DCMS expects to lose over £25m in Covid loan repayments

The Department for Culture, Media and Sport (DCMS) will not recover between £24.9m and £28.7m in repayments from Covid-era support loans issued to cultural and sport organisations due to borrowers going insolvent.

The findings form part of the National Audit Office’s (NAO) report, DCMS’s management of its Covid-19 loan book, published today (18 December).

The report says that as of October 2024, nine borrowers, two in culture and seven in sport, with loans totalling £46.1m, had fallen into insolvency.

The two culture cases account for £2.5m of the total losses, with the remaining in sports and the majority (90%) across three rugby union clubs.

DCMS has received £10.1m from two of the sports insolvencies and expects to recover between £7.3m and £11.1m from the sports loans. It does not expect to recover anything from the two culture cases.

Data available on the government’s website shows that supply firm Energy Generator Hire Limited and Nottingham Castle Trust received £1.5m and £1m in the second round of the repayable Culture Recovery Fund loans.

According to filings available on Companies House, both companies are now insolvent.

As a result of the nine insolvencies, DCMS will lose £11.2m of future interest payments, of which £0.3m is tied to the two culture cases.

Repayments to date

DCMS lent £474m in repayable finance to 120 borrowers in the sports and culture sectors between October 2020 and March 2022 in the shape of Covid recovery loans.

A total of £256m went to 37 culture bodies through the repayable finance strand of the Culture Recovery Fund, with the remaining £218m going to 83 sports bodies through the Sport Survival Package and Rugby Football League Loan.

All culture loans were over £1m, while some sport borrowers received smaller amounts, with headquarters of culture loan recipients concentrated in London, whereas the sports loan recipients were more distributed across England.

The loans were issued on an average term of 15 years, with three running up to 25 years, and almost all were charged at 2% simple interest for the whole loan period. Some agreements include loan repayment holidays of an average of three years.

NAO’s report says 45% of solvent borrowers had made one repayment by October 2024, equivalent to £40.9m, or 97% of the repayments that were scheduled by that date.

Eleven borrowers – two in culture and nine in sport – have repaid their loans in full ahead of schedule, totalling £3.8m.

A further 61 borrowers are scheduled to start repayments in 2025, meaning all loan beneficiaries will have had their first scheduled repayment by next September.

Gareth Davies, head of the NAO, says that with all borrowers due to start repaying next year, the government should strengthen its longer-term plan for protecting taxpayers’ exposure.

Loan management system 

NAO’s report highlights that this is the first time DCMS has managed a significant loan book.

The department appointed two of its arm’s length bodies, Arts Council England (ACE) and Sport England, as loan agents, responsible for day-to-day monitoring and management of the schemes and relationships with borrowers, although all decision-making remains with DCMS.

In February 2023, DCMS awarded PricewaterhouseCoopers (PwC) a £1.9m contract to develop a data collection and storage platform to help support the loan agents manage the loan book.

The loan management system has been operational since June this year, 15 months later than initially planned and with a wider scope than first agreed after the value of PwC’s contract was raised to £2.9m.

NAO’s report reveals ACE has been “concerned” that the loan management system is not yet providing the full functionality needed.

The funder has advised the system does not recalculate borrowers’ interest payments if they default on a repayment or if they make an early repayment, meaning ACE is currently maintaining spreadsheet records that the loan management system was meant to replace. Sport England has also reported using spreadsheets for some analysis.

DCMS is planning improvements to the system’s functionality, according to NAO’s report, but as of December 2024, it is yet to agree on this work with PwC.

‘A high degree of uncertainty’

Elsewhere in the report, NAO reveals that DCMS has identified two possible incidents of fraud among its borrowers relating to loans valued at £2.2m. Both cases are still under investigation, with the potential fraudulent exposure being lower than the value of the loans, the report says.

There is no evidence in the report that the cases of fraud relate to culture.

In the conclusion, NAO adds there “remains a high degree of uncertainty over how much of the loan book will be repaid”.

The office says, given all borrowers should be making repayments by September, DCMS must “prioritise putting in place measures to track costs and its performance and determine its plan to protect future returns”.

In a statement, the chair of the Public Accounts Committee, Sir Geoffrey Clifton-Brown MP, said: “The government stepped in to lend just shy of half a billion pounds to the sports and culture sectors during the pandemic, saving many organisations from near-certain failure.

“Although progress has been made in recovering initial repayments, it is concerning that up to £29 million of taxpayer money could be lost from borrowers who have since gone under.”

He added: “Given the public money at stake, the department has more to do to
show it has a long-term plan for managing and recovering loans across the sectors.”