MPs urge DCMS to consider sale of costly Covid debt

The Department for Culture, Media and Sport (DCMS) should consider selling its Covid-era loan book to provide the best value for taxpayers in the long term, according to a government report.

The recommendation was one of several in a new Public Accounts Committee (PAC) report, which is highly critical of “severe weaknesses” in DCMS’s management of £474m of loans made to cultural and sports organisations during the pandemic.

Noting that the costs of managing the loan book to date have been “significant”, at about £17m over three years, the PAC said DCMS should consider selling the loan book to provide “immediate” cash for the government and eliminate future running costs.

Other options put forward include the continuation of DCMS’s current in–house arrangements, consolidation of the debt with other government loans and the appointment of specialists to manage the loan book.

The PAC report also highlights concerns that DCMS has not forecast future costs of running the loan book beyond the current 2025-26 spending review period and last undertook a valuation for receipts from any potential sale in 2022.

DCMS said it plans to undertake a review of its “strategic options” for the future of the loan book in 2025–26 once all borrowers have made at least one repayment and the scheme is in a “steady state” with an operating loan management system and a track record of repayment in place.

‘Overly optimistic’

DCMS’s loan book formed part of £ 2.6bn of government support provided to the sports and culture sectors when organisations were forced to close during the pandemic. Across three separate repayable schemes, £474m was lent to 120 borrowers.

A total of £256m went to 37 culture bodies through the Culture Recovery Fund, with favourable terms including repayment holidays – typically for three years – and 2% interest for the whole period, which is, on average, 15 years.

Along with Sport England (SE), Arts Council England (ACE) was appointed as a loan agent, responsible for the day-to-day management of the scheme and relationships with their respective borrowers, although all decision-making remains with DCMS.

By October 2024, just under half of all borrowers had started to pay off their loans, repaying £41m in total, 97% of what DCMS expected.

Nine borrowers, two on the culture side – supply firm Energy Generator Hire Limited and Nottingham Castle Trust – and seven in sport, have fallen into insolvency, which is 2.5% more than the department anticipated during the first three years of the scheme.

DCMS has said it does not expect to recover between £25m and £29m in the capital value of loans already defaulted on and will miss out on a further £11m in future interest. The two culture cases account for £2.5m of the total losses, and DCMS does not expect to recover anything from those organisations.

Over a ten-year period, DCMS expects 14% of its borrowers to fail.

In its findings, the PAC criticised DCMS for being “overly optimistic” and expecting to recover all outstanding loans from 86% of borrowers despite continuing uncertainty over future repayments. It said the department had been “unclear” about the actions it would take toward borrowers in financial difficulties.

The PAC called on DCMS to revisit its estimates of expected repayment levels and insolvency rates by December 2025 and said that it should demonstrate a “tough approach” on behalf of taxpayers when it comes to managing borrowers in financial trouble, such as preclusion from additional support such as grant funding.

The report also noted there was a “fundamental tension” for DCMS and its loan agents between maximising financial returns and the policy objective of maintaining the viability of the culture and sports sectors, saying there were “concerns” as to whether the department, ACE and SE have the skills to undertake insolvency negotiations.

A lack of expertise

Describing “severe weaknesses” from the scheme’s start, the report said DCMS did not draw sufficient expertise from across government and that there were too many parties involved in managing the loans, including PricewaterhouseCoopers, the loan book’s managed service provider.

DCMS initially engaged PwC in 2020 to supply options analysis and help with its approach to the loan book. After PwC identified the need for a managed service provider, DCMS awarded the firm a £1.9m contract to develop a data collection and storage platform following an open bidding competition.

PwC’s loan management system (LMS) has been operational since June 2024, 15 months later than initially planned and with a broader scope than initially agreed after the contract value was increased to £2.9m.

Calling DCMS’s management of PwC’s contract “poor”, the PAC said there was “no evidence” a specialist loan management service provider had been considered and recommended that DCMS begin preparations for the approaching end of PwC’s original contract.

While intellectual property rights to the LMS are owned by software developer Singlify, DCMS has said that its activities could be provided by another supplier. The contract was due to come up for retender in March 2025, though DCMS has the ability to extend PwC’s current current by up to 24 months.

‘DCMS should stick to what it knows’

Chair of the committee, Sir Geoffrey Clifton-Brown MP, said that while it was “right” the government had come forward with “necessary” support to ensure the long-term future of the culture and sports sectors, it had been contingent on the “unprecedented nature of a global crisis” and was not intended to provide “a lifetime guarantee to institutions which may be experiencing financial difficulties five years later”.

“DCMS is inherently conflicted in the management of its Covid loan book,” said Clifton-Brown. “As a lender, its priority will be to secure best value for the taxpayer from these loans. As a department, its priority is to do everything in its power to support a sector which has become its debtor.

“DCMS has shown that while it has tried its best at acting in the role of a specialist loan provider, it should stick to what it knows. The department should be considering all options for the long-term future of these loans, including their outright sale.”