Select Committee on Education and Skills Minutes of Evidence


Examination of Witnesses (Questions 560 - 579)

TUESDAY 26 FEBRUARY 2002

JOHN HEALEY AND MR PETER LAUENER

  560. You had a system?
  (Mr Lauener) We got some analysis from Capita of the nature of the complaints coming back, and then the front end, where there were serious complaints coming back, we would take into our formal investigation process, but it was our responsibility to take it through our Special Investigations Unit and, if necessary, on to the police. There is one other point I would like to flag up: you place quite a lot of stress—and I think rightly—on monitoring complaints, because that is a very important indicator, but we also place a lot of stress, regardless of whether there were complaints or not, on Capita providing an efficient and speedy response service to people who did not complain but were just `phoning up to find out information. We wanted that dealt with effectively and efficiently, and Capita's expertise is precisely in providing that kind of service.

  561. Does that not indicate, again, exactly that this is a processing point, and if anyone had an educational argument or a difficult with their provider, they were not the people to answer that?
  (Mr Lauener) I think that touches on another point that the Select Committee looked at before, when I appeared with my colleague Derek Grover, which is the importance of information, advice and guidance, which I think is certainly an issue that needs to be looked at. I also think, if I can say, that as well as monitoring the things that I have described that we monitored through the Capita contract we also thought it very important to evaluate some of these educational outcomes and the sense in which the policy objectives were being achieved. That is why we commissioned York Consulting Ltd to produce the really quite interesting evaluation results with the very positive results that John Healey referred to earlier.

Mr Shaw

  562. You said earlier that when you were designing the system you did not ask yourselves "How can we create a system that is wide open to abuse?". It seems from all the evidence that what you should have been asking yourself is "Is our system open to abuse?" I think you could have only made one conclusion. We have heard from yourselves and from Capita "in hindsight", "with the benefit of hindsight", but I think it is reasonable for us to hold you to account, saying "What were you doing?" I wonder, Minister, when you arrived at your office in June and you were told by officials that there were concerns about ILA, did they show you the 12 bullet-point form that was required to be filled in by providers? Were you ever aware of the sparse nature of this form? When did you become aware of exactly what people had to provide—getting down to the nitty-gritty of how this scam and abuse occurred?
  (John Healey) You may be aware, if you look at the chronology, that that provider agreement was introduced after I took up my post. It was one of a series of measures that we introduced in late June, July, August and September that I detailed in paragraph 20 of our memorandum. Within the overall design of the scheme, those were the measures that we were able to take. In fact, one page as that might be, that significantly reinforced our grounds for, first of all, suspending providers who were contravening those and, second, moving to withhold payments or recoup payments that were made for learning and activities that contravened those. So in terms of tightening up the rules of the scheme, I do not think one should always look for a hefty volume. You look at the dimensions of the learning providers that actually agree to that agreement, it covers many of the areas that we were concerned about. It was not tough enough in the end, it did not toughen up the scheme sufficiently for us to stamp out the abuse, but that is not necessarily the problem of the product simply being a one-page agreement.

  Mr Shaw: I think that people might take the view that there is quite a big difference between this and a hefty volume, and that somewhere inbetween is what we want to ensure safeguards. Moving on, as you mentioned, Minister, to the chronology of events, last autumn—

  Chairman: Could I ask you to hold that for a second, because Paul Holmes wants a quick supplementary on performance.

Paul Holmes

  563. In all the various meetings you have put a lot of emphasis on how few complaints were actually received about the total scheme, and right at the end it was still only 0.61 per cent of the total. Are you confident that that is an accurate picture? The Committee has had quite a lot of written evidence and some oral evidence from learning providers who have said that it was very difficult to get hold of Capita to log complaints with them. In fact one of the written pieces of evidence from one set of providers said that of all the help lines they have ever had to use professionally Capita's was the worst they have ever come across, there seemed to be no complaints procedure and you could not get your complaints logged. So are you confident that the low level of complaints which you were receiving on the problems actually does reflect the amount of complaints which people were trying to log with Capita but, from what they are saying, they could not log with Capita?
  (John Healey) In terms of heavy traffic and heavy pressure, we are aware that the Capita system sometimes struggled in logging on, and transacting the business that learning providers wanted to do was sometimes difficult. There is an element I would just caution Mr Holmes to think about. In many ways there is something of a "scapegoating" of Capita in the Department just at present in terms of the retrospective review of how the system operated. In terms of your specific question, this is the data that we have, this is what we have to go on. It is impossible to tell whether or not there may be additional complaints that would have been logged if people were able to get on the telephone or the website the first time round. Whether or not these are an under-reckoning of the complaints, though, the nature and the volume, in my judgement, was sufficiently serious for us to have the concerns about the scheme and take the action we took to try to deal with them.
  (Mr Lauener) Perhaps I could add one point very quickly on that. We do still plan some further follow-up of individuals. Particularly where we are carrying out investigations of particular providers, we think part of the investigation we make will have to be to contact some individuals and be clear whether they have had the learning that the learning provider is claiming, or whether they have made a contribution. So we are certainly not leaving it just there, but I have to say, particularly with the pattern of build-up, that I regard these figures, even if they may be understated, as showing quite a rapid build-of serious complaints.

  Chairman: We have to move on. Jonathan Shaw wants to talk about chronology.

Mr Shaw

  564. Last autumn, when you became concerned about fraud, at the same time there were the spiralling costs, the £62.9 million overspend, and at the same time we had the success of 2.5 million account holders. Also at the same time the Department published the document "Delivering Results—a Strategy to 2006" that said it was the intention to expand ILA accounts. Is there some competing demand here?
  (John Healey) No, I would not describe it as "competing demand". In a sense, there is a difference between long-term policy aim and immediate challenges. By that long-term policy aim I mean if you consider the work of the Performance Innovation Unit, for instance, the work of that Unit and the report "In Demand: Adult Skills in the 21st Century" they published in December, alongside the Chancellor's pre-Budget Report, you will see that very much across Government there is the same sort of policy aspiration as you see in that document there; that placing more of the power to determine learning appropriated by individuals is an aspiration which is likely first to increase the interest that people take in their own learning, secondly to give us a vehicle where the individual is likely to invest more in their own training, and thirdly likely to produce a system where the providers of training are more responsive to what the individual is really needing and wanting. So in the long term the mechanism of an Individual Learning Account could become very much more than it is at the moment. At the moment it is a relatively small-scale discount scheme to try to hook new learners into new learning. Let us get a sense of proportion. £70 million is roughly the annual budget of the ILA scheme. We fund adult learners to more than £2 billion, for instance, through the further education system. This is a drop in the ocean in terms of overall funding, but a very important new mechanism for hooking new individuals in and giving them a stronger sense that it is they who are making the decisions and can determine the learning. So in terms of long-term aim, if we are able to meet the short-term challenge, which is now to mop up the problems we have had on the first scheme, launch a successor scheme that can be secure and successful and, if you like, rebuild the confidence in the credibility and confidence in the policy itself, then after that, but only after that, we may be in a position where we can pursue the sort of aspirations that you have seen in the document there to expand and develop the concept of the ILA further.

  565. It is a milestone. I am not sure a milestone is an aspiration, but clearly it is a milestone as it is laid down in this document. Is there a target beyond 2.5 million?
  (John Healey) The 2.5 million was the number of accounts opened—in fact about 2.6 million when we closed down the scheme. The redesign of the successor scheme will redefine the targets numerically and in terms of the sort of learners and the sort of learning we do wish to encourage through the Individual Learning Accounts.

  566. The Chairman mentioned at the beginning of the session about asking questions about the relationship between the Treasury and the Department. You made it clear that it was a decision that the Department made internally and then advised Number Ten and Number Eleven. What is going to happen about this £62 million overspend? Are you going to have to recover those costs? I am thinking, for example, that if, say, a college of further education overspent by this amount of money or equivalent proportion and Ofsted went in, they would clobber them, would they not? They certainly would not say that they were good value for money, would they?
  (John Healey) No. The overspend as at 31 January was £66.7 million. That is overspending on the £202.1 million two-year budget that we had. That will be found, I think we have now made clear, within the existing departmental resources, In fact, it is very much as a college would; if they have a similar sort of scale of overspend on their budget, they expect to be able to manage those sorts of variations and fluctuations within their overall programme. So that is what the Department has done. That is how the overspend on these two years of the programme will be covered. In terms of funding for a relaunched successor scheme, our budget for the next financial year for Individual Learning Accounts is about £70 million. The Treasury and Number 10 are very keen still on the concept and the policy of individual learning accounts, I am delighted to say. We have looked quite carefully at the sort of plans that we might want to put in place, because in a way we have very much got a point to prove, as the Minister responsible I now have a point to prove that we can design, devise and deliver successfully a secure ILA II scheme and rebuild the confidence and credibility that we would like to have seen from the first scheme that in the end was corrupted and undermined by the activities of that minority of providers that abused it.

  567. Can I ask one question on the disk that was provided to the Department with the names and addresses of account holders. How many people are we talking about?
  (John Healey) When our Special Investigations Unit went to see the learning provider that had contacted us on Wednesday 21 November, they were handed on Thursday 22 November a disk. It was explained to them it was a sample of the data that was apparently being offered for sale and this disk had details of almost 1,000 Individual Learning Account holders, names, addresses, contact numbers, UK residency status and ILA account numbers. The Special Investigations Unit returned that to the office, ran a check on it and the vast bulk of that individual data was demonstrated to be live, in other words ILA accounts which had not been activated with the exception of a few that had been drawn down in the previous few days. Alongside that were rumours circulating (and they were just stories at that time) that there were many thousands of such Individual Learning Account data available and being offered for sale. It is in those circumstances, having confirmed what were potentially very serious allegations of potential fraud and theft, that we took that decision on Friday 23 November, when Estelle Morris and I were briefed on this, that day to close down the scheme. That was the nature of the evidence described to you.

  Mr Shaw: Have you any idea at the moment of how many thousands you are talking about?

Chairman

  568. I really want to move on to looking at the future scheme and we are running out of time.
  (Mr Lauener) We cannot say for certain because we are following up a great number of loan providers that I have referred to earlier and the figures that are given in Annex 2 sum up the amounts of money that we have withheld from providers where they are under investigation, and the claims that are still to follow for Learning Accounts in dispute, so there is quite some millions of pounds in the value of these claims, either related to providers where we have withheld the money already or where those providers have—

  Chairman: A brief question and a brief answer.

Mr Shaw

  569. Is there any link between those people you are holding back payment for and the names and addresses you have got on the disk, any link between those providers?
  (Mr Lauener) Our investigations have shown a number of providers that were linked to the names on the disk and they are included in our follow-up investigations.

Mr Holmes

  570. Moving on to the launch of ILA II, in doing that you are going to need the help of the legitimate learning providers. Again, we have had various evidence presented to us of learning providers who have gone bankrupt as well as some non-profit making groups and some community groups. We have heard from Preston College that they have lost £300,000 because of the way the scheme was closed, that was the single biggest amount, and yet you say you have got no contract with them and you will pay no compensation. Is that still the case?
  (John Healey) Yes.

  571. Going on to an area we have asked you about before, some of the companies who provided training were working to their normal accountancy procedure of doing their accounts at the end of the month. You sent out a letter to all two and a half million account holders saying you were going to close the scheme on 7 December. In that letter that you wrote to all those account holders, you said, "Don't panic. Don't be rushed into signing up for something quickly, you have got until 7 December." Training providers, reading that letter, assumed that you were promising they had got until 7 December. As a result, some training providers, like one in my constituency where there were 196 people on their account, have lost all that money because they were following in good faith what you told them and the letter that you sent to two and a half million account holders saying "don't panic, don't rush". Do you not feel that you have any obligation at all to these people and these companies?
  (John Healey) I deeply regret what we had to do but, to be quite honest, the evidence of the disk that Mr Shaw has asked us about emerging on 23 November changed circumstances. It meant that we had no other option, and it was a reasonable and proper decision to take, in my view, that we closed down the scheme with immediate effect, in effect, I readily recognise, cutting by two weeks the time by which we had planned to wind up the scheme and there were inevitably individuals that would have lost out and learning providers that would have lost out, individuals whose learning providers would have been planning to book that learning on the system or make the claims for that learning after 23 November but before 7 December. We have had this conversation before. Closed for us had to mean closed. We had to freeze the system. We did so to protect the possibility of significant public funds being drawn from the system once we knew the nature of the data which was circulating. We did so on police advice and we froze the operation of the system. We isolated physically the sites where there data was kept. We therefore were not able to operate the system beyond 23 November and in those circumstances, those very particular circumstances we are faced with, we had to alter our plans, alter the decision we had taken which was to wind it up on 7 December and, despite being very conscious of the impact of a lot of individual learners and learning providers, we simply cannot operate some sort of scheme where people are saying we would have booked this learning or made this claim if you had not taken that action on 23 November. So logistically, as we have discussed Mr Holmes, that would not be feasible. It would not be the right course of action for us either.

  572. Where an organisation like Preston College, for example, or like a training company in my constituency have lost money, they have actually delivered this training because they felt honour-bound to go through with the training, they can prove they have delivered it, they have all the records, they have the account holders—the alleged accounts holders—who actually got the training; where they can prove that they actually delivered this training, but did not register because they took your letter of 23 November at face value, why cannot you still authenticate that training that was provided by legitimate companies and colleges?
  (John Healey) All I can say and repeat here is that the circumstances we faced on 23 November entirely changed the decision that we had to take and therefore the steps that we had to take to wind up the scheme. We closed it. We had to draw the line then. In practical terms it would have been very difficult to do otherwise, and in terms of public expenditure and the protection of that, which is part of my duty and Peter Lauener's duty, we simply had no other option.

  Chairman: I think we hear you on that. Valerie Davey.

Valerie Davey

  573. Improved security for the future will depend on the Cap Gemini study and report, no doubt. When will we be able to see that report?
  (John Healey) I think I have undertaken in my memorandum to let the Committee have the main findings of that report. I expect to receive that report next month. You are right, Ms Davey, that will be an important part of making the judgement that we will have to make about how we look to design and then deliver any policy decisions we have to take for a successor scheme.

  574. I know why you want to go on with this in more detail, but very broadly, then, given that you are talking about next month and the following month, have you any idea when the date that we are all looking forward to will be announced when this will be redrawn? Have you any idea at all?
  (John Healey) I shall do it as soon as I possibly can. The elements of the future evidence that I think I need to be in a position to make a proper judgement about, as to when it is realistic to relaunch the ILA scheme, include the Cap Gemini report, as you rightly say. We have an internal audit going on in the Department as well.

Chairman

  575. When will we get that? When will we see sight of your internal audit?
  (John Healey) I am happy to let you have the main findings of that as well, in a similar way as with the Cap Gemini report when that is available.

  576. ETA on that?
  (John Healey) I am expecting that and the Cap Gemini report next month. If I may finish, the comprehensive consultation which we are undertaking at the moment, on which I supply details in the memorandum, will be completed by the end of next month as well. I am looking for the work that we are doing in discussion with Capita and the Learning and Skills Council on the possible design features of any new programme for delivering that to be coming to me on a similar timescale next month, and although this is obviously a matter for the Committee, I very much hope that the fifth element of the evidence that I have to drawn on will be the report and the conclusions of this Committee. If that is again delivered next month, that can form an important part of our thinking.

Jeff Ennis

  577. Continuing on the memorandum and the section of the memorandum to do with lessons to be learned from the existing scheme, you quite rightly say that a balance has to be struck between openness and security, but what sort of level of verification checks will have to be brought into the new system without wanting to put off new learners? Who will have overall responsibility this time for making sure that the verification checks are carried out?
  (John Healey) I think the principal verification quality assurance needs to be around the learning provider that is registered, in order to deliver training or learning that we will be prepared to offer some support to through an ILA scheme. That is going to be the principal check. Whether or not we also try to introduce systematic quality assurance at the other end, if you like, in terms of the learning that is actually delivered, is quite an open policy point for us at the moment which would clearly have implications for the design and the delivery of any scheme that we introduce. What is emerging is that Members of the Committee will be aware that our first stage of consultation was a telephone interview with 400 learning providers that have offered to help us design a new scheme. One of the features that has come through very clearly there is strong support for withholding an element of the ILA payment until after completion of the learning. That may be—may be—a way that we can introduce some sort of check on the delivery of learning, without necessarily having a complex or comprehensive system for somehow accrediting the actual nature of the learning.

Chairman

  578. Minister, one thing that worries us is that if this was in the private sector I think your boss would say to you, "We've had a substantial setback in this. We want to relaunch. I'm telling you, Minister,"—or "young Healey,"—"that we want this by now, by that date, by this date, a specific date," to give you a target, to energise you. It seems to me, reading your material coming out of the Department and listening to you, that you can consult forever. What people out there, both providers and potential ILA customers, want is a date. Can I say that Budget Day will be the relaunch, or is that too early?
  (John Healey) I am certainly not so young, Mr Chairman! I understand the sort of agitation to have some announcement about when we expect to be able to relaunch the scheme. I will make that announcement, or I will be able to advise the Secretary of State, as undoubtedly she will want to make that announcement just as soon as I can. It is absolutely not a question of stretching consultation out ad infinitem. I have referred you to one of the interim findings that we have had already. We have several others. That consultation will be completed next month and that will form a part, but only a part, as I have explained, of the sort of evidence and the analysis that we need in order to make those decisions. In terms of the Secretary of State, I think she may like a date, but I think what she would like more than that is actually a certainty that when we announce when we propose to relaunch the scheme, we will be able to do so on that timescale. I think that we will be able to relaunch a scheme that builds on the lessons and all the mistakes that we have had in the first scheme. So I think that if you were to be speaking to the Secretary of State, that would be her first priority.

Mr Turner

  579. I have two questions. Do you have any idea of the number of jobs lost, the amount of financial loss, the number of businesses closed, the number of bankruptcies that have resulted from this decision?
  (John Healey) No. We have some anecdotes and some individual cases that have come to our attention, but the decisions that learning providers are taking in these circumstances, just as they took when the scheme was operational, really are a matter for them; we are not involved in those decisions, therefore we do not have a systematic way of gathering that sort of data.


 
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