10 December 2025

(10.00 am)

Lady Hallett: Good morning, Mr Wright.

Mr Wright: Good morning, my Lady. Can I check that you can both see and hear us in the hearing room?

Lady Hallett: I can, thank you.

Mr Wright: Thank you very much. Then I call Mark Cheeseman.

Mr Mark Cheeseman

MR MARK CHEESEMAN (sworn).

Questions From Richard Wright KC, Lead Counsel to the Inquiry for Module 9

Mr Wright: Thank you, Mr Cheeseman.

You are, as I understand it, the Chief Executive Officer of the Public Sector Fraud Authority; is that right?

Mr Mark Cheeseman: That’s correct.

Lady Hallett: Thank you. And you’ve provided a statement to the Inquiry which is reference INQ000657728.

Before I ask you questions arising from that statement, it’s also right, Mr Cheeseman, that you have signed a statement dated 9 December, which supplements your earlier statement, making a number of corrections; is that right?

Mr Mark Cheeseman: That’s correct, yes.

Mr Wright: My Lady, rather than reading those into the record, because there are a number, could I instead have permission to publish that supplementary statement in due course?

Lady Hallett: Certainly. Thank you.

Mr Wright: Thank you very much.

So, Mr Cheeseman, can we just understand, first of all, what is the Public Sector Fraud Authority that you lead?

Mr Mark Cheeseman: So the Public Sector Fraud Authority was created in August 2022. It’s a centre of expertise that sits at the heart of government as part of Cabinet Office and working very closely with Treasury, and it works with government departments and public bodies to better understand and reduce the impact of fraud against the public sector.

Lady Hallett: And did the establishment of the Public Sector Fraud Authority to some extent come about as a response to fraud seen during the Covid pandemic?

Mr Mark Cheeseman: Yes, absolutely. It was established as a response to the lessons learned from how – from fraud during the pandemic.

Lady Hallett: And that is because, as we understand it from your statement, there were estimated to be at least £13 billion of fraud and financial loss associated with Covid-19-related initiatives; is that right?

Mr Mark Cheeseman: So, just to clarify the number from the statement, so the level in the statement is 10.48 billion. And that’s a level because some of the fraud in the pandemic was from Bounce Back Loans and some of those will be paid back.

One thing I would highlight from my role is that that level will have elements of doubt around it, but that’s the best estimate we have.

Lady Hallett: Okay. Thank you.

Now, before you were appointed to lead this new organisation, you previously had experience in fraud, in government, is that right, prior to that?

Mr Mark Cheeseman: Yes, absolutely. So I worked in the Legal Aid Agency as the head of their fraud unit, and then, since 2013, I’ve been working in Cabinet Office, looking at fraud across the whole of government.

Lady Hallett: And so as far as organisations that are relevant to the pandemic period itself, in April of 2020, is it right, you were promoted to be Director of the Centre of Expertise and Chief Operating Officer of the Fraud, Error, Debt and Grants business unit?

Mr Mark Cheeseman: Yes, so I have just returned from Australia where I’ve been working with them to set up a centre looking at fraud across government, and I became the director for the counter fraud function, and the chief operating officer of Fraud, Error, Debt and Grants, which was a larger business unit that that team was in.

Lady Hallett: So, during the pandemic, that was the predecessor of the organisation you’re now leading; is that right?

Mr Mark Cheeseman: Yes, that’s correct.

Lady Hallett: And was it, generally speaking, performing a similar function?

Mr Mark Cheeseman: The Public Sector Fraud Authority does broader functions, so – and has a more explicit role in holding departments and public bodies to account, so agreeing targets with them on what they’re doing on fraud and how they’re managing it. But the themes were similar: how do we do more to find and fight fraud against the public sector?

Lady Hallett: Now, sitting in the Government Counter Fraud Function at the time of the pandemic was something called the Centre of Expertise; is that right?

Mr Mark Cheeseman: So – yes. So the Government Counter Fraud Function is the part across the whole of government, so everyone working on that area. So, for instance, in the finance function, everyone working on finance in government is part of the function. Those functions then have a centre, which is a small team somewhere located in government. So the Centre of Expertise was the small team, it was about 40 people in Cabinet Office, which was the centre of that broader function.

Lady Hallett: And what was the real purpose of having that central team, the Centre of Expertise? What was it there to do that would be relevant to the actions of departments during the pandemic?

Mr Mark Cheeseman: So it did a number of things, and what it did was – traditionally, how people had worked on fraud across public bodies, and this is the same across the world, is that individual organisations work out how they’re going to deal with fraud. What it did was it brought together all that expertise and it set standards for how you could work on fraud together. So where was the best or optimal activity happening, and how could that be a standard? So they had a functional standard which was introduced in 2018, as I think it says in my statement.

And then it also brought people together to agree standards for the people, so not just the organisations but the people which was the counter fraud profession. Again, that was very new. That had only been introduced in 2018, and was still, and is still, still growing and standards are still being set.

Lady Hallett: In the context of tackling fraud is it important to think about measures you can take prospectively, so when you’re standing up a scheme, things you can do to mitigate fraud and error at the outset? And also, to look at what you can then do once something is established to conduct what you term post-event assurance in relation to schemes that have been established, so to see how in fact they are operating and to identify levels of fraud and error?

Mr Mark Cheeseman: So absolutely correct. So it is optimal to try to prevent as much fraud as you can by putting in the best controls you can. However, that can be difficult because you’re speculating: what will happen, not – rather than what you do see. So optimally we do that. But also then, some fraud always will happen. Some will get through. We have a very capable and committed adversary who is looking to defraud both us as individuals but also the public sector, in my case. So then how you react to it after is very important, as well.

If it’s all right, there was one thing from your previous question I didn’t mention, I talked about the standards, but I didn’t talk about the data analytics services we are also starting to run, so bringing data from across government together to help public bodies to find fraud, and I should have mentioned that, apologies.

Lady Hallett: Okay. So in the course of the pandemic, was the Centre of Expertise there to assist departments if asked to do so, in terms of how they might think about mitigating the risks of fraud and error with things they were looking to do, but also, to assist departments in terms of how they conducted that post-event assurance, how they monitored and evaluated schemes that they’d established?

Mr Mark Cheeseman: So the Centre of Expertise in the pandemic did a few things. It built awareness of scams, so we had an intelligence team that did that, so public scams. So for instance, vaccine, some of the vaccine fraud that was happening, and trying to put messages out to the public around that. As you say, it worked with departments, and it did that through direct advice but it also did that through putting out guidance. So again, you know, the way a centre of a function works: bring all the best practice together and then put it out there so people can get it easily.

So it put out guidance in a number of areas, including post-event assurance, as you’ve mentioned in your question.

We did work to understand the risks, so we had something called the Global Fraud Risk Assessment. One of the challenges of the pandemic is it hit all of government at the same time. There were hundreds of schemes, there were over 70 schemes for businesses and 70 schemes for individuals, so we tried to hold a view of all of those schemes, what do we know about the risks and where are the highest risks? And then, as you say, we helped departments with advice on how to do post-event assurance.

Lady Hallett: I just wanted to pick up on post-event assurance for a moment or two if we can. Someone critically might say, well, that is just closing the stable door after the horse has bolted. That’s just working out what you’ve lost; it’s not actually doing anything to stop you losing it. Would that be an unfair way of looking at post-event assurance?

Mr Mark Cheeseman: Not wanting – not wanting to use – I think it’s an unbalanced way. I think there always is some that will come in. So I think there’s always a role for post-event assurance. And that’s in normal times as well as other times, because fraudsters adapt what they’re doing, they adapt how they’re attacking systems, so it’s helpful to always do post-event activity, so –

Lady Hallett: Sorry, just pausing there, and I don’t want to cut you off but you’re just developing that, so yes, you’re looking backwards but you’re not just looking backwards to work out what the numbers are, you are looking backwards to work out how were people able to defeat the measures that we put in place, and how, going forwards, can we close those gaps; is that right?

Mr Mark Cheeseman: You’re looking backwards to find that out, you’re looking backwards in some cases to measure, because measurement is quite expensive, so in some high-risk cases you’re looking to measure. You’re also looking back and doing post-event assurance to find stuff. Fraud is a hidden crime, so you have to look for it. So you’re looking back to find stuff, so then you can take action, not just on improving the system but also on getting money back and taking action where incorrect payments with the fraud have already been made.

There’s one more thing I’ll quickly say, if that’s okay, and I think the International Public Sector Fraud Forum in February 2020 released guidance on managing fraud in emergency circumstances.

The reality of an emergency environment is you have to act quicker. You have to act quickly to deal with things, and that guidance, which was built by us, alongside international partners in the US, Canada, Australia and New Zealand, that says in those times you may have to accept more upfront risk, in fact you’re going to have to, so therefore it’s important to do post-event activity, to do that. So I don’t think it’s shutting the door as the stable – after the – you get – you used the metaphor. I don’t think it’s that in the pandemic, I think it’s following the guidance and then following the practice.

Lady Hallett: Yes, and so because the pandemic called for swift action, it became even more important, really?

Mr Mark Cheeseman: Yes – well, the guidance, yes.

Lady Hallett: Yes. And we understand that a Post Event Assurance Board was established in March 2020 and that you chaired that. And what was the function of that board?

Mr Mark Cheeseman: So the post-event assurance – so another piece of context which I hope is helpful is that fraud measurement and post-event assurance activity, and fraud as a discipline is comparatively new. That’s why the government took the step to build these standards. So the purpose of the board was, one, to provide guidance and oversee what was going on on post-event assurance. It was also to bring together expertise from lots of different parts of government to try to work out the best way to do it.

So I mean, in the terms of reference for the board, we see it has the counter fraud function in it, but it also has the analysis function, the commercial function, the grants function, the finance function, the internal audit function. So they were there to shape the internal audit programme. They were then there, as well, to review the plans that were created by departments on how they were going to do post-event assurance activity and then they advised the Fraud Ministerial Board on those plans and whether they were in line with what they felt they should be doing.

Lady Hallett: Can you just explain to us from your standpoint, why it is that the risk of fraud tends to rise during emergency situations such as the pandemic?

Mr Mark Cheeseman: I think there are two factors I’d point to. One is in an emergency situation you have to act quicker, more quickly, sorry. So when you have to act more quickly you can’t – you don’t have as much time to consider all the controls you could put in place, or build the structures for those controls. So to build a fraud management system takes some time to build. If you have to act straight away, you can’t build before you do it, right? So that time element is one.

I think there’s also another important element which is the vulnerability of the people involved in that emergency, and the pressing priority in that is to get the support, whatever that is and whatever the emergency is, the support to those that are vulnerable.

The frustrating thing is that opens the doors for fraudsters to pretend to be those people or to hide themselves to then try and get access to that support or funding or whatever it is that government is trying to do to support in an emergency.

Lady Hallett: Okay. And generally, is that well understood in the fraud prevention world, that emergencies lead to those opportunities for fraudsters, if that’s the right way of describing them?

Mr Mark Cheeseman: I would say generally yes, generally yes, but I would highlight that the 2020 guidance produced by the International Public Sector Fraud Forum was the first of its type, and that’s why we did it. So like whilst it – whilst, you know, if you had a conversation about it, generally yes. Is there a textbook which explains it all? Less so.

Lady Hallett: So the “generally yes”, I suppose it might depend on who you are. If you are an anti-fraud specialist then you probably would know that –

Mr Mark Cheeseman: Mm.

Lady Hallett: – but looking back at 2020, did you think that this was well enough understood, across all of government, that these risks were going to grow?

Mr Mark Cheeseman: I mean, certainly we communicated information on it. And from the evidence that’s been provided for me to look at here, I can see that it is not – people are not unaware of it. So I’d say there was some awareness, yes.

Lady Hallett: Yes. And did you view it as your role to promote that awareness?

Mr Mark Cheeseman: Yes.

Lady Hallett: Right. And was it necessary to restructure at all the Centre of Expertise in response to the pandemic? And if so, in what ways did you do that?

Mr Mark Cheeseman: Yes, absolutely. So it was. We had to – really, a lot of the work was how do we – a lot of the things we were doing before were longer-term structures being built, things like standards, things like the profession, and reviewing against those standards.

We shifted to a much more operational “how do we have an impact now, rather than build the structures for the future” type unit at that point. So we deprioritised work on the functional standards, we deprioritised a lot of the work we were doing to build capability in the system and took resources from that, alongside other resources, to build an intelligence team that was sharing intelligence between public bodies. That was referenced in Module 5 and the work we did with PPE.

We built a countermeasures team, which was providing guidance on countermeasures and how those could be used.

Lady Hallett: Just explain those: countermeasures, what they are, what you mean.

Mr Mark Cheeseman: Yes, okay – yes, yeah, we always use different words.

Controls, basically. So if fraudsters are going to attack the system, how do you defend? What are the range of options? The answer is, there are a very, very broad range of options, and it depends on the risk. So, sharing guidance on what you can do to counter the threat and the risk from those committing fraud.

We provided other things, like a minimum data specification. It sounds a bit boring but it’s actually quite important for post-event assurance, because then it means all the data you’ve collected can be matched against each other and has common data pieces and is held in the same way.

We did some data analytics work with certainly – especially with Bounce Back Loans, pushed our teams into doing that, and with the Covid grants, helping them to find fraud, both in and after.

We also then had the piece I’ve talked about already, which was the risk and research team. So you’ve said about my – part of my role to be to tell the system this is an issue – well, to build the evidence on that, to have the global fraud risk assessment doing that, and sharing that with people.

And we also did work in there to support departments to do their own fraud risk assessments and help them with that.

Lady Hallett: So those are all things you had to pivot into and set up relatively quickly. Did you think or find that you were, generally speaking, well enough resourced at the time to do all of that, and to do it as well as you wanted to?

Mr Mark Cheeseman: So, it’s not – it wasn’t my decision to – how much resource we should have. We put in a case and that’s what we got. I would highlight at the time that resources were tight, and certainly, as my evidence says, we were asked to put in the – the lowest case for the maximum impact. So that’s what we put in.

Lady Hallett: And if you compared and contrast what – the resource you had available in 2020 and the capability you had in 2020, and then you looked at what you now have in the Public Sector Fraud Authority, how comparable are they?

Mr Mark Cheeseman: They’re designed to do slightly different things, but the Public Sector Fraud Authority is bigger, has more – has more budget and resource to do it, and is built off the lessons. So, also, the – the comparison has a journey on it, which was trying to develop from – from our experiences.

Lady Hallett: Yes. So if those teams that you mentioned, the risk and research team, the countermeasures team, the intelligence team, all had to be stood up at short notice in 2020, going forwards, do those sorts of teams exist on a standing basis?

Mr Mark Cheeseman: Yes, all three of those teams, in some format, exist. Or it would only need a slight tweak to our structure currently to – to develop one of those. We’d have to do a bit more work into guidance on the countermeasures side, so a slight tweak.

Lady Hallett: So should that be viewed as a structural change that has come about as a result of the learning from the pandemic?

Mr Mark Cheeseman: I’d say the Public Sector Fraud Authority as a whole is a structural change that’s come about as a result of the experiences of the pandemic, yes.

Lady Hallett: Yes, okay.

And I think, on 17 March of 2020, you sent an email to counter fraud leaders in a number of other government departments and agencies, so the Home Office, the National Crime Agency, Serious Fraud Office, HMRC, DWP and City of London Police.

I am just going to ask if that can be put up, please. INQ000594189.

And we see there, third paragraph, this is an email from you:

“I am now reaching out to you in terms of how we come together to help the government effectively deal with the Covid-19 pandemic – the government’s main priority.”

And then, on page 2, what the situation is asking for is that:

“… somewhere in government there is an understanding of the total picture on fraud and economic crime in this crisis, so it can be called upon either to give confidence, or to make clear the problems.

“If we are agreed, I am keen that we or some of your key personnel, form a pseudo board. Where we share the picture as it develops, including things like, evolving scams to the public and new areas of public spending at risk and the action we are taking together to deal with it.

“Thank you all, I look forward to hearing from you.”

Now, just breaking down some parts of that email, we should understand, should we, that lots of other departments and organisations had their own well-established counter fraud teams and capabilities, and these were the people you were reaching out to?

Mr Mark Cheeseman: So there’s two groups I’m reaching out to here, and they are the areas who do the most work on fraud. So one group is HMRC and DWP, who had 84% of the resources and working on fraud in tax and welfare. The other is the Serious Fraud Office, the City of London Police, the National Crime Agency, who look at the fraud threat against the public.

So I am reaching out to the whole community.

Generally, historically, we’d kind of focused on fraud against the public sector, and the Home Office and others had focused on fraud against the public, and I was reaching out to that whole community to try to bring us together right at the start of the pandemic. And they responded to it and we … and, yeah.

Lady Hallett: So this was you trying to bring together all of that expertise, all of that learning, in one place, and – as you say, across government, so there could be one picture, really, across government, of what was going on, and learning shared; is that the point?

Mr Mark Cheeseman: 100%. And one voice. And then, when you look at the GPSMIG – apologies, I’ve now forgotten what that stands for, but the ministerial board we put a paper to – that was from that combined, you know, one voice of the view of the situation across the picture.

Lady Hallett: And is this you, Mr Cheeseman, taking your own initiative or was this you being tasked to try to bring together that cross-government approach?

Mr Mark Cheeseman: This was my initiative.

Lady Hallett: All right. And how effective was it, this call to arms, if you like?

Mr Mark Cheeseman: Very good. Very effective. Everyone came. You’ll see one of the things I said, you know, was that I – I’m not precious about who does what, I think I said in the email, or words along those lines. Everyone came in. Everyone collaborated. We shared a lot of information.

It built, for instance, I mean, the intelligence team, it built the links from the police and their – their intelligence coming into the public sector, so that could be used to try to help.

So it was very effective, yeah. And it led to the advice that went to the GPSMIG as well.

Lady Hallett: And –

Mr Mark Cheeseman: And it continued to meet in various forms throughout the pandemic, as it says in my evidence.

Lady Hallett: Yes. And looking now at the Public Sector Fraud Authority, is the PFSA now doing that cross-government work that you were calling for there? Do the two things, one inform the other?

Mr Mark Cheeseman: So I think … so that was calling, because we were in a crisis, to bring together the public element of it, so we could put guidance out to the public as well, and we link all of that, the fraud against the public sector part of it.

The Public Sector Fraud Authority focuses on fraud in the public sector. We collaborate closely with those other sides still, but the Public Sector Fraud Authority has not taken on responsibility for fraud against businesses or fraud against the public, which the NCA and City of London Police and the Home Office have.

Lady Hallett: So this was actually going wider?

Mr Mark Cheeseman: Yes.

Lady Hallett: Okay.

Mr Mark Cheeseman: Yes.

Lady Hallett: Understood.

Can we move on, please, just to discuss the Covid-19 Fraud Ministerial Board.

Mr Mark Cheeseman: Yes.

Lady Hallett: And could you just speak to that board, what it was and how it was established?

Mr Mark Cheeseman: So I’ve talked about the GPSMIG, which was a – I think a cabinet subcommittee that was looking at how to deal with things in Covid-19.

Lady Hallett: To give it a name –

Mr Mark Cheeseman: Sorry.

Lady Hallett: – as we understand it – no, don’t worry, I wouldn’t have had the first idea if it wasn’t written down in front of me –

Mr Mark Cheeseman: Thank you.

Lady Hallett: The General Public Sector Ministerial Implementation Group is the GPSMIG.

Mr Mark Cheeseman: Thank you, I appreciate that. And apologies I didn’t have –

Lady Hallett: You can call it the GPSMIG from now on, I’m sure.

Mr Mark Cheeseman: Thank you. Very much appreciated.

So, from that collaboration with the pseudo board, going to the GPSMIG with a paper that the Home Office was agreed on, the National Crime Agency was agreed, we came together for that. That said: here are the some of the areas that we should focus. And those areas we should focus were: doing post-event assurance, which we’ve already touched on, you know; investing in doing more on intelligence, which I’ve touched on a bit, about what we did with partners in the other parts; exploring legislation; and then doing a lessons learnt exercise.

And the Fraud Ministerial Board was set up as a ministerial group to oversee the implementation of that, and to be the governance that oversaw how that commission from the GPSMIG was taken forward.

Lady Hallett: And were you really advocating that this should be centralised, brought together, under the authority of the Cabinet Office as a cross-government forum?

Mr Mark Cheeseman: So the Fraud Ministerial Board was chaired by both the Cabinet Office and the Home Office. So the minister responsible for fraud as a whole and the minister responsible for fraud against the public sector.

Lady Hallett: Was there any tension that you saw or identified between that centralised board and the role of individual departments –

Mr Mark Cheeseman: Um –

Lady Hallett: – in tackling fraud within their own departments?

Mr Mark Cheeseman: Yes, absolutely. And there was. So historically, certainly I know BEIS for instance – and it’s in the evidence – BEIS were nervous about how the centre of government overseeing work on this interacted with the accounting officer responsibility. And generally, accounting officers are accountable to Parliament for how they deal with public money, the money that they’ve got, and how they do that.

Now, I would say in my personal view, generally, from time to time the government thinks about how the centre of the government focuses on delivery in key areas, so implementation groups and pieces like that, and the functions was one of those – the functional areas, having different functions was an area where it said, well, actually, the centre of government may ask more and may monitor more closely what’s going in certain areas, but that does have a slight tension with accounting officer responsibility as it’s set out.

So there was tension on that, and whether we should have a role in overseeing what departments were doing, and asking them to submit reports to us, and as I said, the evidence said BEIS certainly had that tension.

Lady Hallett: So there was a sense in which some departments, and you’ve mentioned BEIS, were of the view “Well, we have an accounting officer who is responsible to Parliament for making sure we spend money sensibly and that we do what we can to bear down on fraud, so we don’t need another body effectively overseeing what we are doing”, is that the position?

Mr Mark Cheeseman: Yes, and that is how – the accounting officer structure is how government is set up.

Lady Hallett: Yes. So it was an obvious potential tension?

Mr Mark Cheeseman: Yes.

Lady Hallett: But you presumably – this body wasn’t being set up so much as to snoop on accounting officers but as to ensure that best practice was being applied across government; is that right?

Mr Mark Cheeseman: Well, so I think – and I say this in some of the emails and the evidence, I think we had a dual role which was both to support, but also to look at the areas where there were challenges and put challenge into the system.

Lady Hallett: And just picking that up, putting challenge into the system, in the context of anti-fraud measures, and post-event assurance, how important is challenge, internal challenge and external challenge?

Mr Mark Cheeseman: I feel it’s quite important. I mean, traditionally in an organisation an audit and risk committee would do some of that challenge. Personally, as a fraud expert, I think how fraud is dealt with is quite a specialised area and it can be a bit counterintuitive. It’s a hidden crime, so you’ve got to look for it, and finding it – and actually finding it is a good thing because it means you can act on it.

So I think that challenge from an informed consumer is an important part of a healthy system and looking to deal with fraud.

Lady Hallett: So an internal or external voice challenging what you’re doing is going to, generally speaking, make people bear down harder on the problem?

Mr Mark Cheeseman: Yes, and I think you’d see that in a number of – it doesn’t just have to be fraud. You’d see that in a number of different areas.

Lady Hallett: And now, looking now at how things are configured with the Public Sector Fraud Authority, within government, within public spending, does your organisation work as that challenge? Is that part of your function to challenge, or not?

Mr Mark Cheeseman: Yes, and it’s explicit in our mandate that that is part of our function. So one of the things we do is we agree targets, outcome-based targets with departments, and challenge them on whether they’re going far enough. Another thing we do, I talked about the functional standards previously, but we review how functional standards are being done, and whether the functional standards are being met and it’s recognised that’s part of our challenge.

We do the same with fraud risk assessments and other elements, so yes, it’s an inherent part, and it’s actively recognised in our mandate that that’s what the Public Sector Fraud Authority is there to do, as well as provide support.

Lady Hallett: I’m being asked, Mr Cheeseman, to ask you to slow down a little bit.

Mr Mark Cheeseman: Sorry.

Lady Hallett: My fault. Just so the stenographer can keep up.

So it’s part of your mandate now that you provide that challenge. Does that mean that there doesn’t also need to be internal challenge in each of the departments that you are externally providing that challenge for?

Mr Mark Cheeseman: Yes, there should be – I’d expect there to be internal challenge, as well. One of the things in the previous anti-corruption strategy was having a fraud lead in a department who would be part of that challenge, challenge and support. You had that expert voice. But also, expect challenge from an audit and risk committee on what’s going on on fraud. So there should be internal and external challenge, I would say.

Lady Hallett: And do I take it from your answer that you would generally support the proposition it should be an identified person or persons who have responsibility for leading that challenge, or not?

Mr Mark Cheeseman: Yes, and our functional standard, yes, would outline that. So yes, I think – yes. Certainly a function yes. That’s (unclear).

Lady Hallett: And I think you provided a briefing the Government Counter Fraud Function provided a briefing to Lord Agnew on 17 June 2020. I’m just moving on now to what were identified in the pandemic as some key areas of fraud risk.

So if we could have INQ000477258.

Can you just remind us, Lord Agnew, what his function was at the time?

Mr Mark Cheeseman: Of course, yes. So Lord Agnew was a minister, he was a joint Treasury and Cabinet Office minister, and he had quite a wide portfolio, but as part of his portfolio he looked at the management of fraud, error, debt and grants, and within that was the public sector fraud and fraud against the public sector agenda.

Lady Hallett: Okay. So this is a briefing from the Government Counter Fraud Function that you’re leading, to Lord Agnew, 17 June, and you say there:

“We have identified the key fraud risk areas are below.”

And then there’s further detail but let’s just look at the list.

So Universal Credit, which sat within the Department for Work and Pensions; the Job Retention Scheme that was sitting within His Majesty’s Revenue & Customs; PPE and medical supplies, Department of Health and Social Care and the NHS; business support grants, BEIS; Bounce Back Loans, BEIS and the British Business Bank; and then Test and Trace.

So those were areas that were what, the sort of most obvious areas that were identified?

Mr Mark Cheeseman: Yes, so this was driven from the Global Fraud Risk Assessment, which I mentioned earlier. So these were the ones that had been identified as having the highest risk from that process of significant loss from fraud and error.

Lady Hallett: Yes. And we can see there, can’t we, that these are sitting across a number of different departments and organisations?

Mr Mark Cheeseman: Mm.

Lady Hallett: And that perhaps identifies why it was important from your perspective to have an organisation at the centre that was providing advice across all of those different organisations and departments; is that right?

Mr Mark Cheeseman: Yes, as I said, yeah, the challenge hit government as a whole. So the breadth of it was wide, and I think that made it advantageous that we had this cross-system view.

Lady Hallett: But if we look at those departments, and how well equipped they were at the start of the pandemic themselves to deal with fraud, would you agree that it was variable, and very often related to what their function was in ordinary times?

Mr Mark Cheeseman: Yes.

Lady Hallett: So –

Mr Mark Cheeseman: Sorry.

Lady Hallett: Sorry, answer my question.

Mr Mark Cheeseman: Yes.

Lady Hallett: I started wandering off into another one before I had let you answer the first one.

Is that right?

Mr Mark Cheeseman: That is correct, yes.

Lady Hallett: Just building on that, then. So if you look at Universal Credit, and the Job Retention Scheme, which sit as numbers 1 and 2, the Department for Work and Pensions and HMRC, in ordinary times, I think you said earlier it was – was it 84% –

Mr Mark Cheeseman: 84%.

Lady Hallett: – of the government’s anti-fraud employees work in those departments?

Mr Mark Cheeseman: That’s correct.

Lady Hallett: So in ordinary times, are they pretty well versed to dealing with fraud and error?

Mr Mark Cheeseman: Yes, and they’re on a different order to many of the other public bodies because they have large compliance units, large investigation units, data and analytics work. They’re constantly testing and evolving how they’re dealing with fraud on a big scale, and actually, this list evolves as the pandemic goes on, and we were assured by the activity they were doing and the capability they had. So for instance, they were already looking to do post-event assurance activity, to measure it.

Lady Hallett: And if we look in contrast at BEIS, who had responsibility for significant – or accounting officer responsibility for significant schemes like business support grants and Bounce Back Loans, in contrast, pre-pandemic, did they have minimal capability internally, in terms of tackling fraud and error?

Mr Mark Cheeseman: Yes, as it says in the statement, they had a small policy team of two full-time equivalents, which was undertaking a very different role to those big units in the two departments we talked about before.

Lady Hallett: But to be fair to BEIS in this example, that’s a reflection, isn’t it, of what they do in ordinary times, in that they were a policy department rather than an operational department, if you like, in the same way that HMRC or the DWP are?

Mr Mark Cheeseman: They had a different role. They were not delivering Universal Credit and other benefits and they were not managing the tax system so they were not doing a big operational role like those two are absolutely huge operational roles, yes.

Lady Hallett: But in ordinary times they also weren’t providing loan schemes and grant schemes, not on this scale, anyway?

Mr Mark Cheeseman: Not on this scale, no.

Lady Hallett: No, no. And so this was about you, what, identifying departments that needed more help as much as anything else?

Mr Mark Cheeseman: This was about identifying where the biggest risks were. So where the biggest risks were where we might want to put the most attention, and then yes, that interplay then with capability then be interacted with where the most effort or resources went into helping individual departments.

Lady Hallett: Can we look at some of the individual types of support there and just drill down a little one by one as to why they were identified as being potentially high-risk schemes against the global fraud risk assessment, and let’s start with business support grants. What were the concerns there, from your perspective?

Mr Mark Cheeseman: So again, we’ve talked previously about the pace and the need to act. So the pace of the payments going out, that they were push payments. There was also a challenge that they were being administered through local authorities and I was aware, as someone in the industry, as were other colleagues at the centre, that how local authorities deal with fraud is variable in the same way that how government departments deal with fraud is variable, so as such, that would lead to risk because some organisations may do – may operate different processes with different controls.

The other thing I’d just – I didn’t touch on it earlier, but why fraud goes up in emergency circumstances, is because fraudsters know it’s an emergency circumstance. They know the money’s coming out and, you know, they’re not going to be idle at that point.

Lady Hallett: As you said, you’re dealing with an adversary who is waiting for an opportunity to exploit potential weakness?

Mr Mark Cheeseman: And is capable.

Lady Hallett: Yes. Yes. And so were you, the centre of excellence, allocating resources to try to support BEIS and the Ministry of Housing, Communities and Local Government that were delivering those schemes?

Mr Mark Cheeseman: Absolutely, yes, so I mean, I was giving advice myself. I think that’s in the evidence. Also we had what’s called a scrum squad which was some expertise we put in to help them understand the risk and help them explore what countermeasures. They had the countermeasures toolkit and the other guidance we provided as well.

We also, with them, did direct data analytics work, so the National Fraud Initiative, that’s a scheme which draws data from lots of local authorities and other public bodies and other organisations. We added that grants data to the mandatory data collection that they bring in, so that could be run to look for instances of fraud and that detected £2.1 million worth of fraud.

We had a system called Spotlight, which brought together data from Companies House and other areas to help look upfront, and we also had – created a couple of tools, one called Bank Account Verification Checker and one called the Active Company Checker which, again, looked for fraud risks and were made available to local authorities to use.

Lady Hallett: Can I just ask you about one particular thing. I think you had some concern, is that right, about league tables that the Ministry of Housing, Communities and Local Government were asking or were publishing about local authorities and their ability to administer grants; is that right?

Mr Mark Cheeseman: Yes, I wrote to Jane Dibden about it. So I – there was consideration of publishing league tables on how quickly and how many of the – how much of the volume of grants had gone out or the volume of money of grants had gone out. I advised against that because my view, and my view where I’m really focusing on how we reduce fraud in this environment, my view was that that would increase the risk of fraud, because that would act as an incentive to pay money quicker, which may lead to then not doing some checks that maybe you were going to do but you want to be a few steps higher on that league table or you want to be at the top, so actually, let’s get the money out.

So – because that was driving pace, as we’ve talked about earlier, that would increase the risk from – of significant fraud loss.

Lady Hallett: Okay. So far as the Coronavirus Job Retention Scheme and self-employed schemes were concerned, now these sat within HMRC and DWP, I think, or HMRC, who had this greater capability. What assistance did you offer to HMRC or did they need much assistance, frankly?

Mr Mark Cheeseman: So no, I don’t think they did. We met with them, as the function, as well, one of the things we do is we know a lot of different spaces in government so we can help link people up because we work across the system, so I think from the notes in the evidence you can see that we linked them up with some other parts of government to help them collaborate with them to help them to reduce their risk, but they had a lot of capability and a lot of experts who were involved in design and they had a clear plan for post-event assurance.

So we were assured by their capability.

I would also point out that His Majesty’s Revenue and Customs didn’t just deal with their own risks; they helped deal with others, as some of the data that was used to find fraud elsewhere was provided by them in doing that. In fact they helped put in a check in Bounce Back Loans.

Lady Hallett: Okay. And similarly, so far as Universal Credit was concerned, it was on the list, but again, did you find that, generally speaking, DWP had pretty good systems in place?

Mr Mark Cheeseman: They had good capability and they demonstrated a very proactive approach, so they contacted the centre, and talked about the issue. They flagged – they had to reduce the upfront checks – I’m sure you’d have touched on that elsewhere – and move resources out of fraud into another area, but they put a flag on every single claim that came through or every application that came through there and then proactively built something to go back and look at that and find it and committed to measurement, so very proactive. So yes, that greatly assured us.

Lady Hallett: Okay.

Can we move on, then, to the Bounce Back Loan Scheme, and your involvement with that. I think you describe, a substantial amount of your organisation’s work being done was focused on the Bounce Back Loan Scheme; is that right?

Mr Mark Cheeseman: Yes.

Lady Hallett: And if I could just have up INQ000610678, page 5, paragraph 1.

This is the Government Counter Fraud Function describing the Bounce Back Scheme as the highest risk.

It’s:

“… the C-19 scheme with the highest residual risk of fraud. To date over £42bn has been paid out to over 1.4m entities … Our estimate of losses to fraud and error is currently 5% - 10% (£2bn - £4bn), which is the figure that BEIS are currently using.”

It may be obvious to you, but why was that the scheme that had the highest residual risk of fraud?

Mr Mark Cheeseman: So there’d be two factors, as you’ve drawn on in your questions before: (1) would be the inherent riskiness of the scheme, which I think was recognised; and (2) the capability as government that we – we had pointed towards it.

So, why was the scheme risky? Some of it is mentioned in this – in this note here. But the 100% guarantee led to risk because of the incentives in the system for the deliverer of – which was lenders – to look for fraud in the system. So –

Lady Hallett: Just pausing there. Putting it bluntly, they didn’t have any skin in the game? They were getting the money out, but they weren’t taking the risk?

Mr Mark Cheeseman: The challenge for them as a business, I would say, is if you have 100% guarantee, if you’re going to look for fraud in your system, that is just cost to you. You just have to spend money to look for fraud, and commercially, for you, that will make no difference at the end of the day, because you’d have had the guarantee covered. So that the incentives, like – I would say, were wrong. I wouldn’t quite use your language, but –

Lady Hallett: But, no, it’s important you clarify that. It’s not just that they weren’t at risk of the loss, but actually it’s also that they would be losing –

Mr Mark Cheeseman: They would lose money.

Lady Hallett: – profit, money –

Mr Mark Cheeseman: Yes.

Lady Hallett: – if they stood up measures to look at fraud?

Mr Mark Cheeseman: Absolutely.

Lady Hallett: Because what was the point, from their purely commercial assessment of the product?

Mr Mark Cheeseman: Yes, absolutely.

Lady Hallett: Right.

Mr Mark Cheeseman: The second reason it was risky was self-declaration. So any self-declaration scheme is inherently risky because fraudsters lie. So they will lie in their declaration.

The third was the speed of decision, so 24 hours for a decision. Many fraud checks aren’t done in 24 hours, they’re done overnight and they’re done in other – in other ways. So that speed of decision increased the risk of fraud.

And then I would say the final fact is probably that – the speed of deployment. Because some of those risks you may be able to manage if, you know, we weren’t in a circumstance where we had to act very quickly as a government to support businesses. If this was more something we’d do in six months’ time, you may be able to manage some of those risks by building systems to do data analytics and matching data and – and things to check self-declarations and to check other pieces.

So I’d say those four factors are what made it risky.

Lady Hallett: Just looking at that document, paragraph 5 observes that:

“The scheme is overseen by the British Business Bank. BEIS is the accountable department. [But it] was designed by HMT.”

That’s an observation. Is that an observation as to why there was a risk of fraud, or is that just an observation as to how it was administered as a matter of fact?

Mr Mark Cheeseman: Is it okay if I expand on this a little bit?

Lady Hallett: Yes, of course.

Mr Mark Cheeseman: Thank you.

So it’s an observation, not of why the scheme is risky but why it’s difficult to deal with risk in the scheme.

So there was a long delivery chain, and if I was looking at that delivery chain even more widely, actually, the lenders are delivering it, and they’re not mentioned in that. And then you have UK Finance as their – their representative body in that delivery chain as well.

There are other factors which make it difficult to deal with fraud in the scheme, which I can touch on if helpful.

Lady Hallett: I’d just like you to expand on that delivery chain, just so I’m sure we understand what you mean. That, what, the more people who are in the chain of delivery, the harder it is to get action on fraud or –

Mr Mark Cheeseman: Yes, the less quickly you can act, because there’s more stakeholders you have to agree with and consult and get onside to do something, yeah.

Lady Hallett: Okay.

Mr Mark Cheeseman: I would just make another point if that’s –

Lady Hallett: Of course, Mr Cheeseman.

Mr Mark Cheeseman: Another factor in the system that makes it difficult to act on is a practical one, which is it is a system of lots of smaller loans. I’ve gone back to the point of you have to spend money to deal with fraud. When there’s a high volume of smaller interactions or more small interactions, that brings additional challenges.

Lady Hallett: Okay.

The view was taken there was an imperative, a need, to stand the scheme up quickly nonetheless, and it had to have those factors in order for it to save businesses it needed money. What was your function, then, in terms of supporting BEIS and the British Business Bank? What measures did you suggest could be put in place?

Mr Mark Cheeseman: So, our function was then to work to try to reduce the risk or the loss that was then in the system. And our sole focus was that other partners had a lot of other focuses as well, which should be – and be borne in mind. And I think Richard Bearman touched on that yesterday in his evidence.

So, our focus was how to understand the level of loss, and to act on it. So, yeah, that’s what we focused on.

Lady Hallett: And did you identify measures that could be put in place once the scheme was established that would not defeat the object of delivering money quickly, but would do what you could, in the circumstances, to mitigate the risk?

Mr Mark Cheeseman: Yes, and we implemented a range of measures with – with the partners, where we supported them in the duplicates check, although that was the Cifas duplicates check, which was a check to see if loans had gone into different – to an – an individual had taken out loans from different lenders, and multiple loans.

Lady Hallett: We heard about that from Mr Bearman yesterday.

Mr Mark Cheeseman: Yes.

Lady Hallett: He explained why it took about a month to set that up, because you were dealing with lots and lots of different lenders, everybody had to buy in, you had to get the same data points, and so on and so forth. But you think that was a good move taken by the bank?

Mr Mark Cheeseman: It was a good move to do it, yeah, and we were involved in it.

Lady Hallett: Yes.

Mr Mark Cheeseman: And when we worked with the bank and other partners to implement a range of controls over time.

Lady Hallett: And these were things like looking for a change of director?

Mr Mark Cheeseman: Yes.

Lady Hallett: And adding that flag to the Cifas check; is that right?

Mr Mark Cheeseman: Yes, absolutely.

Lady Hallett: Checking on dates of incorporation of businesses?

Mr Mark Cheeseman: Yes.

Lady Hallett: Just to see if they’d been stood up just in order to make an application?

Mr Mark Cheeseman: Yes.

Lady Hallett: And then was there something called a Bounce Back Loan Scheme Verification Service?

Mr Mark Cheeseman: So, there – we tried various things to try to deal with one of the fraud risks in the system – or one of the frauds in the system, I should say, which was inflating your turnover to get a higher loan. So the amount of loan you got was dependent on your turnover.

We tried a range of pilots to try to do that, and eventually – I mentioned HMRC were helpful earlier – we set up something called the turnover verification service, which was similar to what banks use to check mortgage applications and things like that, where the banks – the lenders could then check with HMRC on turnover, although that wasn’t – that wasn’t highly used.

Lady Hallett: Right.

And then also something called the Dissolution Objections Process. Can you just explain what that was and how had – was this about preventing fraud or about assisting recovery of money –

Mr Mark Cheeseman: Both –

Lady Hallett: – or both?

Mr Mark Cheeseman: So a company may dissolve but still have a Bounce Back Loan debt. And this was to put in a check so that debt could be realised.

Now, some of those companies would be dissolving and have a Bounce Back Loan debt and not have committed fraud, and that would just be part of it. But some may do. So, in – in casting that net, you both reduce loss and increase debt recovery in the system, and that led to £243 million more coming back in, but you will also make it harder for fraudsters to dissolve their company and take the assets.

Lady Hallett: So these were things that you were able to advise on and assist with, some things that the bank, the British Business Bank, was doing proactively, other things that you were assisting them with.

Mr Mark Cheeseman: Yes.

Lady Hallett: What was your assessment with the pace at which things were being done, whether enough was being done soon enough to bring in these sorts of checks?

Mr Mark Cheeseman: I think you can see from my evidence I was frustrated with the pace and I was encouraging urgency, and yeah, at the time I felt like more could be done quicker.

Lady Hallett: I just want to pick up on an email I think from you from 14 September 2020.

If we could have INQ000625905, and page 2, please.

Now, this is correspondence between David Raw at the Treasury and yourself; is that right?

Mr Mark Cheeseman: That’s correct, yes.

Lady Hallett: And if we just see the second paragraph on page 2, “I know this is fast moving” is how it begins:

“… highly political area and we are all aiming for the same thing. As a bit of context, from where I sit, this is the thing that worries me most of the [Covid-19] response and – that is something we cannot shy away from.”

And you’ve set out:

“In BBL, as of this week, there are over 9680 suspicious activity reports raised by the banks (none of which we have been able to progress), eight people have been stopped at the border with cash from the scheme, looking to take it out of the country. [I] feel we need a strong response in this area and we will receive justified criticism if we do not. My view is we currently do not have a strong response.”

Now, accepting there was a need to stand the thing up quickly, if we work from that basis, and we’ve heard evidence about that, this is September of 2020. What did you think was lacking from the response in September 2020, bearing in mind that there was an imperative not to put in place things that would slow down the delivery of money to businesses who desperately needed it?

Mr Mark Cheeseman: So my fear at the time was, number 1, what capability there was in the system to deal with this. But also, how quickly we could put in some of the controls we talked about earlier, some of which were put in upfront, right, they were put into the Cifas portal for things – for lenders to use.

So my – yeah, my frustration, as you can see here, was around I felt that more could be done, and we could look more at how we could go after some of the fraud in the system.

Lady Hallett: Okay. And on 15 September 2020 you wrote to the BEIS finance director to encourage BEIS to increase its investment in counter fraud arrangements as part of the upcoming spending review; is that right?

Mr Mark Cheeseman: That’s correct, yes.

Lady Hallett: If we could have up, please, INQ000547796. And you say there at the first paragraph:

“I wanted to reach out to you as we build into the Spending Review. I am not sure if you are aware, but the Centre of the Counter Fraud Function has been quite intensely supporting BEIS through [Covid-19], both in the Business Grants and the various loans to business (most significantly, Bounce Back Loans).”

You then talk about, in the third paragraph, funding that runs out at the end of 2021, and you say:

“From my perspective as the lead for the Government’s Counter Fraud Function, C-19 has highlighted the limitations of BEIS’s counter fraud capacity and capability (something that has not been needed so urgently before).”

And in fairness, you then go on to contrast HMRC and DWP.

Mr Mark Cheeseman: Yes.

Lady Hallett: So you’re not being critical of the will of BEIS there, it seems; you’re commenting on the fact that they just didn’t have the capability previously. Was that the biggest problem?

Mr Mark Cheeseman: It made it more difficult for them to react to this growing risk that they did not have the capability there that was able to act, yeah. And I was encouraging them in this email to set up – to look at the Spending Review and think about what their level of capability should be.

Lady Hallett: And then you say in the next paragraph:

“My strong encouragement is for BEIS Spending Review bid to include a significant uplift in the Department’s Counter Fraud capabilities”.

Is that right?

Mr Mark Cheeseman: Yes, absolutely. Yeah, I was quite strong in advice that I thought they should build their capability.

Lady Hallett: And how did you find that your urging to do that landed?

Mr Mark Cheeseman: I mean, so I think from the evidence we can see it takes time for that to happen. So the BEIS team increased to ten by January, I think, 2021 or 2022. But the initial response was I think the department – well, I can’t really speak for the department, but I didn’t get a response that “Yes, we shall build this capability.” That took a while for us to agree how we’d build things.

Lady Hallett: Looking at the position now, in your current role, have things improved?

Mr Mark Cheeseman: BEIS have a larger – sorry, it’s Department for Business and Trade now, have a larger counter fraud function now. In my role, I’d always be looking at how it can go further and how it can do more, but they have a larger counter fraud function now, yes.

Lady Hallett: That’s you performing your function of providing that external challenge –

Mr Mark Cheeseman: Challenge, yes.

Lady Hallett: – what more can you do?

Mr Mark Cheeseman: Yes.

Lady Hallett: But if we looked at capability 2020 compared to capability now, there have been improvements?

Mr Mark Cheeseman: It has improved, yes.

Lady Hallett: Yes. Can I just pick up one other discrete area. We’ve heard evidence that the British Business Bank contracted PwC to undertake some fraud sampling. We heard something of that yesterday from the bank’s witnesses.

But is it right that you were somewhat critical of their decision to commission that from PwC, not because they went to PwC, but because of how they were doing the analysis?

Mr Mark Cheeseman: Yes, so I think it says in my evidence, so the context I’d give to this is that fraud measurement is still a relatively new thing. So the government standards for it haven’t been around for long. But when they were looking at doing fraud measurement in what I considered the highest risk area, you’ll see from my evidence that our challenge to them, and my challenge to them direct, was that I felt that the testing was too shallow, so it didn’t go into the depth that, for instance, HMRC or the Department for Work and Pensions would do when they do their testing.

So I was challenging, I challenged them on how much deeper they could go in looking for those risks, and that plays out in the measurement itself, so they take that forward, I think it’s called Project Hastings, they take it forward, they do the sampling work to look for fraud in the system. When they come to the end of post-event assurance it does not pass the quality assessment done by the independent panel that looks at that. And their view on it was that some of the risks weren’t covered, and that it was reliant on lenders – the lenders’ tests rather than another piece of assurance done on that.

So my advice earlier was around the method you use for doing fraud measurement which is really understanding the risks and then testing, being really clear on which of those risks you’re testing, and testing as many of the high-risk ones as you can.

Lady Hallett: And just practically, can you just expand on that a little, what it actually looks like, what do you mean, dip sampling some particular cases and really driving down deep into those cases or –

Mr Mark Cheeseman: Yes, so fraud measurement is distinct to audit in that in an audit you might, and there are lots of different types of audit, but you might look and see if a control is in place and if it’s enacted. In fraud measurement what you do is you take a case and you act as if you have had an anonymous tip-off that fraud has happened, and then look for the evidence that might support that that’s happened, and that’s the way you test it, and you do that based off your knowledge of all the fraud risks and all the ways that fraud could be committed.

Lady Hallett: So you’re not taking cases because there actually has been such a tip-off, you’re taking them as a random sample –

Mr Mark Cheeseman: Random sample.

Lady Hallett: – and saying, “Let’s proceed on the basis that someone has said this is a fraudulent claim, let’s drill down into it and see what we can find”?

Mr Mark Cheeseman: That’s correct.

Lady Hallett: Okay. And do you think your concern was taken on board, in terms of sampling?

Mr Mark Cheeseman: I felt I was listened to. The sampling, as you can see from the – and I’m sure it was tweaked a bit. It did not change to the extent that it met the independent assurance by the panel.

Lady Hallett: Given the time we’ve got left, I’m very keen that we look at lessons learned and potential recommendations for any future emergency. So let’s look at some of the things you found across the whole piece, so not focusing on individual schemes, but across government. And pick up on where you identified problems and what, if anything, has changed.

First, as the precursor to the PFSA, did you find that there were limited levers that you had to compel or to engage with other public bodies and to encourage them to act?

Mr Mark Cheeseman: Yes, and I felt – yes, I felt there were limited levers, and there was, as you see through the evidence, there was a debate in the system as to whether that was the role, and to encourage others to act. And the Public Sector Fraud Authority mandate now makes that a very explicit role of our organisation.

Lady Hallett: So at the time this was newly emerging and there was, as you’ve said, this sort of suspicion and this concern about where you sat as against the accounting officer responsibility, but that’s changed?

Mr Mark Cheeseman: I’d say it’s clearer. There will always be a debate, but there is less debate.

Lady Hallett: Yes. Generally, do you think that, as the PFSA, there are sufficient legislative powers that you have as an organisation to tackle fraud across government?

Mr Mark Cheeseman: So the government’s just introduced a new set of powers from direct learning from the pandemic, and in fact you can see in the evidence it was part of what the Fraud Ministerial Board was looking at and we were looking at at the time, the Public Authorities (Fraud, Error and Recovery) Act, as it is now. That deals with one of the challenges from the pandemic, which was how do you investigate fraud outside of those big organisations like Department for Work and Pensions and His Majesty’s Revenue and Customs where they have a lot of powers?

So I feel those powers are in place now.

So we also have powers like the Digital Economy Act, which we had at the time, which enables us to share data. I think it will be a constant evolution as government explores how it best uses data and we may find in the future that there are more powers that may enable us to go even further on that, that could be considered.

Lady Hallett: So how important is the sharing of data across government for tackling fraud in schemes?

Mr Mark Cheeseman: Very much so. We’ve talked about intelligence, but the sharing of intelligence is helpful. And one of the good things we’ve touched on – haven’t touched on in the pandemic, is that we didn’t just share with government bodies, we also shared internationally and got some intelligence from them about what was going on.

But, also, data is incredibly valuable, because actually a piece of data held by Department X may be able to confirm or deny an application or a piece of data held by Department Y. So, being able to share that data to understand whether those are in conflict or complementary is incredibly important.

Lady Hallett: But it is presumably, then, not just having the data; it’s having the analytical capability to interpret the data in a way that would show up those difficulties?

Mr Mark Cheeseman: Absolutely. And the capability to follow up. Because however good your data analytics and your comparisons are, there will always be some false positives, and that was part of the nervousness on some of the analytics during the pandemic, was false positives.

So you need the capability to be able to work through those false positives, as well.

Lady Hallett: If the data sharing is better and there are – new legislation that enables that, where does the cross-government analytical capability sit at the moment?

Mr Mark Cheeseman: With us, in the Public Sector Fraud Authority.

Lady Hallett: And do you consider that’s the right place for it to be, and that it is sufficient for you to be able to discharge your functions?

Mr Mark Cheeseman: Yeah, I – I think it should sit somewhere that works across the whole of government, and has a remit for – an acknowledged remit for working with public bodies and an expectation that public bodies will work with it to provide and use the data and resources it has, yes.

Lady Hallett: In 2020, the pandemic crisis was a novelty. We’d never been in that position before. And we’ve spoken about the need of speed for delivery. But in a future emergency, how do you ensure that fraud controls are embedded in resilience planning? And exercises that might be run?

Mr Mark Cheeseman: So, I mean, first of all, I think we’ve done some of it. So the government has changed Managing Public Money and the Green Book to incorporate something called an initial fraud impact assessment. The challenge with fraud risk assessment is that it can take time to do because it’s quite a detailed piece. An initial fraud impact assessment is a quick, “What’s the likely level of risk?”

So, changing Managing Public Money to have the expectation that that exists enables us to deal with it better in the future. But also changing it so fraud risk assessments are done upfront enables it to be better in the future as well.

The other thing that we’ve been doing and that will help is that we’ve been increasing that work on fraud control in the profession.

So, when we came to the pandemic, what we really needed at the start was not lots of investigators, it was lots of people who understood risk, data analytics, how to build processes. So the government has been building training qualifications to train people to have that capability in the system to use those tools.

Lady Hallett: Thank you.

Your organisation, the organisation you lead, has a mission statement, a purpose to prevent or minimise fraud in the public sector. But if you’re a government department, how do you incentivise a government department to find fraud and to root it out and prevent it?

It might be said that there will be a perverse incentive not to look because you don’t want to reveal that you had lax systems or that there were gaps in something you launched. But what are you doing to incentivise departments – or how can departments be incentivised to think about fraud proactively?

Mr Mark Cheeseman: So I would say the things we’re doing, and how you can you do it, is, number 1, you try to create a culture where finding fraud is a good thing – which can feel counterintuitive, as I touched on before.

The second thing you do, and we’re doing, is you build capability across the system. If you have capable people who are able to make a difference, they will make a difference. They will find that fraud. They will help reduce it. So you don’t just build it in the Public Sector Fraud Authority; you build it in the departments. You build it across that whole system.

The third thing that we do, and as I said it’s recognised – we had that tension in the pandemic: were we there to challenge? – is the Public Sector Fraud Authority has a role in holding public bodies to account. So, do they have the functional standards in place? Do they have a target?

So we’ve moved to a system, from learnings from the pandemic, that government departments have financial targets for their impact. That drives them – I said about the culture change – that drives them to look for fraud, because they need to find it to have a financial impact on it.

So it drives them to look for fraud, but it also encourages them to do stuff to find fraud and have a measured difference.

Lady Hallett: Your work is across the public sector, but there is always an interface between the public and private sector. What work needs to be done or is being done to engage the private sector, professional bodies, representative bodies, and bring them into the anti-fraud work that you’re leading?

Mr Mark Cheeseman: So we – we engage with them quite a bit. We have some cross-sector advisory groups.

When we created the Public Sector Fraud Authority, we recruited people from the private sector into the Public Sector Fraud Authority, to try to build those cross-system interplays.

You know, I attend conferences and aspects like that, as do – as do members of the Public Sector Fraud Authority, to share.

Some of our data analytics work that we do now is done for the private sector as well, as part of the government’s fraud strategy.

So, could we do more? Yes, we could always do more, and we should always be looking at how we do more, but we’re doing quite a lot to share between those – between our sectors.

Lady Hallett: So, do you think that, generally speaking, you bring in that external advice and expertise, as and when it’s required, from those regulatory bodies, from professional bodies, and so on and so forth?

Mr Mark Cheeseman: We look to. I mean, we’ve always got to challenge ourselves to do better. I’d say one of the challenges is that fraud roles are not always very tightly defined, because everyone has worked it out differently how they work on it. So one organisation’s compliance might be another organisation’s fraud. One organisation’s audit might be another organisation’s fraud.

So, one of the things we have to do is make sure we’re all talking the same language when we do that, first of all.

Lady Hallett: Again, this might seem a bit counterintuitive. You might think, well, if you tell people we’re looking for fraud, you’re alerting fraudsters to the fact that, oh, there might be an opportunity here, you know. So if you’ve highlighted a scheme and say, you know, “We’re going to be keeping a close eye on applications”, you’re highlighting the problem.

But how important is communication with the public, getting a message out there that you’re bearing down on fraud? And do you think things have changed, post-pandemic, in that respect?

Mr Mark Cheeseman: I think it has. I think we communicated a lot more about it. I think technically it’s a complex area, because as you have pointed out, if you tell people about fraud, does that make them not do it or more aware they could? And you always need to be mindful of that.

But I’d say, on balance, the dangerous thing to do is to be quiet about it, because if you don’t talk about fraud, you then aren’t countering what’s going on, and you’re not deterring in any way those who would commit it, because they’re not aware of the consequences or that people are looking or that more effort is going on.

So there’s lots of nuances to that debate, but I would say on balance, more is being communicated, and that is the right route.

Mr Wright: Thank you.

Now, Mr Cheeseman, those are my questions of you. Thank you very much.

I don’t think, my Lady, there are any other questions of Mr Cheeseman.

Lady Hallett: There aren’t.

Mr Cheeseman, thank you very much indeed. It’s been extremely interesting and helpful and your evidence has actually taken me back to my practice as a barrister. A number of things you said about fraudsters rang very true with me. Anyway, thank you so much, I appreciate it’s been a really busy week for you, given Mr Heyhoe’s report so I’m really grateful to you for all the help you’ve given in your written statement and of course this morning. Thank you.

The Witness: My pleasure.

Lady Hallett: I think that’s time for a break now, Mr Wright; is that correct?

Mr Wright: It is, my Lady. Thank you.

Lady Hallett: 11.30, thank you.

Mr Wright: Thank you.

(11.15 am)

(A short break)

(11.30 am)

Lady Hallett: Mr Wright.

Mr Wright: My Lady, can I confirm again that you can see and hear us in the hearing room?

Lady Hallett: I can, thank you.

Mr Wright: Thank you very much. Then I call, please, Lord Sharma.

The Sharma

THE RIGHT HONOURABLE LORD ALOK SHARMA (sworn).

Questions From Richard Wright KC, Lead Counsel to the Inquiry for Module 9

Lady Hallett: Thank you for coming back to help us again, Lord Sharma.

The Witness: Thank you, my Lady. Thank you for having me back.

Mr Wright: Lord Sharma, you have provided a statement to the Inquiry in this module. I’m going to give a reference for the record, which is INQ000657978. And you give that statement in your capacity as the former Secretary of State at the Department for Business, Energy and Industrial Strategy.

The Sharma: I do.

Lady Hallett: Thank you.

Lord Sharma, I’m going to, first of all, under a very broad topic heading, explore with you the business loan schemes that your department was responsible for delivering. And within that broad umbrella, there’ll be other subheadings, and I’ll try to give you them as we go, but just so you know that’s where we’re starting, because there are, then, other issues that later today we’ll deal with.

Can I first of all ask you, really just by way of overview, about where your department sat within the role of policy, design, delivery of those schemes. And I just want to summarise for you the evidence the Inquiry has heard and see whether you accept it characterises the role of the department.

As we understand the position, the overall policy decision was being made by the Chancellor of the Exchequer through the Treasury; is that right?

The Sharma: Yes, on – on many of the schemes, the sort of – the starting point, the framework of the policies, were indeed put together by the Treasury.

Lady Hallett: At the other end, in terms of loan schemes, the British Business Bank was doing the on-the-ground operational delivery of the schemes?

The Sharma: Yes, that is correct.

Lady Hallett: And your department, which was responsible for the British Business Bank, was sitting, if you like, between the Treasury and the bank, assisting the Treasury with the formulation of policy in a more granular sense?

The Sharma: Mm-hm.

Lady Hallett: And also ensuring delivery of that policy; is that right?

The Sharma: Yes, that’s absolutely right. I think we were working on policy once it had been announced, to iterate it over a period of time. In certain cases I think we perhaps had some more influence over – over some of the policies than others. And yes, of course, we formally had responsibility for the British Business Bank, so they were the people that I issued – or my permanent secretary would issue instructions to when they asked us to look at some of the policies in more detail and give our views.

Lady Hallett: Now, accepting that that sort of scenario, in which the Chancellor is setting the overall economic strategy, another department of central government is then involved in design and delivery, and an arm’s-length body operationally standing up the scheme is not unique, but looking at these schemes, the loan schemes, I just want to ask you for your views about those lines of responsibility and accountability from the Chancellor through your department to the British Business Bank.

I do that, picking up, which I know you’re aware of, the report of one of the Inquiry’s experts, Dr Tetlow, who describes those lines of accountability in her opinion as being slightly confused, and also pointing out that it led to the accounting officer being in your department –

The Sharma: Mm.

Lady Hallett: – whereas overall policy was being set by the Treasury, a different department.

I’d just like your reflections on that, because you were there.

The Sharma: Yes.

Lady Hallett: Did you find that that led to any confusion in lines of accountability for the overall delivery of those schemes?

The Sharma: Well, Mr Wright, I think the first thing to say is that I had a good working relationship with the Chancellor, and I think as you’ll have seen in both the oral evidence but also the written evidence from senior officials in both departments, they had a very collaborative working relationship.

And one always has to be cognisant of the fact that, ultimately, the Treasury is the lead department for economic policy within the UK Government, and actually also the lead department when it comes to emergency interventions.

Having said that, as you said, there were policies that were being put together by the Treasury, and decisions being made, which we weren’t necessarily part of, right from the start.

I understand why. I mean, some of these policies were announced in conjunction with the budget on 11 March, and there is always, even in peacetime, if I can call it like that, a lot of sensitivity, for market reasons, around disclosing too much information out of the Treasury.

Lady Hallett: Lord Sharma, I don’t want to cut in, but can I just ask you to slow down slightly. It’s perfectly understandable, people speak quickly –

The Sharma: You’ve come in early to give me that warning, Mr Wright.

Lady Hallett: I just thought I’d get in early with it because I’ll get a note in a moment telling me to tell you, so I’m …

The Sharma: The first reason that I’d understood, as I sort of pointed out, why, you know, these decisions were made within the Treasury, is for confidentiality reasons within the budget. The second is that we had incredibly truncated timelines to make these decisions.

So again, I appreciate why, on occasions, the Treasury went ahead and made those policy decisions, that were brought in afterwards.

My view is that it would have been helpful for the Business Department to be part of that policy making and decision making right from the start. And I say that, not because I disagreed with the policies, I signed the direction letters, I was responsible, and I agreed with the policies.

But I think it would have been helpful, one, as you point out, we were the policy-making department, but secondly, from the practical aspect of implementation. If we had been aware of the precise details of where we were going in some of these policies, it might have allowed us to prepare a little bit better – and I know, I’m sure we’ll come and talk about grants, and that’s a case in point where if we’d had a bit more information earlier on and been part of the decision making, perhaps our interactions with the local authorities would have been even more effective.

In terms of this whole issue of where the accounting officer accountability lay, I’ve obviously seen and read the statement of Sir Charles Roxburgh and he obviously gave evidence to you on Monday. I think, you know, he makes a very thoughtful point about whether, in those circumstances, at that time, the accounting officer responsibility should have been split in terms of the Treasury taking responsibility for the policy and BEIS taking responsibility for the implementation.

Lady Hallett: Just pausing there.

The Sharma: Yes, of course.

Lady Hallett: Just to pick up, because you’ve mentioned Sir Charles’s statement and his evidence was, I think I can fairly summarise it as: there wasn’t a need for – or there isn’t a need for an overall system of government change for a long-term structural change, but given the circumstances, it might have been an idea if the accounting officer’s responsibility had temporarily shifted for that scheme, I think was where he landed, in terms of his evidence to the Inquiry.

The Sharma: Yes, and I know in his statement he also talked about kind of the sympathy he had with his counterparts in my department in terms of the responsibility for the decisions, but I mean, frankly, even if that had happened, and I’ll come on and address why I’m not entirely sure that, going forward, that’s the right approach, but even if that had happened, the Chancellor, if he’d been responsible for those direction letters, would have signed the direction letters. At least in this instance, my department, BEIS, had an opportunity to influence the policy iterations as they went forward.

I think generally, you want to try and keep the policy and implementation with the same department. It’s absolutely the case the Treasury, you know, being the responsible department overall, of course, will always have a say in these matters. And I think the way to kind of address this in the future is that we should have a sort of, if I can put it like this, a governance framework. And I’m not talking about a sort of hundred-page document, Mr Wright; I’m talking about a couple of pages of high-level principles about how different parts of government and different departments work together if we face an emergency in the future.

And in that, I think one of the things that should be highlighted is that all the people who need to be round the table to make decisions should do that from the start.

I think you can also look at, you know, issues of highlighting that we should all be looking at how we treated vulnerable groups, and I think in this case I know there were issues around the self-employed, and this is a document that, at that first COBR meeting that takes place to discuss the emergency, whoever is then the Prime Minister can make sure everybody understands: this is the framework to which we work.

And if we did that, these sort of tensions would not arise again. You know, the responsible department for policy would be sitting alongside the Treasury when those decisions, early decisions, are being made.

Lady Hallett: Okay. Thank you very much for that considered answer, and a full answer, which isn’t a criticism at all, but it means there are a number of things I’d like to pick up from it and see if we can just investigate them a little further.

Can I deal with the first – or one issue, which is this point about a lack of accountability, accountability to Parliament, because an accounting officer is responsible to Parliament.

I understand what you mean, which is that whichever minister was – was ultimately responsible, so whichever department that responsibility sat in, the direction would have been signed. This was going to happen.

So, in terms of Parliamentary accountability, should we understand your position is really that the idea that there was a lack of accountability is more theoretical than actual, because, either way, a minister was going to be able to responsible, held accountable by Parliament, and an accounting officer would just be one department or another?

The Sharma: Yes, I mean, I – look, at the end of the day, in the case of these particular interventions, yes, I always sought to get the Chancellor’s and – formally, as well the Treasury’s agreement to proceed on each of these schemes, but, kind of, the buck stopped with me, because I did sign those direction letters.

I don’t think that’s the issue. What I’m trying to address is the practical aspects of how you ensure that in future there is, you know, joined-up working so that the outcomes are improved in terms of the policy.

The accounting issue, as I said, you know, I think the two should sit together, the policy as well as the implementation.

Lady Hallett: Now, you also said that everything, ideally, should be kept together in one department. So I’m just going to pick up on that.

I suppose the obvious question would be: well, which department? Which department should have responsibility in those sort of circumstances? Should it be the Treasury, which is, through the Chancellor, responsible for economic policy, or should it be the Department for Business and Trade, as it now is, which is has that peacetime, to use your phrase, responsibility for the British Business Bank? Which department would be better placed or doesn’t it matter?

The Sharma: I don’t think we should be looking to change the way we work in terms of these accountability lines, you know, in an emergency situation. I think it is much better you – you work out up front, now, before – god willing we don’t face another emergency, but you work those out now. As I said, I think the easiest way of dealing with this is not to change the framework of where accounting authority sits, but actually just in terms of practically how we work going forward in an emergency.

Lady Hallett: I suppose one of the big advantages in the Chancellor setting policy is that the Chancellor holds the chequebook. If another department was setting policy, that department would have to presumably formulate a policy, cost it, or predict its cost, and then go to the Treasury to see if the Treasury would fund it.

So is it important? I mean, did it assist in terms of the speed at which government react, that the Chancellor was taking this very hands-on approach and was setting the direction? Because he could decide the policy and agree to fund it himself. He didn’t have to have a conversation with himself.

The Sharma: Yeah, I don’t just – I want to be very clear about this, Mr Wright, which is I’m not suggesting that an individual government constructs policy by itself in the absence of the Treasury. The Treasury is the department overall responsible. There’s no doubt about that. I worked well with the Chancellor and actually, for the record, I would just say I thought he did a – an admirable job in stewarding the economy during a very difficult time.

What I’m saying is that, in those instances where policy was being decided in terms of some of these interventions, you know, by the Treasury, I think it would have been helpful to have BEIS sitting alongside. And as I said, at the end of the day the Treasury is the lead department, and, as you said, they hold the purse strings. All I’m talking about is policy being made together.

And again, this is not a point of ego or anything like that; this is purely to make sure that when you then come to implementing, it makes it easier and faster and more effective to be able to do so.

Lady Hallett: No, I –

The Sharma: And by the way, that is how, in peacetime, policy is done. I mean, you iterate over weeks or months, and all departments are involved, and clearly the – the Treasury, sort of, takes a leading role, and I don’t see why we won’t try and continue in that frame, even in an emergency, but obviously in very truncated timelines.

Lady Hallett: I think the point you were making is that had everybody been round the table together from the outset in the design of policy, you would have been bringing together those delivery experts at the policy design stage, which may have informed the design of policy before it was announced, and ensured that it actually was even more effective, deliverable, and ironed off – or knocked off, rather, those rough edges?

The Sharma: Yes, absolutely. And, I mean, we can do it, sort of, further on or we can do it now, the whole, sort of, discussion on the grant schemes, the Small Business Grant Fund, for instance, where I know there have been issues, and I’m sure we’ll discuss them, in terms of the interaction with the local authorities and the concern that perhaps they weren’t involved right at the start in terms of design of policies.

Now, that may have been challenging anyway in the truncated timelines that we had, but certainly we could have prepared more.

We set up at the time a local authority advisory group of 20 local authorities in conjunction with discussions with the Local Government Association. Now, if we’d been able to do that a bit earlier, and start to think about the guidance a bit earlier, perhaps we might have ensured a more efficient outcome at the end.

Lady Hallett: Well, we will come back to those, but rest assured, what you’ve said now is noted and we won’t waste time later repeating what you’ve said, but we will come back to local authorities as a more focused piece.

The Sharma: Yes.

Lady Hallett: But at this stage I understand your position to be that there isn’t a need for significant system of government change here, what there is a need is for a, not a great volume, a tome that sits on the shelf, but a well-understood memorandum of understanding, essentially, between departments that this is how we’ll work together, collaboratively, in a future emergency, with the usual caveats of budget confidentiality and so on.

The Sharma: Absolutely.

Lady Hallett: Those must remain.

The Sharma: Absolutely, and I just want to reiterate once again, so there is no doubt at all, I agreed with all of these policy interventions. I signed the directions, and I’m sure we’ll discuss these in a bit more detail on a case-by-case basis.

Lady Hallett: So can we move on to engagement with the Treasury, as an institution. I mean, you mentioned that you had a, what you considered to be, and I’m sure from what we’ve read was, a very constructive working relationship with the Chancellor himself, the danger, I suppose, in relying on personal relationships is that they may not be the same as between departments, and personalities change.

So looking more on a – on an institutional basis at those relationships, I’d like to ask you about, really, engagement and the transparency of engagement that you encountered, your department encountered, between yourselves and the Treasury. And in particular, the sharing of analysis as between departments. And you’ve been asked to deal with this in your statement, and I’d like to pick up on it. You say at paragraph 11 of your statement that:

“[The Treasury] may not have shared every aspect of its analyses on the economy, and there will have been good reasons why that would not have been a useful exercise.”

You didn’t consider that to be a particular issue.

How open and transparent did you yourself, your department, find the Treasury in terms of sharing its modelling and analysis?

The Sharma: Yep, I think you’re absolutely right to raise this as an institutional issue. I mean, I did have a good working relationship with the Chancellor, I think we’re still on each other’s Christmas card list after all these years, so that probably means something. But from an institutional perspective, I think we overall had, actually, a pretty good working relationship with the Treasury. You know, there were meetings relating to the economy that I would attend together with the Chancellor, and the Prime Minister. And they weren’t necessarily – well, they weren’t, actually, decision-making meetings, this was about sharing information in terms of what was going on in the economy, you know, where we expected particular sectors to be experiencing difficulties.

So I personally didn’t feel that there was any issue in terms of information sharing from the Treasury, and in fact, you know, my own department was doing a lot of work, as well, talking to sectors. I set up – I think the first of these meetings took place on 11 March – a group of representative – business representative organisations, around 19 of these, you know, representing small businesses, large businesses, different sectors, and it was very important for me to have those conversations.

And I did those twice a week, actually sometimes we may have done them more frequently.

Lady Hallett: I don’t want to cut you off. I will come on to talk about that as an important development, and an important initiative, but just –

The Sharma: I – so in summary terms, we were absolutely fine in terms of the information sharing within the Treasury when it came to analysis of what was going on in the economy. I had no concerns about that.

Lady Hallett: But I just want to pick up on a sort of wider cross-government point about analysis. As you’ve said, your department was doing its own internal analysis, which was very important to informing you about what was going on in different sectors, in different areas of business. The Treasury was doing its own economic analysis, all departments will have been having their analysts running data.

But one of the themes that has emerged in the evidence, and in particular some of the evidence from the first week of this module, we heard from Rob Harrison who ran the Directorate General of Analysis in the Cabinet Office, and he spoke about the need, or the absence at the start of the pandemic, of a sort of cross-cutting analytical function in government that could bring together all of that important work that the departments were doing, like yours, and bring that together into a single document that provided a consensus voice of all of that analysis collated so that cabinet could make decisions on that basis.

Where does that, as a proposition, sit with you?

The Sharma: I think it’s certainly an interesting proposition. I don’t think, frankly speaking, we were lacking packs of information coming at us, in terms of what was going in terms of the health of the nation, in terms of the business health of the nation. I don’t think at any time I personally felt we were lacking that information to make the decisions. And there were groups of, you know, officials who would clearly sit together and, I’m sure, share information.

I think it’s worth considering the suggestion that’s been made. The only thing that I would just say is that, you know, in a really fast-moving environment, it may take you half a day to collate all this information, and you find that 24 hours later, it’s somewhat out of date. So it’s certainly worth considering, but if you were going to do this, you’d have to do this in a really efficient way and not produce a huge tome but, you know, a few sort of effective sheets of information which allow, you know, basically almost a sort of dashboard-type document.

Lady Hallett: Well, that’s effectively what Mr Harrison spoke of, a snapshot that would provide in a page: this is the situation; this is the centralised analysis of where we are; this is our level of confidence in that prediction?

The Sharma: Look, I think it’s worth exploring. I think we got a lot of this anyway, in sort of, you know, different sort of elements of the economy and the health of the nation. But I think it’s worth exploring.

Lady Hallett: I just want to pick up again on something you’ve just said in part in answer to my last question. You acknowledge, I think, in your statement, that there were times – you’ve already said it this morning – where a bit more notice would have been nice, it would have been nice to have known what the Treasury was going to announce before you heard it, but from your perspective, was that because the Treasury didn’t want to tell you or was it because the pace of events was such that there was not time for advance information being provided, consultation to take place? Things were happening, as you say, it was out of date a day later?

The Sharma: Yeah, I just repeat again, Mr Wright, what I said earlier, which is I think the two key reasons was because some of these interventions were announced in conjunction with budgets and there are confidentiality issues around that, and I understand and respect that. And the second, absolutely, as you say, it’s because the timelines were so truncated that, you know, decisions were being made.

What I have suggested to you and to the Inquiry, is how we might try and fix this in the future, but obviously that’s for the Inquiry to consider.

Lady Hallett: Yeah.

I just want to give you an opportunity to comment on an observation of Gemma Peck, who was the Director of Business Growth in your department.

I’m just going to ask that this is put up on the screen so you just have a look at what she said in her statement.

INQ000657846. Page 12, paragraph 3.13.

Yes, we see there in that paragraph, I’ll just read it into the record:

“There were occasions when developments within HMT progressed very rapidly, and we would receive notice of a decision, steer, or request from the Chancellor that required an immediate response. This made it challenging for BEIS, as the accountable delivery department for the schemes, to ‘backfill’ with proper processes of advising ministers and the accounting officer on the lengthier details of policy design and delivery. On some occasions, HMT and the Chancellor were, frankly, able to move at a faster pace on decisions which the BEIS Secretary of State would have to play catch-up on. As the senior official responsible for ensuring ministers received quality advice and that the expectations on Managing Public Money were adhered to, this could at times be frustrating. However, this was not driven by a lack of openness or transparency from HMT, it was because major decisions were being taken at pace by the Chancellor personally”.

So that’s one of your officials saying she found it frustrating, but understandable given the pace. She describes you as, she thought, having to play catch-up.

Did you feel like that, that you were having to play catch-up, or did you feel, as she concludes, that, yes, it was a bit frustrating, but this was just how it had to be?

The Sharma: So, I guess it depends quite what’s meant by, sort of, catch-up. I’ve explained to you how certain policies, decisions were – were made. They were announced. We would get, kind of, 24 hours notice of them, and then, you know, help to iterate that policy, and move forward with the implementation.

So, I mean, if that is what, you know, Gemma means, then, you know, yes.

I think, just this point on, you know, frustration. I mean, I just want to make it very clear to the Inquiry, my Lady, that this particular point – which is that we were working literally round the clock seven days a week. I mean, I’m not just talking about the ministers, I’m talking about the officials as well.

As well as responsibility for these interventions, obviously I was – also had some responsibilities for vaccines, running the department in terms of all the other things we needed to do, I was responsible for COP 26 planning.

So I don’t think we had time, either as a collective body or as individuals, to sit there and get frustrated. Yes, policies were announced, we got on with it, and did the very best we could, but I just go back to the point I raised at the start of this discussion which is that if we had been there right at the start, perhaps it might have been easier to implement these policies even more effectively.

Lady Hallett: And on that point, about if you’d been there at the start, we shouldn’t imagine, I think, that you’re suggesting that you and the Chancellor were sitting round a table together working all this out; you’re talking about, at all levels of your departments, that officials with particular areas of responsibility were working together across departments on these different schemes, different announcements that were coming –

The Sharma: Yes.

Lady Hallett: – is that right?

The Sharma: Yes. I mean, let me give you an example. So, very soon after I came into post, on 13 February – in fact the next day I think we had a cabinet meeting and I recall discussing the impact of supply chains freezing up on British manufacturing. And soon after, I asked my officials for what interventions we could make, in terms of supporting businesses going forward, and the – the answer was that, you know, many of these would have to be macro interventions that were led by the Treasury, as they were. And there were two particular suggestions that I agreed with: one was on adapting EFG, the Enterprise Finance Guarantee scheme; and the second was to look again at grants, because they had been used through local authorities, when, for instance, businesses needed support because they’d suffered, sort of, flooding issues as an example.

I said I supported both of these. That was, I think, 2 March. So this was, sort of, in the system. And I’m sure that my officials would have talked to the Treasury and said: yes, the Secretary of State is very supportive of this.

I then found out formally on 10 March that EFG was indeed going to be iterated, and that became CBILS, and then it was announced by the Chancellor on 11 March.

So all I’m saying is that I think – I had no issues with the policies. Absolutely the right policy to do that. What I’m saying is if we had been part of that decision making earlier, perhaps we could have done things faster in terms of implementation.

Lady Hallett: So, in that example, you’d expressed the overall desire to utilise those sort of schemes on the 4th, you find out on the 10th it’s going to happen, there’s six days of time in which your officials could have been working collaboratively with the Treasury, not to, therefore, announce a perfect scheme on the 11th, time probably still wouldn’t have provided that, but at least one that you had been working together on and could have influenced?

The Sharma: Yes, I think doing some of the sort of background work, because, you know, everything takes time to get done, and, you know, as – as an institution, I think it doesn’t matter whether, you know, you’re a – you’re a lending institution or a government department, haven’t more time to plan helps you in terms of better planning.

Lady Hallett: And you’ve spoken about the pressure everybody was under, which is obviously understood, and the pressure on people’s time. But would it also be the case that if you’d been working collaboratively, there wouldn’t have been the risk of work being duplicated? So your department and the Treasury doing similar but slightly different work in the same space, you could have just been working together and therefore avoiding a duplication of work, and thinking?

The Sharma: Well, actually I, just slightly push back on that, Mr Wright. I mean, we were working collaboratively overall, so I don’t think there’s any sense that somehow the Business Department and the Treasury at official level, at ministerial level, weren’t working together. We were. And actually, we came together, actually, very well when it came to iterating policy. I just go back to my, sort of, central point, which is that if you want to get better outcomes, in terms of implementation of policy, then actually the department that is to do with the implementation should probably be there at the start of the policy decision-making process.

Lady Hallett: Now, can I move on, then, from those sort of structural points that we’ve been discussing, and talk about what I will term the initial response.

I’m talking here about the early days, really, February, March, that initial response of government.

You had become Secretary of State, I think, on 13 February?

The Sharma: Yes.

Lady Hallett: I won’t ask if it was a Friday but anyway, it was on 13 February.

The Sharma: I think it probably was a Monday. The next day was a Tuesday and the cabinet meeting took place.

Lady Hallett: But I think the Chancellor had been appointed himself on that day. And as you say, you attended cabinet on 14 February, and you provided a briefing, I think, to cabinet that, from the perspective of your department, coronavirus was already spreading in terms of its impact on industrial companies beyond China, such was the global supply chain – that might now appear obvious, but, for example, components from China that were necessary in manufacturing were not becoming available. So there was already, on that date, global supply chain disruption being picked up –

The Sharma: Yes.

Lady Hallett: – is that right?

The Sharma: That’s absolutely right. And I gave that – I haven’t seen the subsequent minutes of cabinet and how it was recorded, but I did make that particular point, and I have to say, I think in terms of my briefings, for all of these cross-ministerial meetings, I think my department prepared me extremely well.

Lady Hallett: Yes, and I’d just like to put up on the screen a paragraph from your statement, because I would like to ask you some questions about it. It’s paragraph 9, page 5.

And about halfway through there’s a sentence:

“As I set out in this statement …”

The Sharma: Yes.

Lady Hallett: “As I set out in this statement, there were many acute warnings from business representative organisations and individual corporates about the very survival of many UK businesses without urgent support from the Government. This was around a time where the projections of the Office for Budget Responsibility included estimates that GDP would fall by 35% in the second quarter of 2020. Set against that background, when considering the costs associated with taking action to introduce a scheme, Ministers also had to consider the cost of inaction.”

And I just have set that out there because we’re going to look at the early stages of the response and I just want to understand, and give you an opportunity to speak to that point you’re making there about yes, there was a cost of action, and now presumably by “cost of action”, you mean the pure fiscal cost, how much government money would be required, but also are you including in that costs like risks of fraud, risks of error, delivery risks, all of those sort of risks?

The Sharma: Yes, I’m talking about the total cost to the government as a result of the interventions.

And just this point on GDP, that figure of 35% actually, I think, came from a coronavirus – a report that the OBR put together on, I think it was published on 16 April.

Lady Hallett: Yes, this is a little later –

The Sharma: This is a little later –

Lady Hallett: – but I’m just trying to set the background to the decisions –

The Sharma: Yes, absolutely, but I just want to put this in context.

Lady Hallett: Yes, of course.

The Sharma: So in 2019, the GDP, the size of the British economy, was around £2.21 trillion. A 35% drop would have been around 750 billion plus. In the end, the outcome, even are the interventions, Mr Wright, the British economy fell by 20%, just under 20%, in terms of the size of it, in Q2, 2020.

Now, that was pretty bad news for very many businesses, but I would contend that because of the interventions that we made, that delta of 330 billion between 20% and 35% was avoided in terms of drop in the economy in Q2, 2020, precisely because of the interventions. And that is the point I wanted to highlight here.

The cost of inaction would have been hundreds of billions of pounds to the British economy, and it’s not just about numbers, it’s about individuals’ livelihoods, it’s about people running businesses, and frankly, the interventions, they weren’t perfect, and we can discuss how we could have improved them but if we hadn’t made these interventions, we would have been in a far worse position coming out of Covid than we did.

Lady Hallett: I think Sir Charles Roxburgh made this point when he gave evidence, that he encouraged people to think about the impact of what the government did, in terms of jobs, the economy. And is that really the point you’re making?

The Sharma: That, Mr Wright, is absolutely the point I’m making. So I think some of the analysis post, obviously, these years, shows that across all of the schemes that we were effectively responsible for in BEIS, a million jobs were saved. The benefit-to-cost analysis also showed, that was done by the BBB and I think it’s in the EP pack that has been shown to me, was positive. So I think, you know, if you take them all into account something like 1.27, a range of 1.272 to almost 4, tens of billions of pounds added in terms of gross value added because of the interventions that were made, but, you know, ultimately, this is also about, you know, avoiding the human cost of people losing their jobs and their businesses.

Lady Hallett: Right. And I just wanted to give you an opportunity to set that context because it does frame your evidence in your statement when we look at the early response and also when we look at schemes, which is why I’ve dealt with that –

The Sharma: Yes, absolutely.

Lady Hallett: – at that stage.

But going back to the early days and that briefing you gave to cabinet about global supply chains and disruption there, would it be fair to say from that, that from your perspective, from your department’s perspective, you understood from an early stage that, unlike in a financial crisis we might see in a recession, where there would be a demand-side drop in the economy, that there was, here, an obvious supply-side shock to the economy coming?

The Sharma: Yes, absolutely. I understood that. In fact, I remember soon after my appointment, it may have been towards the end of February, it may have been actually just before the budget on 11 March, I can’t remember now precisely, but I went in to see the Chancellor and some of his officials, including Sir Charles Roxburgh, and I do recall at the time saying something along the lines of, you know, “This is going to require interventions of tens of billions of pounds.”

Now, I was wrong in the scale because we went into hundreds of billions of pounds, but I think there was no doubt in my mind that we needed to have, you know, the right level of intervention in terms of a mindset.

And I also recall, sort of middle of March, as we realised things were getting significantly worse, actually having a message exchange with the Prime Minister’s then Chief of Staff, Dominic Cummings, and I said to him, you know, “We need to make sure that we do big interventions. We can’t do piecemeal.”

And I think he, sort of, sent a message back to say he agreed with that.

So, certainly on a personal level but also as a department, we were very clear that we needed to be very bold in terms of the interventions that we were making.

Lady Hallett: Just picking up on that, 2 March, if that’s the date you think you had that conversation, in fact the Inquiry understands on 2 March you attended a COBR meeting when you were pushing for business support options to be accelerated, and pushing for the Treasury to engage with and fund those sort of options. And also, we understand that on that date there was a submission to you setting out options for government intervention, because you were already seeing or understanding that there would be liquidity problems with –

The Sharma: Absolutely.

Lady Hallett: – firms, if there was a worst-case scenario, and you were already looking, then, at things like working up the EFG, developing that.

So, it seems that from your department’s perspective, from an early stage, from almost that first cabinet meeting on the 14th, you can see this global supply chain disruption, you can see the supply-side shock to the economy that’s coming, pushing for developments.

Did you feel, between the date of your appointment – you’ve hit the ground running – to 2 March, that those warnings were being heeded, that it was being taken seriously enough across government in terms of this economic response that was going to be required?

The Sharma: Well, I think in all of these cases, you know, many of us were facing an unprecedented situation which we had never faced before. And I think – I suspect, in the early stages, collectively, as a – as a government, we probably didn’t move as fast as we should have done. But actually, very quickly, as the evidence came to light that, you know, this was a really very, very bad situation, on a human level but obviously on an economic level as well, I think things accelerated pretty fast.

And I go back to this point about the Chancellor. I think he did realise, actually, that we needed to make some bold interventions, and that’s, again, what led to some of the schemes that we were discussing.

Lady Hallett: Mr Charles Roxburgh made the point that the budget, as a standard fiscal event, was set for 9 March, I think.

The Sharma: 11 March.

Lady Hallett: 11 March, forgive me.

That was always going to be the budget date; it was nothing to do with the crisis. Therefore, whatever was going to be announced was going to be announced at the budget on 11 March, and so Sir Charles I think shared your view that, yes, there could have been a few days of keener action, but it wouldn’t have actually changed the timing of the initial announcement, nor would it have foreseen how quickly that announcement would be – become out of date?

The Sharma: Yes, and – so, I think you made this point. I was appointed on 13 February, the Chancellor was also appointed on 13 February, so we were new to post. He’d obviously served as Chief Secretary to the Treasury, so was familiar with the Treasury and how it worked, but I think, in all of these things, it does take time. And, you know, it was – in terms of sort of working days, we’re talking sort of, you know, 15, maybe 20 working days between our appointments and the budget, and I think the Treasury actually did, in the end, move pretty fast and I think it was – I think many people considered what was announced at the budget to be an impressive package of measures.

But again, as you say, what became very clear, particularly in my discussions with the business representative organisations, is that they saw that as a starting point – and I think I say that in my statement and cite some of the bodies that made that point – they saw that as a starting point and they were very clear that we needed to get further interventions, bigger interventions, in place to support businesses.

Lady Hallett: Let’s move on to those business representative organisations with which you engaged, because that’s a helpful point at which to look at it. I think on 11 March, you chaired a meeting with – so this is on the day of the budget – you chaired a meeting with business representative organisations together with two other ministers, Nadhim Zahawi and Paul Scully, and, as you say, that’s where the CBI was saying to you, “Good start but we don’t see this as the final suite of measures that we’re going to need”; is that right?

The Sharma: That’s absolutely right, and I think that was the sense of that whole meeting. I’d actually asked for this group to come together sort of earlier in March, and it was sort of planned and then obviously the first meeting was on 11 March. But it goes back to an earlier point you were making, Mr Wright, about, you know, getting everyone in the room together so we have a sort of shared set of information that we’re working towards, and for me, these business representative organisations were incredibly valuable in telling us what was going on on the ground in their sectors, and telling us on a repeated basis that businesses were likely, particularly small businesses, were likely to run out of money within weeks and in some cases days, and that’s why getting cash to them as soon as possible was so important.

Lady Hallett: Yes, and I think on 12 March, so you had your first meeting on the 11th, you met again on the 12th, and I think on the 12th, the Federation of Small Businesses were describing exactly that to you: that they were facing very real and severe cash flow problems.

The Sharma: Absolutely. And it’s not surprising, because obviously as you said, there was a big supply-side issue. We knew, going into the pandemic, that actually only 22%, I think this statistic is correct, only 22% of small businesses had a cash balance of more than £10,000. So that’s almost 80% of small businesses with a cash balance of less than £10,000, and that also explains to you the interventions we made, the size of the interventions we made, and the speed at which we made them.

Lady Hallett: So you were getting very good intelligence, real-time information from these organisations, gathering that on the 11th and 12th.

I just want to – sorry, if this feels like we’re going back to an issue, but I’d just like to know how this worked. You’re getting that information. How were you able to plumb that into Number 11, to the Treasury, in terms of assisting them to formulate policy? Because what you’ve said about the Federation of Small Businesses, for example might indicate the need to introduce loan schemes.

The Sharma: Yes. So, I know the Treasury obviously was having similar conversations, as well. I can’t tell you whether there was a similar format or not. But I am pretty confident that the Chancellor and his ministers would have been having similar conversations, and I also think, and I can’t now tell you sort of precisely the mechanism, but I’m pretty sure what was being said to the Business Department was being shared in some format with the Treasury by our officials.

Lady Hallett: Yes.

You described these meetings as, your words, a rich source of intelligence, and one that you would urge would be deployed in a future response. I just want to pick up on that in a forward-looking sense. Do you think there needs to be any formality about that or is formality the enemy of just getting the right people in the room? In other words, if you have a standing panel of people, they might not actually be the people you need in the next crisis? So, is it just something that should be noted in corporate memory of the Department for Business and Trade, or can it be more formalised?

The Sharma: No, so I think one of the recommendations I’ve made in my statement is precisely about having a standing panel to consist of, you know, current civil servants, ministers, but actually also former civil servants who were, kind of, there at the time, and, indeed, former ministers, I think they should make themselves available for this kind of endeavour, and also the business representative organisations. And for this standing panel to perhaps meet on a quarterly basis, to keep updated all the potential interventions, but also, actually, to have a look and see, you know, what is going on in the world right now, in terms of interventions being made by other countries, and whether that could be pulled into a suite?

I think there would be a real value in having this standing panel, which meets on a regular basis.

And that’s, of course, in addition to – I’m sure that the current Department for Business is having, sort of, conversations, I suspect on a daily basis, with business representative organisations. What I’m talking about in terms of standing panel in this case is one that is focused on how do you deal with a future emergency.

Lady Hallett: So, looking at preparedness for the next emergency, and, by the sound of it, doing two things, really: first is continually reviewing playbooks, schemes, checking that they remain fit for purpose, checking that they remain operationally viable, that sort of thing?

The Sharma: Absolutely. And that, I think, is consistent with the recommendations you’re getting from actually a number of the key players who were involved at the time.

Lady Hallett: But also providing, through that panel, real-time intelligence both as to the state of the economy – which is always helpful to have, I assume –

The Sharma: Mm.

Lady Hallett: – as a Department of Business – but also looking around the world and seeing: well, if there’s an emergency going on with flooding in one country or another sort of crisis elsewhere, what is that government doing? How are they standing up support? Are there lessons we could learn?

The Sharma: Yes, that’s absolutely right. And I just want to pick up on a point you made about, I think, sort of, corporate memory.

I think we all hope that we do not face any kind of emergency like this in the future. But there may be one. We don’t know whether it’ll be the next few years or, you know, in a decade or so.

But that’s why I think this kind of panel is so important, in terms of having people on it who were there at the time to advise the panel, but actually to also put themselves forward and available to a future government and a future set of ministers who face those same challenges.

I actually think, during the Covid period, I certainly worked very collaboratively with Ed Miliband, who was my opposite number at the time, and I think that’s the spirit in which, you know, all politicians should approach this, especially in regard to planning for any future emergency.

Lady Hallett: Thank you very much.

Can we move on, then, to another significant topic, and that is the Coronavirus Business Interruption Loan Scheme, CBILS. And I just want to set out a bit of the context and then we’ll get into the topics.

So this was announced by the Chancellor on 11 March, when he announced that the EFG, that’s that pre-existing framework that the British Business Bank operated, would be amended. It opened to applications on 23 March, so 12 days later.

The Sharma: Mm-hm.

Lady Hallett: And it closed to applications on 31 March 2021.

The Sharma: Mm-hm.

Lady Hallett: I’m including, under that time window, the original end date and that it was extended –

The Sharma: Yes, indeed –

Lady Hallett: But we will pick that up as we work through it. That’s when it closed.

The Sharma: Sure.

Lady Hallett: And the Inquiry understands, by way of brief overview, that this was offering loans to small and medium-sized businesses of up to £5 million, backed by a government guarantee of 80% of the loan value, and that to be eligible for this support, a business had to self-certify it was adversely affected by the pandemic, and there had to be a borrowing proposal demonstrating, essentially, that, but for the pandemic, this was a viable objective. And your department, in its corporate statement, provides this as the objective – I’ll just read it out and you can confirm whether you agree with it: that:

“The policy objective of this loan scheme was to stimulate the provision of debt finance to businesses in the UK that were otherwise viable. The Government guaranteed the lending, with some of the risk of defaulting on the loans being transferred from lenders to the Government.”

So this is stimulating the market, providing that fact that – is that a fair summary of the – of the scheme?

The Sharma: Yes, I think that’s a very fair summary, yes.

Lady Hallett: And we know that the scheme was a collaborative effort between your department, the Treasury, and the British Business Bank. And we’ve looked at how you interacted together, Treasury setting overall economic policy, bank delivering, and you in the middle.

Now, so far as the Enterprise Finance Guarantee scheme was concerned, was it, in fact, a scheme that had been stress tested back in 2019, and you’d been looking already at how it might be capable of being worked up in the event of what was described as a disorderly Brexit?

The Sharma: Well, obviously I was not in post in 2019, so I don’t know precisely what was done, but the reason that this scheme was used is because lenders were familiar with it, it was one we could take off the shelf and we could iterate, and that frankly, just saved time.

Lady Hallett: Okay. So there was the big advantage that you had the architecture in place, the core structures in place. It could be taken off the shelf.

But CBILS was not a simple extension of the EFG, was it?

The Sharma: No, it wasn’t. I think the volumes were obviously larger than was anticipated under EFG.

Lady Hallett: Yeah. So, there’s volume of applicants, were going to be larger, but also, they were more generous terms –

The Sharma: Yes –

Lady Hallett: – with the government guarantee –

The Sharma: Yes.

Lady Hallett: – and a broader category of eligible applicants; is that right?

The Sharma: Yes, that’s right.

Lady Hallett: And so all of that, I suppose, would inevitably lead to there being higher volumes?

The Sharma: Yes.

Lady Hallett: Because you were expanding the pool of people who can apply –

The Sharma: Absolutely.

Lady Hallett: – and making it more attractive.

Now, looking at the existing architecture and why it was decided to use that, was one of the advantages that you considered that you already had a panel of accredited lenders, and we’ll go on to look at how that was expanded, but the lenders were already in place or at least the opening set of lenders was in place?

The Sharma: Yes, the opening set of lenders was in place but I think it’s even more fundamental than that. It is that this was a scheme that was understood by the banking ecosystem, if I can put it like that. If we’d started from scratch, you know, I would say it would have taken us much longer to actually get going and get a scheme put in place, and, you know, one can sort of think about whether, if we hadn’t started with the EFG, could we have started with the perfect scheme? I don’t believe so, I think there would have been delays. And even with a newly designed scheme, we would have had to iterate it, as we did with CBILS.

So I think it was a very good starting point and frankly, Mr Wright, it’s one of the reasons why so many of us who have given evidence to this Inquiry are suggesting that we have a worked-up suite of interventions ready which can be iterated so we don’t lose time at the start of a future emergency.

Lady Hallett: And another advantage – I mean, this all goes to support that point, I’m sure – you’ve got a scheme, but that meant that you had an established IT system for it, that there were established operational systems, there were standardised documents, there were trained staff. I mean, these are all things that need to be thought about, aren’t they, if you’re going to stand up something totally new?

The Sharma: That’s absolutely right, but I think all of that also had to be iterated. And I think in terms of staff, clearly the lenders did need to step up in terms of staffing and, you know, frankly, the hours that the staff were working, and all of that takes time.

If we had not had EFG, we would have not started with that, you know, what I would regard as a very good base to actually plan the intervention from.

Lady Hallett: And notwithstanding that you had the basic architecture and you had, therefore, that headstart, this was a different scheme and therefore there was still going to be a need to test it operationally, particularly with the higher volume. And I think this chimes with really what you’re saying, but I’m just going to give you an opportunity to comment on it, this is something that Charles Roxburgh says in his statement, he says:

“My one regret in the areas for which I was responsible is that we in HMT, BEIS and the [British Business Bank] did not collectively do more to test the operational readiness and scalability of the Enterprise Finance Guarantee … product.”

Now, he acknowledges that there’s a lot of hindsight in that. You didn’t know what was coming. But I think the point he’s making is that you’ve been now through a pandemic –

The Sharma: Mm.

Lady Hallett: – and therefore you’re in a position now to think ahead and to do operational testing that assumes much higher volume and a far greater panel of members.

Is that really what you’re suggesting in terms of your off-the-shelf schemes?

The Sharma: Yes, absolutely. That is absolutely right.

And of course Sir Charles is right, in an ideal world you would have, sort of, tested volumes, but I mean, frankly, we didn’t have time for that. Just the whole application process, to get a loan through CBILS, took a number of weeks. So the idea that we would have first spent a few weeks sort of, you know, testing this thing, I don’t think is realistic, but he is absolutely right, and I agree with the point that actually, for future interventions, we should be stress testing them ahead of time.

Lady Hallett: You’ve commented on, in a future emergency, it would have been ideal if your department was in the room and could have worked up policy.

In those 12 days between announcement and the scheme being stood up, were there – or what was the ability of your department, did you think, to influence policy, in terms of how it was actually going to operate?

The Sharma: I think we had a good opportunity to influence policy, and I think as iterations were made they were put to me by my department.

There was a, sort of, direct and open line with the Treasury on the interventions, and I think – you know, you spoke earlier about whether the Chancellor or I were, sort of, sitting in a room making policy. But that isn’t the way, particularly in a, sort of, emergency situation, it worked. I think it quite rightly worked through official channels, to make sure that everything was documented and there were no misunderstandings, but I – I feel, sort of, comfortable that we did have an opportunity to influence the design of the policy once it had first been announced.

Lady Hallett: On timing, we know the scheme went live on 23 March. So 12 days after it was announced.

The Sharma: (Witness nodded)

Lady Hallett: I mean, that’s a pretty tight timetable for a scheme of this size.

The Sharma: (Witness nodded)

Lady Hallett: And is this fair: that the Chancellor was really driving that date of 23 March?

The Sharma: Yes, I think that’s fair, but I mean, frankly, I agreed with the Chancellor. I mean, we talk about 12 days, and I – and I said to you, Mr Wright, what happened, even with the interventions, with a 20% fall in GDP in Q2, I mean, you know, every day we’re talking about billions of pounds extra in terms of the economy going down. And so I think he was absolutely right to push for as quickly as possible to have this policy implemented.

Lady Hallett: One of the consequences, as we understand it, of that truncated from ordinary times delivery period is that your department, for example, had not completed its sort of value for money analysis at the time it went live. You were being told that it wasn’t possible to have a reliable estimate of gross value added before launch date.

But I just want to pick up on that. Those are things that normally happen in government.

The Sharma: Mm.

Lady Hallett: You would normally do your value for money analysis? You would normally have a – presumably an estimate of gross value added of a scheme?

The Sharma: Mm.

Lady Hallett: But you were receiving intelligence directly from business, and were you, to an extent, trusting what business was telling you in terms of the need to move quickly, rather than waiting for officials to do all the checks they would normally do in ordinary times?

The Sharma: No, I mean, anyone who has worked with me will know that I liked us to follow due process and for decisions to be based and made on evidence that’s put forward. If we – if we think about this particular instance with CBILS, I had to give a direction for that – actually, frankly, twice on different elements of – of the CBILS iteration. And the reason for this is because whilst my permanent secretaries at the time, and indeed in all future directions that I had to give, were very clear they understood the impact on business and the severity on business, they were required to fulfil their obligations in terms of Managing Public Money and ensuring that they could show value for money, and they weren’t able to do that. And that is why I was required to give a direction.

I think part of the reason – yes, there was time in terms of the analysis, but these were new interventions and we know now, looking back, that actually they were all positive, overall they were all positive, in terms of the benefit-to-cost ratios to the economy in terms of gross value added, but frankly I don’t think that there was necessarily the data available at the time to be able to make those judgements. And so I completely understand why my permanent secretaries felt they couldn’t make that judgement, and therefore they required me, as the Secretary of State, to give a direction.

And yes, so, you know, that process was followed quite rightly, but at the same time, we were getting these, you know, daily messages from businesses that we had to act now, because people were going to run out of money in days.

Lady Hallett: And does this, then, really go back to the point I identified in your statement earlier: that this was the trade-off of the risk of inaction. The risk of inaction was so great that you had to take these steps, even if, in ordinary circumstances, you’d have waited for these formalities to be completed?

The Sharma: So I think that you’re right, there is the issue of trade-offs. And the key issue for me, and I was totally aligned with the Chancellor on this, was that we – in all of these interventions, we had to speed them up as much as possible.

Now, that’s not to say that we weren’t cognisant of the risks that we faced, and, you know, I’m happy to discuss with you on these individual schemes what we did, but in summary terms, the conclusion was yes, you can put in place some interventions to try to alleviate risk in terms of fraud, in terms of credit losses, but that is going to take you some weeks to do. We didn’t have weeks.

I mean, businesses literally had their backs against the wall, and that’s why we had to act.

Lady Hallett: And so if someone were to say, “Well, if you’d taken another couple of weeks, you could have designed out some of the glitches in the scheme, you could have, for example, increased the maximum loan sizes as you had to do a few weeks later, or you could have removed the requirement for businesses to have been turned down first for commercial lending”, how would you respond to that, that you should have waited a couple of weeks to do that, to sort out all of those things?

The Sharma: I think we were in a really fast-developing situation, which, frankly, none of us, actually many of us had never faced before. We were doing the best we could, on the one hand making sure that we were taking the right measures to safeguard public money, but on the other hand always understanding that this was also first and foremost about saving the British economy. And so as we needed to iterate, we did.

And I’m sure we’ll talk about Bounce Back Loans, Mr Wright, but I just want to make one particular point on this, is that anyone who says, “If only you had waited a week or two to make some interventions” then needs to understand what that would have meant.

In the case of Bounce Back Loans, some of those interventions, even with the experts working on them, came, you know, a month or more later. We didn’t have time to wait for a month. Those decisions had to be taken to save businesses and jobs, and that’s what we did.

Lady Hallett: And I just want to, before we take the break for lunch, and I’ll deal with this fairly briefly, but it just completes this part of your evidence.

On 19 March, we understand that the British Business Bank’s Chief Executive Officer wrote to the permanent secretary, Alex Chisholm, updating him on the bank’s role in delivering CBILS, and setting out concerns about delivery. That Alex Chisholm, your permanent secretary, then requested from you on 22 March, a ministerial direction; is that right?

The Sharma: That is right. I recall typing it up, sitting in my kitchen, I think on the night of the 22nd.

Lady Hallett: Well, let’s just put that up. It’s INQ000064753, I think. 22 March:

“I have decided to issue a Ministerial Direction for the Coronavirus Business Interruption Loan Scheme.

“As you rightly highlight in the current circumstances there are a number of good reasons to justify the introduction of this scheme. Without the Government intervening, there are very real risks faced by a large a number of businesses in the UK. This would result in a large number of jobs being lost, which would have a significant long-term impact on the national economy.”

Then you comment on speed.

You believed:

“… the economic case for action is compelling.”

You then talk about “State Aid approval”.

The Sharma: Mm-hm.

Lady Hallett: That’s related to the European Commission; is that right?

The Sharma: Yes.

Lady Hallett: So we can go on to the next. And you were confident that you would get the consents you needed there?

The Sharma: Yes.

Lady Hallett: “… prepared to provide support for the introduction of this scheme. I am … formally directing you as Accounting Officer to take this forward with immediate effect.”

And that was for – you gave that advice for the reasons you’ve just explained: that there just was not time –

The Sharma: No.

Lady Hallett: – to wait, because these businesses were going to fail if you didn’t do something?

The Sharma: That’s absolutely right, and I think you’ve obviously seen written evidence, but also heard some of the oral evidence from at least one business representative organisation about just how dire the situation was for them, or certainly for their members, and I think this merely reflected that message that we were getting from the business community – and frankly, that we could see with our own eyes – in terms of what was happening with the economy.

Mr Wright: Thank you very much.

My Lady, is that a convenient moment at which to take the break?

Lady Hallett: Certainly. I shall return, I think – I have got something I must do – I will return at 1.50 pm.

(12.45 pm)

(The Short Adjournment)

(1.49 pm)

Lady Hallett: Mr Wright.

Mr Wright: My Lady, thank you. And I assume you can still see and hear us. Thank you.

Lord Sharma, can we, within the broad topic of the CBILS scheme, pick up an issue related to amendments that were required to the scheme, please. And this was early in 2020, and the first topic I’d like to pick up is the amendments that were required in relation to personal guarantees. Is it right that you were receiving feedback from an early stage in the scheme that lenders were demanding personal guarantees even for small loan amounts?

And just to put this into context, there had been no requirement that lenders should obtain security for lending up to I think a quarter of a million pounds, but they had retained a discretion to – as to security.

So did that develop as an issue?

The Sharma: Yes, it did develop as an issue, and I was receiving, sort of, feedback from the business community that actually some of the banks were asking for personal guarantees on people’s homes, directors’ homes. And I had a meeting, actually, with the head of UK Finance I believe on 25 March, and I raised this issue, and he told me that two of the banks were not requiring any personal guarantees. But I did make the point that this was a unique emergency situation, and we wanted directors fighting tooth and nail to preserve their businesses, and therefore preserve jobs, and therefore I thought that it was not fair that somehow they would also be worrying about the home that they lived in. And frankly, I think it would have been counterproductive if we’d done that.

I then had a meeting, I think on 27 March, with my officials. They told me that five of the big banks were already saying no personal guarantees at all. And a submission was put to me, I believe on 28 March, which said no personal guarantees below £250,000 loan. Above that, 20% personal guarantee, and basically the government guarantee covers that, sort of, remaining 80%.

I said at the time that, in principle, I was very happy with this approach, but what I want to ensure was for us to check, one, value for money issues, and, secondly, to ensure that this was not going to somehow stop lending from a banking perspective.

So my officials then went away to do some work on this.

Lady Hallett: Okay. So there were two things, really. One was the discretion was being operated variably according to lender. Some lenders were asking for guarantees, others weren’t. And also, there was this issue about what a personal guarantee meant. And I think we heard some of this from Sir Charles when he gave his evidence, as to whether it meant a personal guarantee on somebody’s home, which is a particularly personal form of personal guarantee –

The Sharma: Mm-hm.

Lady Hallett: – as opposed to a personal guarantee that excluded the family home; is that right?

The Sharma: I think that’s right. And a part of this – it certainly, in terms of my view, was formed during the previous financial crisis. I wasn’t then a Member of Parliament, but, you know, we were getting closer to an election, and I was having conversations with the local business community and business owners in my own constituency and the same issues were coming up at that point about banks, you know, imposing personal guarantees, basically having a lien over people’s homes.

I just didn’t think that was the right way of going forward if we wanted directors to focus on preserving businesses and jobs.

Lady Hallett: So your recollection is you sent your officials away having had the submission from them, 27 March, really to work through those concerns you’d raised. So you’re saying in principle, “Yes, I think there needs to be a change, but I want to be sure that”, what, “the lenders were on board and this wasn’t going to slow up delivery of loans”?

The Sharma: Yes, and also the whole issue of value for money, because obviously if there had been a value for – for money issue, that would have resulted in a potential direction being required by the accounting officer in my department.

Lady Hallett: I think that probably puts into a little more context that chronology and what you asked your officials to do, an email I want to put up on the screen and ask you about from Gemma Peck.

So this is from 28 March, so the day after – thank you very much. I’ll give the INQ just for the transcript: INQ000563905.

So this is from your private office, copied to Alex Chisholm, from Gemma Peck:

“HMT officials have been in touch to say that [the Chancellor] wants to announce two changes to CBILS rules on Personal Guarantees … on Monday. I recommend that, via private office, SoS [that’s you, Secretary of State] push back firmly on this to [the Chancellor] this morning, on the basis that we need more time to properly understand the impacts, and prepare the [British Business Bank] and the banks to operationalise it effectively.”

So is that because your officials had not yet had time to do the things you’d asked them to do on the 27th?

The Sharma: I don’t know – I’m just looking at the timings of this.

Okay, so this was on the 28th of – the third morning. I don’t know precisely – well, I certainly had a conversation on the 27th. I’ll be surprised if Gemma hadn’t been a part of that conversation where I had conveyed my view that, in principle, I supported this, and then submission I think came up I think on the 28th.

So I don’t think there was any issue of me pushing back on the principle of the changes that we needed to make.

Lady Hallett: No.

The Sharma: But, yes, my private office did go back to the Treasury, and I think the aim was – at one point I think the Chancellor was due to announce this at the end of March. We went to the Treasury. I think they were perfectly reasonable about it. It was actually delayed until the 3rd of the following month. And in the meantime, I had – the work had been done on – on value for money, and I’d had to issue another direction because one of the other changes, but it was very clear that, in terms of the changes to personal guarantees, they did not have an impact in terms of value for money.

Lady Hallett: No. And so, as you say, not objecting to the principle of the thing, this was about would it actually have unintended consequences, taking this step. And would you say, then, that this was an example of the Treasury and your department working well together, in that a policy change was being worked up, your officials and you had raised concerns, not from a sort of pure policy perspective but from an operational perspective, an unintended consequence perspective –

The Sharma: Mm.

Lady Hallett: – so things were delayed a few days –

The Sharma: Mm-hm.

Lady Hallett: – while that was worked through?

The Sharma: Yes, and I think it shows two things. One is that, actually, there was collaborative working for a lot of the time, but I think secondly, it probably also demonstrates that the sort of the gut feel that the Chancellor had on these issues was, you know, very similar to my gut feel as well, because as I understand it, you know, at the end of the day he very much supported these changes as well.

Lady Hallett: Can we just look at some other changes, and in particular the expansion of the eligibility criteria for the scheme.

Now, there was a requirement, wasn’t there, that if a bank, a commercial bank, could offer a loan to a business without utilising the scheme, then that was the route it had to go down, rather than coming under the umbrella of the CBILS scheme with its more favourable terms; is that right?

The Sharma: Yes, that’s right. I think that was the original intention but I think we very quickly realised that one, in terms of a level playing field, everyone needed to be able to have access, and secondly, I think, particularly in an economic situation which was deteriorating pretty quickly, you know, at the time you may have applied for a commercial loan, it would have been appropriate for you to apply, a little bit later, actually it may not have been appropriate.

So I think it was absolutely the right change to make.

Lady Hallett: Yes, because the push or the feedback you were getting, both through business groups and more publicly in the press, was that it had the sense that the more robust a business was, that the more secure a business had been, the more prudent they might have been in the past, they were being deprived access to these loans on more favourable terms than those who hadn’t; is that right?

The Sharma: Yes, that’s right, and of course there would have been a discussion around what this might have meant in terms of sort of cannibalising on, sort of, more commercial lending, but as I’ve just explained, I think, Mr Wright, the decision was that it made sense from a business preservation perspective that we did this, and effectively open up the scheme.

Lady Hallett: Looking back to when the scheme was first launched, and I appreciate there’s a lot of hindsight in all of this, but if you were looking forward to a scheme in the future in a similar emergency, would you still have introduced, would you still in the future introduce the requirement that if you can get another commercial loan, that’s the route you have to go down? Or do you think that that was always a problem, in hindsight?

The Sharma: Yeah, so I think you absolutely have to have those iterations in your armoury, and we now understand how that worked. But I mean, frankly, it just depends on what kind of emergency we find ourselves in in the future.

So I don’t think what would be sensible, and sort of prudent from the perspective of the Exchequer, is basically to, you know, have literally everything available on day 1. I think you iterate. We iterated in the case of the Covid schemes. So I think, you know, you would want to think about that, as well, in terms of a future emergency.

Lady Hallett: Yes, because much would depend not only on how severe the emergency was, but its duration, presumably?

The Sharma: Absolutely.

Lady Hallett: If it was a short shock, you probably wouldn’t need to change the criteria?

The Sharma: I mean, so long as you could see that it was going to be a short shock, I think that’s the issue with these things. When Covid first sort of came or it’s, actually, sort of, you know, visible, so to speak, and the impacts of it became visible, I think – and you saw this in the way that the interventions moved, they became, you know, bigger and bigger interventions because we saw that there was a more and more negative impact on the economy.

Now, if something similar happened in a future emergency, then I would expect whoever was in government at that point would then act and try and support businesses to the full extent.

Lady Hallett: And the difference in a future emergency would have been that, through the pandemic, you’ve already worked through those various iterations. You know how they land. You know that these are different levers you can pull at different times if you need to, presumably?

The Sharma: Absolutely right. You know the levers. Hopefully you have, you know, tested some of this stuff already. So it is, hopefully in the future, it’s more a question of sort of flicking a switch rather than sort of, you know, going into a dark room and trying to work out where the switch is.

Lady Hallett: I just want to sort of pick up on – you told us where you were on this policy-wise, but your officials had some more concerns, I think, and I just want to go through some of those.

INQ000563918. If we look at paragraph 3, this is from 1 April, we see:

“The Chancellor is strongly in favour of these changes. They are designed to remove what he sees as perverse effects of the current CBILS scheme (lower risk businesses facing less favourable terms when accessing finance) [that’s the point we’ve discussed] and to pre-empt a spread in financial distress to more businesses as the impact … increases.”

If we go to paragraph 7, we see there:

“Whilst recognising the very valid reasons for widening eligibility, and the extraordinary economic circumstances, the pace at which this has been developed leaves us with significant concerns about affordability, value for money, and deliverability. We have strived, as far as possible, to improve the design of the proposal to mitigate these risks but significant concerns remain.”

Just pausing there, I mean, affordability and value for money, you can understand those concerns –

The Sharma: Mm.

Lady Hallett: – from officials. What were the deliverability concerns?

The Sharma: Well, I mean, you know, I think from my perspective at the time I suspect the concern was in terms of changes for the lenders and how they might sort of react to this, but from my perspective, I think this was the right policy intervention to make, and obviously from a value for money perspective, I had to issue another direction, but, you know, I did that knowing full well that, at the end of the day, what we were doing was getting more support to more businesses, faster.

Lady Hallett: If we just go to paragraph 29 of this document, page 6. We see there:

“… large uncertainties remain around take-up, the default rates of the scheme and economic benefits, especially around finance additionality (… a large proportion of these loans could have happened anyway without this scheme).”

And they say they:

“… have not been able to provide reliable estimates for value for money and as such the figures above are only indicative.”

And I think at page 10 of this submission, they also presented an alternative proposal, so this is not adjusting the eligibility criteria of CBILS, but rather, widening the availability of a different scheme, the Business Interruption Payments.

So it seems that the Chancellor and yourself, as you’ve said, seemed aligned that, policy-wise, if you could do this, you should.

The Sharma: Mm-hm.

Lady Hallett: But your officials were thinking about other alternatives?

The Sharma: Yeah. So I think, you know, officials were, of course, doing exactly the right thing, which is they were pointing out the risks, they were pointing out, you know, why effectively there may need to be a direction, and they were pointing out alternates.

Now, I took the view that we needed to press on with the scheme that we had. Every time you add another intervention, it adds more complexity into the system, and it’s no good officials and ministers understanding a policy intent, you need to make sure the people who are delivering it, particularly on the ground as well, and I’m talking about lenders, are also able to do so.

So, you know, that was the basis on which I made the decision that we should proceed.

Lady Hallett: Is there a danger sometimes that whilst there might be alternatives, so an alternative scheme could be expanded or an alternative scheme could be amended, that that in itself can then have unintended consequences and may need further revision, that you knew what you were dealing with with CBILS, putting it –

The Sharma: I think it can, but I think it’s also right, and I think officials were – were absolutely doing their – their duty, if I can put it like this, in pointing out the alternatives to us as – as ministers. That’s what you expect. And then, ultimately, the decisions are made by the ministers.

Lady Hallett: And, ultimately, I think the way this was resolved is that you were asked for a further ministerial direction; is that right?

The Sharma: Yes, that’s correct.

Lady Hallett: Which is, frankly, what you would have expected to be asked for in this circumstance?

The Sharma: Yes.

Lady Hallett: Your officials weren’t being awkward, they were doing their job?

The Sharma: No, no, not at all. I mean, throughout the pandemic, I never felt that my officials were anything other than sort of courteous and actually very informative in giving me advice in terms of alternatives.

Lady Hallett: And you gave the direction. And again, I think it’s right that we should put up the direction, because it sets out your reasoning –

The Sharma: Yes.

Lady Hallett: – for giving it.

So INQ00064780, please. And we see there the penultimate paragraph:

“The overall reason for the proposed changes to the scheme is therefore to mitigate the potential severe economic consequences across the economy and, in the current circumstances, I believe this justifies the immediate introduction of these changes to CBILS. The overwhelming feedback from the business community is that even a few days will make a real difference to many SMEs in getting the support they need. I therefore concur with the Chancellor that in the present circumstances it is necessary to launch this amended scheme without delay to support businesses struggling to survive from day to day.”

And then you go on in the next paragraph, which then runs on into the next page:

“As you note in your communications, the speed at which events have unfolded has not allowed sufficient time for full value for money assessment to be undertaken and there remain risks around the ability to deliver at this volume. However, I have confidence in officials to be able to manage down this risk.”

So, again, are you setting out there, or were you intending to set out there, really the point you’ve made before: that it wasn’t a question of what were the risks of making this change; it was what were the risks of not making this change, and you had to weigh up where those two sat against each other?

The Sharma: Yes, and those were the difficult decisions that we as ministers had to make in respect of a lot of these schemes. But as I said earlier on in this – in this hearing, Mr Wright, that, you know, we – we talk about numbers and – and sort of, you know, pounds and all the rest of it, but of course, at the end of the day, there’s a sort of very human element to all of this, and, you know, having seen the impact film, which I think was very powerful, it set out very clearly, firstly, where we collectively as government could have done things better, but I think what it also showed is that, you know, people appreciated the pace at which some of these interventions were made, and it saved jobs and – and it saved their businesses.

Lady Hallett: And those changes were then made. They were announced on 3 April 2020.

Can I move on to a slightly different topic, then, which is still under the CBILS umbrella, that a backlog of applications started to build up, and the processing times were slow, or became slow. Certainly slower than the scheme was designed to have.

And I just want to pick up on that because I think the backlog and the speediness of processing is relevant, isn’t it, when we come to look at other things you did.

The Sharma: Absolutely.

Lady Hallett: Okay.

Now, we know that CBILS was stood up from a pre-existing scheme. Was there a surprise at the sheer volume of applications? If you think about when you were first talking about using the EFG, and the state of the pandemic and the economy then, things were moving very quickly. What led to this problem? What caused it?

The Sharma: I don’t think, you know, looking back, there was necessarily a sort of thought that “My goodness, we’re getting lots of applications”. I mean, that was expected. I mean, that’s why we were doing this. I think what happened was that the systems were set up for much lower volumes, and, you know, earlier in this conversation, Mr Wright, you talked about how, you know, IT systems, you know, effectively need to be stood up for volume, individuals who were doing the processing of these loans within the lenders had to be stood up quickly, and I had many conversations with the lenders. I remember, you know, speaking to them, basically, sort of, many times a week. I remember one occasion on a weekend having a conversation with some of the CEOs. And they understood they needed to get things stood up quickly, and they were deploying people at the weekend, coming in, I mean, it was an emergency, you know, all hands to the pump. But that takes time.

And I think that is what caused the issue.

And I think the other piece of this of course – two other pieces. One is the pace at which lenders were being accredited, and the second is just the number of weeks it took to actually process individual applications. And I think both of those, you know, proved to be challenging in terms of pushing up the number of loans that were being granted every day.

Lady Hallett: And I mean, people might have this sense that government can do what it wants, but in this scheme, the lenders still bore some of the risk, and we should understand perhaps, that, is this right, that the government couldn’t simply tell banks, “Lend people money without doing your proper checks”?

The Sharma: No, and I saw the evidence that Sir Charles Roxburgh gave, and I agree with him that at the end of the day, banks are private institutions, they have their own fiduciary duties, and therefore, if they are putting capital at risk, they needed to be able to do, you know, certain checks.

And having said all of that, I think everybody wanted the banks to be moving even further and faster. I remember doing a press conference at 10 Downing Street at the start of April, and I made the point very publicly that during the last financial crisis, basically the taxpayer had bailed out the banks, and this was the point at which the banks had to step up and support businesses. And I was very clear about that. And I think many of the banks, you know, kind of did the best they could but, as you said, we were working within certain constraints, not least that we had to have checks done which took several weeks before a loan could be granted.

Lady Hallett: Many of the banks were doing everything they could. Did you get the impression that others could have done more? Was there a sense of frustration in government on that point, just picking up on it? 2008, there’s no doubt that the state had stood behind the banking system and had prevented it from collapsing. 2020, the shoe was on the other foot, as Sir Charles put it – I can’t remember if it was Sir Charles, but as one witness put it, “This time we needed the banks”?

The Sharma: Yes, and that was the message that I gave very publicly in that press conference, and I mean, frustration, I think, from my perspective, it wasn’t just about, you know, individual banks. I mean, you know, collectively as ministers we could see what was going on in the economy, we were trying to do everything we could, pull every lever we could to get things moving faster and they weren’t moving as fast as we needed them to.

I mean, even when we got to a state where people thought the CBILS scheme was sort of operating effectively, we were at a run rate, I think, of about £300 million a day in loans being, you know, granted/approved.

If you compare that to what happened in the first weeks of the Bounce Back Loan Scheme, where we had over 268,000 Bounce Back Loans approved, and I think over 8 billion – I think £8.4 billion approved going out of the door, just in the first week, it gives you some idea of the frustration that there was in the business community, and obviously, you know, that was something that we felt as well.

Lady Hallett: Do you think, I mean, the corporate statement of your former department puts it in this way, that there was a lack of understanding generally of the limited capacity that lenders had to handle such a large volume of requests in a short timeframe?

So if you compare and contrast, accepting they’re commercial institutions that lend for their business, but if you compared and contrasted volume in normal times to CBILS, there were bound to be acute pressures on their ability to do the processing.

The Sharma: There were, and obviously, you know, now we have a better understanding and that’s why the idea of having this sort of suite of measures which are then regularly stress tested with the lending institutions is very important. But at the time, I think, you know, I remember having calls with, you know, banking industry leaders and saying, “What more can we do as ministers of business, to speed this thing up?”

But, you know, it still took time because you needed to get the processes to be able to deal with the volume put in place.

Lady Hallett: Now, in terms of what you could do, there were, by that stage, perhaps, when it – when CBILS was the only show in town, in terms of loans, limited things you could do. One was just encourage.

The Sharma: Mm.

Lady Hallett: Encourage industry to do more. Well, you were doing that. You could also encourage, what, an increase in the number of accredited lenders? So, getting the British Business Bank to enrol more lenders into the scheme. And were you doing that?

The Sharma: Yes, we – we were doing that, and I think in the end we ended up with, I think, 118 accredited lenders for CBILS. We were doing that.

But – but that process itself took time, and I think some of the – the evidence you’ve heard from – from the folks who were, sort of, leading the British Business Bank at the time will tell you that they tried to truncate their processes, but at the end of the day, what I don’t think they were prepared to do to – and I understand, absolutely – is some sort of automated process of accreditation. They needed to do their homework, and that took time.

Lady Hallett: So you’re talking about the British Business Bank as an institution that is resourced for ordinary times, commercial banks that are resourced for ordinary times, and –

The Sharma: Yeah, and these were extraordinary times.

Lady Hallett: Yes. And these may be, or they may be – the EFG may have been a relatively high-volume platform, but high volume as compared to the volume in – in Covid?

The Sharma: Absolutely, yes.

Lady Hallett: Yes, okay.

Apart from doing those things, retaining the core components of CBILS, was there anything else you could do to get things moving more quickly, other than encouragement and accrediting more lenders?

The Sharma: Well, I think this is a point at which, you know, the thinking turned to what else we could do in terms of, you know, other schemes. And as part of my business engagement and – and talking to the business representative organisations, I think there were at least two meetings, I think on the 15th and the 21st, where they started raising the issue of 100% guarantees, comparing it – comparing them more favourably to CBILS, and also then pointing out that certain other European nations did have such instruments in place, and isn’t that something that we as a government ought to be exploring.

So the whole sort of thinking around Bounce Back Loans and require them was also something that the business community absolutely wanted to do.

Lady Hallett: Yes, I just want to pick up on that. Your engagement with business was continuing all this time?

The Sharma: Absolutely.

Lady Hallett: And what was the message coming through about liquidity in business?

The Sharma: So I think the business community and – and the representative organisations were, you know, extremely grateful for what the government was doing, but I think, you know, every time we did something, the situation worsened and, quite rightly, they then said: Well, okay, now we need to go a bit further – actually in some cases a lot further – and things haven’t been solved for many of our members, they are still feeling, you know, a real pinch, and are in distress.

And I think that message came particularly from the organisations representing small businesses.

Lady Hallett: Okay, we will shortly pick up Bounce Back Loans. We’ve set the background there to how the Bounce Back Loan Scheme came to be thought about and ultimately was devised. I just want to pick up two other things before we do that. First on CBILS, to sort of complete the piece on adjustments.

Initially, charities and further education colleges were excluded from the scheme. On 17 April 2020, so a bit less than a month after the scheme was established, your officials sought approval from you to extend the scheme to allow charities and further education colleges access regardless of their level of trading activity; and those changes were made. Is that right?

The Sharma: Yes, that’s right.

Lady Hallett: And just – this is really a looking forward point. That was obviously a gap in the scheme that perhaps hadn’t been thought about in the rush to stand it up. But, going forwards, did you think that that was a sensible step and do you think that that learning has been banked in terms of access to schemes in the future?

The Sharma: Well, I certainly think it was a sensible step at the time, and I hope that that is banked in terms of, you know, future schemes. And one thing I would say is that I know the current Business Department has been looking at, sort of, draft schemes, and I hope that those draft schemes are also discussed with some of the, you know, organisations or sectors that might benefit them – from them in the future, just to make sure that, you know, everyone has a shared view in terms of the level of support and who needs to get it.

Lady Hallett: Okay, thank you. So before we get to Bounce Back Loans, can we go up the other way to large business interruption schemes. So CLBILS?

The Sharma: Yes.

Lady Hallett: So this not looking down at the SMEs that were being excluded from CBILS, but looking at the other side of this. Is it right that you were picking up fairly quickly from your engagement with business groups, calls and requests for additional support for the bigger companies?

The Sharma: Yes, we were. And I think this is what was described as the “missing middle”. These were businesses that weren’t able to get the support we’d put out so far, because they had a turnover of over £45 million. But also, they weren’t large enough or weren’t investment grade to be able to get access to the CCFF facility as well. And the reason I think it was so important to support this group is because, collectively, I was told this was about 5,000 businesses, representing 20% of corporate turnover in the UK and 20% – around 20% of employment. And that’s why it was really important to put in place a scheme that they could also take advantage of.

Lady Hallett: Yes. I think the figures, just to assist you, were – and you’re almost exactly right – 21% of turnover and 20% of employment of all UK incorporated firms. 10% of these were publicly listed companies, so we’re talking about big names –

The Sharma: Absolutely.

Lady Hallett: – big employers, big – big firms. And they weren’t quite big enough to get into the CCFF that the Bank of England was administering directly with the Treasury and they were too big for CBILS?

The Sharma: Yes.

Lady Hallett: And that’s why they became described as the “missing middle”.

So that emerged fairly early. I think you had a meeting on 27 March of 2020 with business groups, and this problem emerged at that meeting, certainly. Was that really – I mean, thinking back, I know it’s difficult to know exactly when something was raised for the first time, but is that about the time that it was emerging as a problem?

The Sharma: Yes, I mean, I think this will have been an issue that would have percolated up through those meetings – I mean, those meetings were taking place at least twice a week, and on some occasions I would speak to the large – the five largest business representative organisations, you know, separately as well.

So I think this was something that was percolating and we knew we had to act.

Lady Hallett: And there was action taken speedily to work up the Large Business Interruption Scheme; is that right?

The Sharma: Yes, that’s right.

Lady Hallett: Which built again on this architecture that existed, but appealed to these larger businesses.

I’m not going to go back over questions about speed of delivery. Was this another one of these situations where it was balancing action versus inaction? We either moved quickly, or we risked these companies falling over.

The Sharma: Yes, I think it was exactly that. And of course we had to think very carefully about, you know, what was the delivery vehicle for this, and, you know, realistically, I think the only game in town, so to speak, was the British Business Bank. But I was also concerned that we had already asked them to do a whole lot more than they had sort of been equipped for in peacetime, and they were used to dealing with the smaller end of the market, and I mean, I recall at the beginning of April, I specifically asked my officials to test whether or not the BBB had both the capability to put this scheme in place, but then also the resources. And the answer I got back a few days later is that that is the case, they do have those capabilities and resources in place and again as, you know, as happened a number of times, I had to issue a direction for this particular scheme, as well.

I think if the capacity of the British Business Bank had been a particular issue, I suspect it would have raised with me in the letter from my accounting officer asking for a direction.

Lady Hallett: Just picking up on that, though, in terms of the British Business Bank’s ability to operationally deliver. We’ve just been, in questions about CBILS, discussing the pressure that was put on the bank, for example in terms of accrediting new lenders under CBILS. It had its cohort of staff that was not an emergency cohort, it was pre-existing. Making the bank responsible for this scheme was bound to increase the operational pressure, wasn’t it?

The Sharma: Yes, it was, and that’s precisely why I asked that question at the beginning of April, because, you know, look, everyone was under pressure at that time but I wanted to make sure that if they required anything extra from government, we would – we needed to see whether we could make that available.

Now, as I understand, the BBB did shift resources around themselves, and that will have helped, but, you know, ultimately the assurance I got is that this is something that the BBB could take on, and they did.

Lady Hallett: And again, you made that decision. But was there any alternative? I mean, sometimes you can make a decision against a number of policy options, but what was the alternative way of reaching that missing middle?

The Sharma: I don’t think, Mr Wright, that there was an alternative way of reaching that missing middle. I mean, we’d set up CBILS, and I think it was natural, as we were looking at the business ecosystem, to kind of sort of base it on where we’d started, and then, you know, effectively sort of look up, as you say, rather than look down. And that’s what we did.

I mean, you know, you yourself have said a number of times during our conversation, you know, just how truncated the timelines were, and that’s why we had to put in place a scheme based on what literally we had done with an earlier scheme.

Lady Hallett: It’s right, I think, that on 9 April the Treasury contacted your private office to say that the Chancellor wanted to make two changes to CLBILS; is that right?

The Sharma: Yes.

Lady Hallett: First, to make it available to all viable businesses affected by Covid-19, and secondly, to remove the turnover cap which had been 500 million. So there was still an eligibility criteria at the top end, if you turned over more than 500 million, you couldn’t access the scheme, and the Chancellor wanted to remove that, which would – it was estimated, enable 3,000 businesses rather than 2,600 to –

The Sharma: Yes, that’s right.

Lady Hallett: – potentially access the scheme. But it’s right, isn’t it, that you raised questions and queries about those proposals, about those proposed changes?

The Sharma: Yes, I mean, whenever something was put in front of me, I had a pretty good look over it and raised the issues and ask the questions. And it was on the basis of that that, you know, I would agree to a policy change being made.

Lady Hallett: And were you in favour ultimately of making those changes to extend support?

The Sharma: Yeah, I mean, at the end of the day this was about getting as much support to as large a cohort of businesses as possible, and I think that’s what we did with these – with frankly all of these schemes put together.

Lady Hallett: But I think that your – or the acting permanent secretary Sam Beckett, did write to you asking for a ministerial direction; is that right?

The Sharma: Yes.

Lady Hallett: And I’ll just have that put up on the screen, please, INQ000563960. If we could just go to the next page, please. Sorry, next page. There we are.

Yeah.

So this was setting out that:

“The lack of a portfolio cap means the Government’s total exposure is proportionally higher under CLBILS than under CBILS …”

So there’s a higher level of risk, not just in terms of the sums involved but also because of the adjustment to the cap; is that right?

The Sharma: I think that is right, from a, sort of, theoretical perspective, so to speak. But I think it’s also the case that we were dealing here with big companies, actually significantly bigger companies than under CBILS and obviously under Bounce Back Loans, and therefore the risk of potential default was obviously, you know, significantly lower. And so it’s proved to be the case, if you look at the numbers in terms of credit losses or fraud losses, I mean, really, pretty minuscule when it comes to CLBILS.

Lady Hallett: So actually, the higher up the chain in terms of the size of the companies, the lower the losses. We’ve heard some evidence that, for example, the CCFF zero losses.

The Sharma: Yeah.

Lady Hallett: Yeah, okay.

The Sharma: And – and, I mean, that’s logical, I think.

Lady Hallett: Next page, please, of that document. It’s just that bottom paragraph, really. This is coming from your official to you:

“To sum up, the potential for economic damage created by the coronavirus pandemic creates a strong case for Government intervention. My assessment is that risks around regularity, propriety and feasibility are manageable. However, the uncertainty around value for money and risks regarding additionality of the proposed scheme means that Managing Public Money requires that I ask for a written direction …”

I just put that up because that’s – don’t know if this is the right way of describing it, but it’s softer language than we’ve seen in some other requests for ministerial directions. In other words, your officials saying: look, it appears to be saying “Absolutely agree there is a need to take this action”, but the reason I’m seeking this direction is because I can’t, as the Accounting Officer, tick off all the things I’d normally have to?

The Sharma: Yes, and I think, Mr Wright, if you look at all the directions that I issued, they are always prefaced, in terms of request for a direction from my – my permanent secretaries – I had three during that time – they are all very sympathetic about why we are introducing these particular measures, and the need for the measures, and I always felt that all three of those permanent secretaries, you know, really understood the impact on – on business, but obviously, you know, they – they had to fulfil their – their duties in terms of Managing Public Money, and that’s why they required me to give a direction.

Lady Hallett: Right. Okay.

Just one final thing to pick up on CBILS and then we’ll turn to look at the SME Bounce Back Loan Scheme.

Uptake, as we understand it, for CLBILS was – was lower than that for CBILS, and you may be able to explain simply why that is, and it may be quite obvious.

The Sharma: Well, I mean, my conclusion is there was a – a relatively small universe of companies that we were talking about. I think, in the end, and I’m sure you’ll correct me if I’m wrong, but there were 753 loans that were approved under CLBILS. And originally, when we started this process, I was told, you know, we were looking at a universe of around 5,000, and you’ve about the 3,000 number as well, so, in a way, it’s not surprising that far fewer loans were given to this cohort of businesses, but nevertheless, I think the impact they made was incredibly important in terms of preserving jobs. And you see that in the British Business Bank’s analysis in terms of gross value added, and also in terms of the benefit-to-cost ratio, which was actually really pretty high in terms of CLBILS.

Lady Hallett: If there isn’t funding available to an SME that employs ten people and they lose their jobs, that’s a tragedy for all of them and for the business, but we’re talking here about businesses that might employ tens of thousands of people.

The Sharma: That’s absolutely right. And also, I think there is a, sort of, knock-on effect in terms of the economy. I mean, frankly whether you are a small business, a medium-sized business, or a large business, you have suppliers, you have customers. If you fail, that is an issue that cascades throughout the economy in a negative way, and clearly, that cascading in a negative way is far bigger if it is a big business that goes down.

Lady Hallett: And you mentioned very early in your evidence that this was a supply-side shock, and the supply chain was disrupted, the global supply chain, but within the United Kingdom, if one business fails, that can have an impact on supply of components and so on, and so is that what you mean by the amplification of the effect?

The Sharma: Yes, absolutely. I mean, you know, if a business fails and the suppliers have no one to supply to, that clearly has an impact on the suppliers. So, you know, we were facing both a sort of – a global hit to our economy, but then also the challenge of making sure that we were preserving what we had in our country, you know, where businesses were just trading, you know, internally, so to speak.

Lady Hallett: Okay. Right, thank you very much.

Let’s move on, please, to the Bounce Back Loan Scheme, as it became known. And I’ll just, as I have with other schemes, just set out a bit of the context –

The Sharma: (Inaudible – overspeaking).

Lady Hallett: – so that we all know, and those watching the proceedings know what we’re talking about. So this was announced on 27 April 2020, opened to applications on 4 May of 2020, closed, finally, on 31 March of 2021. It was initially going to be called the Coronavirus Small Business Interruption Loan Scheme, so that’s really another iteration of the CBILS-type name, but it became known as the Bounce Back Loan Scheme.

And the rationale, as we understand it, and this is set out in various statements, and I’m drawing it from those statements, this was responding to concerns raised by the business community that CBILS was not doing enough at pace for small and medium-sized enterprises, and we’ve discussed, haven’t me, Lord Sharma, the delays that have built up, the backlog. So this was about quick access to cash for small businesses, essentially.

The Sharma: Yes, this was absolutely about quick access to cash. And I, you know, if you were a sort of small business, I think taking weeks to get and process an application, you know, obviously is challenging and, you know, I think we saw this in the impact film where some of the advantages that those who spoke in it talked about was its simplicity and speed of access.

Lady Hallett: But – and we’ll come on to look at this in more detail – do you accept from the outset that achieving simplicity and speed meant trade-offs in other ways?

The Sharma: It absolutely meant trade-offs, and I remember the first time this came to me was actually on 21 April, and there was a subsequent follow-up submission from officials on the 23rd, and I went thorough this, and I had a meeting, I think on the morning of 24 April, with my officials around this, and it was very clear that self-certification was going to present a potential risk to the Exchequer, and I said at the time, you know, we really have to work through this and see what we can do in terms of understanding the risk, and then potentially mitigating it.

And I mean, we spoke about my colleague Gemma Peck who I thought did a very good job with these schemes. She then, on the 24th, in conjunction with the BBB and HM Treasury, contacted Pricewaterhouse, or PwC as it’s now called, and asked them to put together basically a risk report, fraud risk report, about how we might mitigate some of the challenges in – that we were facing if this was self-certification and we wanted money out of the door, you know, within 24 hours.

Lady Hallett: And it wasn’t just self-certification, was it? The other key change to other schemes was that the government was providing that 100% guarantee?

The Sharma: Absolutely. The government was providing the 100% guarantee, and I mean, just going back to the earlier discussion on CBILS, I wasn’t part of this discussion, but as I’ve understood it, the Chancellor spoke on the weekend of the 18th and 19th, and I have this from Mr Bearman’s statement, he spoke to some of the biggest lenders over that weekend, and the proposition was put forward about speed and self-certification. And I think they already at that point were indicating that if that was going to be the case and they couldn’t do any prepayment checks, then actually, they would require a 100% guarantee.

Lady Hallett: And I asked you about this earlier, in terms of how – whether the banks were stepping up, essentially, and you said in your answer, well, they’re commercial institutions and they will do the checks that they think they have to do, but if the government’s backing the loan to 100%, it’s not a question that you’re mandating that they mustn’t – that they – well, you are mandating they mustn’t do checks but there isn’t any risk in them not doing so, to them? That’s the point, really.

The Sharma: So I think, you know, in the end we did settle on some sort of basic checks being done on KYC and anti-money laundering that were – I think the BBB were rightly keen to make sure were in place. And then, of course, the banks were required for a sort of year after the loan was due to continue to sort of pursue this.

So I don’t think it was sort of entirely an issue of, you know, the banks having this, but you are absolutely right. I mean, if you give a 100% guarantee, you do that with your eyes open as government ministers.

Lady Hallett: And lest it be thought that the banks – the commercial banks were running a sort of charitable endeavour here, I mean, you were really, by standing up this scheme, weren’t you, saying to commercial lenders, “If you want access to this market, if you want access to these hundreds of thousands of loans that are going to be issued, and to make the profit that will come from those loans, then you’re going to have to modify your processes and deliver quickly”?

The Sharma: Yes, and I think – you know, as I said earlier on, Mr Wright, from our perspective, as ministers, the aim was to get help as quickly as possible to businesses. And again, I – you go back to this point, and I’m sorry to, sort of, bore on this, but, you know, the risk of inaction was going to be far greater than the risk of taking action. And frankly, so it sort of proved to be the case, actually.

Lady Hallett: And just picking up on that, the risks were all known. I mean, your department could see the risks. It wasn’t a question of going into this blind and then realising afterwards: well, crumbs, it’s – you know, it’s all gone wrong and there’s all this money that we’ve given out?

The Sharma: Absolutely not. I was fully aware of the risks, the Chancellor was fully aware of the risks. And in fact, having raised this whole issue on the morning of 24 April with my officials that we needed to do more work on this, as I said, PwC were – put together this – this report. And I remember a letter I wrote to the Chancellor on 24 April where I set out, very clearly, that, you know, by having self-certification there were going to be – there was going to be a risk to the Exchequer and we needed to be, sort of, fully aware of that and take, sort of, proportionate action, was I think the exact phrase.

And then I wrote again to him on 30 April, setting out very clearly that we needed to review the findings of the PwC report in formulating the final policy design on Bounce Back Loans.

I received, on the morning of 1 April, the report. It was a number of pages. They set out, actually, the risks that I had already been told via my department, but also the British Business Bank. And I think that was right and proper that that piece of work was done. But what we didn’t have in that report was a list of concrete mitigations against the risks that had been identified that could be put in place literally within a day or two.

And I never saw anyone put forward in front of me a list of mitigations that could be put in place literally immediately in terms of the risks that had been identified on Bounce Back Loans.

So you’re absolutely right, we went into this with our eyes open, understood there were going to be risks, we went forward, but that wasn’t the end of it. Obviously there was then work done subsequently in putting some of the – the risk mitigation measures into place.

Lady Hallett: Just in fairness to you, what your letter – I don’t think it’s been highlighted so I can’t put it up on the screen but I will just read what your letter to the Chancellor of 24 April said. It said:

[As read] “We need to recognise the additional risks to the Exchequer that would result from a full guarantee and the absence of credit checking by lenders and should ensure we take proportionate decisions on eligibility and measures to guard against fraud.”

That’s the letter you were speaking to?

The Sharma: Yes, that’s right. Yes.

Lady Hallett: And in terms of mitigations, I just want to pick up on that and just see if you’ll accept it being put slightly differently, which is there were mitigations that you could have put in place, within a day or two, of the outset of the scheme, but all of the mitigations that you could conceive at the outset were ones that would have defeated the objective of getting the money out quickly?

The Sharma: Well, we would have been back to a CBILS-type scheme. I mean, the whole point of this was to get money out of the door, you know, within 24 hours, and the reason we had – we had decided we needed this scheme is because the CBILS scheme wasn’t delivering, you know, for that end of the market.

Lady Hallett: Precisely. So the mitigations you could put in place would defeat the whole purpose of what you were trying to do?

The Sharma: Yes.

Lady Hallett: Yes.

Just one final point about this decision to implement at pace. Why couldn’t … I mean, did you understand why CBILS architecture couldn’t be changed at sufficient pace to get round these problems, or was it just beyond the capability of that scheme?

The Sharma: No, well, I think if you – if lenders need to do a range of checks, that takes time. I think the second issue was that obviously they had to have regard to the Consumer Credit Act 1974, which we disapplied in the case of the Bounce Back Loan Schemes, and basically the CCA means that there is a particular duty on the part of lenders to do, you know, risk assessments on borrowers, particularly at the lower end of the market, below £25,000.

So, you know, all of that was – that architecture was in place. What we did with Bounce Back Loans was effectively to remove some of those constraints, and that’s what allowed us to put money out quickly.

And I just want to pick up on this point about mitigations, Mr Wright, because there were risks that were clearly identified going into that scheme, and I’ll give you one example, which is the risk that one, in – an individual company could make multiple applications to different lenders, basically on a sort of fraudulent basis. This was recognised.

The British Business Bank stood up a fraud working group, you know, right from the start, the scheme was launched on the 4th. On the 6th, I think they had their first meeting, it involved the Cabinet Office and, I think, my department and others. And Cifas, the industry, sort of, credit body which looks to alleviate fraud risk, they put forward a proposal to have a database.

Now, these are the experts. I think you’ve had CoEx or Mr Cheeseman was on earlier, who was obviously leading this work. Even they, having met and this being raised on 6 May, and for them meeting every week and obviously then having those discussions, it still took until 3 June for the beta version of this database to emerge.

Subsequently – and it was adopted voluntarily, and I then eventually, sort of, when it was put to me, said that it should be mandatory. The point here is that it took a month for just the beta version of one of these checks to emerge.

If we had waited a month, before introducing Bounce Back Loans, you know, the economy would have been in a pretty, pretty dire place, certainly even more dire than it was, and a lot of businesses would have gone down in the meantime. We couldn’t afford for that to happen.

Lady Hallett: Well, I asked Mr Bearman about that yesterday when he spoke, from the Bank, and his evidence was, and I asked him the same question, “If you could do this by June, why didn’t you do it earlier?” And his answer was: we were talking about multiple data points –

The Sharma: Yes.

Lady Hallett: – a spreadsheet that had to be devised, multiple lenders who had to be plumbed into that spreadsheet, and this was as quick as Cifas could work it up with the industry.

So that’s – does this go back to one of those very first points that you made, which is that this is about weighing up the cost of action against the cost of inaction and what would have happened if you didn’t act quickly?

The Sharma: Yes, that is exactly the point with this. But I think, you know, the positive thing is that, you know, that particular measure came in place. There were measures, you know, checks on, you know, businesses incorporated after 1 March, you know, new directors being appointed after May 2020. The turnover check. All of that came into place, and it took, some of them took months. And, you know, one can have a discussion on whether actually they should have come in earlier, but even if they’d come in earlier, they couldn’t have come in kind of almost immediately, and that’s why we proceeded.

I mean, the positive thing is that those checks are now there, so in future, if we face a similar situation, at least we can have a product where those kind of, you know, what some people might think are basic checks are already in place, and they don’t impede the speed at which money goes out of the door to support businesses.

Lady Hallett: We heard from Mr Cheeseman this morning, and he expressed some frustration, I think is how he put it, at times with your department. He felt things weren’t moving quickly enough on fraud. But I just want to, in that vein, pick this up because he also dealt with the capability you had as a department before the pandemic.

Now, he told us that 84% of fraud specialists are within HMRC. Unsurprising, perhaps. But so far as your department was concerned, I mean, you hadn’t really been in it as Secretary of State pre-pandemic, but generally speaking, BEIS, in ordinary times, is, would you agree, was more of a policy department than it was a delivery department? It wasn’t delivering large-scale support directly?

The Sharma: Yeah, I think that’s right. I mean, we had lots of arm’s-length bodies that were doing the work, but you’re right, we were, sort of, primarily a policy department.

Just on, picking up on this point that Mr Cheeseman raised, I mean, in the autumn of 2020, it was put to me that there were certain things that we ought to do to beef up our fraud capabilities, and I remember at the time saying, you know, I got a set of proposals from the officials and I said, “No, this isn’t enough, we need to do more”. There were other risks that were emerging.

And as a result of that, and my asking for it to happen, we increased the number of counter fraud experts I think from two to ten. I asked for more money from the department to go to help the National Investigation Service which of course was dealing with sort of major fraud.

I asked for, you know, nudge letters to be put in place, to be sent from a recovery perspective to borrowers. And we also looked at issues around whether or not we ought to have some kind of deterrent communication to basically put off potential fraudsters. And I think, at the time we concluded, “Let’s get all the other measures in place first”.

Now, you know, I was the Secretary of State, so of course I take responsibility for, you know, everything that happened in that department during that time. But on a personal level, when it was put to me that we didn’t have the right capability, I asked for more and, you know, I think if that message had been relayed to me by way of submission, you know, earlier, I’m pretty sure I would have concluded at that point: yes, we need to get on and beef up the capabilities we’ve got.

Lady Hallett: And in fairness to the department, Mr Cheeseman spoke of cooperation and collaborative working and he just said he was slightly frustrated.

Lord Agnew, on the other hand, who had a ministerial portfolio, has provided evidence to the Inquiry, he – it might be said he seemed to have been a little bit more vexed than Mr Cheeseman, but leaving aside his own –

The Sharma: I’ve read his –

Lady Hallett: – his own views, do you think they’re fair criticisms?

The Sharma: Well, I would describe Lord Agnew’s submission as pithy. I – actually, I don’t think they are fair. I mean, I can’t speak for what happened after I left. So there may be elements of it that are perfectly fair and reasonable. But my department did work closely with the Cabinet Office and with CoEx and – and, you know, I’ll give you one example.

When we were looking at changes on, you know, turnover, for instance, I – and this was, sort of – I think this issue first came up in November, and we can have a discussion about why it came up then, but anyway, a submission came up asking for me to agree that there could be turnover checks on businesses because obviously, you know, someone may mis-declare the turnover and get a bigger – bigger loan as a result. There should be checks by checking against information from Companies House. and HMRC. And the Treasury was – was not, sort of, keen on this, because I think they felt that, you know, this might sort of slow things down.

But nevertheless, incorporation with my department and CoEx and Mr Cheeseman’s, sort of, team, they came up with a solution which meant that there could be checks for high – what were assessed to be high-risk lenders, against a sort of specialist HMRC team, which the Treasury supported.

So, I mean, that’s just one example of the department working together with the Cabinet Office. And obviously they – they sat on some of these groups which were looking at the, sort of, counter fraud. And one of the other things I asked for very clearly in October was that we should have a roundtable, we should sit together with the Cabinet Office, with the Treasury, with the lenders.

I think I asked for that on 16 October. That meeting took place as a roundtable on 2 November, and, coming out of that, UK Finance provided a bunch of recommendations, which I think came forward on 16 November, and that then ultimately led, I think by the end of the year, to an MoU, a memorandum of understanding, of working more closely together between the Cabinet Office and BEIS.

So I don’t accept that, you know, somehow we were aloof and not working together. Yes, absolutely, we could have improved, you know, what we did at the time, and there are lessons to be learned. But I – I don’t accept that somehow my department was not prepared to work with other parts of government, you know, to try to fix the issue on fraud.

Mr Wright: Okay. Thank you very much.

I think that takes us, my Lady, to time for the afternoon break.

Sorry, we can’t hear your Ladyship in the hearing room, I’m afraid.

Lady Hallett: That’s because I didn’t unmute myself. I should have learned by now.

I shall return at 3.20.

(3.02 pm)

(A short break)

(3.21 pm)

Lady Hallett: Mr Wright.

Mr Wright: Thank you, my Lady. And I’ll assume you can still see and hear us. Thank you.

Lord Sharma, I don’t want to cut short your evidence on Bounce Back Loans at all but there is obviously other ground I need to cover. What I would like to do, if it’s all right with you, is just pick up on a few discrete points and then I’ll give you an opportunity to, under the heading of “loan schemes”, just share any overall reflections, and then we’ll move on to look at grants in the remaining time.

The Sharma: Sure, sure.

Lady Hallett: So I just want to ask, really, first thing about Bounce Back Loans, the British Business Bank issued a reservation notice, I understand, and that was the first time the bank had taken that step. Is it fair to say that you and your officials were slightly surprised by that, that they issued a reservation notice?

The Sharma: We – we were surprised, and the reservations notice came, or I was informed of it by my private office on the afternoon of 2 May. This was less than 48 hours before the launch of the scheme, which obviously the Chancellor had already announced was going to be launched on 4 May.

We took it very seriously because, you know, obviously the British Business Bank board, they’re putting forward a reservation notice. That is something that every secretary of state and permanent secretary has to look at every carefully.

I discussed it with my team and, having been through it, I concluded at the time that they were absolutely right to highlight these risks once again, before we made a final, final decision, but there was nothing in the reservation notice that was new, either in terms of the risks or, frankly, in terms of solutions to – to the risks, in terms of mitigating them very quickly.

I therefore asked my then permanent secretary to write to the British Business Bank and ask them to proceed with the scheme, which they did do. But, you know, I completely understand and respect why they felt the need to do so at that time.

Lady Hallett: All right. Thank you.

Second thing I want to ask you about is really test a proposition that another witness, Dr Leunig, who was a Treasury adviser, has made, just to see how this lands with you. And this is a recommendation about publishing at the outset a list of those who applied for loans and grants, as a transparency measure, and also as an anti-fraud measure, so that it can be seen which companies are applying.

How does that sit with you?

The Sharma: Well, practically, I think there were 1.5 million Bounce Back Loans that were issued in the end. I do wonder whether publishing – I mean, I don’t know what the intention, is, whether the aim is to publish this sort of in real time and, you know, what is the system that you would do this on. I – and of course, there are sort of confidentiality issues as well around that because that may have unintended consequences as well, by putting this information into the public domain.

So it’s – it’s worth considering, I guess, but I think, for me, what is more important is to make sure that you have mitigation measures in place in your suite of products that you may deploy in the future. That, I think, should be the sort of first point in terms of your armoury. And then, of course, you could think about, you know, sort of – you know, publishing this stuff.

But I – look, so, I don’t – I’m not a, sort of, expert on the implications of putting that sort of information out there, but, you know, you could consider it. It would be a very, very big database, very, very quickly.

Lady Hallett: All right. Thank you.

Another issue I want to test with you and see what your view is: the 100% guarantee element of Bounce Back Loans was one of the high risk elements of it; in a future emergency, do you think that the ability of the bank, British Business Bank, or, by whatever mechanism, government to stand behind 100% guaranteed loans should remain, or do you think they are essentially very much a matter of last resort, from your experience?

The Sharma: Well, they are a matter of last resort, but they absolutely need to be in the suite of products that you have.

Lady Hallett: Okay, thank you.

You’ve spoken about the overall cost-benefit analysis of all of the loan schemes. Just to give a bit of context, the estimate that over a million jobs would have been lost in the second year of the pandemic without those schemes, CBILS and CLBILS, and bank-backed loan scheme, borrowers had between 7.9 and 12% higher employment than they would have had in the absence of the schemes. So those are some of the stats, the statistics, rather – I shouldn’t use an abbreviation – around them.

But does that, again, underscore this point you’ve made that this is about calculating the impact of what you did do, as against the potential cost of what you didn’t do?

The Sharma: Yes, it is, and I think, I mean, since we are trading statistics, I think there’s another one which is out there, I think from IPSOS, talking about 175 to 618,000 businesses, you know, effectively supported and saved through the Bounce Back Loan Scheme.

And Mr Wright, we didn’t do everything right during our interventions. And, you know, I obviously look forward to seeing the recommendations that come out of this Inquiry, but I do think we got the big calls right, and I do think, as a result of that, we were able to have a really positive impact in terms of saving hundreds of thousands of jobs and hundreds of thousands of businesses, and I think that that’s really important to remember, you know, whenever we talk about what didn’t go right or could have gone better, in terms of our interventions.

Lady Hallett: Those are the questions I wanted to cover under the headings of loans. Other than the points you’ve already made and underlined, are there any other lessons learned or reflections for the future beyond those you’ve already given, in terms of loans?

The Sharma: No, I think we’ve had a pretty full exchange on this.

Lady Hallett: Okay. Thank you.

The Future Fund, I just really want to take this very shortly because I want to get on to grants really as a topic, but looking at the Future Fund, which was another convertible loan scheme, so not a traditional loan, a convertible loan scheme. Is this fair: that you and your officials were not – I say – you weren’t not in favour of it, but you preferred other measures and in particular, tax measures rather than a new British Business Bank administered fund?

The Sharma: Yes, so I think that’s fair. Obviously I had a meeting with my ministerial team and some of the officials and we thought the most efficient way of doing this and actually to basically release private money, was through, you know, further sort of tax incentives on EIS and SEIS schemes. In the end we did actually get there, and the Future Fund, the sort of – they were eligible for the Future Fund. That needed a change in the Finance Act 2020, which happened.

The Chancellor, I think, you know, came forward and wanted to do this, the Future Fund scheme. I think it was based on a scheme that had already been launched in France, and, you know, I think quite early on, I was supportive of it. I mean, it sort of made sense to do this, but we weren’t letting go of the wish to also allow the tax incentive piece to be deployed, and it was in the end.

Lady Hallett: Can we move on, then, to business grant schemes. So these are grants delivered under three cohorts of grants to businesses in England –

The Sharma: Mm.

Lady Hallett: – because other devolved administrations had their own schemes. So I’m going to concentrate on the English schemes, delivered through 314 local authorities. And just to give a bit of context, three cohorts of schemes. Cohort 1, during the first lockdown, Small Business Grant Fund; Retail, Hospitality and Leisure Grant Fund; Local Authority Discretionary Grant Fund.

Cohort 2, between September 2020 and March 2022, Local Restrictions Support Grant; Additional Restrictions Grant; and Christmas Support Payment.

And there was a third cohort running from April ‘21 to March ‘22, but we’ll deal with that light touch, because you had moved to a different responsibility from, I think, February of 2021?

The Sharma: No, I think January 9.

Lady Hallett: January 9 of 2021?

The Sharma: Yes.

Lady Hallett: So we’ll just note that, but you had –

The Sharma: Sure.

Lady Hallett: – left the department.

Again, to put all this into context and set the scene, eight schemes, therefore, to support business. 4,529,000 payments made under the schemes, a total of £22.6 billion paid out by 314 local authorities, benefiting, it is estimated, 1.4 million businesses, including the smallest businesses that were expected to face the most significant disruption.

The Sharma: Yes.

Lady Hallett: That is all taken from your department’s –

The Sharma: Yeah.

Lady Hallett: – corporate statement to set the context.

Now, your department was the department with Accounting Officer responsibility.

The Sharma: It was.

Lady Hallett: Because these were grants supporting business –

The Sharma: Yes.

Lady Hallett: – and you’re the Department of Business. But, the Ministry of Housing, Communities and Local Government is the department that has the well established relationship with local authorities; is that right?

The Sharma: That is – that is correct, but, of course, you are also right in the point that the reason the Accounting Officer responsibility – I mean, it was discussed between the two permanent secretaries, in my department and obviously MHCLG, was – you know, ultimately because the policy responsibility rested with the Business Department.

Lady Hallett: Yes. And I think what happened is that because the Ministry of Housing, Communities and Local Government had an established payment system for local authorities, because it was responsible for funding local authorities, or giving a local authority their funding, they delivered the funding to the local authorities until your department was able to stand up its own payment function later in 2020?

The Sharma: Well, yeah, I mean, they – it was, as I understand it – I’m happy to be, sort of, corrected on this – but, you know, ultimately the money practically went out of the door from MHCLG to the local authorities, rather than directly from – from BEIS.

Lady Hallett: Okay.

And then there was also, involved in delivery of these grants, the Cities and Local Growth Unit, is that right, which was a joint unit between your department and MHCLG, involved in delivering the schemes via local authorities?

The Sharma: Yes, absolutely right.

Lady Hallett: Did you feel there was a clearly defined division of role and responsibility between those three different entities?

The Sharma: Yes, I think that there was, actually. Very clearly defined. We had – the Business Department had Accounting Officer responsibility, and, you know, therefore, sort of, overall, sort of, control, I guess, is one way of putting it, over what was going on in terms of producing the guidance in terms of the interactions we did with the local authorities. The unit that you have described is obviously a joint unit between the two departments, and that was actually led by a senior official in – in BEIS.

So I think there was – there was a – from my point of view at least, there was a very clear understanding of who was to do what.

Lady Hallett: The corporate statement of the department suggested that there was at least the potential for a lack of oversight, in that each department could assume the other was having oversight. Did you find any evidence of that yourself? I mean, accepting that you’d left in January 2021.

The Sharma: Yup. No, look, I think during the time that these schemes – and I primarily just talk about the, sort of, cohort 1 schemes – as they were launched and as they were – they were monitored, that was something that we did. I mean, clearly the returns that came from the local authorities would have – would have, you know, come in through MHCLG, but I certainly didn’t feel that there was a lack of – of oversight. And I do think, Mr Wright, that that team actually, led by – by Jenny Dibden, did a, sort of, heroic job in, you know, very challenging circumstances and in time constraints, ensuring that local authorities got a lot of money out within the first month of the schemes.

Lady Hallett: Right.

Now, we know, from evidence the Inquiry has received, that in the first cohort, the Local Government Association and local authorities were not consulted in the design of the schemes, and you may not have heard it, so I’ll tell you what Joanna Killian, the Chief Executive of the Local Government Association, gave evidence about last week.

She said that the principle must be that local government is involved in design, and that sort of design should be happening now, was her view. This is sort of looking ahead:

“I think, had we been involved slightly earlier on in some of the programmes, I think we could have tailored impact, and that, I think, would have relieved some of the worst aspects of the pandemic.

“…

“Other government departments should invest time and energy and logic actually to understand local government …”

And her criticism, such as it was of the department, was that:

“… [BEIS] … saw us as a sort of delivery arm. Like we were a contractor, almost … They didn’t understand the complexity of our business; they didn’t understand the local environment; they didn’t understand our powers. And that became … a real [source of] frustration …”

And she went on:

“… there was great disappointment about the fact there’d been no, sort of, involvement or engagement in design.

“…

“… we weren’t encouraged to be part of the design process …”

And I just want to pick this up, because I have asked other witnesses about it. MHCLG is, in effect, the sponsoring department for local authorities, and therefore has these well-established networks of engagement with local authorities, and, it might be said, understands them and can speak for them. And I just wonder, therefore, why they weren’t the department that was responsible for delivery, and given responsibility, because they had all of these frameworks and they had these ins to local authorities, and could have involved them in design better than your department, which isn’t necessarily a criticism of your department; it’s just how things sat.

The Sharma: Yes, so I mean, I think there are two points here, which is whether or not whoever had been, whichever had been the delivery department where – could they have got the local authorities involved with these particular cohort 1 schemes, and, you know, the first of these schemes was announced as part of the budget on 11 March.

I was first informed of what was going to be in the budget on 10 March. So it wasn’t, frankly, as if, Mr Wright, we, in the Business Department had, you know, a full understanding of what was coming down the line.

And this goes back to the point I raised right at the start about a sort of governance framework. If we had been part of those discussions even a week earlier, we could have offline had some of those conversations with the LGA.

As it happens, when, on the 11th, this was announced, I was very keen to talk to the LGA leaders. We did collaborate with them, and working with them, we stood up, as I’d mentioned earlier, this group of 20 representative local authorities which then, you know, gave us advice, you know, helped us on issues relating to guidance. But I think it’s fair to say that they weren’t involved at the start in terms of designing the scheme.

Certainly looking forward, in terms of, you know, potential interventions that may come as part of that sort of suite of products, then, of course, the local authorities should be involved.

So I accept they weren’t in this case, but certainly through the engagement we did with the Local Government Association, with those 20 local authorities, and also, you know, I had calls with local authority chief executives. My ministerial team had conversations with individual local authorities. In fact, the minister who led on all of this, Paul Scully, a very good minister, he was someone who used to be a councillor before he became a Member of Parliament so, you know, he understood that world of local authorities and I think he was very sensitive in the way he dealt with them.

So it wasn’t perfect by any means, but I do think, given what we had, we did kind of the best that we could.

Lady Hallett: Just dealing with the budget point, just, again, to give you opportunity to comment on this, Joanna Killian’s evidence about that was, she said:

“I mean, I think the context for that budget was wholly unique, wasn’t it? I mean, the pandemic was starting to bear down, and it would have been appropriate, I think, to trust and have confidence that officials within local government could have held private and confidential information, could have been invited into a safe space to do the design, and I think it was an error that we weren’t.”

That was her perspective. You’ve just told us that you knew about the budget just the day before. So I suppose you might say, “Well, as a Cabinet Minister, I didn’t find out any earlier.”

I mean, is that just government business as usual, or is it a reflection of just the speed at which all this was happening?

The Sharma: I think, to be fair to the Treasury, I think it is a reflection of the speed at which things were going. I mean, in normal times, you know, you may be, as a department, discussing a policy that is going to be announced at the budget, so you would probably have a pretty good idea, you may not have, you know, the full parameters, particularly in terms of the value of the intervention of that policy until it basically is announced by the Chancellor.

So I do think, in this case, it was just – I mean, frankly, as Joanna Killian said, you know, this was just a unique set of circumstances. The point, though, I think, is what we learn from this: one, that actually, where you can, you bring in, you know, other parts of government earlier into decisions and policies, but also, you have the suite of products available which have been sort of pre-tested and pre-worked with all the key parties.

Lady Hallett: If we moved forward to the cohort 2 scheme, so we’re not here in the territory of budget purdah, and we’re not … yes, there’s still urgency but we’re not in the early days of the pandemic when things were literally developing hour by hour. Again, Joanna Killian’s evidence was that the Local Government Association, local authorities, were also not consulted in the design of the Local Restriction Support Grant in particular, which –

The Sharma: Mm.

Lady Hallett: – was a cohort 2 scheme. And I just wonder, do you accept that, and if so, how that came about, that they weren’t brought into that design?

The Sharma: I can’t, sitting here, sort of recall exactly how all of that stuff was designed. But I mean, if she says that they weren’t part of it then clearly that’s a learning for the future.

Lady Hallett: So – and we want to look ahead and be constructive, obviously. I suppose the question really is: are there any good reasons not to include local authorities in the design of schemes that they’re going to have to deliver?

The Sharma: I think there is every good reason to involve them. I think the reason it didn’t happen at that time is because of the time constraints, and as I said, in normal times, they would be involved. And clearly going forward, we need to make sure that when we’re planning for these, you know, not just the local authorities, but in other schemes you have other parts in government which are involved early on.

Lady Hallett: We know from evidence the Inquiry has received that sometimes announcements about schemes were made centrally before local authorities, who were meant to be delivering them, had actually been informed about them or had any time to prepare. I mean, that’s obviously suboptimal from their perspective, but why was that happening?

The Sharma: I think it also comes down to the sort of timelines, because obviously some of the schemes that came forward in cohort 2 related to dealing with businesses that were in areas that were facing local lockdowns for instance. That isn’t – I mean, that is something that developed, and the interventions then developed, you know, effectively in real time.

I think that is, kind of, the mitigating reason why they weren’t involved. But as I said, you know, this Inquiry is obviously very much about learning lessons for the future, and so that’s one of the ones that we definitely need to learn, you know, get them involved early on in the sort of interventions that you might want to make.

Lady Hallett: Similar point, really, I just want your view about this, please. It’s also been said by a number of witnesses in other evidence the Inquiry has seen that sometimes you’d have a public announcement of a scheme, but the guidance by which the scheme was then to be administered came sometimes quite a long time afterwards. So there’s a public expectation or a business expectation of support, because the scheme has been announced, but the local authority that has actually got to deal with it, doesn’t have the guidance by which to administer it.

The Sharma: So if I may just, sort of, focusing a little bit on the cohort 1 grants. So certainly the guidance that was sent to local authorities in relation to the Small Business Grant Fund and the Hospitality and Leisure Fund, I actually wrote a letter on 23 March to all the local authorities, enclosing the guidance. They received their money right at the start of April. So there was a period of days in which that guidance was in place, and we, as a department, did hold teleconferences with all the local authorities on the 23rd, and then sort of for the days that followed, trying to answer their questions.

I accept that in the case of the Discretionary Grant Fund, there was a period of days between sort of the whole thing sort of being live and the guidance going out, and again I think that’s something that we need to learn from.

Lady Hallett: I mean, ideally, it’s difficult to see there’d be an advantage to guidance not coming out when the scheme is announced, but – I know we weren’t in ideal circumstances, but, generally speaking, if there’s time now to work these things up, that would be desirable, wouldn’t it?

The Sharma: Yes, absolutely.

Lady Hallett: Right.

Can I just pick up another point that emerges from the corporate statement of your department, and I just would like your view about this. It’s sort of looking back on the whole piece of grants across three cohorts. And the department’s statement says that it resulted in a complex web of grant support that was sometimes too vague and ambitious in its terms, and it picks up this point about guidance, and sometimes it was – it was unclear.

Now, accepting you’d left by the time of the third cohort, and the situation was developing, if you were back in this situation again – and you’ve talked about looking ahead and planning ahead – the suggestion in the corporate statement is there should be a much simpler, much more streamlined system of grants, with clear guidance and everyone knows where they stand and these are the things you stand up.

Where does that, as a suggestion, sit with you?

The Sharma: Look, I think it’s difficult for anyone to logically argue against that. I mean, you know, the more schemes you have in any kind of, sort of, situation, the more complex it is, the – the more difficult it is for people who are administering to understand it. So, yes, I think simpler, fewer, but with the ability to tweak some of those schemes, depending on what is happening in terms of a future emergency.

Lady Hallett: Thank you.

Another discrete issue related to local authorities, please. The league table, as it’s been described, relating to essentially how much money the local authorities were getting out. I’m just going to recap a bit of evidence the Inquiry has heard, and then ask for your view.

Joanna Killian, Chief Executive of the Local Government Association:

“I think our view was it was a really unhelpful and, sort of, undermining process.

“I think there were a number of reasons why the performance in delivering grants varied: the economies were different, schemes were different in different areas at some points. And I think it put unnecessary pressure into councils, who felt they had to respond to the league table …”

Alison Greenhill, Chief Operating Officer of Leicestershire City Council, told the Inquiry:

“‘I see absolutely no benefit in publishing these tables.’

“And I struggle now, still, to see the benefit in publishing a league table. For whose benefit?”

And we also heard this morning from Mr Cheeseman, the Public Sector Fraud Authority Head, who also had concerns about league tables, because his view was it – the risk was that it really put pressure on authorities to get money out of the door, rather than thinking about fraud and protecting public money.

Now, I know that the intention was not to establish this as a sort of league table that was just rating speed, but that’s how it was interpreted it seems, and very often things develop a life of their own. Reflecting and looking back, I know in your statement you stood by the idea of the table, but you’ve now heard the reflections of local authorities and Mr Cheeseman, where does it sit with you now, in terms of whether that was or was not a good move? Or, more importantly, going forwards, is it the sort of thing that we should be concerned with?

The Sharma: Yeah, so I think – firstly, as you say, you know, our intention was this shouldn’t be seen as a league table. In fact, the way it was presented was alphabetically. We took away, you know, the percentages of – of money allocated and actually sent to local authorities.

I accept that, you know, some people would still have seen these as league tables. I also accept that perhaps what we should have done is had some notes attached to the information that was published talking about, in general terms, why there might be variations in the money that went out.

However, Mr Wright, this is public money. This is billions and billions of pounds. And at the end of the day, there was huge public interest in this from businesses, from business representative organisations, from Members of Parliament.

You know, as well as being the Business Secretary, for 14 years I was also the Member of Parliament for Reading West. That covers an area where there are two local authorities. As the local Member of Parliament, and because I was the Business Secretary, I was getting perhaps an oversize number of emails, about help for businesses, but just as a local Member of Parliament, I was keen to understand what was going out in my patch and, you know, how I should try to help businesses in my patch. And that’s the same for, you know, all the 650 Members of Parliament.

So I think – frankly, I don’t think it’s realistic to suggest that we shouldn’t publish this kind of information. I think, you know, practically, politically, for all sorts of reasons, this is information that you need to publish. But, as I said, I accept that we could have explained better the variations.

But the money went to the local authorities at the beginning of April. I held a call on 15 April with the local authorities, the senior folks in the local authorities, and at that point there were some local authorities that had put out 75% of their allocation, some below 30%, and some hadn’t even sent us a return of how much money they had put out.

And just think that’s something to, sort of, you know, bear in mind as well, is, you know, why – yes, of course there are local reasons why there’s a variation, but that’s a pretty big variation.

And the other thing that we did do was to hold our calls with local authorities so that people could learn from best practice what was going on in one area, you know, where they were doing things and getting money out of the door, and in places that they weren’t.

Now, I spoke about my colleague Paul Scully. I mean, one of the things that he found in all the calls that he made was that there was – there was a certain amount of, sort of, reluctance about putting money out faster from some of the local authorities. They were concerned about, if there was an error, who would stand behind these. And I wrote a letter to every local authority, saying, you know, “If you have made a payment in good faith then absolutely we will stand behind that.”

And just the final point on this is you talked about checks. When we gathered these 20 local authorities, one of the questions that we asked before we put out guidance – again, because we knew there was a risk that there may be erroneous payments – we asked them: how long will it take to put in place prepayment checks? And the answer was: four to six weeks.

We couldn’t wait four to six weeks.

And in fact some of those local authorities, who were basically ready to put money out of the door, said to us: yep, we’re ready, let’s get on and do this.

And that’s why we focused on post-payment assurance.

So, just summary terms, I accept some of the points that have been raised about these league tables, we should have explained them better and all the rest of it, but I don’t think it’s realistic, particularly when you’re dealing with billions of pounds of public money, to say that there shouldn’t be transparency on money that is going out of the door.

Lady Hallett: I mean, do you think it may be that, in part, the – I mean, “hurt” may be the right word, that local authority leaders feel about this, is because (a) they weren’t being consulted on scheme design, (b) they weren’t getting guidance when the schemes were announced, and (c) they were then being judged, they thought unfairly, in terms of how quickly they were getting money out. So if you put it all together, you can perhaps understand why they might feel they were a little bit let down by – (overspeaking) –

The Sharma: No, no, I’m sort of sympathetic I think, certainly to some of the points that have been made, but ultimately, I just go back to this point about why we were doing this and why we were doing it at pace. And it was to support businesses in their areas, and I think that’s understood. I think even in – I may be, sort of, misremembering, but I think in Mr Cheeseman’s statement, there is a point there about an understanding that this was ultimately getting money out of the door to help businesses, and I think that’s the mindset that we had in terms of why we were doing this quickly.

Lady Hallett: Right, thank you very much.

Well, those are the areas that I wanted to cover in the time we have. There is a little time, two or three minutes, before I hand over to Core Participants, to ask you whether, other than the points to the future you’ve made, so you’ve made the point about having a panel that would meet regularly and retain that sort of corporate memory and learning, and off-the-shelf schemes that can be tried and tested, and these countermeasures baked in at this stage. Are there any other reflections you have that you would like to share for how, in a future emergency, the department could be better prepared?

The Sharma: Yes, so I mean, I think four, and you’ve already talked about a number of them.

So, first is this sort of governance framework, sort of, you know, sort of, high-level principles on how you work together. But that should reflect that you need to take into account, you know, how you deal with the vulnerable groups, and, sort of, you know, businesses, and all the rest of it, and obviously how you work within government itself.

The second, exactly as you’ve said, and others have said, this, sort of, suite of products that you keep testing.

Thirdly, I think a standing panel. It’s something, my Lady, I also suggested during the vaccines module. I think that would be really important and to keep that live and continuing to, you know, horizon scan.

And I think the fourth piece of this is around data. So I think one of the things that we all felt that was, you know, particularly when you’re trying to make value for money assessments on schemes, I mean, you know, we need to be thinking about the sort of data that we can rely on for that. In terms of local authorities, yes, I think particularly in terms of cohort 1, there was, I think about £945 million that was paid out in erroneous payments, and that’s because the data wasn’t up to date, in terms of the businesses that could potentially get the support.

That is the sort of thing, practical thing, that we ought to be doing now to make sure that our datasets are up to date so we can apply them in an emergency, because at that point it’s too late. You need to have this in place now.

Mr Wright: Thank you very much.

My Lady, those are my questions. I think there are some approved Rule 10 questions.

Lady Hallett: There are, Mr Wright. Thank you very much.

Ms Hannett, I think you’re up first.

Questions From Ms Hannett KC

Ms Hannett: Thank you, my Lady.

Lord Sharma, I appear on behalf of the Long Covid Groups. Given that Long Covid has given rise to workplace absences and consequential adverse impacts on businesses, would you recommend that consideration is given now to how to monitor the long-term sequelae of a virus in a future pandemic?

The Sharma: Yes, I mean – the simple answer is yes, I agree, and I am of course very sympathetic to anyone who is suffering from Long Covid. I think that is a piece of work we should be looking at, you know, whilst bearing in mind that the next emergency, you know, may not be a Covid-like virus – there may be something else that comes down the line, but I’m pretty sure that whatever the outcome of that work is, it will help in terms of dealing with the outcomes of a future emergency.

Ms Hannett KC: And one follow-up if I may, my Lady.

Would you accept that this could sensibly form part of the remit of the standing panel that you recommend?

The Sharma: Potentially, if you had the right expertise. I guess from my point of view, I think what I would like in terms of standing panel is something that’s sort of relatively nimble. But, you know, I could see this being a discrete piece of work that’s done which feeds into the panel rather than – because I think that’s what we are sort of talking about here – rather than it, it’s, you know, having this as part of the panel itself.

So from my perspective, I think the panel is more about the interventions that need to be made from a sort of, you know, financial business perspective.

Ms Hannett: Thank you, Lord Sharma.

Thank you, my Lady.

Lady Hallett: Thank you, Ms Hannett.

Ms Peacock I think you’re next.

Questions From Ms Peacock

Ms Peacock: Thank you, my Lady.

Good afternoon, I ask questions on behalf of the Trades Union Congress.

One of the lessons learned, which you’ve discussed in detail today in your evidence, and we’ve just touched upon now, is the need for a standing panel. I should say that the TUC sees significant value in a standing panel of this kind.

You’ve stated that the overall aim is to develop a package of financial interventions to be available for deployment in future, and that the panel’s membership would benefit from a mix of individuals, including former ministers and officials and the business representative organisations.

The TUC has raised a similar suggestion in this module, that there should be a panel made up of individuals from government, from businesses, and from organisations representing the workforce, tasked with considering possible economic interventions in advance of a future crisis, and the TUC’s focus, as you might expect, is the labour market interventions –

The Sharma: Mm.

Ms Peacock: – such as the furlough scheme and the Self-Employment Income Support Scheme.

The focus of your evidence naturally today has been upon support for businesses in the form of loans and grants, but would you agree that a panel to consider the economic response should include membership from all key economic actors, including those representing workers as well as businesses?

The Sharma: Thank you for that question. Firstly, just to say that I think my Business Department – and on a personal level, I worked very closely with Frances O’Grady when she was Secretary General, and Paul Nowak, who was her deputy at the time, and we worked very closely on the workplace guidance, and there was a shared view. I mean, you know, we were working together to make sure that we kept people safe.

So, in – in that sense, I think, you know, having representatives from, sort of, employers as part of the standing panel, I personally think that probably is a good idea.

Ms Peacock: Representative employers, yes, but in terms of representatives of the workforce –

The Sharma: Yes, sorry, workforce. Sorry. Sorry, yes.

Ms Peacock: I’m grateful.

And just to expand upon that, given what you’ve said about the benefits of having the business representative organisations on such a panel, would you then agree that having workforce representative organisations on the panel would enable it to benefit from yet a wider pool of expertise, resource, and on-the-ground intelligence?

The Sharma: Potentially yes, again. I think, from my point of view, what I wouldn’t want is for this panel to be, you know, frankly, comprised of too many sort of individuals. I mean, those are individuals who could represent certain groups. That’s absolutely fine. But the whole point of this panel should be it’s something that’s, sort of, nimble, that can act quickly, and doesn’t, kind of, you know, become, you know, another committee of government where people go through the motions of attending without actually, you know, anything concrete coming out of it.

Ms Peacock: I’m grateful. Those are my questions.

The Witness: Thank you.

Lady Hallett: Thank you, Ms Peacock.

And lastly, Ms Beattie.

Questions From Ms Beattie

Ms Beattie: I ask questions on behalf of national Disabled People’s Organisations, being organisations that are majority-led, directed, staffed and governed by disabled people, and my questions concern the Future Fund supported businesses.

You refer in your statement to equality characteristics of Future Fund supported businesses in terms of gender, and ethnicity.

The Sharma: Mm.

Ms Beattie: Did you receive analysis concerning disability characteristics of Future Fund supported businesses?

The Sharma: That’s a very good question. I don’t want to sort of say the wrong thing, but I don’t think, at the time, we got that. I think, looking forward, yes, that absolutely is a characteristic that we should have in mind, as well. And I think it’s – I’ll just say a little bit more on this, because I think, you know, sometimes, on schemes, I think particularly on the grant scheme, we didn’t get the impact assessments done as quickly as we should have done. And again, I think that is a learning that you can put in place now in relation to any future schemes that we plan for as well.

Ms Beattie: Thank you. And so that covers equality impact assessments when setting up the scheme, but in terms of, actually, who’s getting the money –

The Sharma: Yes, yes, no I –

Ms Beattie: – (overspeaking) – and where those grants are going to, is it right that there was no reason that data on disability breakdown of those recipients couldn’t have been obtained, and in fact there was a plan to monitor for that diversity across equality characteristics to ensure that that fund was equitably distributed and yet we don’t see disability data coming out of that?

The Sharma: No, and I understand that, and I think that is probably a, sort of, a failing. I think we were very clear that, you know, particularly with that kind of intervention, I mean, generally it goes to the southeast, it goes to organisations made up of able men, if I can put it like that, and that’s why we were keen to make sure that the distributions was wider. And clearly, in some measures, we did achieve more equitability in terms of gender and ethnicity, but I think you’re right, we should have looked more closely at disabilities as well.

Ms Beattie: Thank you, Lord Sharma.

And, my Lady, I think Mr Wright has covered business grants schemes. Thank you.

Lady Hallett: Lord Sharma, that completes our questioning of you today, and I think it’s the end of the demands that the Inquiry has been making on you, so I’m generally grateful for the help you’ve given, not only in this module, but previous modules. We obviously will bear very much in mind not only your oral evidence but the witness statements too, so thank you for coming to help us again.

The Witness: Thank you, my Lady, and thank you for the very courteous exchanges that I’ve had.

Lady Hallett: Very well, Mr Wright, I think that completes the business for today?

Mr Wright: It does, my Lady. Thank you very much.

Lady Hallett: Very well, I shall return at 10.00 tomorrow, thank you.

(4.08 pm)

(The hearing adjourned until 10.00 am the following day)