House of Commons - Education and Skills

Select Committee on Education and Skills Third Report

THIRD REPORT

The Education and Skills Committee has agreed to the following Report:

INDIVIDUAL LEARNING ACCOUNTS

1. The Individual Learning Account [ILA] scheme collapsed in the autumn of 2001 amidst two main concerns: its rapid growth had outstripped its expected cost to public funds; and there were suspicions that abuse of the scheme had become so endemic that it could not be eradicated without killing the scheme itself.

2. The overall aim of the Individual Learning Account, which came fully into effect only in September 2000, was to widen participation in learning and to help overcome financial barriers to learning faced by individuals. Mr John Healey MP, Parliamentary Under Secretary of State for Adult Skills at the Department for Education and Skills [DfES], told us that the concept and policy were very much inspired by the Chancellor of the Exchequer.[1] The ILA programme was universal; everyone aged 19 or over (subject to some nationality and residency conditions) had a right to an ILA. The individual could choose how to 'spend' their ILA on training (subject to some exceptions) which could amount to a Government subsidy of £200 for certain courses priced at £250. From the individual learner's point of view, it was a fairly simple proposition: if you signed up for an ILA, you could get up to £250 worth of computer training, for example, for only £50. In giving evidence to this Committee on 12 November 2001, Mr Bryan Sanderson, Chairman of the Learning and Skills Council, described the ILA as "conceptually very clever".[2]

3. The Government set itself only one target, that of reaching one million ILAs by March 2002.[3] In fact, the opening of the millionth account was announced in May 2001.[4] By the time of the scheme's suspension in October 2001 there were 2.5 million accounts logged on to Capita's computer system. The DfES told us that "it was clear that the lighttouch, nonbureaucratic nature of the programme designed to reach nontraditional learners was successful — 1.4 million learning episodes were booked — but regrettably, this also enabled a minority of unscrupulous learning providers to act against the ethos of the programme".[5] The actual level of fraud, misuse and abuse of the ILA scheme may never be established, partly because no common understanding of 'misuse and abuse' has been achieved. What we do know is that over its first two years, spending on the ILA was at least £60 million higher than the expected £200 million.[6]

4. On 24 October 2001, Rt Hon. Estelle Morris MP, Secretary of State for Education and Skills, announced that the ILA programme in England would be suspended from 7 December 2001.[7] On 23 November 2001, the ILA programme was shut down immediately, two weeks earlier than had been announced on 24 October.[8] ILAs featured prominently in an Opposition Day debate on 6 November 2001,[9] and were debated in Westminster Hall on 11 December 2001,[10] as well as in oral and written questions. So much time was taken up by ILAs in our initial meeting with Mr John Healey MP on 28 November 2001 in our introductory 'baseline assessment' series of Ministerial evidence sessions[11] that he agreed to return on 16 January 2002 to discuss the remainder of his Ministerial portfolio.[12] What he told us on that second occasion prompted us to postpone our planned programme of meetings and to launch an immediate fast-track inquiry into ILAs with the following terms of reference:

to examine the lessons from the closure of the Individual Learning Account (ILA) scheme, for the future of the DfES's lifelong learning strategy in England, with particular reference to:

management
policy
plans for replacing the ILA scheme.

5. In our fast-track inquiry, we took evidence from DfES officials, representatives of computer training companies, the independent researchers York Consulting, trades union representatives, the National Institute for Adult Continuing Education, the Association of Colleges, the Association of Learning Providers, the Learning and Skills Council, Capita (on two occasions) and Mr John Healey MP, the Minister for Adult Skills at the DfES.[13] In addition we received a large number of written submissions, some of which are published in Volume II accompanying this Report.[14]

Background

6. The idea of individual learning accounts had been around for a number of years.[15] The last Conservative Government proposed a similar system in its Competitiveness White Paper published in May 1994.[16] It appears that the results of pilots and consultation persuaded the Conservative Government that ILAs were not a sensible way forward, as they proved administratively complex and ineffective in reaching those most in need of reskilling. The 1996 Competitiveness White Paper said:

7. We are concerned that the reasons for the Conservative Government's decision not to proceed with an individual learning account may not have been given sufficient weight by the Department in setting up their version of an ILA after 1997.

8. The Labour Party Manifesto for the 1997 General Election contained a commitment to introduce ILAs, to be funded initially from Training and Enterprise Council [TEC] reserves:

9. In February 1998, the Learning Age Green Paper confirmed that the Government intended to introduce a national system of ILAs and provided details of how a series of pilot projects would operate:

"2.14 We will test different approaches to learning accounts in preparing for a national system. For this work to provide useful answers, we need to test real reactions to different forms of learning accounts. As part of this work, and to provide impetus to learning accounts, we propose to support up to one million learning accounts, funded by £150 million from TECs' resources. These will be based on two main approaches to learning accounts: the universal and the targeted.

the universal approach will offer accounts to anyone at work wanting to learn. Everyone will have to invest a minimum amount of their own money in their account, either as a lump sum or in the form of a commitment to regular saving. The Government will then support that initial investment, up to a maximum public contribution of £150 for each account. It will be open to others - for example, employers - to contribute to a person's account in cash or in kind;

the targeted approach will use a proportion of these one million accounts to support particular learning or skill needs; for example, people without qualifications and in lowskill jobs, areas of skills shortage, employees in small firms and those seeking to return to work."[19]

10. Mr Derek Grover, Director of Adult Learning at the DfES, told us that the universal offer and the targeted element of the ILA were "the issues that we addressed in designing how to deliver against the Manifesto commitment".[20] Mr Grover recognised that "getting the balance between those two of course is one of the things that we tried to get right this time and would want to address in producing a new policy."[21]

11. Presented with a manifesto commitment, and a single target of one million users, insufficient attention was given both to the reasons for the previous rejection of an ILA scheme and to ensuring that quantity was balanced by quality. While the development of targets for the achievement of policy objectives is to be commended, such targets should be based on outcomes not tied to specific delivery mechanisms.

The TEC pilots

12. In June 1998, the Government announced £2 million for 12 pilot projects to carry out development work on the new accounts. Three other projects outside the 12 development areas started later and were run in parallel with support from the DfEE. The development projects ran between 1998 and 2000.[22] The DfEE published the results of an evaluation in August 1999 which concluded that the biggest achievement of the development projects had been to demonstrate that it was possible to access nonlearners through the ILA product, although it found that the techniques required had been "time-consuming and resource-intensive".[23]

13. From April 1999, TECs in England operated local arrangements and offered a limited number of accounts, a proportion of which were targeted at particular groups, such as people returning to the labour market and those with no or low qualifications. By the end of September 1999, 56,917 individual learning accounts had been opened by TECs in England, to which TECs had contributed £2,927,749.[24]

14. Mr Peter Lauener, Director of the Learning and Standards Group at the DfES, told us that TECs were more likely to use their existing provider network.[25] Mr James O'Brien, of Pitman Training Group plc and the Association of Computer Trainers, told us that —

15. The implications of opening up the scheme to new providers not known to TECs was not thought through either in terms of the quality of learning on offer or the risk of fraud. As a significant change to the pilot scheme, this should have merited greater consideration.

Saving to learn - the original delivery model

16. The DfES told us that the original delivery model, piloted in a variety of forms through Training and Enterprise Councils, envisaged the concept of a real, as opposed to a virtual, account where individuals could bank and save their own money in addition to any other contributions from, for example, Government, employers and trade unions.[27] Mr Derek Grover explained that the initial model the DfEE looked at was "one in which we were trying to develop something that looked much more like an account in the sense of a financial services instrument, so we began a very extensive series of discussions individually and collectively with a range of financial institutions to see if we could develop some sort of public/private partnership with one or more of them to deliver individual learning accounts".[28] After "really very extensive discussions with financial institutions, it became plain we were not going to be able to set up with them a model that enabled us to work jointly with them to offer individual learning accounts".[29] There were two reasons for this —

market research showed that individuals were not particularly interested in saving for learning. They were quite prepared to borrow for learning and in some circumstances to pay for it, but saving for it as a proposition was not something that appealed very much so there did not seem to be a great deal of market for it.
the financial institutions themselves were not especially interested in developing a product of this sort.[30]

17. Faced with the rejection of a savingsbased model (which had not been considered by the previous Government), the Department turned to models which had been considered and rejected. The reluctance of the private sector financial institutions to develop the ILA was significant.

18. The National Institute for Adult Continuing Education [NIACE] doubted whether the banking metaphor at the heart of the ILA policy had anything to offer the hardesttoreach learners, given that more than 2 million adults do not use any mainstream financial services at all.[31] Another estimate is that up to 7 million people in the UK have no current account at a bank.[32]

19. The DfES decided to keep the concept of the individual, universally available, account but based on discounts for learning. It was felt that a new delivery mechanism was necessary in order to achieve the sort of cultural change in attitudes to training that was desired. In order to be sufficiently attractive for individuals to contribute to their learning, the mechanism had to be empowering, giving control and freedom of choice. Equally, the level of discount had to be sufficient to incentivise individuals to manage, plan and invest in their own learning throughout their lives, whilst ensuring they retained a personal stake through individual contributions.[33]

20. Far from being a savings account, protected by the individual's lively sense of looking after their own money, the ILA now became in effect a kind of voucher.[34] This was the point where there should have been a fundamental re-think about the whole ILA project. Once the savings concept had been replaced by a straightforward offer of a Government-subsidised discount, the name "Individual Learning Account" ceased to be a strictly accurate description of the scheme.

The National Framework

21. Building on the remit set out in the Labour Party Manifesto, there were extensive consultations in developing the ILA policy. The Department actively engaged learning providers and other key stakeholders and partners, for example, through the consultative document ILAs Making Them Succeed (July 1997); ILAs Development Guide (April 1998); and a Windsor consultation (2425 June 1999). Following the Budget Statement in March 1999 and the development of the statutory framework through the Learning and Skills Act 2000, several seminars were held with learning providers and other partners in 2000.[35] KPMG advised the DfES throughout the development phase of the national framework.[36] We expect that the National Audit Office will examine closely the quality of the contribution made by KPMG and the adequacy of the Department's response to the advice it received.

22. Mr Derek Grover of the DfES could not recall specific discussions with other Government Departments on the vulnerability to systematic fraud of the model chosen for delivery of ILAs.[37] The Audit Commission had warned in 1998 that "computer crime is on the increase and while key risks remain new dangers are emerging".[38] In his foreword to the 1998 Beating Fraud Green Paper, the Prime Minister had pointed out that "all kinds of fraud, from petty 'fiddles' through to criminal gangs setting out to defraud the system of hundreds of thousands of pounds, take money away from where it is needed most".[39] He pledged that the Government would work across boundaries - with all Government departments, and with local authorities and others - to share expertise and create a professional approach to anti-fraud work. We regard the failure of the Department for Education and Skills to learn from the mistakes made in the past by its predecessors and other Government Departments to be one of the most disturbing aspects of the ILA experience.

23. Sections 104 to109 of the Learning and Skills Act 2000 granted the Secretary of State regulationmaking powers to set up a framework for ILAs in England and provided equivalent powers to the National Assembly for Wales. The Individual Learning Accounts (England) Regulations 2000 (S.I., 2000, No. 2146) were laid before Parliament on 8 August 2000 and came into force on 1 September 2000. Parliamentary debate on these Regulations, laid during the summer recess under the 'negative' procedure, was not required.[40]

24. To qualify for an account, individuals had to be aged 19 or over and ordinarily resident in the UK. Individuals had to register with a body approved by the Secretary of State. The Secretary of State had wideranging powers under the regulations to decide the amount of any grant paid in respect of an ILA holder, the level of discounts for courses and the types of education, apart from secondary or higher education, which might attract the grants.[41] In practice, many of these details were set out in documentation issued by the DfEE and included the following features:

To open an ILA an individual had to contribute at least £25;
The first million accounts opened, including those accounts opened through the TECs during the pilot stage, would receive a grant of £150 from the Government;
Once one million accounts had been opened, holders of ILAs would be able to claim a 20 per cent discount on most courses up to a maximum of £100;
Certain courses attracted an 80 per cent discount up to a maximum of £200 in any one year and these discounts were available in addition to the £150 grant to the first million account holders;
Incentives were payable only against any part of the course fees paid for by the learner and not any part of the course fees paid for by a third party such as an employer;
Certain kinds of learning were not eligible — mainly recreational and sporting activities where the outcome was in pursuit of leisure rather than learning, for example, skiing lessons.[42]

The 80 per cent discount and the end of vocational tax relief

25. The Chancellor of the Exchequer announced in his 1999 Budget that "for all adults signing up to improve on their basic education -- including computer literacy -- there will be a discount of 80 per cent on course fees. And we will pay for this measure in tax-free learning by phasing out existing vocational tax relief which has been paying for non-vocational courses like diving and flying lessons."[43] The courses qualifying for the 80 per cent discount were limited to a narrow range of IT and Maths courses specified in the DfEE guidance, such as NVQ level 1 Using Information Technology, the European Computer Driving Licence and GCSE and Key Skills 2 Maths.[44]

26. Vocational training tax relief [VTR] had been announced in the 1991 Budget and came into operation in April 1992. VTR was available on payments for activity which could count towards a National Vocational Qualification [NVQ] (up to and including level 5).[45] The relief did not depend upon succeeding in getting the qualification, and there was no need for claimants to be studying (or intending to study) for an NVQ, as long as the claimant was learning something which was capable of counting towards the NVQ. Basic rate relief operated on the 'at source' principle like MIRAS - Mortgage Interest Relief at Source - through the training provider who registered with the Inland Revenue and claimed reimbursement from them on the basis of claim forms collected from trainees, including non-taxpayers. Higher rate taxpayers claimed the basic relief like everyone else and then claimed the additional amount on their annual tax returns. Nontaxpayers could claim because the deduction was allowed at source. Mr Bert Clough of the Trades Union Congress described vocational tax relief as "a very blunt instrument".[46] The number of claims never rose above 300,000 in a year and the annual cost to the Exchequer of VTR at its peak was £60 million.[47]

27. The Government continued explicitly to link the introduction of individual learning accounts to the withdrawal of vocational tax relief.[48] The Association of Computer Trainers stated that, in order to remain competitive, learning providers in both the private and public sector had to become involved in ILAs; to remain outside the scheme once VTR had been withdrawn was not a viable alternative: "a lot of the people who trained with us used ILAs as a means to fund their training whereas previously they would have used Vocational Training Relief".[49] The Association of Colleges argued in their September 2001 paper that past experience with vocational tax relief gave reason to doubt that the 20 per cent discount available for other types of training would be sufficiently powerful to make ILAs the route of choice for many learners.[50] The National Extension College pointed out that "with the end of ILAs there is now no form of government help with the costs of courses for learners outside the publicly funded education sector".[51]

28. The Association of Computer Trainers advocated the return of vocational tax relief as "a simple, short-term expedient" until a replacement scheme for the ILA could be rolled out.[52] Although we understand why the return of Vocational Tax Relief might be seen as an attractive option, in our view the central priority is to roll out a reinvigorated version of the Individual Learning Account.

29. The introduction of the 80 per cent discount was a crucial step in widening the attractiveness of the ILA to unscrupulous operators. For example, a customer would have to pay £50 up front and might receive training that was worth, say, £150, costing the provider £100 more than the £50 he received from the customer. The provider could claim £200 from the Government, in addition to the £50 from the customer. So the customer would have received training worth three times what he paid, and the provider could claim twice what it cost him to provide the training. There was no check or audit which would have uncovered such systematic abuse of the scheme. There was no check on the provider to give good value for money, and no incentive for the customer to complain.

30. The different levels of subsidy gave rise to another possible abuse. York Consulting found that a small number of people listed on Capita's database as 80 per cent discount holders [for basic IT and numeracy skills] were doing ineligible courses such as feng shui, plumbing or accountancy.[53] Miss Jane Owens of York Consulting reported that "one provider to whom we spoke in the early survey said that, because there was confusion about which courses were eligible for ILA support, he tended to get people to fill in the form and send it off and wait to see what happened".[54] One of the concerns about the lack of security features in Capita's ILA Centre is the failure to pick up inappropriate use of the 80 per cent discount.

1 Q.523. Back

2 HC 322-i Q.147. Back

3 Q.526. Back

4 DfEE Press Notice 2001/238 2 May 2001. Back

5 Ev117 paragraph 24. Back

6 Q.29. By the end of March 2002 the overspend had reached £69.4 million. Back

7 HC 304-i, Q.1; the written Answer was printed at HC Deb 31 October 2001 vol 373 col 706W. Back

8 HC 304-iv, Q.320 and pages 97 to 100; HC Deb 26 November 2001 vol 375 col 592W. Back

9 HC Deb 6 November 2001 vol 374 col 114 to 213. See also Opposition Day debate on 19 March 2002 vol 382 cols 176 to 234. Back

10 HC Deb 11 December 2001 vol 376 col 199 to 224WH. Back

11 HC 304-v. Back

12 HC 304-vii. Back