Examination of Witness (Questions 519-539)|
WEDNESDAY 16 JANUARY 2002
519. Good morning, minister, welcome back and
a happy new year to you. We hope you had a good rest over Christmas.
(John Healey) Good morning, Chairman. Thank you very
520. I think you will remember very well that
because the Individual Learning Accounts took up all the time
at our last meeting, we did ask you to come back, and thank you
for agreeing to come back so quickly. We do not want to have the
same thing happen again, so I am going to suggest to you, if this
is agreeable, that we will spend 15 minutes talking about Individual
Learning Accounts and then we will shift to your broader responsibilities,
and a fascinating range of responsibilities they are. The Clerk
will keep us on track in terms of time. We will open straight
away where we left off in terms of ILAs. May I open by saying
there is a certain amount of unhappiness, certainly on my part
and that of some members of the Committee, at seeing the Financial
Times articles this morning. You did comment, minister, that
you would let us know. In a sense, we were trying to track forensically
what happened in terms of the ILAs, when the decisions were made,
when the concern first arose, and short the process was. If you
compare the Financial Times story this morning and your
letter to us, the worry that we have is that the meeting that
the FT refers to on 18 October is not actually included
in your letter. I wonder if you could inform the Committee why
that is. Was there a meeting on 18 October? Who was represented
at the meeting. Was the Treasury there? Did the meeting discuss
the fraud allegations or just the problems of the overspend?
(John Healey) There was a meeting that
week, on the 18th. It was entirely a DfES meeting. The two ministers
responsible, myself and Estelle Morris, were there. The permanent
secretary of the DfES was there and several of the key officials
who have an interest or a responsibility in this policy area.
It was solely a DfES meeting. That was the meeting at which we
examined the evidence. We looked at the problem and we took the
decision in principle then that we had no other option but to
withdraw the ILA scheme. We took the decision then that we needed
to give and we should give a reasonable period of notice, both
to be fair to Individual Learning Accounts account holders, to
give those that had not used their discount the chance to do so,
and of course with legal advice to make sure that as a government
in those circumstances we were acting reasonably and therefore
would not potentially be open to any judicial review or proceedings
for the action and decisions we took. It was after that meeting,
after the decision was taken, that we did some more work on the
logistics of what would be required to close the scheme within
that six-week period. It was at that point that we informed ministerial
colleagues in other departments, including No 10 and in the Treasury,
and it was on the Monday of the following week that I personally
also made calls to make sure that my counterparts in the devolved
administrations, who were obviously affected by this decision
that we were taking for England, were fully informed of the steps
we planned to take. And then, of course, as you know, Chairman,
Estelle Morris announced it on Wednesday of that following week,
the 24 October.
521. Can I just press you on one point. Who
called the meeting?
(John Healey) I called the meeting essentially. Having
worked closely with the officials responsible over particularly
the previous couple of weeks to make sure that I felt we had sufficient
data on which to marshall a decision, having of course during
that period kept the Secretary of State's office informed, this
was clearly a discussion and a decision that in the end had to
be taken with and by the Secretary of State.
522. When you called the meeting, was your concern
the fact that the scheme was running out of control in terms of
expenditure and the cost and did fraud come later? What was the
reason for the meeting?
(John Healey) As I certainly tried to explain at our
last session before Christmas, we had two things. We had evidence
from the summer of a mounting volume of complaints, including
just over a fifth of the complaints at that time that were about
the misuse of the system; in other words, activities of learning
providers, which, if they were substantiated, meant that they
were misusing and breaching/not complying with the system.
523. When you called the meeting, was it fraud
that was uppermost in your mind or was it the overspend?
(John Healey) Chairman, if you will forgive me and
allow me to finish, it was two things. It was the combination
of the two that really put us in the position where we had no
other option but to decide to withdraw the scheme. One was the
increasing volume of complaints, including serious complaints
about a minority of providers. The second thing was increasing
volumes of claims in particular patterns from some of these learning
providers about which we were getting the most complaints and
were starting to have the most serious concerns. I think, Chairman,
that pattern, if you like, has become even clearer since we took
that decision. In the letter that I sent you and the members of
the Committee yesterday, you will see that very clearly in the
pay claims, the claims for payment the learning providers had
filed that we were able to assess before Christmas. That last
week of the full operation of the scheme up to 21 November, you
will see from the letter there that nine per cent of those learning
providers about whom we had concerns and from whom we had withheld
payment were responsible for 76 per cent of the amount that had
been claimed in that week. In other words, you have the problem
with a minority of learning providers about whom we were getting
increasing numbers of complaints who nevertheless were filing
an increasing volume of claims, and therefore it was the combination
of the two in the context of having taken a number of steps over
the summer and the early autumn to try to tighten up the operation
of the scheme which clearly had not stopped this problem which
led us then to the decision that really the only step that we
could take to protect the interests of individual learners and
to protect the proper use of public funds was in fact to withdraw
the scheme. We made that decision in principle at that meeting
on 18 October and announced that decision on 24 October. That
was a discussion and a decision we had entirely internally to
the DfES and then, having made that decision, we informed colleagues
both within government, in Whitehall, and the devolved administrations.
524. Minister, can I just ask you to clarify
this a little bit. You tell us that when you were before us last
time, just before Christmas, you indicated that you were talking
about a small number of players that were causing the problem.
From that I asked the question "Why did you not then just
close down that small number of providers ...?" and I did
not feel I got a satisfactory response. What you are now saying
is that although it is a small number of providers they were causing
an increasing amount of problems and claiming an increasing amount
of money illegally and so forth. Surely that information was available
to you at our last meeting. Why this apparent move from saying,
"It is a small number of providers," when we last met,
to now saying, "Although it was a small number of providers,
they were causing an increasing amount of fraud within the system."
(John Healey) With respect, when we last met I was
able to give you figures that took us to about mid November. I
think the picture has become even clearer with the data that subsequently
I have been able to collate and the analysis that we have been
able to do and that I provided to you in the letter yesterday.
525. Can I come back to my original question:
Why, having identified the small number of providers and bearing
in mind the inconvenience you have caused to a large number of
people on this issue, both providers and those subscribing to
the system, did you not just close down that small number of providers?
Because that would also have dealt with the increasing amount
of claims they were making. If you had closed down the small number
of providers that were fraudulent, you would not have had an increasing
number of claims.
(John Healey) With respect, you may remember the conversation
we had on this at our last meeting, and I explained some of the
steps that we had taken over the summer and early autumn to tighten
up the system. We were in a situation where we made moves to investigate
and challenge and cross-question some of these learning providers
where we had concerns, indeed we suspended some of them during
that period, but, quite frankly, despite the changes that we made,
including a new registration process for learning providers, the
rules and the robustness of the scheme simply was not sufficient
to allow us to close down the misuse and at the margins the outright
abuse and some fraud that clearly was creeping into the system.
526. So what you are saying is that not enough
thought had been given to this subject of potential fraudulent
providers and how you would deal with them.
(John Healey) What I am saying is in the light of
the experience of a year of operation in the ILA system, what
became clear was that, whilst the vast majority of learning providers
were seizing it in order to deliver learning that a lot of people
were finding met their needs and to bring into learning a lot
of people who had not learned for a long time, there were a minority
who saw it as a fast track to cash from the Government and that
they were creative in the way that they tried to misuse that scheme.
527. Sure, I am not disagreeing with you on
that, but what we are agreeing, I think, is that you did not have
the systems in place to deal adequately with fraudulent providers.
(John Healey) The design of the ILA system, in the
end the decision to which we came, was not sufficiently strong
to allow us to stamp this out.
528. I think we are agreeing.
(John Healey) But clearly within the system what it
did allow us to do was to take these concerns, trigger inquiries
from our own investigations, and in the end, of course, gave us
the grounds clearly and the evidence that we needed to make what,
I would repeat to the Committee, was a very difficult decision
because we were conscious of the disappointment that would cause
to so many learning providers and indeed learners as well.
529. Did the Treasury press you to keep the
scheme going despite all the problems?
(John Healey) No. There was concern from a number
of quarters that the ILA scheme, that was, you will know better
than anyone, Chairman, a flagship of the sort of bid to bring
new people into learning and to boost levels of interest and demand
for learning, there was concern that what was a flagship, cross-government
scheme that the DfES was responsible for appeared to be in such
problems that there was no other alternative but to withdraw it
in England. They, the Treasury and others, quite rightly, as we
had asked ourselves, considered the very question Mr Baron asked,
"Is there no other option for doing this?" and "Should
it not be continued?" Having looked at those questions very
carefully ourselves within the DfES and come to that judgment
and decision that there was no other option but to withdraw it,
we clearly explained that. That settled any questions that others
within the government might have and we proceeded, as we and the
DfES had decided to do, to withdraw the scheme with effect from
December 7. Then of course the second issue arose that forced
the decision to withdraw the scheme with immediate effect in November,
on the 23rd.
530. Minister, in November I asked you how much
the programmes had overspent by. At that time you told me, looking
at the transcript, that you were not in a position to be able
to tell the Committee. According to the report in the FT,
in October the department knew that you had overspent by £30
million. Why did you not tell us in November that you had overspent
by £30 million? Was it that you wanted to avoid a total calamity
or were officials not providing you with that information? Or,
rather than conspiracy, which I am suggesting, was it just more
(John Healey) Mr Shaw, I would advise you first of
all not to believe everything you read in newspapers, even the
Financial Times. The situation was, as I have explained
earlier, that we were aware of course there was a budget overspend.
It was very difficult to make any calculation with any certainty
at all about what that would be. I explained that to the Committee
when we met in November. We had not done the sort of calculations
with the certainty I was able to do after we met and, when we
were able to do that, with a clearer picture I then informed the
Committee as soon as I could that the overspend to the point that
we could calculate it with certainty in those circumstances, which
I think was November 23, was at that point £58.8 million
against the budget that we had over two years. Subsequently, of
course, having made some further payments against claims that
had been submitted to the Capita centre before it was closed down
on the 23rd, that now is £62.9 million.
531. So this £30 million, that information
that is reported in the paper, was not known by the department
in October or it was not accurate enough, is that what you are
saying, in order to bring it to the Committee?
(John Healey) Any figure like that, at that stage,
with the degree of uncertainty that was there about the activity
and the degree to which we were exposed, would inevitably have
lacked accuracy and certainty. I would not set any store by a
figure such as that that the Financial Times might have
got hold of.
532. Initially the department said that they
were going to suspend the scheme on 7 December and then suddenly
on Friday 23 November they said it was suspended from that day.
There are a number of companies around the country, including
one in my constituency that I have written to you about, who were
working towards the date of 7 Decembertheir monthly accountancy
procedures would fall in the week after 23 November. The company
I have written to you about have about 150/200 people on the books,
but because they had not registered them by Friday 23 November,
because they were aiming for the date of 7 December, it would
now appear from the various correspondence they have had from
you that they are not going to get consideration for payment,
although you are, subject to validation, paying everybody up to
23 November. Does your department propose to do anything for those
companies who have not got legitimate registration in by the 23
November because they were working to your initial date of 7 December?
(John Healey) Mr Holmes, I appreciate the position
the company in your constituency is in, and there are a number
like that which have contacted the department, but, if you pause
and think, we simply could not do anything other than say we would
honour the claims that had been properly made at the point that
we closed down the system. We could not possibly have closed down
the scheme and the system and then had an arrangement where people
could have said, "Ah, but next week we were planning to file
another 600 claims, you have got to take these into account."
The circumstances with which we were faced on 23 November were
so serious and so severe that we really had no other option but
to close that scheme down with immediate effect. I hope the further
details that I have been able to provide to the Committee in my
letter to the Chairman yesterday explain the nature of that and
explain the decision that we took and really, I hope, explain
that really that was the only decision we could have taken in
533. I accept that you may have had to move
very quickly on 23 November. Nonetheless, if companies can provide
you with their company accounts, their details, the written letters
from people involved, all of which show that they are valid, legitimate
claims but that they did not file them by your emergency close-down
date because they were aiming at the date you told them to aim
for, surely there should be some leeway there for legitimate companies
who, as I say, have got the paperwork. I can send you some of
the paperwork for this particular company, to show that they are
(John Healey) We can only accept as valid and legitimate
claims that were actually filed in the system before we closed
it down. To do anything other is impracticable and would not be
something that we really could or should do.
534. Surely in private business, if a company
said, "We will pay you out by a certain date" and then
they brought it forward two weeks, they would not be allowed in
a court of law to get away with that.
(John Healey) No, of course, but the circumstances
you are describing there would be circumstances where the two
companies had a contract between them. What I have explained to
the Committee and said in the House at other times is that under
the ILA system the Government had no contract with learning providers
that were registered to draw down discounts under the scheme.
535. In your letter of 18 December, minister,
you say that there would be in January and February a systematic
consultation with providers, learners and other stakeholders about
the way forward to establishing a replacement scheme. Has that
(John Healey) Yes, that has started. We have got a
company working with us to conduct that consultation. The 400
or so learning providers who have already offered to help us in
redesigning a successor scheme will be contacted first. All the
other registered learning providers and other organisations that
have an interest in the scheme will have an opportunity also to
comment and offer us their views. We will do a survey of some
of the Individual Learning Accounts account holders as well, as
part of the groundwork and consultation we think we need to do
to try and get both the design of the successor policy and the
design of the successor system sorted out.
536. Is there a deadline for an innovation on
(John Healey) I am looking for an interim report on
that in February and I am looking for that to be completed probably
by early April.
537. In retrospect, what are the main conclusions
that you have drawn to date about the policy and implementation
failures that led to the collapse of the scheme?
(John Healey) With respect, Mr Chaytor, we covered
some of this at our last session and my views have not changed
since then. I can go over them now ...
Mr Chaytor: It would be useful if you could.
538. Briefly, minister.
(John Healey) Briefly. Policy. Innovative, radically
new scheme. Seized the imagination of learners in a way that nobody
anticipated and to an extent that nobody anticipated, therefore
hitting our one million ILA holders nearly a year early, drawing
manyI think it is around one in sixwho were new
to return to learning, encouraging new providers and new provision
to be offered. However, as a universal offer, also one that was
taken up by someprobably our best crude guess might be
up to about a halfwho say that they would not have needed
the ILA discount in order to pay for their course. Whether or
not they would have taken the course and paid for it anyway is
another matter, because, if you like, there is both the financial
support aspect to the contribution and of course the incentive
contribution as well.
Chairman: The last word to Andrew Turner, as
long as he does not take more than a minute.
539. The message seems to be to providersand
this applies in some other aspects of government as well: "Don't
do anything on the Government's say so, wait until you have got
a contract in writing." Is that correct?
(John Healey) No, I would not say that at all. It
was clear from the outset of this scheme, and no learning provider
that decided that they wanted to take advantage of ILAs had any
contract at any point with the Government on thisand that
is different from some of the arrangements for the delivery of
other learning programmes, but that is the nature of the ILA system.
So it is tough but it is a reality of the situation that they
were faced with and that we are in now, which is that the decisions
that any learning provider took to build ILAs into any of their
business planning was a matter for them. Our first and principal
relationship as a Government was with the individual learners
that we wanted to encourage to use the ILA to take up learning