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NESTA has established generally sound approaches to selecting which projects to support and to managing its portfolio of awards, and two of its three funding programmes have done well to generate interest and applications. But, according to a report published today by Sir John Bourn, head of the National Audit Office, it needs to make the third programme more accessible, even out its distribution of funds, particularly within England, and improve measurement of its own operational efficiency.

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Many of the projects which NESTA supports are inherently risky. It is part of NESTA’s remit to take experimental and unusual approaches which often have uncertain outcomes. There are several ways in which NESTA actively manages the risk of projects failing – for example, through providing mentor support – and these are generally working well.

NESTA’s Invention and Innovation Programme and Learning Programme have done well to generate interest and applications for funding. However, the Fellowship Programme, which finds applicants largely through a process of nomination, has been less successful in reaching those who could be eligible, and some stakeholders have reacted negatively to it. The report recommends that NESTA accelerate its efforts to broaden the reach of this programme.

The report shows that, whilst Northern Ireland is still slightly under-represented in terms of awards, NESTA is close to achieving an equitable spread of awards between the four nations of the UK. However, London has received nearly three times the number and value of awards that would be expected for its population, whilst many other English regions are noticeably under represented. NESTA has taken some steps to address such discrepancies but more remains to be done.

NESTA incurs significant costs over and above the actual awards made to projects, but there is no performance indicator for an appropriate level of programme support costs in relation to the awards made. The report recommends that NESTA and the Department for Culture, Media and Sport agree an appropriate ratio between support costs and awards, in order to provide an indicator for operational efficiency in this respect.

We found that NESTA’s approach to investing the interest from its endowment was sound. However, the trend of falling interest rates since NESTA’s inception severely reduced the level of these returns from the endowment, and meant NESTA had to return to Parliament for additional funds to maintain its levels of activity. The Financial Directions originally issued to NESTA also imposed restrictions on the investment instruments that it could use for the endowment funds, which meant that NESTA was less able to protect itself from the effects of falling interest rates in recent years, and so reduced income further.

"In two out of three programmes NESTA has done well to generate applications and it deserves credit for setting up sound systems for selecting and managing its projects. However, NESTA does need to achieve a more equitable regional distribution of funds, to broaden the reach of the Fellowship Programme, and to improve measurement of its own operational efficiency.

"There are also important lessons to be learned about funding public bodies through an endowment, particularly the management of risks associated with interest rate changes and the endowment declining in real terms."

Sir John Bourn


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