Select Committee statement
We now come to the Select Committee statement. The Chair of the relevant Select Committee, Mr Bernard Jenkin, will speak for up to 10 minutes, during which, as those familiar with the procedure will realise and those who are not will now learn, no interventions may be taken. At the conclusion of his statement, I or whoever is in the Chair will call Members to put questions on the subject of the statement, and call Mr Bernard Jenkin to respond to these in turn. Members can expect to be called only once. Interventions should be questions and should be brief. Front Benchers may take part in questioning.
I am grateful to the Backbench Business Committee for the opportunity to make this statement on our report entitled, “The collapse of Kids Company: lessons for charity trustees, professional firms, the Charity Commission, and Whitehall”.
We found that an extraordinary catalogue of failures of governance and control had taken place in the charity. It is obvious that many will feel blamed by our report. However, we very deliberately set about investigating the matter with a view to find lessons to be learned, not to find blame. Unless we can learn lessons, there will be an increased likelihood that such events will be repeated.
First, on the question of professional firms, the charity’s auditors repeated in every audit letter their concern that reserves in the charity were very low. The charity never acted on that advice. Instead, it was all too keen to trumpet the fact that it had received what it called a “clean audit” in every year of its existence. Under questioning, the auditor said that the charity had been living permanently “on a knife edge”. That sense of urgency was not communicated in formal advice to the charity. He also candidly admitted that the auditors should have notified the Charity Commission of their concerns about the charity, in accordance with the duty placed on auditors of charities under section 156 of the Charities Act 2011. That is a lesson that I hope all auditors will learn.
We also cross-examined Pannell Kerr Forster, which did an investigation into the governance and controls of the charity, on behalf of the Cabinet Office. We were concerned about how it evolved the remit of its report into being an investigation into governance controls rather than governance and controls. The report ended up being of rather limited value in the Cabinet Office, although it was read as what it was originally intended to be. That gives rise to the question of how the Government manage professional firms, as well as of how professional firms conduct themselves in respect of their responsibilities.
The charity also commissioned advice from PricewaterhouseCoopers, but it had so little time to produce anything in the run-up to the collapse of the charity that what it produced was of extremely little value. The Government took too much comfort from that report as well, and PwC should have been more candid and direct with the Government about how valuable its work could be to them.
The Charity Commission has a statutory duty to prevent, detect and tackle abuse and mismanagement in charities. It did not do so with Kids Company. Prior to 2015 the Charity Commission did not engage with Kids Company, because it received very few complaints. Why did so few people complain to the Charity Commission, given that this was, for a long period, a charity with a mixed reputation that excited a lot of public comment? In order to attract complaints, the Charity Commission should have a much higher profile as an avenue for complaints. It needs to be much more proactive in responding to concerns that are raised in public about a charity. In the case of high-risk charities with many employees and dependent beneficiaries, it should be equipped and funded to do more to provide scrutiny and, more importantly, advice and support to struggling trustees.
The Government need to reverse cuts to the Charity Commission to enable it to carry out its statutory function. We also recommend that the Charity Commission take new powers to hold hearings and to produce reports and recommendations about charities. It really should not fall to a Select Committee of the House to produce reports on the activities of individual charities. Kids Company received more than £42 million in grants from central Government across several Administrations, and it has not had to compete for a grant since 2013. Other charities have voiced bitter discontent at the unfairness of that. Government will need to work hard to restore faith in the grant-giving system of Whitehall.
Kids Company enjoyed unique, privileged and significant access to senior Ministers, and even to Prime Ministers and Leaders of the Opposition, throughout successive Administrations. Some witnesses stated that they were intimidated by that high-profile support, and questions have been raised about whether it affected funding decisions; it certainly discouraged people from raising concerns. Government lacked any objective assessment of Kids Company’s activities and outcomes, and the effectiveness of its governance. Government must improve their capability so that they are less reliant on external reviews when making assessments about charities.
The civil service should be commended for resisting the hold that Kids Company seemed to have over so many others, but the advice of the civil service was, in the end, overridden. Ministers should not allow charity representatives to exploit their access to Government in a way that might be construed to be unethical. Ministers should not override, or risk creating the perception that they are overriding, official advice to hand over funding to charities on the basis of personal prejudice or political considerations. That raises questions about how conflicts of interest for Ministers are addressed in Government with respect to charity funding. The awarding of commercial contracts could never have been conducted on the same basis.
The real message of the report is about charity trustees. It is the same as the message in our report about charity funding last week, in which we found that trustees of some of the most famous charities in the country had failed to understand what was being done in their name. Both reports highlight the role of trustees of charities. The primary responsibility of trustees is the good governance and the maintenance of the reputation of their charities. The primary responsibility for Kids Company’s collapse rests with the charity trustees, who failed in their duty concerning the governance of the charity. I do not for a moment doubt the good faith of every trustee who served the charity, and I have evidence that some tried very hard to do the right thing. The only conclusion that anyone can reach is that either they did not know or understand the implications of what was going on in the charity, or they knew and failed to act.
The Charity Commission’s guidance requires trustees to
“make decisions solely in the charity’s interests. They should not allow themselves to be swayed by personal prejudices or dominant personalities.”
That seems to be exactly what happened in Kids Company, however, and it must be in danger of happening in every large charity that has been built up by a powerful and influential founder. The lesson is a universal one for all trustees. The trustee body of Kids Company did not have the necessary knowledge or experience of, for example, psychotherapy or youth services to be able to interrogate the operating model and safeguarding procedures.
In conclusion, it would be wrong to scapegoat any single individual for what occurred in the charity, but there are lessons that the House, the Government, the Charity Commission and professionals should draw from the situation. Most importantly, the Government need to understand what went wrong and how it can be rectified in future.
I pay tribute to the hon. Member for Harwich and North Essex (Mr Jenkin) and the members of the Select Committee for this important report. It has shone a light on what is a very sorry saga for all concerned, not least the vulnerable children who turned to Kids Company in their hour of need. I also pay tribute to the thousands of volunteers and workers in the sector who do so much to support vulnerable young people, usually without the same levels of funding and freedom that Kids Company clearly enjoyed. It is a deep shame that so much good work is at risk of being tarnished by this unique, high-profile failure. Having read the report, particularly the evidence given to the Committee by the senior civil service, I want to ask the hon. Gentleman about the way in which grants were administered, and whether he feels anything has changed since his report.
The Government have just passed the Charities (Protection and Social Investment) Bill, which was supported by Labour, to beef up the Charity Commission’s regulation of the sector, particularly when it comes to trustees. Does the hon. Gentleman feel that the Government have learned their own lessons? For example, it is clear that rules applying to other charities did not apply to Kids Company. As he said, it had not had to compete for a grant from central Government since 2013. The Committee was told by a former Conservative Minister that Kids Company
“appeared to have a lower threshold of proof in order to get money from public funds”
and that its chief executive
“was almost the poster girl at the Big Society summit”.
I ask the Minister whether the Government—both Ministers and civil servants—have actually acknowledged their role in this sorry saga, and whether they have taken any concrete steps to ensure that they are never complicit in such a tragedy again.
I am grateful to the hon. Lady for her comments. Let me emphasise, as she did, that it is plain to see that there was much good work going on in the charity, and that has been lost; that many vulnerable young people were dependent on the charity, and they have been left forlorn and bereft; that many of the employees and volunteers were deeply committed to the charity’s work, and they feel deeply betrayed and let down by what has happened; and that this has caused a great deal of distress. I am pleased to be able to inform the House that there is already evidence of things being salvaged from Kids Company and of things being rebuilt in the sector. We wish every success to those who are going to fund and support those things, because there is a gap, which the charity was seeking to fill, in meeting the needs of our society.
Yes, we are recommending even more powers for the Charity Commission than those in the Charities (Protection and Social Investment) Bill. We very much want the Charity Commission to recommend courses for charity trustees, so that they have somewhere to go to learn. The Institute of Directors runs courses for non-executive directors. Where is the equivalent for charity trustees, who have just as onerous a set of responsibilities? It is not the executives and the chief executive who are responsible for the conduct of a charity, but the trustees, who are jointly and severally liable, and it is not just the chairman who is responsible, but all the trustees.
We want the Charity Commission to have the power to hold legally privileged hearings, like those of a statutory inquiry, so that it can hear and receive evidence that cannot be impugned in the courts. That would mean that people with concerns about charities could go to the Charity Commission without the fear of losing their job, of reprisals or of being traduced in the press. The Charity Commission would be able to hold proper hearings and people could speak to it without fear or favour, as they do before Select Committees.
The hon. Lady raised the question about conflicts of interests that Ministers did not quite understand and that the system has not quite grasped. If the senior executive of a charity appears on a public platform with someone who then becomes the Prime Minister or is photographed in the Cabinet room with the Prime Minister at the launch of a Government initiative, they have a mutual interest, and that was not reflected in the way decisions were made in this case. If the political interests or the financial interests of the charity become aligned with the political interests of certain Ministers, those Ministers should recuse themselves from those decisions, as they would in any commercial arrangement. There is going to be a new arrangement. We are going to require the Government to think about this very seriously and possibly even amend the ministerial code accordingly.
As my hon. Friend has said, the ultimate responsibility for the failure of Kids Company lay with the board of trustees. Does my hon. Friend agree that, among the many lessons to be learned from this sorry episode, is that the board of trustees should include members with appropriate qualifications for the sort of charity they are operating, and in addition that the board of trustees should be regularly refreshed? In the case of Kids Company, the chairman had been in that role for many years. That, I would suggest, led him to become far too close to the chief executive, and ultimately to be dominated by her.
I am grateful to my right hon. Friend for his question, and I am grateful to him and all members of the Public Administration and Constitutional Affairs Committee, who were all so fully engaged with this inquiry, which made our report so much more valuable. My right hon. Friend is right about the appropriate skills that trustee bodies need. Very often people think they need business skills, whatever those are, or accounting skills or some kind of technical skills. Actually, they need other skills. They need skills in the sector in which the charity operates. As I pointed out in my opening remarks, there was nobody with psychotherapy experience, and the charity was a psychotherapeutic charity. There was nobody with youth sector experience, and this was a charity in the youth sector.
Boards of trustees also need people who are able to hold the right kind of conversations, who are fearless about hearing what needs to be heard, and who are capable of confronting people if necessary, but with kindness and understanding, in order that the truth reaches the charity trustees and the messages are heard. This charity prided itself on being open and consensual. I am afraid the evidence is that it was precisely the opposite. There were many people in the charity who were fearful of those who wanted to suppress the truth because the truth was so difficult to deal with. The truth was very difficult for individuals to deal with, and if there is no truth, there will be no enlightenment and no judgment. There is no substitute for charity trustees exercising broad and enlightened common sense and judgment. It is not just about sets of skills.
Several hon. Members rose—
Order. The answers have been very thorough, but they need to be a little shorter.
I pay tribute to the Chairman of the Committee. The inquiry was quite a harrowing experience for all of us and he handled a difficult situation extremely well. Will he comment a little further on the role of journalists and the media in the inquiry? Incredibly detailed work was done by Miles Goslett, for example, and The Spectator was willing to publish when no one else was prepared to do so. That journalist had to go round all the media, which did not want to know because of some of the issues that have been referred to. Does the hon. Gentleman agree that the role of media in such investigative journalism and the role of freedom of information are even more important now?
I agree with everything the hon. Lady says. There were journalists who tried to get things published, but the editors and the publications that might have carried those messages were also scared of confronting what appeared to be a very powerful charity with very great influence leading to the heart of Government. There is a message there.
There is a message, too, for the Charity Commission. Even when things were published, why were those journalists not invited to the Charity Commission, and why did it not say, “Tell us what you think is going on here, because we probably ought to know”? I hope journalists will feel a sense of obligation, not necessarily to reveal their sources or anything like that, but where they think a big charity is in serious trouble, to offer their advice to the Charity Commission. It would be a public-spirited thing to do. They would do that in respect of a serious risk to national security; they should do so for the security of the charitable sector as well.
I join my colleague, the hon. Member for Vauxhall (Kate Hoey), in paying tribute to our Chairman, who led the inquiry, and to the staff of our Select Committee, who did some very valuable work in the course of the inquiry. The last tranche of Government money, £3 million, was given to facilitate restructuring, but I was surprised to see in the television programme aired on BBC 1 last night the impression given that the management and the chief executive had other ideas about how that money was going to be spent. Do we know whether the £2 million balance of the unspent £3 million that was given has been recovered by the Government? Will there be any further investigations into that money passing to Kids Company virtually 24 hours before it shut down, or is this report the end of the matter?
That last question is very interesting. There is an ongoing investigation by the official receiver, which should be able to tell us what happened to that money and if any money is due to be returned to the Government. I am not a legal expert, but I think that once the Government handed over the money, it belonged to the charity. It no longer belonged to the Government and, although the Government might be a creditor, they will probably have to queue up behind other creditors. I very much hope that the Government might accept that the employees who lost their employment very abruptly are entitled to some measure of recompense, perhaps out of those funds. The answer is that I do not know. What was evident from that programme last night was how the restructuring was resisted to the very end. I am not sure whether that was known to the Minister who signed the letter of direction.
I, too, would like to pay tribute to the staff of the Committee. They do not usually like their name up in lights—it is not the tradition of the House service—but we are very fortunate in our Committee. We have very good staff.
Having watched the BBC documentary last night and seen the founder of Kids Company laugh about breaking the law and be dismissive of a vast amount of UK taxpayers’ money which was handed out so freely by both Labour and Conservative Governments, it is clear that lessons have to be learned. One of the lessons that we failed to learn in the past was that brash, bright, colourful, flamboyant characters who are favoured by senior politicians should be open to the same scrutiny as the many conscientious hard-working individuals who work tirelessly for a charity with only the best of intentions. Does the hon. Gentleman agree that the report should be only an opening salvo and must be followed up?
I am grateful to the hon. Gentleman for his remarks. Yes, this is an opening salvo—both reports are opening salvos—about governance. The question of governance extends beyond charities to how the whole of Whitehall is governed—all the public bodies and the civil service, and how we govern the contractual exchanges between the public and the private sectors from Whitehall. Governance is not just about compliance and box-ticking. Governance is about the exercise of judgment by the people who are accountable for what occurs, and I hope that fellow Select Committee Chairs and I will pursue the matter of governance across the whole of the public sector and the parts of the private sector that are funded by the public sector.
I commend my hon. Friend and his Committee for his report and for his statement to the House today. On pages 47 to 49 of his excellent report he is excoriating in his criticism of the two Ministers who signed off the direction in June 2015 to give Kids Company £3 million, against the advice of the permanent secretary to the Cabinet Office. One of those Ministers, the Chancellor of the Duchy of Lancaster, was good enough to give evidence to the Committee and has shown courtesy to the House by being here today. The other, the Paymaster General, does not appear to have given evidence to my hon. Friend’s Committee and is not in the House today. In his report, the Chairman writes:
“In neither his letter of direction nor his oral evidence has Mr Letwin provided convincing justification for his and Mr Hancock’s decision to ignore the comprehensive advice of senior officials . . . This grant should not have been authorised contrary to advice.”
In the Government’s response to his Committee’s report, can we expect a ministerial apology from both Ministers involved and a clear explanation of how the £2 million which is still missing will be found?
I have heard everything that my hon. Friend has said. The report speaks for itself. I hope very much that the Government will give a full and clear explanation in response to the report. I am sure that they will. I have never doubted the integrity of the two Ministers who signed the letter of direction at all. We must wait for the Government’s response. In the end, I am not responsible for the Government’s response.
May I add the name of Harriet Sergeant to that of Miles Goslett as she, too, exposed this fraud? This was British journalism at its very best and the report shows our Select Committees at their very best in the way that it exposes the waste, extravagance and delusions of this sad episode, which robbed far better charities of vital funds to help children in distress.
Is it not vital that the conduct of the Ministers who ignored the advice and wrote the letter of direction is considered by the adviser on Ministers’ interests? Is it not crucial that we get to the nub of this terrible waste? The buck stops with the Prime Minister. We should have broken the taboo that exists—I would like the Chairman to make this suggestion. As this charity was linked in every way with the big society stunt that was being run by the Prime Minister at the time, the person who should have given evidence to us was the Prime Minister.
This matter will not be put to rest until the Prime Minister explains why he set up what was virtually a slush fund, by getting funds moved from the Department for Education, where Ministers might have stopped this, to the Cabinet Office, from where the money was going out. That was wrong, it was damaging to many of the children who were allegedly being helped by Kids Company and it was very damaging to those charities that could prove the worth of what they were doing through statements and evidence, which Kids Company never did. Should we not look forward to this never happening again and to moneys being moved out of the Cabinet Office’s control?
It is in the nature of politics that some people will always be readier to pin the blame and extract some action as a result. I hope that I am conducting the Committee in a way that all its members support. I think that we get so much more from witnesses and that our reports have more authority if we do not try to pin blame on individuals, but the House will have heard what the hon. Gentleman said.
The hon. Gentleman touched on the important issue of why youth funding was moved from the Department for Education to the Cabinet Office. We really did not get an explanation of that, except for a denial that it had anything to do with wanting to be able to continue funding Kids Company, which the Department for Education had clearly become reluctant to do. One of our conclusions is that Departments should be responsible for allocating funding to outside bodies, rather than the Cabinet Office, because it is, by its nature, too close to the political centre of power in Government and a suspicion can be created, at the least, that decisions are being influenced.
We made a recommendation about the LIBOR fund, which was set up by the Chancellor of the Exchequer to support military charities. It is clearly a very worthwhile initiative, but any possibility that it could be construed as a fund under the personal control of the Chancellor of the Exchequer should be very clearly checked.
Somewhat tighter answers would be appreciated. They are way too long.
I thank my hon. Friend for his statement and his Committee for the work it has done in preparing the report. Does the Committee plan to review the extent to which the valuable and important recommendations in its report are complied with and carried out?
We always make sure that our recommendations are followed up and the Government have to give a very clear response to them.
I commend the hon. Gentleman and his Committee for this very good report. He is absolutely right that a focus on governance is vital. The Public Accounts Committee is very clear that we will follow governance and accountability in respect of taxpayers’ money wherever they lead. In the evidence that we heard from senior civil servants about the use of ministerial directions, there was clearly a reluctance on the part of permanent secretaries to call for a ministerial direction because of the relationship that they had with their Secretaries of State. Has he had any thoughts about undertaking further work with his Committee on the use of ministerial directions and whether that system is working well in Whitehall?
There has been controversy about the role of ministerial directions. The former Minister for the Cabinet Office, who was responsible for civil service policy, urged permanent secretaries to ask for ministerial directions to facilitate the making of decisions. That was understandable because he felt frustrated that, as he saw it, decisions were being blocked. On the other hand, senior civil servants pride themselves on having a good relationship of trust and understanding with their Ministers and are therefore reluctant to reach for the requirement for formal direction. They would far rather have a relationship with their Ministers that is based on a shared understanding of the concerns about a particular issue. I am bound to say that I rather side with civil servants on that one. If we had a system that was run just on instructions, it would be impossible for civil servants to give their best advice to Ministers. That is the system that Northcote-Trevelyan set up and that we should attempt to sustain.
I apologise to hon. Members and to you, Mr Speaker, that I have only just arrived in the Chamber. I was speaking to a group of schoolchildren from my constituency in the education centre and I could not miss that.
I want to say a few words in support of the Chair. This was a difficult report to achieve consensus on and he did a very good job of getting us as close to consensus as was possible. I caught the tail-end of what my hon. Friend the Member for Newport West (Paul Flynn) was saying and I sympathise with a lot of what he said. I also heard my hon. Friend, the Chair of the Public Accounts Committee. The National Audit Office ought to have a stronger look at all of this, particularly at where Ministers are instructing civil servants on matters of funding in this way. I hope that this sort of thing will never happen again and that this report will go some way towards mending fences for the future. That being said, I think that this is the tip of the iceberg and that the story will continue. There is probably a lot more that we have not reported on.
I feel sure that the House will agree that the Chamber’s loss was the school students’ gain.
I am grateful for the hon. Gentleman’s support and for his work on the Committee. The one point that I will pick up on is his comment that this must never happen again. I can tell you for certain, Mr Speaker, that it will happen again. The question is whether we have a system in place that allows us, each time it happens, to learn, rectify and prepare for the future to make sure that it happens less and less often. That is what our recommendations are really about.
I congratulate the hon. Gentleman and his Committee on bringing forward this report. Many points have been made about the governance of the Charity Commission and I welcome the specific recommendation that he mentioned, but what role should the Care Quality Commission have played in inspecting some of the services that Kids Company claimed to be providing? There seems to have been a gap there. It might have helped to identify the fact that the numbers did not stack up. Will he join me in congratulating the director of social services at Southwark Council, David Quirke-Thornton, who stepped in to make sure that vulnerable young people received support quickly when Kids Company collapsed?
I am certainly very grateful to David Quirke-Thornton. There are still discussions to be had between statutory social services and the charitable youth sector about what gaps in provision exist. Those would be productive discussions.
The question of inspection that the hon. Gentleman raises is a very important one. Ofsted did go into parts of Kids Company, but the senior executives of the charity did not find that very welcome. If social services are inspected, perhaps there is a case for inspecting charities of this nature, particularly if they are in receipt of public funds and if they have caring and safeguarding responsibilities. The private sector is investigated in that way—boarding schools and so on—and charities should be treated in the same way.
Notwithstanding what I said earlier about the prolixity of some of the answers and the relatively slow progress, the hon. Gentleman has received, and warmly deserves, the appreciation of the House for bringing before us this very important report on behalf of his Committee. It is a practical expression of his decades-long commitment to this House, its integrity, and its centrality in the affairs of the country, and he deserves our thanks.