David Cameron’s secret war on NESTA

NESTA has acquired a fresh chief executive, a radically different strategy and it will soon have a new, charitable structure. But the organisation was close to being shuttered by the Tories just a few years ago. Milo Yiannopoulos investigates.

The National Endowment for Science, Technology and the Arts, often churlishly called the “lender of last resort” by start-ups with private sector funding, is soon to be a radically different organisation from the one the Coalition Government inherited in May 2010.

But while most people know that its chief executive was replaced shortly into the new Parliament, that the organisation has started funding projects at a reinvigorated pace, and that it is embarked on the long process to turn itself from a quasi-autonomous non-governmental organisation (quango) to a charity, what you might not know is quite why this happening now, and why it has all happened so fast.

Before the last election, David Cameron’s Conservatives knew that serious reductions in state sector spending would have to be made if Britain were to remain solvent. It also knew that there were vast sums buried in quangos whose efficacy was questionable. Claiming this money might help soften the blow of recession and cuts and help the Government to pay the country’s debts.

One such quango, the party decided, was NESTA, which, uniquely, had a colossal endowment of £250 million, funded by the National Lottery. This was money the Tories were desperate to get their hands on.

In a list published by the Government in October 2010 of 192 quangos to be abolished, merged or reconstituted, NESTA stuck out as as odd choice for restructuring into a charity. But, if the Tories had triumphed, it would have been shut down completely.

The Tory argument was that NESTA published too many lofty reports and did too little to help enterprise in a practical way. An organisation with such terrific financial resources could not be justified in an era of austerity when its primary output was high-level, self-justifying strategy documents.

There were too many meetings with public relations companies and management consultants and not enough with entrepreneurs. Too few investments were being made, by inadequately qualified people and for too little money. NESTA had quietly become a ineffectual research body. It had to go.

Of course, not everyone shared that view. The Kernel spoke on the telephone last night to a NESTA trustee anxious to stress that the organisation’s structure has always been tripartite: only one shard of it is concerned with research and development. Another shard is dedicated entirely to investment.

But he did admit there had been “gross inefficiencies” and “too many high-falutin’ PDFs, not enough cash going into companies”. The more egregious wastefulness occurred, he was keen to stress, before the last chief executive, Jonathan Kestenbaum, had been installed.

“Jonathan worked wonders with an organisation that was, yes, well… not exactly returning much for that endowment, shall we say.”

Cash in the attic

But the Tories weren’t only anxious to improve the organisation’s performance. Documents seen by The Kernel indicate that they were desperate to snatch that £250 million endowment, too.

It can now be revealed that the party spent vast sums researching how it might be legally accomplished. According to one high-ranking member of the Conservative Party, who spoke to The Kernel on condition of anonymity, the amount spent on lawyers’ fees exceeded £75,000, and may have been considerably higher.

“Ultimately,” he says, “We failed to construct a convincing case for, I guess you could say, confiscating the money. That is to say, we lost. So, instead, we struck a deal.”

“All in all, it wasn’t a great result. NESTA’s to become a charity essentially independent from the Government – though, of course, we still have significant influence on it behind the scenes.

“Its money is now tucked away in an independent trust. Officially they can do what they like now. The flip-side, though, is that NESTA will shortly no longer be a part of the Government, with all the loss of perks, connections and door-opening that come with that.”

There have been a few casualties along the way to becoming a charity, with more possibly to come. Chief executive and Labour peer Jonathan Kestenbaum has been kicked out. And those trustees not keen on overseeing a third sector body are leaving.

A new chief executive has been appointed who, in the Tories’ minds, “takes NESTA’s responsibility as an investor more seriously”, and who has less of an interest in “wasting the endowment’s income on endless research and reports that read by no one”.

Kestenbaum was dumped – though allowed to present his departure as “moving on to bigger and better things”. (That is, in fact, perfectly true: he is now chairman and chief executive of Lord Rothschild’s Five Arrows investment group.)

He has since been replaced by a more acceptable candidate (to the Conservatives, at least), as of February 2011, while many in executive positions of NESTA have been quietly told to expect greater oversight from the Government and a renewed commitment to deploying public funds into deserving private firms and projects.

“In effect,” said our source, “We said you can carry on, but we want a new man at the top and a say, on the quiet, in how you’re spending money. They knew they were in the firing line, and that we could always try to come after them again, so they didn’t really have much choice.

“As I say, in the end it was a defeat for us. We lost the battle. And, without the cash, we were much less interested in what the organisation did with itself, which is why we agreed to turn it into a charity.

“The executive team presented the change to the trustees as if it had been their decision. I suppose you could say they jumped before they were pushed.”

Even if the state of public finances remains precarious, NESTA’s permanent existence would now appear to be wholly guaranteed, no thanks to the Conservatives, who manoeuvred for months to wind it up for a comparatively modest pot of gold. That pot is out of reach, administered by an independent trust.

Whether entrepreneurs have gained a more helpful, more enterprise-focused and more pragmatic body as a result – even if, strictly speaking, it will shortly be a charity – remains to be seen.