The global debate on how to save journalism from becoming a mendicant order because of digital dysfunctionality has been tackled in many ways. Yet, it seems that the state of the fourth estate is so bad that the mismanagement, abuse and fleecing of a government innovation fund set up to save public interest news can go on under their noses without anyone batting an eyelid.
The sad reality is that publications’ need for cash and financial sustainability led to chumocracy, rigged systems and a parliamentary cover-up in their own backyard and it is going unreported.
It begins with Cairncross
Falling circulations and publisher revenues, ongoing closures of local newspapers, losses of journalist jobs and the rise of ‘fake news’ and Brexit, led to the UK government asking Dame Frances Cairncross to undertake a review into the sustainability of high-quality journalism in the UK. The purpose of the review was to examine and make recommendations relating to: the overall state of the UK news market; threats to the financial sustainability of the UK news industry; the role and impact of digital search engines, social media platforms and the role of digital advertising.
The resulting report was published in February 2019. The review made nine recommendations to the Government:
- New codes of conduct to rebalance the relationship between online platforms and publishers
- CMA investigation of the working of the online advertising market to ensure fair competition
- A News Quality Obligation for online platforms
- The development of a Government media literacy strategy
- A review by Ofcom of the BBC’s market impact and role
- A new innovation fund
- New forms of tax relief
- Evaluation and expansion of the BBC Local Democracy Reporting Service (LDRS)
- Establishment of an Institute for Public Interest News.
The UK government’s full response was published in January 2020 and shows that it was broadly supportive of all the items put forward. At the time of publishing their full response, the government had already launched a pilot innovation fund. The speedy response and desire to show progress to the media and its stakeholders could well have been part of the reason the journalist community took their eyes off the ball in their primary role to hold power to account. It may also have been that they were so desperate for cash and anything that enabled them to get their hands on funds would be attractive and worth having.
The government department responsible for funding the Cairncross Review and the resulting News Innovation Fund was the Department for Digital, Culture, Media and Sport (DCMS).
In reading the Cairncross Review a bizarre scenario, not usually found in government-funded independent reports is noticeable. The review made a strong recommendation for an independent third party commercial operation, to launch a new fund focussed on innovations to the supply of public-interest news. The Cairncross review states:
This fund would need to be run by an independent body with specific expertise in journalism, and access to sector-specific research. To avoid any delay in the benefits innovation can bring, the fund should initially be managed by Nesta, which has previous experience of awarding innovation grants, and of evaluating projects.
The report also states that:
“In 2015 Nesta managed a fund of around £2m to encourage innovation in news gathering: it was too small to have much impact.”
This was the Destination Local Demonstrators competition that Nesta and the Technology Strategy Board, now known as Innovate UK, the UK government’s dedicated innovation agency collaborated on. Nesta primarily managed the outreach and communications, with Innovate UK managing and distributing the funds to successful applicants.
Cairncross also recognised that this innovation fund would be a government programme and that “Government innovation programmes are more likely to succeed if they begin with clear objectives. So it will be important to focus on a limited number of wisely selected key areas.”
The decision to unilaterally call out and recommend Nesta ahead of its own UK government Innovation Agency that had previous experience and successfully runs programmes distributing billions of pounds, and the BBC which administered the Local Democracy Reporter Scheme, was peculiar.
Some light may be shed on this seemingly odd decision when one considers that five members of the twelve-member panel assisting in the development of the Cairncross report seems to have benefitted from a direct association with Nesta. These associations range from working for successful applicants of the fund to working on joint initiatives and programmes of Nesta.
Who is Nesta?
Nesta, the National Endowment for Science, Technology and the Arts present themselves as the UK’s innovation agency for social good. They are widely considered to be the largest non-governmental innovation agency in the UK. In line with your typical innovation agency they design, test and scale new solutions for clients. However, in Nesta’s case their go to market is to look to work on larger societal problems.
In understanding the nature of the organisation and its power and influence in innovation circles it’s worth considering its history. In 1998, the National Endowment for Science, Technology and the Arts (NESTA) was launched with Lord Puttnam as its founding Chair, with a statutory remit ‘to promote talent, creativity and innovation in science, technology, and the arts’. At the time the Secretary of State for Culture, Media and Sport appointed the Board of Trustees and NESTA became a non-departmental public body.
Tackling macro level innovation challenges requires serious funds and in order to do this, the UK’s first ever publicly supported national endowment was created with £250 million of National Lottery funding (later supplemented, in 2006, with a further £75 million of Lottery funding drawn down over five years). The idea was that a secure income source would enable greater risks to be taken with UK-based innovations, which could be backed over the long term without being at the behest of government funding cycles and shifts in the political wind. This £325 million pot will become known as the general fund, more on this later. Given our recent COVID experience one might well ask why the £325million hadn’t been used considering public health innovations that may be needed when a pandemic impacted the UK, rather than formulating a significant central London property portfolio.
In the UK, a non-departmental public body (NDPB) is a classification applied by central government to public sector organisations that have a role in the process of national government but are not part of a government department. NDPBs carry out their work largely independently from ministers and are accountable to the public through the Parliament; however, ministers are responsible for the independence, effectiveness and efficiency of non-departmental public bodies in their portfolio.
A more pejorative term for NDPB’s is QUANGO. This refers to Quasi-Autonomous Non-Governmental Organizations. So, up until 2012 Nesta operated as a NDPB but due to George Osbourne’s the Conservative-Liberal chancellor, “bonfire of the quangos” they lost out and were one of nearly 200 bodies that were recommended to be closed, merged or transferred to others in the private sector.
Rather than close them up and fold them into the Technology Strategy Board latterly known as Innovate UK, or the Arts Council, the solution they set on was to become an independent charity and move the endowment that it had received to a separately held Trust. With a neat bit of commercial engineering, Nesta became the trustee of the Nesta Trust and since 2012 has been a separate charity that notwithstanding the significant endowment it started life with, competes for funds and donations in a similar way to other charities.
Chumocracy and non-charitable work with conflicts of interest on the side?
Nesta’s report and accounts show 2020 was a particularly good year for receiving funding from government bodies with over £14million coming in, up over 400% from the previous year with DCMS contributing over £5.245 million.
Just what the process was in deciding how much and for what DCMS decided to give Nesta £2 million remains unclear. No evidence of procurement for the specific £2 million Fund can be found within the government procurement portal. This may point to evidence that Chumocracy and unlawful procurements exist across all parts of government.
Following a series of Freedom of Information requests made to DCMS to try and understand this significant procurement anomaly, keeping in mind that government standards require anything over £5,000 to obtain multiple quotations, the department did acknowledge what was termed “an exception to standard competition process”.
When asked for comment on this oddity, Nesta’s response was vague as they stated that they didn’t know themselves and that we should ask the government department. We did, and found that according to DCMS, the awarding criteria were suitability, track record, trustworthiness, and value for money.
Putting aside internal operational and governance concerns of not knowing for what and why you were being given a significant grant and reflecting on the judging criteria applied to Nesta, it seems questionable for a registered Charity to be considered suitable in undertaking the implementation of an innovation fund for an activity that only very loosely aligns to the Trust’s objectives and was not deemed to meet the charity commission’s criteria of a charity.
Another oddity in selecting Nesta to be wholly responsible for the delivery of a public interest news innovation fund is the fact that they were also taking significant funds from Google. The publishing sector generally understands the rise of Google to be a major reason for the reduction in newspaper financial sustainability. The Cairncross review specifically identifies Google and Facebook market dominance in online advertising as of specific concern and warrant further investigation by UK regulatory bodies.
However independent the operational programmes arrangements of this nature, it has the potential to generate both actual and perceived conflicts of interests for the stakeholders which call into question the suitability, efficiency and effectiveness of the future news programme.
TFSMC has asked both DCMS and Nesta for comment on these points but at the time of writing, no comment had yet been received.
Consider Figure 1 below.
Figure 1 : Extract from Nesta 2020 Report and Accounts
The extract from Nesta’s 2020 Report and Accounts, shown in Figure 1, demonstrate that the Department for Digital Culture, Media and Sport transferred £1,984,000 to Nesta. It seems odd for a charity commission regulated entity with significant assets, to report an inconsistent picture for one of its largest programmes. In writing about the Future News Fund in ‘ strategic report the accounts state the following:
This balance is at odds with the actual £995k that was distributed to the 20 recipients. This begs the question of where the additional £500,000 went to? Digging deeper into the report and accounts a creative operational arrangement becomes apparent. Of the £1,984,000 received, £1,726,000 was reported as costs. These costs included the £995,000 of distributed funds to successful applicants. The DCMS money also contributed £118,000 to Nesta’s general fund. So rather than making the decision to fund a further two applicants, just over 5% is siphoned off and paid into the Nesta Trusts main fund currently valued at over £400m. According to the Grant Offer letter obtained under a Freedom of Information request by The Future Shapers and written between the junior minister and Sir John Grieve, this use of funds was ineligible.
Putting aside the monies that ended up in the general fund and the £140,000 that was left unallocated (which according to the Grant Letter should have been returned), a further three potential entities could be out there innovating and saving public interest news. According to the report and accounts, one is to assume it cost £731,000 to distribute £995,000, or put differently – it cost 73p to give out £1. Not a great return and questionable value for money. Perhaps part of the reason why the House of Lords Communications and Digital Committee’s called for “a more joined up approach with greater coherence to the various initiatives which financially support journalism.”
Where did the money go?
According to Vikki Sellick, Executive Director of Programmes at Nesta and writing in the end of programme report for The Future News Pilot, she said: “The Pilot Fund was always going to be just that, a nine-month £2 million pilot fund to see what is possible and make the case for change and further investment in the medium term.”
The nine-month programme ran from Autumn 2019 till June 2020. The rump of the programme being the five months from February to June, in which the 20 successful applicants delivered their respective projects.
For full disclosure, one of the reasons that this scandal appeared on The Future Shapers’ radar is that its sister brand FourZeroTwo, applied to the fund and was down selected to the final interview stage. FourZeroTwo was not one of the successful 20, but the experience at the time signalled inconsistencies worthy of answers.
Oddities not captured in the end of programme report are that the design of the pilot contained two tracks. Something that was termed an Innovation Sprint which would be run and supported by Nesta itself and an Accelerator Programme which was run and supported by Bethnel Green Ventures, a venture capitalist firm that Nesta have been an active member of since 2012.
The basic split between the programmes was that applicants that choose the Innovation Sprint option would be more research and investigation based to understand a particular aspect of public interest news that essentially needed fixing. The idea being that these types of projects would receive between £20,000 and £50,000 and there would be 8 – 12 successful candidates.
The Accelerator Programme was run by Bethnal Green Ventures (BGV). It was designed for commercial for-profit organisations, building a tech-enabled business, and were likely to need more sustained support, office space and investment connections. For this programme funding, up to £100,000 was supposedly available to support ideas. (More on this later). Both programmes ran between February and June 2020. A specific requirement was that funding had to be spent by June 2020. Primarily due to the fact that the original funds that the government department had set aside had come from a previous financial year. This is a common practice in government spending to project budgets but it could lead to an incentive for less governance and oversight. The Accelerator Programme ended up supporting 10 applications. It should further be noted that at the time of DCMS providing the Grant Offer for £2million, the details of the Accelerator and Sprint requirements were signed off in late October with launch communications on what was available going out in early November.
Getting a venture capitalist to run a 5-month accelerator programme for 10 businesses doesn’t come for free despite the opportunity to feather your nest and cherry-pick the best early-stage businesses that you may want to take a stake in for a lower market price. The signs that this was a prescribed requirement was the use of a dedicated VC investment application platform, that was not configured to the UK business market, let alone the concept of public interest news providers and that over half the questions in the application process related to businesses share, ownership and investment plans.
In reviewing the Nesta report and accounts for 2020, Social Innovation Camp, a separate legal entity that as with Nesta, is also an active member of BGV, with the same correspondence address and a crossover of people – earned £207,000 for the pleasure to grow their investment pipeline.
Pure profiteering and odd accounts
The first stage of the accelerator programme required applicants to propose ideas that needed 5 months of effort and up to £100,000 investment. When it came to the second stage the 30 candidates were asked to reduce their prospective budgets for the same 5-month programme, supposedly due to the high volume of applications and a reduction in the overall budget of the fund, despite having received a Grant Offer for £2 million pounds. This change resulted in none of the 10 successful applicants receiving more than £70,000 at an average of £53,500.
There was no significant reduction in funds for the overall programme £1.94m versus the £2m and that 20 applicants were funded in line with the funds original plan. The questions of who and why the fund coordinators at Nesta made the decision to hold back for themselves £524,000 go unanswered. If this £524,000 was costs incurred by Nesta over the nine-month programme, this scenario would be out of sync with the message communicated in the entities report and accounts that £1.5million was distributed to local media organisations. One would obviously expect a respected Innovation Charity to call out and correct any errors within their audited accounts. If it reflects genuine costs for 9 months of work, the question needs to be asked of how this output and resulting ROI compares to the UK government’s dedicated Innovation department, Innovate UK, whose key role is to run Innovation programmes.
The oddities of who got the money were not solely related to the VC that Nesta had a stake in. It also included an applicant that was founded by a Nesta Trustee board member, as well as an applicant founded by the sister-in-law of David Cameron and a senior editor in chief of a London paper. This level of proximity in public sector procurement is something that decision-makers work hard to ensure doesn’t exist for fear of breaching governance standards and attracting potentially negative media exposure. However, these failings did not surface as they might have for other sectors, potentially due to the risk of jeopardising short-term funds and the prospect of more substantive funds in the future. The need for cash and financial sustainability is so great that it became beneficial to keep your head down and not ask questions.
The final cover-up
The final insult to injury to this mismanagement and fleecing of the fourth estate comes in the form of the evidence provided to the UK’s House of Lords Communications and Digital Select Committee. Ironically an investigation undertaken to investigate how the production and consumption of journalism were changing, how journalists can be supported to adapt to those changes and how the profession can become more trusted by – and representative of – the general population.
The Select Committee is appointed by the House of Lords in each session “to consider the media, digital and the creative industries and highlight areas of concern to Parliament and the public”. The committee is made up of 13 Lords and Baronesses who hear evidence on areas of investigation prior to reporting their findings. The committee heard contributions in public sessions, one of which was the Nesta Future News Fund Programme manager who was asked to provide inputs on encouraging pluralism based on the fund’s performance.
The report states:
Again, miraculously the level of funds distributed has grown a further £500,000 to the full £2m. The committee were also left with the added response from Nesta’s Programme Manager that “We would love to have funded more. We were desperate to have a longer-term project, but it was a pilot set up and administered via DCMS and we had parameters. We functioned within that and we had a really high-quality selection. If we had had more money, we would have funded more organisations.”
This version of events doesn’t correspond with the comments made to Journalism UK at the launch of the fund by Valerie Mocker, Director, Development & European Digital Policy at Nesta, when she noted that “Nesta had asked for the original proposed fund size to be reduced to £2million on the basis they wanted to find their feet, before really going for it the following year”.
When asked for comment and explanations on oddities of the funds financials reported across the Programme Report and their Report and Accounts, the programme manager would only confirm that yes, grantees had received £995,000 Social Innovation Camp was paid £207,000 and the rest went to Nesta. This time around, pocketing over half between friends was seen as enough.. Whether the fund will be extended for a further year and be increased to the original £10million as envisaged are unanswered questions, but some heart can be taken from the House of Lords report that a more joined up approach to support and innovation is required.
In responding to the House of Lords committee report, no mention was made as to any future plans to extend the Future News Fund as one wouldn’t wish to draw attention to the current whiff of chumocracy it is probably best to let sleeping dogs lie.
The fourth estate has reached a new low. Saving public interest news must start with the right support for innovation going to the end publishers. It should not be an opportunity for innovation agencies to line their pockets with public funds. The Future Shapers will not be letting this story go to rest. We will be asking our questions again and will publish responses here.