- The UK government ignored warnings from officials that its $700 million fund designed to support promising startups risked wasting taxpayer money on ‘second tier’ startups.
- A newly published letter from March reveals the CEO of the British Business Bank thought there was insufficient evidence that the Future Fund could provide taxpayers ‘good value for money’.
- The government has faced criticism for refusing to publish the full list of companies in receipt of the Future Fund.
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The UK government ignored warnings its GBP720 million “Future Fund”, designed to help promising startups survive the pandemic, didn’t represent “value for money” and risked pumping taxpayer money into “second tier” startups.
In a newly published letter, dated May 18, British Business Bank CEO Keith Morgan warned the likelihood of the scheme representing long-term value for money was “highly uncertain”, adding that there was a risk much of the funding would go to “second tier companies”.
The British Business Bank is the UK’s taxpayer funded development bank and is managing the Future Fund.
In his letter, addressed to UK business secretary Alok Sharma, Morgan warned that the best companies wouldn’t take up the Future Fund, as they would be able to win capital solely from private investors.
“This will result in [government] investment going to the second tier of companies, which will likely result in higher associated loss rates,” he wrote. “We cannot … be confident that the Future Fund provides good value for money for the Exchequer.”
Morgan also said the fund’s objectives hadn’t been “clearly articulated”, leading to a risk the scheme wouldn’t be well-targeted and could end up supporting firms that didn’t need help.
The scheme was originally set to hand out up to GBP250 million in government assistance, but there was no formal cap and the fund has increased to hand out GBP720 million ($924 million) across 711 companies.
The letter will intensify pressure on the government, which has faced criticism for refusing to publish the names of companies in receipt of the fund.
One inside architect of the scheme, who spoke to Business Insider on the condition of anonymity, described the letter as an exercise in “arse-covering”.
“It’s basically arse-covering by civil servants who think they haven’t had a chance to do the proper groundwork on a scheme in the timeframe,” the person said.
A Government spokesperson said: “Our loan schemes have provided a lifeline to thousands of businesses across the UK – helping them survive the outbreak and protecting millions of jobs.
“Our support has been targeted to ensure we help those who need it most as quickly as possible and we won’t apologise for this.
“We’ve looked to minimise fraud, with lenders implementing a range of protections including anti-money laundering and customer checks, as well as transaction monitoring controls. Any fraudulent applications can be criminally prosecuted for which penalties include imprisonment or a fine or both.”
Business Insider approached the British Business Bank for comment.