Summary: Mr C complained the Council unreasonably asked for repayment of a grant it paid to him in error. We find fault as the Council has not considered using its discretion not to seek repayment of the debt. This causes uncertainty for Mr C. The Council accepts this finding and has agreed to review its decision taking account of the findings set out in this statement.

The complaint

1. I have called the complainant ‘Mr C’. He complains the Council is unreasonably seeking recovery of a grant it paid in error to him from the Small Business Grant Fund (SBGF).
2. Mr C says repaying the money will cause distress following a difficult time for his business because of the impact of COVID-19.

Back to top

The Ombudsman’s role and powers

3. We investigate complaints about ‘maladministration’ and ‘service failure’. In this statement, I have used the word fault to refer to these. We must also consider whether any fault has had an adverse impact on the person making the complaint. I refer to this as ‘injustice’. If there has been fault which has caused an injustice, we may suggest a remedy. (Local Government Act 1974, sections 26(1) and 26A(1), as amended)
4. This complaint involves events that occurred during the COVID-19 pandemic. The Government introduced a range of new and frequently updated rules and guidance during this time. We can consider whether the Council followed the relevant legislation, guidance and our published “Good Administrative Practice during the response to COVID-19”.
5. If we are satisfied with a council’s actions or proposed actions, we can complete our investigation and issue a decision statement. (Local Government Act 1974, section 30(1B) and 34H(i), as amended)

Back to top

How I considered this complaint

6. Before issuing this decision statement I considered:

• Mr C’s written complaint to the Ombudsman and any supporting information he provided, including that gathered in a telephone conversation with him;
• exchanges of correspondence between Mr C and the Council which pre-dated our investigation;
• further information provided by the Council in response to written enquiries;
• any relevant law or guidance as referred to in the text below.

7. Mr C and the Council also had an opportunity to comment on a draft of this decision. I considered any comments made in response, before making a final decision.

Back to top

What I found

Relevant Government Guidance

8. In March 2020, in response to the COVID-19 pandemic, the government created grant schemes for small businesses to be administered by local authorities. One of these was the small business grant fund (SBGF).
9. To be eligible to receive a payment from the SBGF a business had to be eligible to receive small business rate relief (SBRR) or rural rate relief. Eligible businesses with a rateable value of less than £15,000 received a £10,000 grant.
10. Government guidance specifically excluded some businesses from receiving awards from the SBGF. This included “car parks and parking spaces”. (see Grant Funding Schemes – Small Business Grant Fund and Retail, Hospitality & Leisure Grant Fund Guidance – version 3, paragraph 22).
11. The guidance contained the following paragraph on what a council should do if it paid a grant in error. It said: “the Government will not accept deliberate manipulation and fraud – and any business caught falsifying their records to gain additional grant money will face prosecution and any funding issued will be subject to claw back, as may any grants paid in error” (source as above – paragraph 36).
12. In November 2020 the Government issued further guidance to councils which it advises they must “consider” when seeking recovery of debts created by having paid small business grants in error. It says this guidance “does not replace” the earlier guidance quoted above. The guidance says councils should take “all reasonable and practicable steps” to recover all such debts including those paid due to a council’s own error (see Grant Funding Schemes – Small Business Grant Fund & Retail, Hospitality and Leisure Grant Fund Debt Recovery Guidance for Local Authorities paragraphs 5 and 13).
13. The guidance says as a minimum councils should send invoices requesting repayment of sums paid in error and at least two reminders. It says if a council is owed £10,000 it should offer a repayment arrangement in instalments but should seek to recover the debt within 12 months of payment. It says councils can take civil recovery action if they choose (source as above – paragraphs 24 to 28).

Principles of good administrative practice

14. In 2018 the Ombudsman published a guidance document setting out the standards we expect from bodies in jurisdiction called “Principles of Good Administrative Practice”. This included the principle of ‘being open and accountable’. We said this included being open and clear about policies and procedures and ensuring information and any advice provided is clear, accurate and complete.
15. Another principle is that of ‘acting fairly and proportionately’. This includes dealing with people and issues objectively and consistently. Also ensuring decisions and actions are proportionate, appropriate and fair.
16. In May 2020 we issued an addendum in response to the COVID-19 pandemic; “Good Administrative Practice during the response to Covid-19”. We said that when introducing new or adapted policies councils should try to ensure they gave the right advice to service users. And that even where working to new national rule changes, councils should still consider the circumstances of each case.

Key facts

17. Mr C owns and operates a car park in the Council’s area, with a rateable value of less than £15,000. At the beginning of events covered by the complaint, the car park had a small kiosk. Mr C used this in part to manage the car park but also to sell books. The Valuation Office Agency, which maintains a list of all rateable buildings and land in England, describes the land as a ‘car park and premises’.
18. After the Government set up the SBGF the Council set up a process to pay eligible businesses which it identified from its rating list. The Council says it performed a manual check to try to ensure it did not make payments to businesses which were not entitled. However, due to an error, this failed to identify that Mr C’s business was a car park and therefore not eligible to receive funding from the SBGF.
19. Consequently, on 5 April 2020 Mr C received a payment of £10,000 from the Council. The Council says this was one of around 2,000 payments it made to businesses on that day.
20. The Council says that it sent a letter to Mr C to advise of the payment, although he says this was not received. The letter was of a standard wording sent to all grant recipients. It said: “if you accept the grant, you are confirming that you are eligible to receive it”. The Council then went on to list certain types of business which could not receive an award. For example, those which were not being occupied, which had gone into liquidation or where accepting the funds would put them in breach of EU State Aid rules. However, the letter did not mention the restriction on paying grants to car parks.
21. The letter also said: “Please note, the Council will take action to recover grant monies if you have been paid in error, or where a grant has been made based on incorrect information provided or relevant information being withheld”.
22. Mr C says he made a check with his accountant that he was entitled to the funding. He also sent an email to the Council to thank it for the money. He decided to use the grant money to help pay for a series of improvements to the car park which he has made over the past 12 months. This includes installing new contactless payment machines; electric vehicle charging points and replacing the kiosk with a bigger cabin. He now uses this to not only sell books but also stocks various leaflets etc. He says he took this last action with the encouragement of Council tourism officers, following the recent closure of a Tourist Information Bureau.
23. On 4 June 2020 the Council wrote to Mr C and said that having carried out ‘post payment assurance checks’ it noted it had paid him the grant in error. The letter said: “as your business is not entitled to the grant we require immediate repayment”.
24. Mr C complained about this decision. He told the Council about the money invested in his car park during 2020 for which he had used the grant funding.
25. In its response the Council explained the government guidance which did not allow small business grants to be paid to car parks. It said as Mr C’s business was not eligible for the money he should arrange to repay it.
26. In a subsequent letter the Council said it would accept an offer to repay the grant in instalments, but it wanted Mr C to provide details of his income and expenditure if requesting such an arrangement.
27. Mr C continued to complain. He said recovery was unfair given his circumstances and that he wanted the full Council to consider his case. He also asked the Council to consider if his main business was selling books and whether the car park was ancillary to this.
28. In its final reply, the Council restated Mr C’s business was never eligible to receive a grant.
29. In reply to our enquiries the Council has said that it does not consider the car park to be ancillary to any book sales undertaken by Mr C. It notes the small area of the land occupied for this purpose.

Findings

30. I have considered first the nature of Mr C’s business. In his representations about this matter Mr C has suggested he had a possible entitlement to a small business grant because he uses part of his car park business for selling books. I consider the Council should have addressed this question during its consideration of Mr C’s complaint. But it has now clarified its thinking on this point and I see no grounds to find fault with its view that Mr C’s business is primarily a car park, with any book sales ancillary to that and not the other way round. As such it had no entitlement to funding from SBGF.
31. I find Mr C therefore received a small business grant in error. He contributed nothing to that error with the payment resulting solely because of fault by the Council. I recognise it was working under exceptional pressure in early April 2020. It also put in place a checking procedure to try and stop any payments being made in error. But unfortunately, that did not prevent the error here.
32. The question then arises about whether the Council must seek recovery of the money it paid Mr C in error. The Council has suggested the November 2020 guidance from Government gives it no room for manoeuvre, given the strong expectation it places on councils to try and recover money in all circumstances where it has been overpaid. But I do not consider that the case. I find the Council must consider the November 2020 guidance, but it is not statutory guidance, so it is not bound by it. The November 2020 guidance also does not replace the guidance Government published in April 2020. That earlier guidance made clear the Council had discretion to recover grant money paid in error. It told councils they ‘may’ seek recovery in those circumstances. This was a deliberate distinction from the case of businesses which had obtained money fraudulently, where the guidance told councils they ‘will’ seek recovery.
33. Further a discretionary approach is the only one which is compatible with basic standards of good administrative practice. We consider that before deciding whether to recover a debt arising from its own error the Council should take account of a range of factors including:

• what it told the recipient at the time it paid the money;
• what reasonable knowledge the recipient may have had they were not entitled to the money;
• how long the Council took to realise its error and alert the recipient to that;
• what happened to the money in the meantime;
• the affordability and consequences of repayment;
• whether any special circumstances might apply.

34. I am not satisfied the Council has properly considered using its discretion in this case, which is also a fault. A decision on whether Mr C should repay the grant money should only follow after the Council has considered:

• that Mr C received the money unsolicited; he did nothing to contribute to the payment in error;
• whether the content of letters sent to accompany small business grant payments (which in any event Mr C says he did not receive) were enough to identify circumstances where a grant may have been paid in error; that letter did not mention car parks were excluded from the scheme; whether Mr C could otherwise have been expected to know his business had no entitlement to the grant;
• Mr C’s actions over the two months until the Council realised its error; he has provided an account for how he spent the money and says he can provide supporting evidence for this;
• the consequences on Mr C and his business of the Council seeking repayment;
• whether any special circumstances apply in this case; for example, whether it is reasonable to take account of the impact of COVID-19 on the business income; or whether it is reasonable to take account of Mr C improving facilities at the car park with the support of other Council services.

35. By failing to take a decision which refers to these matters the Council has caused distress to Mr C in the form of uncertainty. Because he cannot be satisfied that an administratively sound decision would have resulted in the same outcome with the Council seeking recovery of its debt.

Back to top

Agreed action

36. The Council accepts these findings. To remedy the injustice set out at paragraph 35 it has agreed that within 20 working days of a decision on this complaint, it will:

• apologise to Mr C accepting the findings of this investigation;
• agree to reconsider the case for repayment of the grant taking account of the factors listed in paragraphs 33 and 34 above; that decision should either be taken by a senior officer with no prior involvement in the case or referred to elected Councillors, either at full Council or at the appropriate committee; the Council will be entitled to gather evidence from Mr C in advance of making a fresh decision on repayment.

37. The Council has also agreed to try and learn wider lessons from this complaint. Within two months of this decision it will introduce a policy for considering repayment of business grants paid in error to support businesses impacted by COVID-19. This will take account of the advice given above on good administrative practice when considering debts caused by Council error as well as relevant Government guidance.

Back to top

Final decision

38. For reasons set out above I uphold this complaint finding fault by the Council causing injustice to Mr C. The Council accepts these findings and has agreed action that I consider will remedy that injustice. Consequently, I can now complete my investigation satisfied with its response.

Back to top

Investigator's decision on behalf of the Ombudsman