The Times - UK (2022-04-28)

18 Thursday April 28 2022 | the times

News

ces undermined key elements of the

business plan.”

Sources at British Business Bank, the

government’s economic development

agency, which administered the

scheme, said little due diligence was

done by the government on loan recipi-

ents, with third-party investors instead

relied upon to ensure the suitability of

borrowers.

Before the scheme’s launch, the gov-

ernment overruled warnings from

Keith Morgan, then chief executive of

British Business Bank. Morgan told

ministers that it risked public cash

being wasted on “second-tier” compa-

nies because start-ups with the most

potential “will not use this funding

route, as investors will fund those com-

panies without [taxpayer] support”.

Critics have questioned whether the

Future Fund was needed, given that the

venture capital industry was in the

midst of an unprecedented boom.

Mark Hart, professor of entrepre-

neurship at Aston Business School, has

said the scheme “distorted the market

for start-up finance and probably not in

a good way”.

Of 1,190 companies that benefited

from £1.14 billion via the scheme, the

government has revealed the identities

of only 265 where stakes have

converted into equity. In theory, these

are at the higher quality end of the

portfolio. Among disclosed Future

Fund investments is Rezolve, run by

Dan Wagner, which markets itself as a

leading international ecommerce spe-

cialist. Wagner’s previous firm, Powa,

collapsed into administration in 2016

having used about £140 million of

investors’ cash.

The taxpayer participated in an $11.

million (£9 million) investment round

in Rezolve via the Future Fund, with the

government thought to have contribut-

ed about £4.5 million. That has now

been converted into a 1 per cent stake.

Rezolve made a loss of $9 million in

2019, up from $7.2 million in 2018, the

accounts show.

The directors said there was

“material uncertainty in respect of how

funds to finance operating cash flows

will be raised” but that they believed

they would secure the necessary

backing, accounts for 2020 show.

Rezolve, Wagner and Newmark were

approached for comment.

Another disclosed Future Fund ben-

eficiary is the gambling technology

business Fantasy Sports Interactive

(FSI). Company accounts show that as

of March last year, the business had

zero employees and net liabilities of

£0.9 million. The taxpayer holds a 4.

per cent stake. The company recently

lost a gambling licence in Malta for fail-

ing to comply with an order issued by

the gambling regulator and not paying

fees owed to the watchdog. FSI said the

licensing problem had been resolved.

British Business Bank said: “As a

rules-based scheme, neither the

government, nor the British Business

Bank, explicitly chose investments.”

Covid loans, Letters, page 30

An “extraordinary” government claim
that data protection laws mean tax-
payers should not be told who benefited
from billions of pounds worth of
state-backed-loans has been criticised
by MPs.
Executives from the British Business
Bank, the government agency that ran
emergency pandemic loan schemes,
claimed publishing a database of
beneficiaries of state assistance could
“fall into the wrong hands”.
This is despite the fact that records
for other schemes have already been
published by the government, and
despite databases of many furlough
and Coronavirus business interruption
loan scheme payments being freely
available online.
The claims were made as MPs on the

Taxpayers have right to know who got Covid loans, MPs insist

Treasury select committee questioned

officials about an investigation by The

Times which revealed that the scheme

had been exploited by recipients who

used state funding intended to save

small businesses to finance gambling

sprees, home improvements and lux-

ury cars and watches.

Loans of up to £50,000 were pro-

vided to 1.6 million companies. The

scheme provided £47.4 billion of credit

entirely underwritten by the taxpayer,

meaning lenders can call on the state to

cover losses on loans that go bad. About

£17 billion is expected to be lost.

Siobhain McDonagh, a Labour

member of the committee, called the

bank’s reasoning “extraordinary” and

said there was already a large publicly

available database of company infor-

mation: “It’s called Companies House.”

“Don’t taxpayers have a right to

know who their money has gone to?”

she asked officials.

Patrick Magee, chief commercial of-

ficer of the bank, said there were

“issues” related to the general data

protection regulation (GDPR) because

some beneficiaries would be identifia-

ble as individuals rather than corporate

entities.

Magee denied that the bank had

claimed the risk of “vigilante action”

had been used as an excuse to keep the

identity of borrowers secret. “I don’t

think we’ve used the term vigilante,” he

said.

However, in submissions to the

Information Commissioner’s Office

(ICO), the transparency watchdog, the

bank said “informal almost vigilante

activity” could arise from disclosure

which would be “likely to disrupt inno-

cent businesses”.

The ICO declined to make the bank

release the information and the case,

brought by Spotlight on Corruption, a

research group, is now before a judge.

The Times repeatedly asked the bank

for any evidence of vigilante activity in

relation to the schemes already

published, which it declined to provide.

Taxpayers have already paid banks

£62 million to cover their losses on

loans made to suspected fraudsters.

Magee said banks had so far made

£1.9 billion worth of claims on the state

to cover losses on the scheme, £350 mil-

lion of which has been paid out. The

£62 million covered losses in cases

where banks had lent to suspected

criminals and had carried out the

checks expected of them, he said.

Audits of defective lending under the

scheme had so far resulted in £240 mil-

lion of credit removed from guarantee

cover, he said, with £45 million of this

the result of banks themselves admit-

ting that even the handful of anti-fraud

checks they were expected to do had

been faulty. Magee said fraud checks

had stopped £2.2 billion worth of sus-

pected fraudulent applications from

being given credit.

Lord Agnew, who resigned as a min-

ister at the dispatch box because of his

frustration with the government’s fail-

ure to tackle pandemic fraud, renewed

his calls for the board of the British

Business Bank to be sacked.

Speaking yesterday on Times Radio,

he said: “All of their energy goes into

defending all of the bad decisions that

were made two years ago, rather than

an acceptance of mistakes.”

Dominic Raab, the deputy prime

minister, said it was “good news” that

money was being recovered.

George Greenwood, James Hurley

Roland Lamb, founder of Roli, which received £4 million. Left: Dan Wagner’s previous venture cost investors £140 million

Rishi Sunak’s £1.1 billion Future Fund
scheme was meant to help start-ups
and innovative companies with the
potential to “transform UK industry”
and “strengthen our position as a
science superpower”, according to the
chancellor. But at least 34 companies
that benefited from the funding are
already in the process of being wound
up, a Times investigation has found.
Fillings show taxpayer losses linked to
the scheme from these handful of early
failures could be as high as £40 million,
and more are likely to follow.
Other firms that benefited from the
scheme include a betting company that
later lost its gambling licence in Malta
and a company run by a businessman
whose previous venture cost investors
about £140 million.
One in three failed Future Fund
businesses used a controversial pre-
pack insolvency procedure. Pre-packs
are a way to drop debts while assets of
the failed company are immediately
sold to predetermined buyers.
Creditors, including the taxpayer,
are sometimes left with little or
nothing.
This form of insolvency is par-
ticularly contentious when key
assets are sold back to bosses
of the failed companies.
This can effectively
allow people be-
hind the failed
businesses to
continue trading
while shedding
their debts.
There is no
suggestion that
any of the com-
panies broke
scheme rules or
misrepresented
themselves to
the government

News Investigation

Sunak’s £1bn

Future Fund

pumps cash

into failures

James Hurley, George Greenwood,
Alex Ralph

to receive taxpayer funding. However,

the business histories of some of the

companies and their directors raise

questions as to whether the state took

too cavalier an attitude to investing tax

funds.

The scheme provided loans of up to

£5 million, which had to be matched by

private investors. When a company

raises fresh funds, the loans convert in-

to equity, leaving the taxpayer owning

shares in a vast array of start-ups, many

of which are not yet profitable.

Roli, a music technology company,

was struggling to find a market for its

products before it was granted a £4 mil-

lion Future Fund investment package.

The company, whose products

included a musical instrument called

the Seaboard, which it described as “the

newest thing to happen in the keyboard

world since about the year 1700”, had

reduced its headcount by a third in 2019

amid a cash flow crisis.

After securing backing from the gov-

ernment, the company’s business and

assets were sold in a pre-pack

administration to a business

led by Roland Lamb, a direct-

or of the firm. It is unclear

what returns the taxpayer

will get from the administra-

tion of the original company.

Roli said it had completed

a major restructure in 2019

but the pandemic intro-

duced new challenges.

“As a consequence

we looked to raise a

further funding round

and made an appropri-

ate application to the

Future Fund for

£2 million in match

funding,” a spokesman

said. “Investments in

early-stage pre-profita-

ble technology compa-

nies carry a degree of

risk and unfortunately

unforeseen circumstan-

TIMES PHOTOGRAPHER RICHARD POHLE