Margot James says it was a ‘big mistake’ to award government cash to US entrepreneur’s firm

The former digital minister, Margot James, has said she was “totally appalled” that a government scheme she had championed to foster UK cyber skills benefited an American businesswoman at the centre of a conflict of interest row involving the prime minister.

Margot James had successfully argued for the expansion of the cyber skills immediate impact fund (CSIIF) when it was used to award £100,000 earlier this year to Hacker House. The company was founded and run by Boris Johnson’s friend Jennifer Arcuri after she had moved back to the US.

James said she would be “very surprised” if Johnson had had any involvement in awarding the grant, but admitted the Department for Digital, Culture, Media and Skills [DCMS] made a “big mistake” in awarding the money to Arcuri’s company.

Speaking to the Guardian, she said: “It is a complete mystery to me how this company got anywhere near the money.”

The DCMS has launched a review into how the grant was made and withheld £53,000 that is yet to be transferred to Hacker House.

James, who resigned as a minister a week before Johnson became prime minister, said: “I’m totally appalled that the money was awarded to this company. Although it didn’t get my sign-off I was the minister responsible at the time, so that’s why I want to know now, belatedly, what happened.”

Matt Warman, a DCMS undersecretary, insisted last week that the department had done the “usual due diligence” over Hacker House before awarding the money.

“This is a company that is based in Britain as far as Companies House is concerned. It is a company with a British phone number,” he told the Commons. But when the Guardian phoned the UK number it got through to the US and when a reporter visited its UK-registered address he was told it was a “virtual office” and staff were based elsewhere.

Facebook Twitter Pinterest Margot James said doubts about Hacker House’s links to the UK were ‘obvious a mile off’. Photograph: David Hartley/Rex/Shutterstock

James, who is one of 21 Tory MPs to have had the whip removed after rebelling on Brexit, said doubts about the company’s links to the UK were “obvious a mile off”. She added: “Anyone can register at Companies House and provide a British number.”

She pointed out that the grant was designed to foster UK skills and was eligible only for genuinely UK-based companies. “We need the digital skills gap to be closed in the UK, not the bloody US,” she said.

James said she was alarmed to discover that in the case of Hacker House, the DCMS appeared to have waived a requirement for grants not to be awarded if they exceeded 50% of the company’s turnover.

Asked if she thought officials had been hoodwinked, she said: “I think that is the kindest explanation. I didn’t insist on ministerial oversight of the various applications. Perhaps I should have done with the benefit of hindsight. I would have look at the revenues and thought what’s going on here. We don’t want startups, we need companies with a proven track record.”

James also called for a “full and frank” review into what went wrong and for the department to avoid a government tendency to “close ranks”. She said: “I don’t think anyone has got any chance of sweeping it under the carpet. It is too out in the open now.”

Separately, it has emerged that when Arcuri first launched a website for Hacker House in 2015, it included a promotional video featuring Johnson endorsing her previous company, Innotech, and referring to Arcuri by her first name.

In the video, Johnson says: “Viva Innotech folks, and forward with all your deliberations. Will that do, Jennifer? Can I go now?”