Oral evidence: Whitehall’s relationship with Kids Company, HC 433Tuesday 19 November 2015

Oral evidence, 19 November 2015.

Witness

Rt Hon Oliver Letwin MP, Chancellor of the Duchy of Lancaster, gave evidence.

Chair

Welcome to what we anticipate will be the final witness in this inquiry, although that may always change. Could you identify yourself for the record, please?

Mr Letwin

I am Oliver Letwin, Chancellor of the Duchy of Lancaster.

Chair

Thank you very much for being with us. We are going to go straight on with our first question.

Paul Flynn

I confess that I am a great admirer of your work as a Minister because of your intellect and your integrity, which are not attributes shared by all Ministers. That is why I find it very surprising—the Committee met for three hours with Ms Batmanghelidjh and some formed the conclusion that she was an obvious confidence trickster with little to offer, except the emotional blackmail and psychobabble that she produced in great reams in the time we saw her—that you have been a long supporter of Ms Batmanghelidjh and Kids Company, and that you named her as your hero of the year in 2002. Why?

Mr Letwin

I can certainly explain that. When I was shadow Home Secretary—I think you and I had encounters at that time about various issues—in 2001, 2002 and 2003 I visited Kids Company I think on three, but perhaps two, separate occasions for some hours. They were then operating in a small way in, I think, four arches that they had converted for use. I met a large range of the kids and also the people who were helping them. I was immensely moved by what they were doing for those kids who had been deprived almost every kind of emotional support that all of us would take for granted as children and indeed as parents. They were trying to do some of the things we subsequently tried to do with Troubled Families—to knit together the statutory agencies. Partly they were trying to get people over drug and alcohol dependency; partly they were trying to provide just the simplest kinds of love and simple help. I thought that was a very valuable thing for the voluntary sector to be doing. I continue to believe that, notwithstanding all the many things that have come out that are very much less than good and that no doubt we will be talking about, underneath that there was something very valuable being done.

Paul Flynn

We have all been touched by the evidence of an unmet need and the depth of the problems among these young people. In particular, the book by Harriet Sergeant gives a vivid account of the pain and misery and the failures of society involved with these young people. But the evidence that has emerged recently is that Kids Company was letting down these young people. They weren’t even there; they only turned up to collect their money. That need was not being met by them. What is your opinion now of what has happened with Kids Company over the years?

Mr Letwin

I think there are two things, one of which is obscuring the other. The first—I will explain this in much more detail as we go through—is that it became entirely obvious after the end of the last Parliament that it was completely financially mismanaged and I think more evidence of that has come out. We had always known that it had very precarious finances and was just living on cash flow, but that it was grossly financially mismanaged became clear only after the election. That has obscured the fact that underneath—I continue to believe this—good work was being done for children in great need, and I think it is important not to get this out of perspective. There was much that was wrong, but there was also much that was good. My concern throughout this has been to try to preserve the good without continuing the wrong, and the clearer I became as the process went on about how much was wrong, the more steps I took to try to put it right.

Paul Flynn

To what extent was your judgment and that of the Government affected by the fact that Ms Batmanghelidjh was described as the poster girl of the Big Society concept, an idea whose time never came. Do you think now that the concept of Big Society will be buried with the remains of Kids Company?

Mr Letwin

Absolutely not. You and I never agreed about Big Society. I believe it is alive and flourishing in our country, and that there are thousands—perhaps tens of thousands— of voluntary groups and social enterprises the length and breadth of our country that are part of the fabric of society and do an immense amount of good.

Chair

We have had the exchange about the Big Society. We want to concentrate on this inquiry.

Paul Flynn

You mentioned your time as shadow Home Secretary, and I was astonished that as someone who was caught in possession of so many intelligent ideas your career flourished instead of withering, which is the fate of most people in that position. I have watched your progress with continuing astonishment and I wish you well. Could you say what knowledge you had of the clinical expertise of Ms Batmanghelidjh herself and the people she was farming the children out to? We have heard of a psychiatrist, charging huge sums of money whose chief remedy was to tap his patients on the side of the skull with his finger as a kind of a voodoo remedy. Were you into assessing the value of the treatment she was giving and the work she was giving, and its effect on the young people?

Mr Letwin

Obviously I am not competent either as a Minister or in any other way to assess the exact value of particular interventions. What we were trying to do in the £4.265 million grant—that is the grant before the end of the last Parliament—by including a whole series of outcome evaluations and insisting on that as a condition of that grant, was to get to the point where we discovered whether, for example, Kids Company was doing what it claimed to be doing, which was helping people not to be NEETs—not in education, employment or training—and helping to wean people off drugs and alcohol and so forth. We set out in I think it is annexe H of that grant, which the Committee has a copy of, a series of impact and outcome evaluations that included the number of qualifications gained and so on by the children. That had not previously been there and that had been worked on over the past couple of years with Kids Company and they accepted those as what they were then going to measure. Of course, they never got around to it, because they went bust eight weeks later, but that was what we were trying to do and that would have been the way to tell whether what it claimed to be doing for the children was being done.

Paul Flynn

Ms Batmanghelidjh has repeatedly said that she was caring for 36,000 children. What is your judgment of how many she was caring for?

Mr Letwin

I don’t know. I never believed the numbers that we were given on that. When it came to it in the crunch, in the terrible moment when Kids Company did go insolvent, my concern then was with the most vulnerable kids. In fact, I spoke to one of the members of the Committee who happens to be a local MP and to other local MPs about it, and I asked my officials to do intensive work with the local authorities in the three London boroughs and in Bristol. It turned out that there were about 1,909 cases, if I remember correctly, of kids sufficiently vulnerable in the care of Kids Company in one way or another to be reviewed and taken over with the £200,000 grant I gave to the local authorities. That is one measure. I think it probably is true that the Methods Consulting figures, which were repeatedly monitored by Methods Consulting, give a more accurate picture of the number of interventions. For example, I think in schools they were probably covering about 10,000 children, but that is very different from looking after individual children. There was a distinct gap between the claims for the numbers that were going on in public and what was really happening. I was relying on the Methods Consulting data, not on the claims in public from the beginning.

Chair

What should we make of a charity that so exaggerates its activity to the public? What does that tell you about, for example, how much interest the trustees are taking in the accuracy of the marketing of the charity?

Mr Letwin

I think it is not unusual in the voluntary sector for charities to make the most of whatever numbers they get. It is a very important point that this was a charity that was raising in the year 2013, according to National Audit Office figures, £17 million—£16.96 million—from private sources, quite apart from the £4 million-odd it had from Government. You do not raise that kind of money without being a salesperson.

Chair

Just a minute. You were a banker and if you had produced a prospectus to raise money, sometimes from other charitable funds and indeed from the Government, for the flotation of a company, you would be prosecuted for putting statements like that into a prospectus.

Mr Letwin

They were not put into prospectuses. What came to us was the Methods Consulting figures, not these figures.

Chair

But as a banker, what would you think of a company that put up billboards advertising how brilliant it was with completely inaccurate figures of its activity?

Mr Letwin

I would think anybody that put out completely inaccurate figures was doing something very wrong, but I do not think that Kids Company was putting completely inaccurate figures.

Chair

It is a bit like Volkswagen describing their emissions.

Mr Letwin

Sorry, maybe you have misunderstood what it was that I was trying to say about their figures. I think she conflated a whole series of different figures in order to get the biggest possible figure and to give an impression that went beyond what it looks like when you look at the detail. We were, and I suspect that donors were, looking at what was actually presented by Methods Consulting.

Chair

So you would be looking at things like the annual accounts?

Mr Letwin

We were indeed looking at the annual accounts.

Chair

The annual accounts said they had 36,000 clients.

Mr Letwin

They did and I assumed that they in some sense or other had 36,000 clients. I thought you were asking me the question not was there some sense in which that figure might be justified, but rather were there really 36,000 people who were individually being looked after inside Kids Company on a day-by-day basis. I never believed that and the accounts did not say that.

Paul Flynn

We have just been told that the Cabinet Office took over part of the responsibilities. We are trying to find out where the buck stops for these huge amounts of money being given out. Ms Batmanghelidjh has, presumably accurately, described her method of raising money from Government as blackmail. A letter that we have seen that was sent this year was saying that if the funds don’t arrive from Government, there would be riots on the streets and Government offices might be burned down. This would be regarded as demanding money with menaces in most cases, but this was her technique over a period of years. Were you, as a Government, blackmailed by her clever strategies?

Mr Letwin

I think I can prove that I was not, in my own case. At the moment after the end of the last Parliament—now we are talking about 19 May 2015—when the chair of trustees, Alan Yentob, made contact with the Cabinet Office and said they had run out of the £4.265 million and they needed some more money, he specifically directly asked me for more money. On 22 May, having been alerted to this, I had a conversation with him in which I said no. The reason I said no was that I was not being in any way blackmailed or otherwise influenced by his assertion at that time that he was going to go insolvent if we did not pay that money, because I had said that the £4.265 million was the last ever such grant and I meant it.

Paul Flynn

But it didn’t happen. They had money four or five days before they collapsed.

Mr Letwin

No, sorry, then we moved to a completely different scene of action where the new donors, Stuart Roden and others, appeared on the scene with a completely different proposition—they were going to put £3 million of their own money into a restructuring fund, which we would match with £3 million Government money. The £6 million would be used to meet the accrued liabilities—the old staff costs, the pay bill, the redundancy costs and so on—to downsize the organisation dramatically to get to the point where with £10 million, not £24 million, of funding each year, they could start building up reserves by downsizing their activities. I made it a condition in that grant that the chief executive was removed, because by this time I was completely clear that it was grossly financially mismanaged, that a new financial controller was in total charge of all the finances—that person was in place; Camila Batmanghelidjh had resigned by the time we paid over the £3 million—that the chair of trustees was replaced, and that three other trustees came in, two of whom had serious financial experience from the past. At that stage, having refused to entertain the suggestion that we should give another grant because they said they were closing, and hence not being blackmailed, I did take seriously a proposition from the new donors that we could get together and restructure this thing with a completely different management so they could carry on the good work without the financial problems that had come to light.

Paul Flynn

But the good work was not going on. We have had a mountain of evidence that they were not dealing with more than a very small number of children and in most of the cases they were just handing out packets containing anywhere between £10 and £200; that they were employing 600 staff, a great deal more staff than they had children to look after on most days there; and that the scheme was not working. What measurement did you take of the outcomes? The very people they should have been helping were being neglected and some had been damaged.

Mr Letwin

As I have said, we were very concerned. I was personally very concerned that as a condition of the £4.265 million grant that the outcomes framework we put in place be measured. If the charity had successfully restructured, it would have gone on measuring those outcomes and then we would all be able to know a year or two later whether it was actually doing the good work that I believe, underneath all these problems, it was doing.

Paul Flynn

But you had been shelling out money all these years to her.

Mr Letwin

Correct, and I was determined to put an end to that.

Paul Flynn

She was a saleswoman, she was a confidence trickster. She is a person who got money out of Government by threatening them. She threatened you and we are told that one of the documents that the Children’s Minister had said that she is very well thought of by The Evening Standard, for goodness’ sake. That was how she influenced Government in order to blackmail money out of you. Aren’t you ashamed of yourself?

Mr Letwin

I have described to you the fact that when I was told it was going to go insolvent if we did not give another grant of the kind we had given just before the end of the Parliament, I refused it. I don’t think I can have been blackmailed into anything.

Paul Flynn

It went on for a very long time when the money was coming.

Mr Letwin

May I just respond to that? It is a very important point. I made two decisions about the £4.265 million grant and the £3 million grant. Ever since I became involved in June 2014, my aim has been to put an end to this long process, back to 2002, of a series of special grants of one kind and another. That is what I insisted on as part of the £4.265 million. I refused a further such grant when asked for it and I accepted only the proposition of a total restructuring involving getting rid of the CEO and the chair of trustees, and putting in a new financial controller. I was very clear we had to put an end to it.

Paul Flynn

Where does the buck stop for the exceptionally generous treatment given to Ms Batmanghelidjh? Is it the Prime Minister? Is it Prince Charles?

Mr Letwin

If you are asking about those two grants, they are my responsibility and I take responsibility for those. The other Ministers who made decisions across the 10 years or so before me will also presumably take responsibility.

Paul Flynn

Who are they? Can we get them before us? Who do you think is responsible for this vast waste of public money?

Mr Letwin

You have just had one of them before you and presumably you could ask a whole chain of Ministers stretching back to 2002. I take responsibility for the ones I gave; there were two and I have described them.

Chair

You said that you had done all this work on the outcomes from the conditions applied by the April grant. Is that what I understood?

Mr Letwin

Yes, April 2015, the £4.265 million.

Chair

Then you had assessed the outcomes of the fulfilment of the conditions of that grant?

Mr Letwin

No, sorry, let me be very clear. There had been a long process before this of work between the Cabinet Office, when it took over responsibility for youth policy in 2013, and Kids Company to try to put in place an evaluation.

Chair

I am asking a very simple question, which is that the April 2015 grant had conditions attached to it for outcomes to be measured.

Mr Letwin

Yes, that is right. They were to be measured from June onwards.

Chair

From June onwards? You implied that they had been—

Mr Letwin

Yes. By June I had replaced the chief executive, put in a new financial controller and—

Chair

Yes, but the point is the outcomes had not been fulfilled, the conditions had not been fulfilled.

Mr Letwin

Nobody ever got to measuring them. We replaced the entire management.

Chair

All right. I just wanted to clarify that. Another example is about the quality of the clinical work that was done here. We know now that Ms Batmanghelidjh had no formal clinical qualifications yet she called herself clinical director and all the clinical decisions were subject to her control. We have one example of someone being referred after email counselling to a hypnotist in Harley Street at hundreds of pounds a session. What gave you confidence that there was any clinical discipline in this organisation?

Mr Letwin

That is evidence that has come out since, of which I was not aware at the time of the £4.265 million grant.

Chair

You were funding a charity that claimed to carry out clinical work. What evidence did you have that this was a bona fide clinical organisation?

Mr Letwin

Most of the work that it was carrying out was of the kind that I had seen with my own eyes back when I had been to see it and was not of a clinical nature. Yes, there were some clinical interventions. The total numbers of those clinical interventions are not enormous at all in the context of the totality. In the grant agreement of 2015-16, clinical support was meant to be for 400 clients only, compared with a schools programme for 10,000 clients, health and nutrition for 3,000 meals a week and so forth. It was a small component. I am obviously not in a position to judge the value or otherwise of specific clinical interventions. I am not a qualified clinician of any kind.

Chair

But nobody in government made any assessment of that?

Mr Letwin

Part of the point of the outcomes evaluation framework was that for the first time there would be proper evaluation of what was achieved for the children, which is the measure, I suppose.

Chair

But the condition you set for outcome evaluation was never fulfilled.

Mr Letwin

Those conditions were set a few months before the charity stopped operating, so we don’t know, of course, what would have happened if it had managed to survive, as I hoped it would.

Ronnie Cowan

We are going to touch on this later, but we are now on the topic. In April they were given £4.3 million and you quite correctly said this was on the condition they were put on a more sustainable financial footing and also that they implemented better measurement of value for money. Isn’t that rather a cart before a horse? Should we not have been making sure those things were in place before we gave them the £4.3 million as one grant?

Mr Letwin

I should explain that the end-to-end business review, which was the first part of what you have just referred to, was designed to get them into a condition where they would never ask for another grant because they would downsize activities to match, and indeed be slightly under, what they could raise from the private sector so that they started building up something that they had not had and we knew they had not had, which was reserves. Clearly we had the choice when I made the decision about the £4.265 million either to let the charity go under, because it was clear that at that time—I think the NAO report makes this abundantly clear—if we had not given it that money it would have then become insolvent, or to put those conditions in, get it to do the end-to-end business review and get into a position where it did not come back for more.

Ronnie Cowan

The whole grant in one block.

Chair

I am sorry but I have to stop you there. Kate Hoey has to go to the statement on Northern Ireland, so we need to get her question first.

Kate Hoey

Thank you. In 2002 you praised Kids Company in a speech and you said that the essence of the charity is its autonomy that would be lost if you tried to make it into some kind of bureaucratic straitjacket. Do you want to tell us what you mean by a bureaucratic straitjacket and do you still think that now? Does it still fit in with your views?

Mr Letwin

Yes, I do. The statutory sector, which does fantastically valuable and necessary work, inevitably has to operate on the basis of laws, rules and methods. I don’t say bureaucracy in any way accusatorily; it is just how one has to work in the statutory sector. To my mind, the point about the voluntary sector is it deals with human beings much more in the round, human to human, and it does that and can do the kind of work I witnessed in those years at Kids Company, and has done in many other places, because it is not bound by that sort of rule. Inevitably that means it does not have the degree of organisation that you get in the statutory sector, but it may have a degree of effect you can’t get in the statutory sector, too. As you know and I know, not just in your constituency but in many others around the country, there are people, in particular kids, who desperately need that kind of human-to-human contact and can’t always get it from an organised bureaucratic process. That is what I meant then and I still believe that.

Kate Hoey

There are an awful lot of charities that do brilliant work and struggle to get a tiny amount of money to help to continue their good work, and they were seeing all this time this huge amount of money going to one charity.

Mr Letwin

I agree with that and that was why I was absolutely determined from the time that I became involved in these decisions to put a stop to that and to get them to the position where they were raising more in private donations than they were spending each year so they could build up a reserve and never come back to the Government. I agree with you.

Kate Hoey

What are these bureaucratic straitjackets within Whitehall that you were conscious that you did not want Kids Company to be part of?

Mr Letwin

I did not want to see someone from a Whitehall Department, local government or whatever trying to run Kids Company or any other charity, because when you start running the thing for it, you will turn it into an aspect of the bureaucracy and it will not have the character it had.

Kate Hoey

What is the difference between giving it autonomy and then making it accountable for public money?

Mr Letwin

I think these bodies do need to be accountable for public money. That is why I insisted on putting in the evaluation framework.

Kate Hoey

You accept that it had not been publicly accountable?

Mr Letwin

I think it had been accountable for outputs through the Methods Consulting review of the outputs, but in my view that is insufficient and that is why I was determined to put in outcome measures so we knew what it was doing for the children—the very questions that have been asked previously by the Committee.

Kate Hoey

Your kind of defence if you were in a court of law—much more important than a court of law—is that it was handed over to your office from the other Department and that you set about making it more accountable and sorting it out. Is that what you are saying?

Mr Letwin

Yes. That is what I was trying to do.

Kate Hoey

But you did not get the chance to finish because it went bust?

Mr Letwin

Correct. That is the truth. Incidentally, I should just make it absolutely clear, because there is a welter of different times and dates and so on, that if you look at figure 3 from the Public Accounts Committee report it shows all the grants over the years. You will see that there were two grants in 2013-14 and 2014-15 that were multi-department grants that did involve the Cabinet Office and did occur after Kids Company—because of the change in youth policy and it coming to the Cabinet Office—became in some sense the responsibility of the Cabinet Office, but I was not involved in either of those. As it happens, I got involved from the time in June 2014 when Chris Grayling wrote to me, after a visit that he had made to Kids Company, and asked me to see Camila Batmanghelidjh. There are two grants specifically that I am responsible for.

Kate Hoey

Have you been in touch with her at all in the last six months—any telephone calls from her to you?

Mr Letwin

Six months, I can’t say. Certainly not since the time when Kids Company went insolvent, no. I have, of course, like everyone else here, seen appearances on stage and screen by Ms Batmanghelidjh.

Kate Hoey

Have you had any conversations with Alan Yentob in the last month or so?

Mr Letwin

No.

Mr David Jones

You are currently an honorary governor of Sherborne Girls School. I think that is only over the last two years. Previously you were a full governor.

Mr Letwin

I was a trustee and governor of Sherborne School for Girls from, I think from memory, 2001, four years after I became an MP locally, up until 2012. I would like to draw the attention of the Committee to the fact that in 2012, before youth policy transferred to the Cabinet Office, I retired as a trustee and governor, and I have not since then had anything to do with the decisions of the school or governing body decisions, and I have not attended any governing body meetings. I became a so-called honorary governor, which just means that I had long service and am a patron, so to speak, of the school.

Mr David Jones

Being a full governor is also a trustee of the school?

Mr Letwin

Exactly. At that time, before 2012, I was a trustee.

Mr David Jones

Is the reason for your resignation or your stepping down as a full trustee the fact that youth policy was transferred to the Cabinet Office?

Mr Letwin

No, it was not the reason but, of course, if I had not already stepped down by time youth policy did transfer, I would have had to have stepped down then. If you look at the declaration of ministerial interests, which you and I have both made on many occasions, you will see that in 2011 I am registered as a governor, hence a trustee, and in 2013 I am registered as not a governor any longer, just as an honorary governor. I would have had to do that at whatever exact date in 2013—I think it was July 2013—youth policy transferred to the Cabinet Office in order to avoid any suggestion of a conflict of interest. As it happened, I had retired anyway by that time because I had been doing it a long time.

Mr David Jones

Just as a matter of clarity, Sherborne Girls School has strong links with Kids Company. I think that is right?

Mr Letwin

As a matter of fact, at the time that I retired as a governor, I didn’t know that it did, and to this day I don’t know whether before I retired as a governor it did have any contact with Kids Company. But I am certainly aware, because I have been told by the current chair of governors, that in the recent past, and maybe going beyond that, it did make donations to Kids Company in kind by offering reduced fee places and things like that.

Mr David Jones

Yes, it provided bursaries for Kids Company clients. I think it was a favoured charity. I think that Sherborne Boys School also has links with Kids Company. Isn’t that right?

Mr Letwin

I don’t know. I am nothing to do with Sherborne Boys School. I am not a governor or trustee of that and never have been.

Mr David Jones

I think it provides a building to Kids Company for a peppercorn rent, which was used as a base for the Kids Company’s urban academy.

Mr Letwin

It may do.

Mr David Jones

Did you not know that?

Mr Letwin

No.

Ronnie Cowan

Central Government gave Kids Company £42 million; local government in the same period of time only £2 million. Do you think local government seemed more reluctant to hand over money to a charity maybe they knew more about because it was on their patch?

Mr Letwin

I think there is no doubt at all that from a very early stage Kids Company had a poor relationship with local government in some of the places it operated in.

Ronnie Cowan

Do you know why?

Mr Letwin

Accounts differ. I think that people inside local government were not keen on some of the things that Kids Company did. When I met Camila Batmanghelidjh in July 2014, I certainly heard her say that she was accusing them of failing in their statutory duties, which I didn’t think was the case. I imagine that did not engender good relationships.

Ronnie Cowan

Is there not maybe a case to be made that local government would be better taking care of charities in their own area rather than central Government handing out these wads of money?

Mr Letwin

I think there is a very good case to be made for the devolution of funding and I have asked my colleague, the Minister for Civil Society, to conduct a full review to learn the lessons from the whole of this episode.

Ronnie Cowan

That is what we are trying to do. We are trying to learn lessons for improvement in the future.

Mr Letwin

I was just going to say that obviously that review will have to take very full account both of what the PAC has already reported and what this Committee will report in due course. I am sure that one of things we should look at is the question of how far central Government and how far local government should be involved.

Ronnie Cowan

Maybe a mistake was made in the past.

Mr Letwin

At this stage, I don’t know what that review is going to conclude or what this Committee is going to conclude, but I am entirely open-minded to the proposition that we should devolve more of the responsibility for funding to local government. It is an arguable case.

Kelvin Hopkins

The National Audit Office identified “a consistent pattern of behaviour each time Kids Company approached the end of the grant term”. In 2002, 2005, 2007, 2010, 2012 and 2014, Kids Company lobbied Government for a new funding commitment. If officials resisted, the charity would express fears of redundancies and the impact of service closures to Ministers, while making similar comments in the media. A grant would then be awarded to Kids Company. Why do you think Kids Company persisted in this strategy?

Mr Letwin

I think that was their strategy and that was precisely what I was attempting to put an end to. I do not think it is a good way to do business. That is why I was determined that they do a full end-to-end business review and reduce their expenses so that they were within what they were raising from private financial sources, and therefore they were able to establish a reserve so they couldn’t do that and did not need to do that. I completely agree with the National Audit Office about that.

Kelvin Hopkins

The obvious answer is that the Kids Company persisted with the strategy because it actually worked. What is surprising is that it worked on six occasions with different Governments and at no point did somebody say, “We are not going to be blackmailed”.

Mr Letwin

That is not true. As I have mentioned, there was a point—I would not put it in those terms—when I said no. I said no when I was approached for money on just that basis directly after the end of the Parliament because I had already made it totally clear to them that the £4.265 million was the last time any such special grant was going to be awarded if I had anything to do with it. That was precisely what I was trying to get to an end of.

Kelvin Hopkins

I am obviously pleased, but hindsight is a wonderful thing. Do you think that the Government, looking back on it, would think they did not behave well?

Mr Letwin

I am not going to sit here and start criticising the strategy. I agree that it is not the right way for the Government to relate to any outside body. My view was that we should make that the last such grant for just that reason. Of course, at that time I did not know, because I was relying on the report and accounts and the PKF Littlejohn report and so on, that there was gross financial mismanagement in addition to the precarious financial situation we all knew about. Once I discovered that, I was only willing to proceed with the restructuring on the basis of a complete removal of the chief executive and the chair of trustees, and a new financial controller and a complete change in the way the thing was run. By that time I was clear that the existing management could not achieve what I had hoped it would achieve on the basis of the £4.265 million.

Kelvin Hopkins

There were large sums of public money and it had been going on for 12 years. Perhaps the previous Labour Government should have been more careful as well. Is that fair?

Mr Letwin

This is a joint responsibility of successive Administrations—now three different Administrations. I can only take responsibility for the two grants that I made and I have given you the most honest account I can of why I made them.

Kelvin Hopkins

I could pursue that, Chair, but I won’t.

Chair

Can I make the point that this was a very high-profile charity that had access to Ministers and that Ministers when in opposition had used in order to promote the political party, and that why celebrities get invited on to political platforms is to enhance the brand of the party? At what point does this become a conflict of interest?

Mr Letwin

I can only say that while it is true that this was a high-profile charity and while it is true that both the Labour Administration and the coalition Administration had all sorts of links with the charity of the kind you are describing, when I came to make these decisions I did not feel the slightest conflict of interest. Had I felt such a conflict of interest, I would not have said no when Alan Yentob said after the election that if I did not give them another grant he would go bust; I said to him, “If so, so be it.” I could not have said that if I had been caught in a conflict of interest.

Chair

But if a political figure has become both emotionally committed to a charity or any organisation for whatever reason, and has used that charity or organisation in order to promote him or herself and his or her political party, isn’t it quite difficult for there to be an objective assessment of whether to give that organisation or charity public money?

Mr Letwin

I did not find it difficult. Let me describe to you the circumstances. I was sitting in a car in my constituency on the car phone. I took the call from Alan that my office had arranged followed his approach to the Cabinet Office. He said, “If you don’t give us some extra money now we will go bust almost immediately.” I said, as I say, “So be it.” I had made it clear that the £4.265 million was the last such grant and I did not find it difficult to make that objective assessment. In fact, what was going through my mind was, “If you have run out of that money already then this charity must be being financially mismanaged to a very severe degree,” as indeed has turned out to be the case, notwithstanding all the information that purported to show the opposite on which I was relying when I gave the original £4.265 million. If I had known about the financial mismanagement that subsequently came to light when I was asked to approve the £4.265 million, I would never have approved that grant. I would not have found that difficult either.

Chair

We will come to that in a minute. The point I am making is: how many charities in financial difficulties that are in receipt of Government funds are going to get put through to you by your private office?

Mr Letwin

The reason it was put through to me was—you are absolutely right—that this was a charity that was able to make contact with Ministers and knew how to do so and so on. It is not unknown, but it was exceptionally true.

Chair

I had a meeting with charity chairs, heads and chief executives on Tuesday at which they expressed a degree of distress and anger about this whole episode, which really struck me because many of them have burned the midnight oil dealing with the bureaucratic straitjacket that you were kind enough to release this charity from. They were not ascribed unorthodoxy or autonomy in their applications for grants and they got nothing or fractions of the amount of money. In fact, Kids Company got most of the money under this budget. How do you think they feel about this? They could not get their calls put through to the Minister for the Cabinet Office and the Chancellor of the Duchy of Lancaster.

Mr Letwin

First, just to correct the point about “most”, in the year in question—2015-16—when both of the grants that I was responsible for occurred, there was a total of £18.7 million of uncompeted grants given by the Cabinet Office in that year, so actually less than half of that went to this charity.

Chair

One third of youth sector funding went to one charity because they could get their call put through to the Chancellor of the Duchy of Lancaster.

Mr Letwin

That probably relates to the DfE statistics.

Chair

Yes, but the point is that this charity had unprecedented access and that is why they got the money.

Mr Letwin

No, that is not why they got the money. It is perfectly true that they had unprecedented access. Well, I don’t know about unprecedented. They certainly had significant access; that is obviously true. I don’t think that is why they got the money and, in the case of my decisions, it certainly is not why they got the money. They got the money because I believed, going right back to my exposure personally first hand—

Chair

Yes, but you would not have been giving this attention to this charity if it had not been on the platform with the Prime Minister, if you had not been enamoured of it, as an example, and if she had not been your hero. Don’t you see that people can’t see this as an objective assessment? How can we possibly trust you with an objective assessment of this situation? The visuals are not good, are they?

Mr Letwin

I think Ministers are under an obligation to try to do what they think is in the public interest, not to try to generate a particular view in public.

Chair

We will come to that.

Mr Letwin

I took the view that this charity was doing valuable work and that it was worth trying to give it this one last chance of continuing that work. I don’t think that is in any sense the kind of judgment that Ministers are not there to take. I think it is the kind of judgment that Ministers are there to take.

Ronnie Cowan

Back on the £4.265 million that was given out prior to the 2015 general election, four, five, six weeks later it is back saying, “We need more money.” Did you ask them what happened to the £4.265 million in that short period of time?

Mr Letwin

Yes, I did, as a matter of fact, and it became perfectly clear that they could give no proper account of why they had failed so dismally to raise the private financing that they had expected to raise in the interim.

Ronnie Cowan

What had they done with the £4.265 million?

Mr Letwin

They were spending about £24 million a year, so over the course of a couple of months they were chewing through that sort of amount of money. What went wrong, as I understand it now, was that they did not succeed in raising the private funds that they had expected to raise, and they did not look like they were about to raise the private sector funds that they had previously been hoping to raise. That was their problem. They were living hand to mouth and the funding was collapsing under them.

Ronnie Cowan

That wasn’t new.

Mr Letwin

Yes, it was new in the sense that up until that moment of them running out of funds, or being about to just after receiving the grant, all the pattern for that had been what we heard from the NAO a moment ago, namely that they would get towards the end of the year—they would be able to survive for 10 or 11 months and then get a grant. This was different. This showed total financial mismanagement.

Chair

We are going to come on to all this a bit later, but can I bring in a very short question from David Jones?

Mr David Jones

In reply to Mr Hopkins you said that you were aware that Kids Company would be insolvent in the absence of £4.265 million, but you were not aware of the level of financial mismanagement within the company. According to the NAO report, there were repeated briefings to Ministers that officials had accepted the company’s assertions that it would become insolvent without Government grant funding. If a company, irrespective of whether or not it is a charity, is in that sort of condition with poor reserves—in fact in some cases negative reserves—repeatedly over a long period of years, does that give you comfort that it is being properly managed?

Mr Letwin

Many charities, alas, do survive on a very hand-to-mouth basis. Of course, it is desirable that every charity should have reserves, although interestingly they get criticised if the reserves are too big. But as a result of the difficulties of continuing on the basis of private funding, many do operate hand to mouth, so in itself the fact that the cash flow was very tight is not a sign of financial mismanagement. It is a sign that it is doing business in a way that is not satisfactory, and that is why I agreed with Mr Hopkins that we needed to put it on a different footing, which is precisely what I was trying to do—to get out of the Government giving it any special grants whatsoever. I did not think it should go on doing so.

Mr David Jones

I understand that, but clearly it must be the case that if a charity or company is so badly run that it is constantly having to approach Government for financial support, it gives you some sort of inkling that maybe the management needs to be replaced. Wasn’t that a consideration perhaps you should have arrived at on considering the first grant application you were responsible for?

Mr Letwin

I have often asked myself that question and I think my answer is no. Up until then I think there was a strategy that they were following, which is exactly the one that Mr Hopkins drew out of the NAO report, that they planned raising a lot of the private money—and they were raising an enormous amount of private money—and then coming along to Government for a dollop extra.

Mr David Jones

Relying upon you for cash flow.

Mr Letwin

Yes, that was what they were doing. I don’t think that is a desirable way to do business. I was trying to put an end to that way of doing business, but it is not in itself a sign of financial mismanagement. It may be a sign of quite cunning financial management, just of a particular kind, which I don’t happen to think is the right way to do business. The situation I was faced with after they ran out of money directly after the end of the last Parliament was quite different. That showed that they had no idea what was actually going on. They could not raise the private funding they were expecting to raise and therefore I lost all confidence in their financial management, which is why, as a result of the whole restructuring, I insisted on the replacement of the chief executive, the financial controller and the chairman of trustees. You don’t do those kinds of things if you think somebody is managing correctly.

Mr David Jones

So you retained confidence in their financial management on the occasion of the first grant application that you were responsible for?

Mr Letwin

Yes, I did. Incidentally, I did that partly because I knew that the history was that they had always just scraped by, but partly also because I read the accounts and I read the PKF Littlejohn report and so I had no basis for assuming that their financial governance was other than reasonably okay within the limits of a charity. It transpired subsequently that I was quite wrong about that, but I did not know that at the time and I do not think anyone else knew that at the time.

Mr David Jones

Did you read the submissions from officials?

Mr Letwin

Of course.

Mr David Jones

Mr Loughton has told us that all the submissions that he received had a caveat from officials saying, “This charity has close links with Metro and the Evening Standard.” Did your submissions have that caveat?

Mr Letwin

No, but you have to understand that in relation to the £3 million grant, which I know the Committee is very well aware of, officials advised me against doing it. I had to issue a ministerial direction.

Mr David Jones

And on the first occasion?

Mr Letwin

On the first occasion officials looked at it and took the view that it was value for money, so I did not have to issue a direction. They did not suggest to me that I was making this decision because of some concern with the popular press.

Mr David Jones

So they didn’t advise you about the Evening Standard and Metro?

Mr Letwin

No. I would not expect to see a submission of that kind in the Cabinet Office, I have to tell you.

Gerald Jones

Mr Letwin, Tim Loughton has claimed that No. 10 overrode the concerns of the Department for Education to ensure that Kids Company received or secured funding in the period 2011 to 2013. Could you tell us what was the involvement of No. 10 in the funding decision at that time?

Mr Letwin

The funding decision in the DfE?

Gerald Jones

No, DfE-raised concerns.

Mr Letwin

The answer is I have no idea. If you are talking about 2011-12, I don’t know. The two grants I know about are the 2015-16 grants—the £4.265 million and the £3 million—and those were decisions I made. I have a conversation with the Prime Minister every day of the week. I certainly discussed Kids Company with him. I was well aware, as the whole world is, of his support for Kids Company, but I made the decisions. They were my responsibility. Nobody told me to do it and that is the end of the matter.

Gerald Jones

But specifically concerns were raised by the Department for Education and No. 10 overrode those concerns.

Mr Letwin

As I say, I know of no reason to suppose that No. 10 did any such thing, but I don’t know because I was not a Minister at DfE and I was not in No. 10.

Gerald Jones

So you are not aware of any concerns of that nature.

Mr Letwin

No. Sorry, I am perfectly aware of what Mr Loughton said to you a few moments back because until I came over here I was watching it on the TV. As I say, I do not know the history of what happened up to the time that I got involved and took responsibility. I do know absolutely clearly that I made these two decisions and nobody told me to do so.

Chair

Can I just clarify something from what you said earlier: when did you first become involved with Kids Company funding?

Mr Letwin

In June 2014.

Chair

Our previous witness told us that the previous cross-departmental grants were meetings convened by No. 10.

Mr Letwin

Possibly, but not by me.

Chair

But not by you.

Mr Letwin

Correct.

Chair

We need to be absolutely clear about that. According to the NAO, the meetings for those cross-departmental grants were convened by No. 10, but not by you. Who would have convened those meetings?

Mr Letwin

I don’t know. What I know is that the Cabinet Office was involved in two of those grants, as the Committee is aware, in 2013-14 and 2014-15. The Ministers who would have been responsible then were Nick Hurd, who was then the Minister for Civil Society, and Francis Maude, who would have signed off as Minister for the Cabinet Office.

Chair

Could you send us a note about which officials, special advisers or Ministers were involved in convening meetings about Kids Company before your involvement?

Mr Letwin

I will endeavour to find out.

Chair

Thank you very much.

Paul Flynn

Can I say that probably the most interesting and revealing piece of evidence you have offered us this morning is news on another one of the exotic places where you conduct your ministerial business. We know you open your mail in the park, but it is interesting to know you also do business from a harbour wall somewhere. But the rest of your evidence could be summed up by saying, “Not me, guv; nothing to do with me; not on my post; not in my term of office”. If it is not you, who is it?

Mr Letwin

On the contrary, if I may say so, I have said in no uncertain terms that I was personally responsible, first for making a grant of £4.265 million with official support and—

Paul Flynn

Yes, but can I make the point? We have heard so much about the money.

Chair

You made a very strong charge against him. Let him answer, please.

Mr Letwin

And for deciding, against official advice, to issue a direction, which is my responsibility. I have taken complete responsibility for the two things for which I am responsible. I don’t think you can do any better than that.

Paul Flynn

What you miss out, and you have repeatedly, is what the Public Accounts Committee said—that Kids Company had no interest in measuring its outcomes and that it still had no proper means of measuring its impact. The money is bad enough—that they conned more money out of you than organisations like Barnardo’s, which is remarkable—but the main charge is they were not doing the work that they were paid to do and they were wasting money on a gargantuan scale, with 600 staff, for goodness’ sake, and at the most fewer than 2,000 children there, which was usually just on Friday when they were picking up their money. It was not working and it is a myth to say that it was. You were certainly part of the Government and the Government had responsibility for keeping this charity going and giving it a respectability it did not deserve.

Chair

That is a speech. Are you getting to a question?

Paul Flynn

Isn’t there any sign of penitence from you that you did something wrong by boosting this company and making it attractive to other donors?

Chair

A quick yes or no.

Mr Letwin

No.

Chair

Moving on, we may have covered some of these questions already, Andrew, so perhaps we could go swiftly through this.

Mr Turner

Kids Company failed to secure funding through a competitive process in 2012. This was because the charity’s bid did not reach the required standard of quality. Following what is known as a public interest case, it was awarded £5.4 million. That was before you came on the scene. What involvement did No. 10 have? We have had that you don’t know what happened in 2013, but it is quite questionable what happened between Tim Loughton’s disappearance and your appearance. That is not right. Given the Kids Company funding bid had failed on the grounds of value for money, why were you persuaded by a public interest case that did not assess for value for money or opportunity cost for the public purse?

Mr Letwin

As I say, I can’t say anything about that specific grant because I didn’t decide about it and I didn’t read any submissions about it. But in relation to the £4.265 million grant, where you could ask the same question, I guess, and where I was responsible and did read the submissions, my view was the only basis on which we could award that was as the last such thing and that it was allied to this end-to-end business review to put the finances on a different basis so that we did not have to do it again. That was where I thought the public interest lay—a managed way of keeping Kids Company going with no further recourse to public funds.

Mr Turner

It is obviously easy to have retrospective help but wouldn’t you, as a senior Minister, have known that there was this history that included Tim Loughton, who apparently was concerned? Did you look at previous submissions or did you look only at the submission when you were sitting in the chair?

Mr Letwin

I should distinguish. The only submission I looked at was the submission to me about the grant I was making, but I would not remotely want to conceal the fact that I was very much aware of the history stretching back to 2002—a long period across two successive Administrations—of these grants. As I say, I came to the conclusion that was not the right way of going about business and that we should put an end to it, and that was what I tried to do. I tried to grasp that nettle.

Mr Turner

We have had only one Minister who has come here and given us evidence, but there is the possibility at least that evidence could be given, or perhaps could not, from other Ministers that there was an ongoing problem and yet either they do not seem to have been effective or they did not think it was a problem. What would you say has happened?

Mr Letwin

As I say, I can’t comment. I have no idea what conclusions Labour Ministers reached over their years. I listened to Tim Loughton speaking, as you have, so I have heard what he had to say. I don’t know what other Ministers would say in the interim between then and my taking over. What I am clear about is that across that very long period, rightly or wrongly, a series of Ministers took the view that Kids Company was doing some valuable work. If they had all thought across all those Administrations that it was not, I don’t think they would have administered those various kinds of grants, nor would it have won the various competitions that it engaged in if officials had not thought it was doing some valuable work. But having said that, I came to the conclusion this was not a way we could carry on and I tried to change that. As I say, in my case I could tell I meant that and you could tell I meant that because when they asked me for some more money on the same basis, I said, flatly, no.

Mr Turner

Richard Heaton told the PAC that Government should be careful about grants “contributed to by a whip-round across Departments because that tends to take the attention off—it tends to remove it from the mind of individual Departments”. How far might this description apply to the 2013 cross-government grant?

Mr Letwin

I think that one of the things we need to review—no doubt your Committee will comment on this and I think the PAC to some degree commented on it—is the question of whether there should ever be any cross-departmental grants for charities? That is one question. The next question is about the Charities Act and what it permits to be done within the Cabinet Office. Then there is the question of devaluation that was raised earlier. I think there is a whole series of issues that need to be raised about how we do these things in future.

Mr Turner

Prior to the public interest case being put together, Ms Batmanghelidjh wrote to the PM warning that the levels of risk are really too high and stating that these poor neighbourhoods remain socially explosive. As far as you can judge, how seriously did No. 10 take these warnings?

Mr Letwin

I don’t know what the view of people inside No. 10 was about that. My own view was that the suggestion that there would be some massive explosion was incorrect. That is one of the reasons why I was quite happy to say no once I discovered that there was a very serious problem of financial mismanagement. But I did take seriously and have always taken seriously the view that it was doing some important work in those areas. I should mention that before I authorised the restructuring grant, the £3 million grant, I went to see the then acting leader of the Opposition, who happens also to be a local constituency MP, and took her mind on it, and she took the view that it was very considerably important. I think there were a lot of people around who had reason to know something about the situation who thought that it was probably doing important work. I don’t think there were very many people who believed—certainly I didn’t believe—that there would be some massive social revolution if Kids Company were to cease operation. I was extremely concerned to make sure that the most vulnerable children were carefully looked after. As I mentioned, 1,909 of those cases were handed over and I pay immense tribute to the work that Cabinet Office officials and the children’s services departments of the three boroughs and Bristol did in picking that up. That was obviously vital.

Mrs Gillan

Can I just get clear in my head why youth policy was transferred to the Cabinet Office and at whose request? Who made that decision?

Mr Letwin

That is a very interesting question that occurred to me, having listened to Mr Loughton today, and I can’t give you a complete account at the moment. If you would like, I will write to you about that. My sense is, thinking about it—I am literally talking about thinking about it outside before coming in the door—that there were probably two allied reasons. One is that the National Citizen Service is under the Minister for Civil Society within the Cabinet Office and I suspect as a tidying-up it was seen that having youth policy in a different place from the National Citizen Service was an oddity and that therefore there would have been a reason for moving either the National Citizen Service over to DfE or vice versa. Secondly, I am conscious that the DfE, particularly under the previous Secretary of State, was particularly concerned to become focused on educating people and less on other things that are important for kids and young people. I will write to the Committee and confirm this or otherwise, but I suspect that the DfE may have been quite happy to see it transferred to the Cabinet Office and be allied with the NCS. But, as I say, that is just my first reflection and I don’t want to mislead the Committee. I will write to you and give you the best possible account I can.

Mrs Gillan

Thank you. Could it be that this charity was now being considered to be beyond the funding capability of the Department for Education and that so many doubts had been cast on it that had been expressed internally within the Department for Education that it was best to move it to another Department where it would continue to get funding?

Mr Letwin

I don’t think that can really be the case because DfE remained an important funder through 2013-14, 2014-15 and 2015-16, so it would have been possible to have a range of Departments funding it. Whether it was right, as Mr Turner has raised, is the important question. I don’t know.

Mrs Gillan

That plays into the Richard Heaton statement, “contributed to by a whip-round across the Departments because that tends to take the attention off”, which was the quote about the result of cross-departmental meetings.

Mr Letwin

As I have said, I do think it is a serious issue that we need to review and obviously I will take very seriously what this Committee says about it, but in any case I think we need to look very carefully at the question: should there be always just one Department, in the case of one grant, that is totally responsible?

Mrs Gillan

I have listened very carefully to what you have been saying and I am interested about the Cabinet Office in this relationship and why they even got the £4.265 million and, despite you saying no, then got £3 million on the premise that they were going to restructure. You said that you knew they made exaggerated claims because you knew she was giving this impression regarding fundraising. You have said, “I never believed the numbers that were given,” referring to the numbers of children. You said, “I have always known its finances were precarious,” and you have also said, “I agree it is not the way to relate to an outside body.” Yet you thought it was appropriate to sign off the £4.265 million grant when you had an audit trail that showed that this organisation was always coming back for ad hoc Government assistance. Do you think that was the correct discharge of your duties?

Mr Letwin

Yes, I do. All those statements are true but, of course, they neglect to add the light in the light and dark photograph we were presented with, that I continued to believe and still believe today, that it was doing much valuable work and I was trying to continue that. It is important that at that time, although I did indeed recognise the precariousness of its financial situation, which is not uncommon in the charity world, I had before me documentary evidence about its so-called financial management in the form of audit reports and the PKF Littlejohn report. I think you and I have worked together for long enough in government for you to know that I study these things quite carefully. I studied those things carefully. I could not see any sign from that that this thing was exceptionally financially mismanaged, so I thought it was worth trying to get it on to a stable footing in the way I have described, without recourse to a Government grant.

Mrs Gillan

I have to concur. You are very diligent. You read every piece of paper that comes across your desk. When you read the audit reports, they consistently contain those veiled warnings that come from auditors that would make you immediately want to look at it a bit more carefully.

Mr Letwin

No, on the contrary. I have read, as your Chair knows very well, a very large number of reports of accounts across my total career and I did not see these as saying that, but there is a further point that is of some significance and I think oddly contrasts with some evidence you were given on Tuesday. When we were just at the point of giving the £4.265 million grant, the then finance director of the Cabinet Office was in contact with the auditors and with the chair of the audit committee in order to be clear with them whether—they knew that he was asking them about the potential grant—there was any reason why we should not award such a grant. I believe you heard evidence to the contrary, which I think must come from either the conversation not being with the person who was giving the evidence or some failure of memory because, since the evidence was given to you, I have taken the trouble to interview personally the then finance director of the Cabinet Office, who is now in charge of the Government Property Unit. Not only has he confirmed to me that he had that conversation but also there is a contemporaneous email, which I can send to the Committee if you wish, that testifies to that fact. So, I am absolutely clear that the evidence we were getting from the auditors was not evidence of something that was financially mismanaged in the way that it has now come to light that it was.

Mrs Gillan

On the PKF Littlejohn review of Kids Company, I understand correspondence between Ms Batmanghelidjh and Nick Hurd, who was then the Minister for Civil Society, shows that the Government decided to withhold £500,000 until the review was completed. I would like to know what assurances you were seeking from PKF Littlejohn in that review.

Mr Letwin

I don’t know what assurances Nick Hurd sought from them because I wasn’t involved at that stage. I do know what was produced. That is what I had in front of me and I went through that in some detail, and have been through that in pretty exhaustive detail. I am very clear that if you read that report in its entirety—I am obviously happy to go into however much detail you want about that—there was apparently a sound basis for saying that although this charity did not have large reserves and was living precariously and had cash flow issues, which clearly comes out and we knew anyway, its financial governance otherwise was in reasonably good shape.

Mrs Gillan

Weren’t you surprised that the report did not assess the effectiveness of the Kids Company policies and procedures at all? That was missing from that report.

Mr Letwin

Do you mean the effectiveness in the sense of outcomes?

Mrs Gillan

No, the effectiveness of their policies and procedures in terms of outcomes, but also how the money was spent.

Chair

If I may supplement this, the original remit given to PKF was to look at the governance of the charity and that was not referred to at all in that report, or it was described as this rather weird word “appropriate”, which does not suggest it was effective.

Mrs Cheryl Gillan

You were going to base your funding decision on the outcome of that review.

Mr Letwin

Not the outcome. That review was completed in March 2014. My decision on the £4.265 million was in April 2015, more than a year later. I had no part in commissioning the review. I don’t know exactly what they were asked to do. What I had before me was the report that is called a review of “financial and governance controls”, so I read it that way. It could have said, “This charity is grossly financially mismanaged; the trustees are out of control of its finances”. It does not say any of those things.

Mrs Gillan

But it wouldn’t say that.

Mr Letwin

Well, it could say things that were like that or very much like that, but it didn’t do anything of the kind. Any reader of that report, taking it at face value, would say that it gave a reasonably clean bill of health. If you compare it to the management of many other charities, it looks okay. We all know now what I didn’t know from reading that report and what I didn’t get from the audit reports, which is that actually the charity was grossly financially mismanaged. Of course I accept that, but that was not clear from the report.

Mrs Gillan

I just go back to say that that report, which was not a clean bill of health, coupled with the statements I read out before that you have made in this hearing, surely must have set off some warning signals in your head. I also heard you say distinctly, “I had replaced the CEO, I had put in different financial—”

Mr Letwin

That was afterwards.

Mrs Gillan

Yes. Do you not feel that you were too close to this charity and that this charity was getting very special treatment because it had been used as a figurehead in the past for our party? Do you not feel that you were biased towards doing whatever you could to save this charity, notwithstanding what was probably beginning to emerge as a huge catalogue of failure right back to 2002?

Mr Letwin

I don’t think I was biased to do that. I was doing that because I believe, and I still believe, that it was in the public interest that this charity should continue but without further recourse to public funds. I think that was the right thing to have happened.

Mrs Gillan

But in fact it did have recourse to public funds twice under your management.

Mr Letwin

But the restructuring fund was wholly different because it depended on what had been achieved at the time when it was given, which is a series of things that by that time the charity itself was proposing, namely the removal of the chief executive and the replacement of the financial controller and the replacement of the chair of trustees and the additional trustees. That is a pretty big set of shifts, which of course puts it on a completely different management basis and that was the only basis on which by then I believed it might be possible to survive. I should add that that was being done at a time when there was a group of mainly new donors who were bringing £3 million of their own money to match our £3 million to be the restructuring fund. So I had some confidence at that stage that that could carry forward. What I didn’t know, of course, was that a few hours after we had put in our money there would be the very serious allegations of safeguarding, and the rest is history.

Mrs Gillan

What checks did your officials make to ensure that the £3 million from the wide variety of donors that were coming up to back Ms Batmanghelidjh had actually been put into the charity before the £3 million was released from Government funds?

Mr Letwin

We had specific undertakings from each of the donors involved and I had met face to face with two of them who were responsible for a large part and one of those, Stuart Roden, had underwritten another large part. So we had very strong confidence that the £3 million would come forward.

Mrs Gillan

But it had not gone in at the stage the grant went into the charity?

Mr Letwin

It literally had not gone in. It was due to go in the next day.

Mrs Gillan

But it had not.

Mr Letwin

It had not but it was due to go in the next day.

Mrs Gillan

And it never did.

Mr Letwin

The only reason it didn’t—you can check this with Stuart Roden, I think—was because the charity itself, having received these allegations, said to the donors of the £3 million that they were not going to be able to raise the other funds and the restructuring would not work, and that therefore they should not put their money in.

Mrs Gillan

But surely one of the principal rules is you do not put matched funding in from Government until you know and have seen that that matched funding is in? You may have had all the assurances in the world—you are a kind man and you would take those—but the truth of the matter is the Government funding went in and it was never matched by the people who came forward afterwards, because of circumstances, granted, so it was done the wrong way round.

Mr Letwin

No, I don’t think it was, because we were told on the day on which the decision was made that if we didn’t make the decision that day, as opposed to the next day, the charity would cease operation because it had to meet its pay bill on 30 July.

Mrs Cheryl Gillan

Once again, somebody else fell for Kids Company and Ms Batmanghelidjh.

Mr Letwin

No. I am absolutely confident that if those allegations had not arisen in the next few hours that £3 million would have come in and we had written undertakings to that effect.

Chair

In the small company world that I used to operate in, the matched funding would have gone in in escrow in some form to provide assurance for that, but I think you have made your point about that. Can I just clarify a couple of things? You have repeatedly said the Cabinet Office was in contact with the auditors. Do you mean Kingston Smith, the auditors of the company?

Mr Letwin

Yes, just before the £4.265 million grant, the then finance director spoke to Kingston Smith.

Chair

A partner who came in front of us on Tuesday was adamant that there had been no contact.

Mr Letwin

I am aware of that, and that is why I was saying I was surprised by that evidence. I think it must arise from either a lack of memory on the part of the person who was testifying, or from the person who has been spoken to not having told that person that there was this contact.

Chair

We have been in contact with them again and they have reiterated that there was no contact.

Mr Letwin

All I can do is to suggest that the Committee should ask to talk to the then finance director of the Cabinet Office and hear his side of the story. I will send the Committee the contemporaneous email that he sent. You understand I was not party to that conversation.

Chair

I am not accusing anybody of anything, but there is just a mismatch of the evidence.

Mr Letwin

Exactly. All I can do is to tell you that I have talked to him. In my experience, he is a ruthlessly honest person. He says he had that conversation and he said it at the time.

Chair

All right, we will clear it up one way or another. The second thing is that it should be emphasised that I think the Minister was then Nick Hurd who oversaw the holding back of the £500,000 until after the PKF report had been delivered. I am still not clear what assurances you were expecting from this report.

Mr Letwin

It was not that I was expecting assurances from it. I was trying to make the judgment when the £4.265 million grant was being made whether I could achieve, through that grant, an end to this long process of special grants through the completion of the end-to-end business review and a downscaling of the total amount of expenditure to be below the income so that the charity created reserves. Secondly, I had to judge whether the then management was capable of doing that job once they had done that business review. Now, the only basis on which I could judge whether the management was able to do that was the audit reports and the PKF Littlejohn report was therefore what I relied on.

Chair

You took assurance from the PKF report?

Mr Letwin

I looked at the report and it appeared to give a reasonably clean bill of health to the charity.

Chair

But now you say that it did not uncover the financial state of the business, and if you had known more about the financial vulnerability of the business, you would not have given the money?

Mr Letwin

Correct. If I had known that the donors were going to disappear at the rate they appeared to be—

Chair

What was wrong with the PKF report? Was it the way it was commissioned or was it just a defective report?

Mr Letwin

I do not say either of those things. All I can say is—

Chair

It must be one or the other, because the Cabinet Office commissioned it, you relied on it and you acted on it, and now you say it did not tell you what you should have known.

Mr Letwin

Clearly what I am saying is that the report gave a fairly clean bill of health. We happen to know now that the financial management was not as good as one would have hoped.

Chair

So what was wrong with the PKF report?

Mr Letwin

I am not saying that there is something that the professionals did wrong. I am saying that the report did not reveal the situation that has now come about.

Chair

The Government spent money on this report, so more taxpayers’ money went out the window for a report that purported to provide assurance that it could not provide. Now, either the—

Mr Letwin

When you say “could not provide”—

Chair

It failed, didn’t it? It did not tell you what you needed to know.

Mr Letwin

That is correct. It did not tell me what we needed to know.

Chair

Was it poor commissioning or was it the way that PKF slightly changed their remit in order to not give assurances quite as fulsomely as they might have done and then the Cabinet Office missed reading between the lines? Do you think PKF thought, “Well, this is a very popular person. We do not want to get between the Prime Minister and Camila Batmanghelidjh. There is a lot of political risk in this. This is the answer they really want; we will give them the answer they want”?

Mr Letwin

No, I have no reason to suspect that at all.

Chair

Then what was wrong with the report?

Mr Letwin

The report gave a reasonably clean bill of health and it turned out the charity was mismanaged.

Chair

Do you think it was good value for money? Was that report good value for money?

Mr Letwin

I do not think it was good value for money, because it did not reveal the picture that ultimately transpired.

Chair

Will you be trying to get some money back from PKF?

Mr Letwin

I do not know whether that is contractually possible or not.

Paul Flynn

One of the descriptions I remember at the Committee on the auditors’ report was rather like the question asked of Mrs President Lincoln— “Apart from that, what was the play like?”—because they had gone into this financial chaos and the extravagance on the scale there, and missed it all out. They came out and said it was all right: “Oh yes, someone gave her £302 for a pair of shoes,” and as there was a receipt for it, that was okay. However, no one made a judgment on whether that was a sensible use of public money—to spend on that scale. People had £1,000 here, people were sent off on holiday there, and that was all missed.

Chair

Any comments on that, Minister?

Mr Letwin

I do not think I have any further comment on that, but may I just say something that reflects on things that came out after your Tuesday session, because I think there was an error?

Chair

Yes, please tell us.

Mr Letwin

I think it was noted in the Tuesday session that on page 16 of the PKF report there is the statement that the calculation of accommodation costs includes gift in kind, which is not a cash transaction and therefore should be excluded. But what did not seem to come out in that evidence is that if you look back at page 6, where the recommendations and the responses are listed, what happens is that Kids Company makes perfectly clear in its response, and I quote, “In calculating the percentage appropriate to allocate, we have included gifts in kind in our assessment of the whole delivery cost. However, we are not asking the Cabinet Office to reimburse us for funds we have not ourselves spent”. It went on to say, “If the Cabinet Office prefers to exclude gift in kind costs in the starter calculation, we are happy to reassess in that way”. In other words, this was a technical presentational issue and not a substantive issue.

Chair

I understand that point and I am glad you put on the record. We have also understood that point as well.

Mr Letwin

Excellent.

Oliver Dowden

Alan Yentob has said he met you in December 2014 and you said, “We are not going to be able to give you any money and this year is going to be the last.” Why did you decide that Kids Company was no longer something the Government should be funding?

Mr Letwin

As I have said to the Committee, my view was that it is no way to do business in the end—to have repeatedly a charity come back to the Government and say, “We are going to collapse unless you give us some money”. You just cannot go on that way. The charity has to be put on the basis that in Tim Loughton’s evidence he was rightly, I think, giving you, namely transitional funding, okay, but to get to the point where it is on its own feet. Of course then charities can compete and tender for Government programmes in an ordinary way, but there should not have to be recourse to special grants. So I made it quite clear to Alan Yentob then, as I did throughout the process leading up to the £4.265 million grant, that that was it and, crucially, that they had to do this end-to-end business review so that we got to grips—they got to grips as trustees—with what they would need to do to their expenditures to bring them into line with their private donations so that they could establish a reserve and move into a different kind of action. That is exactly what I was trying to achieve.

Oliver Dowden

Did you not fear, given that the previous track record of this organisation that kept coming back for Government money, that despite your best endeavours it might slip back into that process again?

Mr Letwin

No, I did not, because—this it comes back to a point that Mr Hopkins was making earlier, reflecting the NAO—I do not think that the Kids Company, up until the time I am talking about, had been doing that by mistake, I think it had been doing it as the NAO reported: as a conscious strategy. I think that I had managed to persuade Alan Yentob that that had come to an end and we were not going to do that anymore. I do not know—how can I know?—whether he really believed me. He certainly would have believed me after I said a flat no to his request for further funding just after the election on the same basis. I hoped and I thought then—I think I still think now—that he probably did understand that I was telling him the truth when I said, “That is it,” and I was telling the truth.

Oliver Dowden

Just a specific point, Mr Yentob said he regrets that he did not get this message earlier and suspects the Government did not want to “tell us directly”. How did the Government communicate this message to Kids Company?

Mr Letwin

This message was exactly as he says, I think, communicated by me to him in a meeting. I am not quite sure whether it was the one of 22 December, although I think it probably was, but I probably reinforced it in a meeting I had with them on 18 February, before I made the grant in April.

Oliver Dowden

So it was all done orally, not through some form of memorandum or something?

Mr Letwin

Yes, although the £4.265 million grant also reiterates that very, very plainly.

Chair

It is interesting that when you told him that he was not going to get any more money, you then gave him some more money.

Mr Letwin

No, sorry, what I told him was that I was willing to seek to give him the £4.265 million, but that that was it, and it was on this basis.

Chair

Yes, but that was not it, was it? You subsequently gave him more money.

Mr Letwin

No, I did not give them more money on that basis at all. What I did was to refuse giving the money on that basis.

Chair

I am not talking about the basis. All I am saying is—

Mr Letwin

I am sorry, the then—

Chair

It is understandable that he did not quite hear the message that they were not going to get more money from the Government, partly because you obviously were reserving your position in some way, on that basis, as you have put it. Also, whatever you said about not giving more money, you then subsequently gave more money, so it is not surprising he never heard this message.

Mr Letwin

Not to them. I refused to give them more money. I then only gave the restructuring grant on a matched basis once the chief executive, the chairman of trustees, three of the other trustees and the financial controller had been placed into a totally new management.

Chair

But this is rather like a family looking after a profligate maiden aunt, and however spendthrift she is and however the family try to tell her the money is never going to be there, they just keep giving her more money.

Mr Letwin

This is an analogy that is going to lead both of us into difficulties, but if I may say so, it is not like that, because in this case the aunt disappeared from the scene.

Mr Turner

When did these—including Mr Yentob’s successor and Ms Batmanghelidjh’s successor—materialise?

Mr Letwin

What happened was that before I gave the grant, whenever it was—sorry, I gave it on 30 July 2015, so before 30 July 2015—Camila Batmanghelidjh had resigned “with immediate effect”. I think you have copies of the relevant document. By that time, the new financial controller, the chief restructuring officer—so-called—Colin Whipp, had been in for at least two weeks, so he was in charge of the new finances. He had supplied me with, for the first time in the process following the end of the Parliament, a month by month and quarter by quarter cash flow. We had obtained undertakings from the £3 million fund providers and we had been through one by one the donors that were going to donate the £10 million on a regular basis for the first year and with some considerable assurance for the second year. It was on that basis that I gave that restructuring grant.

Mr Turner

And Mr Yentob?

Mr Letwin

He was scheduled to disappear—it was a written agreement—by the time that the donors of the £3 million restructuring fund became trustees, at which stage Stuart Roden was going to become the chair. Their condition was that in order to do that—in order to take over as trustees—the financial controller had to complete the restructuring as planned.

Chair

Moving on to the letter of direction, David Jones.

Mr David Jones

You received fairly trenchant advice from your permanent secretary that the further grant should not be paid. You issued your own letter of direction and you said that you took confidence from the changes that Kids Company had undertaken to make in terms of its leadership, management and governance.

Mr Letwin

Yes.

Mr David Jones

Is it not the case that several grants had been made to Kids Company on condition of achieving long-term sustainability, but notwithstanding that, they had consistently failed to achieve that long-term sustainability? Didn’t you feel that, frankly, given their track record, it was not wise to accept that they were likely to change their procedures?

Mr Letwin

This comes back to the question of who they were. By that time, I had entirely lost confidence in the previous management, so I would not have taken any confidence that they would do that, but they were not going to be managing it. There was going to be the new chief executive—the current one had disappeared—and there was already a new financial controller, in whom I already some confidence having received detailed information from him in a way that previously we had not received from the charity. I was confident that the people who were putting £3 million of their own money in would be sure, when they became chair and other trustees, that it was properly used. Look, I accept entirely that officials took a view and it was—

Mr David Jones

That was the correct view, was it not?