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National Audit Office report: Department for Business, Innovation and Skills: Support to business during a recession

Department for Business, Innovation and Skills: Support to business during a recession

"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economic climate, the Department should consider the potential impact on business confidence as support begins to be withdrawn.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."

"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economic climate, the Department should consider the potential impact on business confidence as support begins to be withdrawn.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

 

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:

ISBN: 9780102963632 [Buy a hard copy of this report from TSO]

HC: 490, 2009-10

Published date: March 26, 2010