Innovation Fund: Allegations of "pressure" to agree loans

Wednesday 17 May 2017

It emerged yesterday that “inappropriate pressure” was allegedly put on the Board of the ill-fated Innovation Fund to agree certain loans.

The allegations were made by the former Chairman of the Fund's advisory Board, Tim Herbert, in response to questioning by the Public Accounts Committee (PAC).

The Fund loaned out more than £2million of public money to 6 companies, with a report showing that at the end of 2016 £1.4million of repayments were overdue. 5 of the 6 companies are still trading, and so could still meet those repayments, with the other company, Logfiller, having gone into liquidation. 

The Board – consisting of an independent chair, four private sector representatives and non-voting advisors from the public sector – was set up to review all fund applications using their commercial and technical expertise.

During the Hearing, Mr Herbert outlined that the Board’s processes for dealing with applications – via a system in which applications were ranked A-C in order of their promise. He described the quantity of applications creating an unexpected “logjam” of around 50 at the start, and explained that the work required to handle these saw the advertised 10-15 days per year of work for Board members rocket to over 70.

Applications ranked under ‘A’ would then undergo thorough review, which involved meeting with bosses and their company staff, as well as appraising the figures used in their business plans.

Pictured: PAC Chairman Andrew Lewis led questions posed to Advisory Board Chair Tim Herbert and member Aaron Chatterley at the Hearing.

“It was not a short process… Indeed, in our first six months to a year, we were strongly criticised for a process that was too thorough and too cumbersome,” he said.

Mr Herbert later added that administrative support provided to the team was lacking: “At different points during the chronology, not just myself but others on the advisory panel had concerns that things weren’t done as quickly as possible...or as commercially as possible.”

But this wasn’t the only “pressure”. When PAC Chairman Andrew Lewis asked, “Did anyone ever put inappropriate pressure on the advisory board?”, Mr Herbert responded, “Yes.”

He declined to give specifics, claiming that it would be, “…inappropriate in respect of specific loans”, but said that this had come from a range of individuals, “…from different walks of life.”

When pushed further, he admitted that some pressure had been exerted by political forces and some outside of government, including on things, “…which barely got to the application stage.”

Aaron Chatterley, a member of the Board who was also present at the hearing, was similarly guarded on the matter, when asked if he wanted to comment he added: "No.  No, I do but I should not so I will not."

During the Hearing, Mr Herbert also took the opportunity to respond to criticisms levelled in Comptroller and Auditor General Karen McConnell’s damning report into the fund, which attacked some members of the Board for having declared financial interests in some of the companies which were supported, “…but nevertheless participated in deliberations.”

“Such an interest should, in accordance with normal standards adopted in the public sector (which are based on the Nolan principles), have meant that they did not take part in such deliberations. In my view officers should have provided a clear written framework for the management of such interests when the Board commenced its work,” the report added.

But Mr Herbert maintained that no Board member had a financial interest at the point at which the recommendation for funding to the States was being made, and that Board members would “regularly” leave the room during discussions of projects involving them, “…because that is the proper way to manage conflict.”

Nonetheless, he did acknowledge, “...one or two occasions” when the Board members remained in the room when it was considered that the particular members’ participation would be, “…for the greater good of the States as lender.”