"Once the
downturn was apparent, the Government and the Department for
Business, Innovation and Skills were under considerable pressure to
act quickly and offer targeted support to businesses. The
Department did well to balance the needs of businesses with
protecting the taxpayer. However, it did not set out clear
objectives, nor did it consistently record
costs.
In the current fragile
economic climate, the Department should consider the potential
impact on business confidence as support begins to be
withdrawn. In particular, it should consider action that could
be taken to reduce any adverse effects and, if recovery falters,
the circumstances in which support might be
extended."
Amyas Morse, head of the National Audit Office, 26 March
2010
In late 2008, the Department for Business,
Innovation and Skills stepped in to offer targeted support to
struggling, but viable, businesses in the face of a severe economic
downturn. It reacted quickly and prioritized a fast response over
perfecting its policies. Under the circumstances, this approach was
appropriate, according to a report published today by the National
Audit Office.
The Department began to think strategically
about its response in autumn 2008. It tracked developments in the
economy following emerging problems in the banking sector from 2007
and gathered intelligence on business sectors and regions. But
prior to October 2008 it did not have options in place to deal with
the potential consequences of the reduction in the availability of
credit to business. In October 2008, it first took action
launching six schemes, comprising over £20 billion of potential
support, to improve access to finance and to support the automotive
sector. It did not, however, set out an overarching aim for the
schemes.
The Department did well to set-up the schemes
quickly under pressure, with support reaching businesses between
three and 35 weeks after they were announced. The management of the
schemes was generally good. Take-up, however, has been lower
than expected, partly as a result of the suitability of the
support, driven by the Department's limited pre-existing knowledge
of some of these activities. There were weaknesses in the
Department's arrangements for estimating the cost of administering
the schemes.
The Department, working with the Treasury,
sought to identify the risks to value for money and manage these
risks when designing and implementing the schemes. However, a
departmental analysis of the Vehicle Scrappage Scheme forecast that
it would provide a net economic loss and was unlikely to represent
good value for money in the longer term. Ministers directed
the Department to continue for a number of reasons: including that
extra purchases made while the economy was suffering were worth
more than those when the sector had recovered and that the risk of
doing nothing outweighed the risks of intervention.
Publication details:
HC: 490, 2009-10
ISBN: 9780102963632