Taylor

Fundamentally because they each publish their own report and accounts and so it would be a huge duplication, in a report that is already pretty hefty—as you will have seen, having read it—to do so. Full detail is laid out in the report and accounts of each of the partner entities.

Mr Djanogly

I have to say that I looked through it and I found it unintelligible. I didn’t get any feeling for—and as your Department gets bigger and bigger, this is going to become an increasing problem. Is it something that you think you should be looking at, to make your accounts more user-friendly?

Sarah Munby

I don’t think the annual report is ever going to be the place that will explain to you all the different aspects of the Department’s operations, and where we get to that. The annual report has an absolute ton of stuff that it has to have in it, from a reporting and accounting point of view, and that is probably 90% of the weight of this document. So no, I don’t particularly lie awake at night worrying about the complexity of the annual report, because that is mostly a function of the things that we have to put in it. Separately, though, there is a question about what the best way is for people to understand what the Department is doing, and the ODP process is exactly meant to answer that concern. It lays out a set of priorities and how we are doing against them. But as I say, it is genuinely a challenge that I worry about, and I face internal reporting as well. When you have a very broad and diverse portfolio, summarising it into some sort of neat reporting is quite challenging, because there are lots of different issues in there. The question of how the NDA is doing in fulfilling its objectives, versus how we are doing on fraud, versus how our legislation is progressing through the House—these all have different kinds of metrics and different kinds of things you should be looking at.

Mr Djanogly

But is it something that you are going to be looking at?

Sarah Munby

We are always looking at it. We are constantly updating our internal reporting in particular. It is very hard to get a snappy ODP to convey the richness of what the Department is doing. Internally, we have an online monthly reporting system that reports at both project and team level on whether objectives are being achieved, but also on things such as resourcing, budgeting and so forth. That is something that we are always looking at, to see whether we can make it convey our messages better.

Tom Taylor

One of the things we draw on is the C&AG’s best practice guide for reporting in annual reports and accounts, and we always try to draw from that to try to improve each year. What that shows, though, is that Departments or organisations with the most intelligible performance sections are those that have a very narrow remit, which is exactly the point the permanent secretary was making. When you have a very broad remit, like BEIS does—indeed, most Government Departments do—it is quite difficult to summarise in any kind of meaningful way the real-world impact.

Chair

We have to be careful not to dismiss this document, which is the most useful document for anyone who wants to have an overview of what the Department is doing. It is not just a process to get to this point. Obviously, there is a process with the auditors, but it needs to be a living, breathing document. There is a patchiness to the ODPs, and this is the source from which others will work. We have talked a lot to other Departments about making sure their documents are user-friendly. Would you welcome that engagement, Ms Munby?

Sarah Munby

I am always keen to get any kind of feedback. We do our best to make it user-friendly and are certainly keen to do more if there are specific things that you think are missing.

Chair

I appreciate that when people are delivering projects, this may not seem the priority, but for other people to understand the project they are delivering, it has to be front and centre. Otherwise, people will not know what is going on.

Sarah Olney

I want to talk a little bit about the energy price guarantee. Obviously, it is a massive financial commitment, and I wonder whether you have any update. There are obviously a number of different factors that are influencing the extent of the liability to the Government, not least the wholesale gas price, and some of the numbers we were getting at the time that the scheme was first announced—a couple of Governments ago, I think, even though it was not that long in real terms—were anything up to £150 billion. Do you now have a better sense of what the current liability looks like?

Sarah Munby

I do not have a new number for the overall cost of the scheme over its lifetime—noting, of course, that since that number was announced, the £2,500 level has been altered from April to £3,000, which will have a significant impact. We still estimate that the first six months— the period up until that April change—will cost £27.5 billion. It is worth saying that, for both this winter and on an ongoing basis, the biggest driver of how much it costs is, of course, what happens to energy prices, so it is inherently a number that has a very high level of uncertainty to it. I think that is one of the things that, from a public money point of view, makes it challenging to manage.

Sarah Olney

But there have been recent changes in the wholesale gas price, unless I am mistaken. The £27.5 billion has been your number since the announcement, and you have not changed that.

Tom Taylor

No, the original estimate was £31 billion in this financial year for EPG. The permanent secretary’s number of £27.5 billion is the latest update.

Sarah Olney

And it has changed because of the wholesale gas price.

Tom Taylor

In part because of the wholesale gas price. There are other demand factors that will have influenced it.

Sarah Munby

On how the two markets work and the presence of the price cap in the retail market, it is worth mentioning that the change in wholesale prices since these schemes were devised has a relatively small impact—a small number of billions, but proportionally not that large—on the cost of the domestic scheme. We estimated the cost of the non-domestic scheme to be £29 billion at the point that we announced it. I do not have a new number for you today, but we expect that number to drop significantly because the wholesale prices of gas and electricity that were embedded in it have fallen by 29% for electricity and 39% for gas since we did that calculation. It could have gone up or down, but as it happens prices have gone down since then. Therefore, we expect that the scheme turnout will be significantly less than the original estimate.

Sarah Olney

Have you seen a decrease in demand, compared with what you were modelling? We had quite a warm October and early November, and obviously people are changing their behaviour in response to the press coverage about the price cap and gas prices. Has that been factored in?

Sarah Munby

Yes, we have seen a decrease in demand. Having discussed it, we are not yet confident that it is something other than weather-related. As you say, we have had a relatively mild winter.

Sarah Olney

So far.

Sarah Munby

It doesn’t feel like that this week, but we have so far, and as a consequence usage has been lower. We cannot say yet that that reflects a behavioural change that we will see sustained throughout the winter. We are watching it closely.

Sarah Olney

Obviously, this is another scheme that you have had to implement very quickly, following on from Bounce Back loans, which we have already talked about. What are you doing to make sure the right amounts are being paid to energy suppliers? What lessons have you taken from Bounce Back loans to inform your approach to this?

Sarah Munby

Energy supply is already pretty well governed. We are working with Elexon and Xoserve on electricity and gas, which settle the markets today, so they already have data on how much electricity and gas energy suppliers are sending out. That robust data stream already exists. At a very simple level, it is much easier to make sure we are not making a mistake, because this is a flow that already exists out there in the economy. People are not taking out new loans; they are just using a level of electricity and gas, and we already have institutions that measure that constantly and understand it very well, so we are making use of that. There are then of course a range of checks to make sure we don’t make mistakes in the amount that we pay out to individual suppliers, including extensive pre-payment checks, to handle those worries.

Tom Taylor

One other big protection is that we pay the suppliers in arrears. At the end of the scheme, whenever that may be, there will be a withholding of a certain amount until such reconciliations are complete to our satisfaction, much like you would do on a capital project.

Sarah Olney

We talked at the top of the session about non-domestic customers and future schemes after March. What are you doing to look at how support might be segregated? I guess that might apply to the domestic scheme as well. There is a possibility that the universality element of both schemes will be discontinued and that support in the future will be more targeted. What are you doing to ensure that support is properly targeted, particularly in the business sphere? We were talking earlier about the difference between a scotch egg and a pizza and how the targets worked during the covid support. What sort of approach will you be taking to that?

Sarah Munby

I don’t think it would be right for me to say what approach we will be taking without knowing the nature of the scheme that Ministers want us to deliver, but it is fair to say that I am spending a lot of time on the exact question you are asking. It is challenging. For what it is worth, I think the ultimate answer to what the non-domestic scheme looks like will have to balance the policy you would most like with what is feasible to deliver. If you are working through the energy system, there is only a certain level of specificity of targeting that you can practically make happen. We are working with Ministers to have a conversation about how accurate we can be, how we make sure that it is going to the right people, and, if that is difficult, what people can do to communicate with us. All those things are being worked through as part of thinking through the options for that scheme post April.

Sarah Olney

Specifically, what lessons might you take from the business support schemes under covid? How specifically is that supporting all the work that you are currently doing around that?

Sarah Munby

I would give two reflections. One is a slightly more political one, so I stray slightly out of my lane, but I think one of the lessons of covid was that you go out with one answer and then the adjacent cases become incredibly difficult, and you risk creating a waterfall effect where you then expand your support again and again. That means looking really carefully at those cliff-edge issues and thinking them through before you start, so that you do not get a political challenge. Then, operationally, it is picking distinctions that actually exist in data. It is the difference between, for example, a licensed premise and an unlicensed premise. That is a concrete distinction. The difference between a corner shop and a neighbourhood newsagent is not a proper distinction. You need to have a distinction that actually exists in a practical, datadriven way, not just a conceptual distinction.

Sarah Olney

That is really helpful. Thank you.

Chair

Very helpful. Lots of beavering away is going on in the Department for Business. As MPs who were having to deal with those different definition issues at the beginning of covid, all power to your elbow on getting that right, because that is very challenging.

Sir Geoffrey Clifton-Brown

Ms Munby, I have a quick question on offgrid support. I represent a very rural area that has a lot of off-grid customers. You have doubled the support from £100 to £200, which is very welcome. It is a question of how you get that support to the customers who need it. It is very clear in my constituency where there is a mains grid and where there is not, but how do you get it to customers in the main grid, of which I have quite a few, who are not on the main grid but are on off-grid systems?

Sarah Munby

We have not announced the details of that yet. We are expecting to do so very shortly in order to enable the delivery of those funds this winter. I do not think that I am overstepping my bounds when I say that we expect that the majority of customers who are off the gas grid but on the electricity grid will receive the payment automatically, but more detail on exactly how that will work and how we manage exactly those different cases that you are describing will be put out soon.

Peter Grant

I want to move on to the capacity and resourcing of the Department, Ms Munby. We discussed the significant new legal powers that will come to Companies House in the not-too-distant future. What assessment have you made of the additional resources, people, office space and IT required for it to enforce the new powers that it has been given, and some of the powers that it already has?

Sarah Munby

Ultimately, that assessment happens primarily at the point of a spending review. That does not mean that it cannot happen in between, but that is the moment at which you set future budgets. At the last spending review, Companies House was given an extra £63 million over three years, exactly to reflect the increases in its responsibilities expected through this work. We obviously continually review that with Companies House to see whether it is able to manage within its settlement or not. Of course, it is incumbent on me to say that we hope and expect that our ALBs will manage within their settlements, but that is a conversation that is always open.

Peter Grant

Are there other areas within BEIS where you foresee significantly increased demand on your services that will need to be budgeted for?

Sarah Munby

There are a few.

Chair

This is a chance to pitch to the Treasury.

Sarah Munby

I would not dream of it. We received quite significant increases in our funding at the spending review—for R&D and for many of our net zero and energy-related programmes. We have had significant additional pressures since then, including the energy schemes that we have been discussing today. We have had to make shifts of people around the Department to make sure that we are able to deliver at pace. It is not dissimilar, in fact, to what we did during both Brexit and covid. We are becoming quite experienced at that and quite agile in our operating model because we have to be, in order to be able to respond to these demands. Yes, we face significant resourcing pressures across a range of fronts, but part of my job is ensuring that we prioritise the things that are most important—both in terms of managing public money and critically and politically—and working with Ministers to ensure that the things that they most want to get done happen. That means that we occasionally have to take things off the bottom of the list.

Peter Grant

Where are we with the 90,000 headcount reduction in the civil service? Has that been forgotten, along with the Prime Minister who introduced it, or is it still something you have to do?

Sarah Munby

The Prime Minister has said that top-down headcount targets will not be the mechanism used to pursue efficiency in the civil service, so we are not expecting that particular version of efficiency to emerge.

Peter Grant

Have you been given an indication of what headcount reduction or increase you should be planning for?

Sarah Munby

It was said at the autumn statement—Tom will correct me when I get my details wrong—that, in essence, Departments would be asked to live within their spending review settlements, which is not entirely straightforward, because that means absorbing inflationary pressure. That is what we expect to be managing against.

Peter Grant

You mentioned the additional funding for Companies House, which I think averages out at about £20 million per year or thereabouts. Last year, Companies House collected £174 million in late filing penalties. I know that that money goes straight back to the Treasury but, given that a lot of that will be raised against companies that we hope to get off the register altogether because they do not really exist, have you made any assessment of how much of a reduction in income from late filing penalties the Treasury should expect to see in the future?

Sarah Munby

Not to my knowledge, but I am looking to Tom to see if he knows.

Tom Taylor

Not that I recall off the top of my head, to be honest with you. We are required to produce income forecasts for the Treasury as part of the normal in-year budget management, and I cannot recall any specific variance in relation to the Companies House fees.

Peter Grant

Finally, I know that some Companies House expenditure is funded directly through BEIS and some of it is self-funding through fees for registration.

Sarah Munby

That is right.

Peter Grant

I do not necessarily expect you to have the information to hand just now, but could you write to us and give us an indication of what difference you think will be made by the new powers that are coming to Companies House? For example, if they are having to take on additional people to enforce the new rules, how much of that do we expect to see coming from an increase in the registration fee and how much of it will have to come from the spending of your money? What happens if there is a gap? Obviously, if you have the answers now we are happy to hear them, but if not could you write to us?

Sarah Munby

I think I can probably tell you everything that I can tell you now, if that makes sense. The answer is that obviously Companies House fees are a lever that could be used to raise more money for Companies House. We have not laid out any plans around that; it will be a decision for Ministers to make. Your question about any shortfall goes back to what I was discussing earlier. If there was a shortfall in Companies House there would be a range of options available to Ministers, such as increasing Companies House fees—assuming HMT were happy to sign that off—looking for savings within Companies House, rediverting money from elsewhere in BEIS’s wider budget and so on. We have not yet got a plan to do those things that I am ready to share, but any and all of that is possible.

Peter Grant

Just for clarification, did you say that the setting of Companies House fees is a ministerial function? I understand that some of their functions are expected to be self-funding, so does that mean that they are expected to effectively break even in some of those functions, even though it is Ministers that tell them how much they can charge for it?

Sarah Munby

Ministers set the overall funding envelope of the funding that we provide to Companies House, and Ministers would have to sign off any fee change. In doing so, you would expect Ministers to take advice on what Companies House needs in order to operate.

Sir Geoffrey Clifton-Brown

Ms Munby, can I turn to the section in your report on nuclear decommissioning? The Committee has been interested in this area because it is potentially such a vast cost. I understand that, because of the change in discount rates, the provision has gone up by £100 billion compared with last year, but I am really concerned that those vast figures do not overshadow your Department looking at the most efficient and cost-effective way of doing the various operations that need to be done. It does concern me, and I would like to interrogate you on the £14.4 billion that you provided this year.

Chair

Sir Geoffrey, as you are referring to a figure, a page number would be helpful.

Sir Geoffrey Clifton-Brown

Yes, sorry, Chair. It is on page 252, table 20.1. You have provided £14.469 billion extra this year for the operations. Can you tell us a little bit about that?

Sarah Munby

That relates to the NDA’s operations in Sellafield. I would need the NDA if you want chapter and verse on what has driven the increase in costs. That is obviously a lifetime increase in the cost of Sellafield. When you spread it over the hundreds of years that that site will be in operation, it is a relatively small delta.

Tom Taylor

It is predominantly construction inflation—inflation in construction costs—over the lifetime, as the permanent secretary says, of 120 years.

Chair

So that could go down in future years, as certainly one would hope.

Tom Taylor

Correct. The provision is a complicated beast because you have to take account of inflation—forecasting that far ahead is always difficult—but then also discount it back into present terms. As you pointed out, there has been a peculiar incidence recently of long-term discount rates being negative, and that has inflated the price over and above what the undiscounted rate is. I can find you the undiscounted value if you wish.

Sir Geoffrey Clifton-Brown

It is in the report, on the previous page, page 251. These vast figures worry me. Who in your Department is looking to see whether these operations can be done in a more costeffective way?

Sarah Munby

The team who sponsor the NDA. We have a team inside the Department, and a director. A very significant part of his job is working with the NDA and providing scrutiny to the NDA. It is also worth saying that, for example, when their budget is set at the spending review, that is done through a tripartite process involving HMT and other expertise around Government to make sure it is a taut but realistic budget for reducing hazard. That is where the departmental expertise sits. We also work with UKGI—I know we have spoken about this in the past in the context of the Magnox inquiry—to ensure that we have the best expertise on governance, appointments and so on, to make sure that, ultimately, the NDA board is strong. It is always important to remember, when talking about the performance of ALBs, that, although the Department absolutely should have a strong sponsorship and governance function, you do want the organisation itself and its own board to do a lot of the work as well.

Sir Geoffrey Clifton-Brown

You have other cost pressures coming along. As you say, Magnox has been defueled, but not decommissioned entirely. You have AGRs coming along and the geological disposal facility to organise. How confident are you in those predicted prices?

Tom Taylor

As confident as one can be in the current lifecycle, really. It is very difficult to predict what you are going to find when you deal with nuclear waste, especially when you are decommissioning, but very best estimates are made on a best-endeavours basis at the time using all the expertise that the permanent secretary mentioned, including the Office for Nuclear Regulation and the Environment Agency, who have a great deal of expertise in different sectors.

Sir Geoffrey Clifton-Brown

Certainly two out of those three, and hopefully the third as well, are in the relatively near future timeline. You should be able to get a relatively tight grip on the costs on that timescale. I get that when you are dealing with a decommissioning over 100 years, that is much more difficult to predict, but within a 10-year cycle it should be much easier to fix and to be more accurate and more confident of your costs.

Tom Taylor

We feel reasonably confident of those costs. We discuss them at every spending review with Ministers, of course, and with the Treasury to decide, as the permanent secretary said, what is a taut and realistic budget for doing the work that is necessary.

Sir Geoffrey Clifton-Brown

Can we move on to European research programmes, given that the Government’s aim is to make this country a science superpower? What arrangements are you making to follow on from Horizon Europe, Copernicus, Euratom and Fusion for Energy?

Sarah Munby

I should start by saying that it is our preference to associate with those programmes. That is Government policy. In each case, we have effectively put in place plan B measures for what we can do. For example, for Horizon—the broader research programme—we described in July this year our alternatives and what we would stand up at the point at which it became certain that we were not going to associate. You might have noticed that last month we announced nearly half a billion pounds in further transitional funding to deal with the risks to infrastructure and talent pending the final decision. We also have the guarantee in place for people who are applying between now and any future association point, to make sure that they do not lose out through our not being part of the scheme during that period. In each case, we are seeking to manage the transition. We are seeking to associate, but also ensuring that we have strong plans in place if association ultimately does not take place.

Sir Geoffrey Clifton-Brown

This is difficult, isn’t it? The Horizon programme is a €95.5 billion project, and if we are going to be putting in half a billion pounds, that is really not matching up to the level of research when we were part of that programme.

Sarah Munby

Ultimately—I am speaking in fairly broad terms—the way that we would think about funding for Horizon alternatives is that you would be putting in money similar to that which would have otherwise gone into Horizon. Of course, in the case of Horizon you are adding your money into a European pot, as it were, and that is why a Horizon alternative programme includes a range of different international partnerships that are not directly into the EU but with other international research powers—including the US— so that we get some of the benefit of combining funding. Ultimately, on the amount of money that you put in, it is not that you lose out on money, but it is a question of how you use the money best.

Sir Geoffrey Clifton-Brown

Much more importantly, are we losing talent because people are in the vacuum—in the uncertainty? Are they going to say, “Well, I’m going to go to where I know there is certainty”?

Sarah Munby

That is why we have just put in that half a billion poundsworth of funding that I mentioned. A significant number—I’m sorry, I can’t remember the detail—goes to talent programmes specifically.

Sir Geoffrey Clifton-Brown

Okay, fine. I will move on to page 257 of your report and Post Office Ltd. The BBC published a very concerning report two or three days ago about some individual cases of compensation not being paid. One was an alleged shortfall of £59,000 and the person was in hospital for a considerable amount of time. Another was prosecuted when more than £20,000 had apparently gone missing from his post office branch, and ended up receiving a demand for £300,000, including the organisation’s legal bills. There are some horrendous cases here. What is going to be done? The insinuation in the reports was that some of these claimants have been forced to take only half of what they were entitled to. That is unacceptable, is it not? What are the Government going to do about these cases?

Sarah Munby

Let me unpick that a little bit. First, it is worth saying that with the scheme you are talking about—the historical shortfall scheme— 90% of offers have been made as of 15 November. We expect that number to be even higher by the end of this year. It is not 90% and flat; it is 90% and rising.

Sir Geoffrey Clifton-Brown

Can I stop you there? It is 90% of offers, but a lot of them are only half the total compensation package. That is not really acceptable, is it?

Sarah Munby

I think the cases that you are specifically talking about are some of the most challenging cases, where bankruptcy or insolvency is involved. We are working hard to try to make sure that people in that situation get the maximum level of compensation. They are not as straightforward as other cases, because if you put money directly in—we are taking professional advice from insolvency practitioners, as you can imagine—the challenge is that it goes into the insolvency and creditors potentially have rights to some of it. That is why those cases are challenging, and that is why they are in this last difficult bucket to work through. We totally acknowledge the challenge, and we are doing everything that we can to fix it, but we do not have an answer to making that number 100% right now.

Sir Geoffrey Clifton-Brown

Given the personal grief that is involved with these cases, could we get an undertaking from you that at least a proportion of the money due to them will be paid in the very near future, even if you cannot settle the final amount?

Sarah Munby

That has, in general, been the principle in how we have tried to behave across all of the Post Office schemes, offering interim payments rapidly even where we are not able to settle full claims. In principle, that would be in line with our operating model.

Sir Geoffrey Clifton-Brown

The accounts say very clearly: “The company will be unable to fund the full amount of compensation estimated to be payable and still continue to maintain levels of public service provision deemed necessary by the Department.” This is going to be a full bail-out by your Department, isn’t it?

Sarah Munby

There are slightly different arrangements across the two main schemes. For the historical shortfall scheme that we were just talking about—sorry, I am going to read from my notes, because it is numbers— the Post Office has a provision of £150 million, £63.3 million of which is projected to come from the Department and the rest from the Post Office’s own funds. For the overturned historical convictions scheme, where there is a provision of £502 million, the Government have committed to stand behind the whole of that cost. So yes, in broad terms, you are right that this is ultimately a burden that falls to Government and to the taxpayer.

Chair

It is significant for the taxpayer. Mr Carden, do you want to come in on the Post Office?

Dan Carden

Apologies for missing the first half of the session. You talked about the two schemes; is the Post Office Horizon compensation scheme one of those?

Sarah Munby

Both of the schemes that I talked about relate to Horizon. It is two different categories of postmaster suffering, one relating to those who were convicted of criminal activity and have had their convictions overturned, and the other relating to people who had financial loss but not criminal convictions. Both are being handled.

Dan Carden

Do you have an estimate of the likely cost of the Horizon compensation scheme?

Sarah Munby

Those are exactly the numbers that I just gave. It is that £150 million on HSS, and £502 million on overturned convictions.

Chair

Significant to the taxpayer.

Dan Carden

Why is the Post Office not taking on more of that? Why is the Department stepping in?

Sarah Munby

Ultimately, the Post Office already receives public funding as part of its sources of income. We would all be keen to see the Post Office be able to fund a greater proportion of these costs, but the Post Office has the commercial position that it has, and I think Ministers have taken the view—for reasons we can all understand—that the most important thing was to make sure the compensation was paid, and not to make that dependent on the Post Office’s commercial performance. This would have been a very significant financial burden on the Post Office, and I do not think I am overstepping the mark in saying that if we had asked the Post Office to pay all of this with no additional Government support, that would likely have resulted in the Post Office no longer being a going concern in the way that Sir Geoffrey described.

Sir Geoffrey Clifton-Brown

Can I clarify what you have just said on the figures? Table 20.2 on page 256 of the accounts provides for £579 million, which is only enough to pay for the second of those two schemes. Where is the first of those two schemes—the odd £120 million—provided for?

Tom Taylor

These are group accounts for the BEIS group, and the Post Office is a public corporation that is not consolidated into these group amounts. All that that £579 million represents is the full amount—the £502 million—for the overturned criminal compensation scheme, and the BEIS contribution to the HSS.

Sir Geoffrey Clifton-Brown

Thank you.

Chair

Just quickly on net zero—rather quickly, given the time; we have talked to you a lot about this before and done reports on it, so we do not need to go into all the detail—you are a major Government Department when it comes to trying to achieve our 2050 targets. You were responsible for that huge set of documents, the business plan towards this, which we looked at before. How are you doing, and how are you measuring and reporting on progress? Obviously, you are reporting in the accounts, but elsewhere as well.

Sarah Munby

We expect that we will be putting out a lot more detail on that in the relatively near future, for two reasons. First, of course, we have the Skidmore review currently running, asking the question, “Are we meeting our targets in the way that is most beneficial to the economy?” That will be an opportunity to assess where we are against the net zero strategy, and whether any changes should be made in, for example, the effort shares between different Departments and different sectors. The other reason is that we have committed to update annually on progress against the strategy in general. As part of that, we will of course be responding to the judicial review we have received in giving more detail about what will come from where, essentially—more detail in the numbers. That is what is required in order to respond.

Chair

That is something that we are all keen to see. Obviously, a lot of the work that is going to be done—home insulation and lots more—will be delivered by third parties. How are you setting in train assurance processes to make sure that what you get reported back to you is accurate in terms of measuring the reduction in carbon emissions?

Sarah Munby

It varies considerably from programme to programme and Department to Department, but to take an example from our own Department, we are responsible for decarbonising buildings. We have a series of programmes that operate in that space, including one on social housing and one on the public sector that we have talked about here before. As part of their regular reporting, all of those programmes report carbon reductions made and their projected carbon reductions. Our net zero delivery board at a departmental adds that up to see how it compares to our projections for that sector and whether we are on track or off track, and so on. You have similar processes going on in other Departments as well, and we look at that picture overall for Government as part of monitoring progress against the strategy.

Chair

One of the things about home insulation schemes is that we have seen them stop-start over the years. Sometimes there are cowboys, frankly, that get involved and don’t do quite what they say they are going to do, and that is not uncovered until much later. How are you going to make sure that you, or the sponsoring Department, assure yourself so that we do not get greenwashing in the figures, but we get real results? Sometimes they will not be as good as we would hope, because sometimes things do not go well, but that honesty is important.

Sarah Munby

Ultimately, we have a very high-quality check here. On the one hand, you have a series of individual programmes that are giving you bottom-up estimates; on the other, we essentially have a top-down ability— the analysts in the Department will be angry with me because I can’t remember its name—to assess all of the carbon in the economy. Ultimately, the real way you know whether we have had impact through our programmes on how much carbon is being emitted through heating is because we know how much gas is being used in heating. When we look at top-down estimates of what is happening to carbon in the economy, we do not just add up all the programmes; we start from the known facts about electricity usage, electricity generation, gas usage, petrol usage and so on, which are things that can be very robustly measured. We do that exactly to avoid adding up lots of slightly inaccurate things at the bottom and coming up with an inaccurate number at the top.

Chair

We touched earlier on the fact that you are absorbing inflation and you have extra money for things like the energy support schemes. We have talked to you before about the cost of net zero. Are there any additional costs because of the inflation costs that will significantly hamper or challenge your ability to deliver?

Sarah Munby

There clearly is a risk of that. That is something we are looking at across all our programmes at the moment, as are other Departments across Government. How significant will be the impact of inflationary pressure against a fixed SR? I don’t have a number for you, but it is an issue.

Chair

You don’t have a number now, but will you have a number in terms of not just cash, but a reduction in net zero achievements, if you like, because of these other pressures?

Sarah Munby

Yes, as we look at whether programmes are going to achieve their targets, such as the number of heat pumps installed—if you install fewer heat pumps, there is less carbon reduction. Yes, we absolutely track that.

Chair

Thank you.

Sarah Olney

I am looking at some of the spending lines in the accounts, particularly, “Deliver an ambitious industrial strategy”. That is obviously where a lot of the grant money for small businesses—the covid support schemes for small businesses—has been posted. What else, apart from covid support, has the Department been able to offer for small businesses, and what are your plans for that going forward?

Sarah Munby

It is worth saying, first of all, that the activities of the British Business Bank go well beyond the covid schemes. It might be worth getting Gemma to talk through some of the other pieces of the puzzle there, because that is a really important part of what we do. Of course, we have had the two Help to Grow programmes—Help to Grow: Management and Help to Grow: Digital. We also have growth hubs, which are funded to support businesses locally, and the work of local enterprise partnerships. This is Gemma’s bit of the Department, so she might wish to add something.

Gemma Peck

Indeed. I am sure you will be familiar with the objectives of the British Business Bank, but it aims to increase debt and equity finance to help businesses achieve their potential right across the country. The bank received a good settlement in the spending review, which enabled it to continue and expand its operations. Just to pick out some notable highlights, it was great to get a three-year settlement for the start-up loans scheme and give certainty to our delivery partners around that programme. The bank received funding to expand its regional investment funds, which have to date operated in the Northern Powerhouse, Midlands Engine and Cornwall. Those are going to be expanded right across the UK, and the bank is setting that up at the moment. Another highlight was the funding for British Patient Capital, which increases the amount of money in the economy for innovative firms, and for programmes like Future Fund: Breakthrough, which help attract investment to promising research and development-intensive firms. Sarah has mentioned Help to Grow: Management, which is a programme that I run. We have had thousands of businesses through that now, and really positive evaluation results, actually; 90% of people going on the programme recommend it to their peers, and they are reporting that they are making changes in their businesses. A more recent one that I should highlight is that, on Small Business Saturday, Ministers announced that we will be running a payments and cashflow review. The Minister, Kevin Hollinrake, spoke about the breadth of that. It will look not just at the issue of payment and the challenges there but at how some innovative financing solutions and technology can enable businesses to manage their cash flow, and at how we work with lenders, including some of those that were lined up here, and the more innovative lenders, to support SMEs to access those solutions.

Chair

We have seen, in the past, examples of where big companies will pay smaller companies quicker, but only if they take a haircut on the payment. Is that part of the Minister Hollinrake’s review?

Gemma Peck

That is the type of practice that we would seek to understand through that. Of course, we work very closely with the Cabinet Office, which manages the Government side of this, and, indeed, that sort of practice is not permitted.

Chair

Not by Government, absolutely—but it is too late to get into the details of that at this point. I thank our witnesses very much indeed for their time. We will continue to look at this. Obviously, the covid loans go on for a long time, so we will want to watch those, but your empire is such a big part of Government now, Ms Munby; you have a very big and sprawling Department covering many issues. We have only skirted across your responsibilities today—you will be pleased, I guess—but we have picked some of the big-ticket items and the areas of concern that we have, and we will continue to watch what you do, through individual sessions as well as this annual event. Thank you very much indeed for your time.