DCMS handling of COVID loans criticised as PAC warns of rugby union accountability gap (Re-sent with embargo)

The Government's management of culture and sports sector loans was weak from the start. In a report on the Department for Culture, Media and Sport's (DCMS) management of COVID-19 loans, the Public Accounts Committee warns that DCMS is being overly optimistic in expecting that all funds will be recouped, with a high degree of uncertainty remaining over how much of the loan book will ever be repaid.

With lockdown requiring culture and sports organisations to close, DCMS lent £474m to 120 borrowers between 2020 and '24. At October 2024, it had received £41m back, representing 97% of expected repayments. Nine borrowers, collectively receiving loans of £46m, had become insolvent, and over half had still to make any repayments. Loans worth over £400 million were outstanding. 

The report warns that future repayment is put at risk by DCMS' need to maintain the financial viability of the sectors to which it has given loans. The PAC's inquiry finds that DCMS is overly optimistic in expecting all outstanding loans to be repaid, despite being unclear about what actions it would take for borrowers in financial difficulties. It also highlights that the cost of managing the loans has been significant at £17m so far, with DCMS unable to say when the cost of managing the loans in-house would start to exceed the level of repayments received.

The PAC calls on DCMS to assess long-term options for its COVID loans, including their outright sale, and to demonstrate a tough approach on behalf of taxpayers to managing those borrowers in trouble.

The inquiry scrutinised loans to top-tier, professional rugby union clubs in the Premiership Rugby League, which received 57% (£124m) of DCMS' sports loans. DCMS insisted that these clubs were financially viable when it awarded the loans, despite public reports at the time to the contrary and the subsequent insolvency of three of the clubs by June 2023, owing Government £41.6m. The PAC's view is that loans, which were introduced as COVID support, should not be extended to provide support for bodies which are financially unviable five years post-pandemic. 

The report further warns of a gap in accountability to Parliament for the rugby union loans, due to a conflict of interest involving the Permanent Secretary's connections with the sport. While properly declared in the register of interests, this prevented MPs questioning her directly on this topic. This gap in senior oversight and accountability for such a significant amount of public money is concerning and avoidable. The PAC finds it odd that DCMS had not taken steps to address this, such as by asking another Permanent Secretary to provide scrutiny and assurance.

Sir Geoffrey Clifton-Brown MP, Chair of the Committee, said:

“Cultural and sporting events came to an abrupt and shocking halt during lockdown, by law. In such circumstances, it is of course right that Government came forward with necessary support to ensure the long-term future of foundational elements of our national life. But such support was contingent on the unprecedented nature of a global crisis, not to provide a lifetime guarantee to institutions like rugby union which may be experiencing financial difficulties five years later.

“DCMS is inherently conflicted in the management of its COVID loan-book. As a lender, its priority will be to secure best value for the taxpayer from these loans. As a Department, its priority is to do everything in its power to support a sector which has become its debtor. This is before one even considers the direct conflict for DCMS' Permanent Secretary with regard to rugby union, the sub-optimal handling of which struck this Committee as odd. DCMS has shown that while it has tried its best at acting in the role of a specialist loan provider, it should stick to what it knows. The Department should be considering all options for the long-term future of these loans, including their outright sale.”

PAC report conclusions and recommendations 

There have been severe weaknesses from the start in the Department's arrangements for managing its loan book. The Department did not draw enough on expertise across government when setting up its loan schemes. It has subsequently improved its governance, procedures and capabilities for managing these loans, but there are still too many parties involved in managing the loans (the Department itself, Sport England and Arts Council England as its loan agents, and PwC as its managed service provider). There is no evidence that the Department considered outsourcing to a specialist loan management service provider. The appointment of separate loan agents for culture and sport meant that there were two separate loan management systems requiring integration. We also have concerns as to whether the Department and its loan agents have the skills needed to undertake insolvency negotiations concerning their borrowers. Finally, there remains a fundamental tension for the Department and its loan agents between the Department's primary objective with the loan book of maximising the financial returns to the Exchequer and the policy objective of maintaining the viability of the sectors the Department has made loans to.

Recommendation 1. The Department should address current weaknesses in the management of its loan book including simplifying the management arrangements and ensuring it has the appropriate skills and expertise it needs for the future available to it.

The Department's management of its contract with PwC has been poor. The Department originally appointed PwC to advise on options for the management of its loans. After PwC identified the need for a managed service provider, the Department appointed PwC to this position after a competition, with a contract running to March 2025. The Department subsequently expanded PwC's brief to include the delivery of an integrated loan management system, paying an extra £900,000 for this. However, the system was delivered in June 2024, 15 months later than originally planned. It also did not provide full functionality required, with loan agents having to maintain their own spreadsheets that the system was meant to replace. The Department has had to enter into another contract with PwC and pay an extra £300,000 to get the additional functionality required. It expects this to be in place by September 2025 at the latest.

Recommendation 2. The Department should ensure that PwC delivers the full additional functionality required to the loan management system before September 2025 at the very latest and for no more than £300,000, and should begin preparations now for the approaching end of PwC's original contract.

The Department does not yet know which options for the loan book's future management would provide best value for the taxpayer in the long term. The costs of managing the loan book to date have been significant, at about £17 million over three years. The Department has not forecast the costs of running the loan book beyond the current Spending Review period (2025-26). As a result, it cannot identify when the cost of the current arrangements for managing the loans in-house would start to exceed the level of repayments received and these arrangements would therefore cease to provide value for money. Nor has the Department undertaken a review of its options for the future of the loan book since 2022. Its future options include: the continuation of the current in-house arrangements for the management of the loan book; the sale of the loan book which would give the Government cash immediately and eliminate future running costs; its consolidation with other government loans; and the appointment by the Department of specialists to manage its loans. The Department plans to undertake such a review later in 2025-26. An up-to-date valuation of the potential receipts from the loan book's sale will form an essential benchmark for this review.

Recommendation 3. The Department should assess which long-term strategic options for the loan book, including, for example, its sale, would provide best value for the taxpayer.

The Department is being overly optimistic in the management of its loan book in the face of continuing uncertainty over future repayments. The Department, as at October 2024 had received less in repayments than was due, the level of insolvencies among its borrowers had been higher than it forecast, and over half of borrowers remained on a repayment holiday. Despite this, the Department continues to be optimistic in its expectations over the future levels of loan repayments and insolvencies. It expects repayment of all outstanding loans, but is unclear about the actions it would take for borrowers in financial difficulties. The Department stresses the need to take account of its policy objective of maintaining the viability of the sectors where it has made loans when considering such actions, and any final decisions will be taken by ministers on a case-by-case basis. The Department also considers the level of potential fraud to date, of £2.2 million, to be relatively low, compared to other COVID-19 schemes.

Recommendation 4.

1. a) The Department should revisit its estimates of expected repayment levels and insolvency rates by December 2025 to reflect its experience once all borrowers have started to make repayments
2. b) The Department should demonstrate a tough approach on behalf of taxpayers to managing those borrowers in trouble, including when considering these borrowers for any future additional financial support, such as grant funding or further loans from the Department.

The Department is displaying an inconsistent approach to its engagement with professional sports. The majority of the Department's loans to sport bodies went to professional sport. For example, 57% (£124 million) of the Department's sports loans went to top-tier, professional rugby union clubs in the Premiership Rugby League. The Department insists that these clubs were financially viable when it awarded the loans, despite public reports at the time to the contrary and the subsequent insolvency of three of the clubs by June 2023, owing the Department £41.6 million. The Department says it took a common approach when lending to borrowers in different sports, but, in our view, its subsequent actions display different approaches in practice. It has appointed consultants and engaged with the Rugby Football Union, the Premier Rugby League and CVC Capital Partners on the future of rugby union. In contrast, the Department was less certain about the extent of engagement by itself and Sport England with professional basketball over proposed structural changes to the game that could put at risk repayment of the last outstanding loans from four of the 11 professional clubs that received loans. When the Department did provide us with more information, it was clear to us that it has been less engaged with basketball than with professional rugby union.

Recommendation 5. The Department should work with Sport England to compile a strategy for engaging with borrowers in future in order to ensure that they engage consistently and fairly with different sports as more borrowers start to repay their loans.

Owing to a conflict of interest, the Department has allowed a gap to arise in accountability to Parliament for a significant amount of public money relating to the loans it made to rugby union. Since her appointment as Permanent Secretary in 2023, the Department's Accounting Officer has had a conflict of interest regarding rugby union. She has properly declared this conflict and recused herself from relevant discussions and decisions, and the Department has put in place arrangements involving other Department staff to handle the conflict. However, the Department is most heavily exposed to rugby union in terms of both the amount of loans it has made and the financial health of the sport. The conflict of interest meant that we could not question the Permanent Secretary directly about the £124 million that the Department had loaned to top-tier rugby union clubs (57% of its total COVID loans to sports bodies) and its subsequent management of these loans.

Recommendation 6. The Department should consider alternative arrangements for filling the accountability gap to Parliament relating to rugby union loans, for example involving the Permanent Secretary of another department, who could be appointed as the Accounting Officer for this item.