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5.20 pm

Paul Holmes (Chesterfield): As a member of the Select Committee on Education and Skills, I am pleased that the importance of the report has been recognised by our debating it on the Floor of the House. The permanent secretary at the DFES said only yesterday that the report was very accurate and very good. The Government's recently published response accepts a good many, although by no means all, of its findings and recommendations.

The report is an important illustration of the key role that Select Committees can play in scrutinising the Executive, even though they do not as yet have enough independence or resources to do the job properly. It is

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also worth noting that the former Minister for adult skills, now the Economic Secretary, and his departmental officials were, as the hon. Member for Huddersfield (Mr. Sheerman) said, in the main refreshingly open and forthright in giving evidence to the Committee about what had gone wrong with the planning and delivery of the ILA scheme. It has to be said that that approach could be commended to other Departments, some of which are less willing to admit to their mistakes.

In principle, ILAs are an excellent scheme with wide support throughout the House and the country. Many reputable and capable training providers use them to deliver high-quality training to a very large number of learners. It is therefore all the more regrettable that the report had to be a damning account of what went wrong with their design and delivery at even the most basic levels.

First, the DFES devised a scheme that had absolutely no safeguards for the legitimacy or quality of those who were registered as training providers. It provided a cowboys' charter for the unscrupulous to rip off the taxpayer and the learner alike. All that people had to do was fill in one side of A4 with their name and address and details of the bank account to which taxpayers' money could be sent. That was it; there were no quality controls whatever and no prior registration or inspection system to ensure that a company was legitimate, or that it could deliver quality training with qualified trainers or provide quality distance learning materials. The scheme was a licence for the unscrupulous to print money.

DFES officials told us that they were trying to be innovative and to avoid bureaucracy to attract non-traditional learners and new learning providers. They certainly did that; by throwing the baby out with the bathwater, they created a scheme that soared past its 1 million user target in record time, but also exceeded its £201 million budget by 50 per cent. We will probably never know how much of that £300 million was lost to fraud and scams. The question also remains whether the main reason for the scheme's sudden closure was massive budget overrun, massive fraudulent abuse or a combination of both.

Secondly, Capita—a company that was supposedly expert in such work—failed to warn the DFES of the glaring scope for abuse in the scheme. It went on to run a scheme that was widely criticised by legitimate and experienced training providers because of its poor complaints system, a call centre that often could not cope with the volume of work and computer software systems with inadequate security built in. Capita, which was paid more than £50 million for the contract, boasts in its annual reports of its experience in handling Government and local government projects, including housing benefit schemes with complex systems designed to try to prevent fraudulent claims.

Not once, however, did Capita warn the Government that, although it could implement the scheme as the Government had devised it, there was no quality control on purported training providers, which left it wide open to abuse. Worse still, Capita went on to devise software that assumed that training providers were all genuine and which had inadequate safeguards. Mr. Simon Pilling of Capita told the Committee that

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Mr. Paddy Doyle of Capita admitted to the Committee that it was "a very open scheme".

How far the fraudulent abuse went is unclear. York Consulting was given 1,500 account holders' numbers by Capita, which said that they belonged to people who had used their accounts. When York Consulting contacted those people, however, 27 per cent. of them said that they had not used them. That shows one of two things—staggering incompetence on the part of Capita, whose records were so inaccurate, or a level of fraud that if repeated across all users would amount to up to £65 million or more lost to the fraudulent plundering of accounts.

The Committee's evidence was damning on all those issues, but the Department's own internal investigations, which were published yesterday in response to the Committee's report, make equally damning reading. The special internal audit review said:

Cap Gemini Ernst & Young was asked to carry out a security report on the Department's and Capita's operation of the scheme. It says:

It continues:

It goes on:

It observes:

It further comments:

It concludes:

So the reports go on—damning list after damning list of things that were not done by the Department or by Capita.

Thirdly, the Government mishandled the closure of the scheme. When the level of fraud and abuse eventually became evident, the scheme's sudden closure led to financial loss by legitimate training companies.

Mr. Andrew Turner: Before the hon. Gentleman moves on to the closure of the scheme, which was clearly

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a problem, he may be surprised to hear that in response to the Committee's recommendation—No. 30—that there should not be an automatic assumption that Capita should be the provider to take forward any new ILA scheme, the Government said:

to wind down the scheme. I understand that, of course, but they go on to say:

That suggests that it has already been decided that those who failed last time will get a second chance, which the small private providers that have gone bankrupt will not get.

Paul Holmes: I entirely agree with the hon. Gentleman about the effect on small providers and about the fact that the Government are ignoring the Committee's recommendation that Capita should not go on to run the second scheme. I shall return to that later.

As a result of the sudden closure of the scheme, legitimate training providers lost jobs and money, and some went bankrupt. Some companies are pursuing claims for compensation by various means and have complained to the ombudsman. A particularly legitimate claim for payment can be made by companies and further education colleges that continued to complete and deliver courses that learners had begun before the sudden closure of the scheme last November despite the fact that the DFES would not honour the ILA payments for those legitimate bodies to provide that training. On 30 November, seven days after the plug was pulled on the scheme, the Association of Colleges surveyed its members. Of the 105 colleges that replied, 84 expected to lose more than £1.25 million between them, because they were continuing to provide training to honour commitments that they had made to students, but the DFES would not provide the money for that training. Surely we can rely on further education colleges to provide the documentation to show that they have legitimate students, who receive legitimate training, and that the Government should therefore pay.

The Government wrote to all training providers—more than 9,000—and learners, to tell them that they had until 7 December until the scheme closed. They warned learners not to panic, and emphasised the date. However, they closed the scheme, with no notice, late in the afternoon of 23 November. Critical Skills, an excellent training company in my constituency, consequently lost out. It completes its accounts at the end of each month and therefore intended to send the paperwork to the Government at the end of November. That would have left it a clear week until the announced Government deadline. It could supply documentation, which I have seen and has been sent to the Government, to show that it provided legitimate training to more than 190 trainees. Yet the Government will not pay for it.

Many small training firms throughout Britain are in the same position. However, I understand that the Derbyshire learning and skills council stepped in to support the legitimate training that not only Critical Skills but other companies in Derbyshire provided but for which the Department for Education and Skills would not honour its commitment to pay. If Derbyshire learning and skills council can do that, why cannot the Government?

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What happens next? There are many unanswered questions and I hope that the Minister can enlighten us about some when he replies to the debate. I shall begin with some well-worn questions. How many charges for fraud have the police made? How many convictions have been secured to date? Has anyone been charged over the famous disk of fraudulently obtained ILA numbers that led to the scheme's sudden closure on 23 November? Has any file been passed to the Crown Prosecution Service about the infamous disk?

When will the replacement scheme be introduced? Small training providers throughout the country await the start of a new scheme, but many are going under or bankrupt while they wait. How will the new scheme work? Will it be confined purely to information and communications training? Will it aim only at those below level 2?

Who will run the new scheme? That brings us back to the comments of the hon. Member for Isle of Wight (Mr. Turner). The Select Committee recommended that it should not be Capita; its record in administering the ILA scheme was appalling and thoroughly documented by the Department's inquiry and the Select Committee report. However, do the Government remain bound by their previous ILA contract to work with Capita, despite its shortcomings? I look forward to the Minister's answers.

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