Select Committee on Work and Pensions Minutes of Evidence

Examination of Witnesses (Questions 40 - 59)



Mr Goodman

  40. In short, you are not guaranteeing a Bill in the new session?
  (Mr Smith) I think given the sorts of considerations that I have described I am not in a position to say this morning what the legislative situation is going to be. I would want to underline though that we take anti-social behaviour very seriously indeed. It is very important to get more effective co-ordination of the various agencies concerned. As any of us will know dealing with some of these cases in our constituencies, you have got one dimension of it which the school is trying to handle, another the police are trying to handle, another where it is the local authority, maybe the local residents' committee, Social Services, a whole plethora of bodies can be involved. I think more effective co-ordination and alignment of the various carrots and sticks we have to deal with these situations is necessary.

Mr Mitchell

  41. So plenty of words but no action promised.
  (Mr Smith) I have already referred to action that we are taking, for example learning from the experience on Anti-Social Behaviour Orders and making sure that those can work in a more timely fashion. I think this is an area where it does make sense to examine the end-to-end processes, the time it takes for cases to get referred to the relevant agencies, for action to be initiated in the courts, how long it takes the courts to deal with them. We are examining all of that precisely with a view to action to tightening and speeding things up.

Mr Goodman

  42. Are you definitely saying that there will not be a Bill? It sounds very much like that from the drift of what you are saying.
  (Mr Smith) I did not say that. I cannot come to the select committee and give the gracious speech.

  43. In your research into the effects of the Bill have you found any country in your researches that has a similar measure on the statute books because the Library, I believe, is looking at this and in the countries it has looked at so far, which is about six or seven, it has not found a comparable one?
  (Mr Smith) In the area of housing benefits?

  44. Yes.
  (Mr Smith) I am not aware of another example in housing benefits.

Mr Stewart

  45. Secretary of State, I want to ask you some direct questions about direct payment, what was known as ACT[4]. Clearly there is a strong overlap with the Department for Trade and Industry who are responsible for post offices. I would like to ask you some particular questions. 15.4 million currently use the Post Office to withdraw their benefits and their pensions and we perhaps all in this room know the arguments for that: it is much, much cheaper to use direct payments and, secondly, it is an attack on fraud as well. I wonder today if you can perhaps confirm or deny to the Select Committee that there is absolutely no Treasury cap of three million on the number of Post Office card accounts that may be opened?

  (Mr Smith) There is no cap, I can confirm that. Obviously when you are planning a change such as this you do need to factor in some assumptions as to what you think the likely levels might be. It certainly was an assumption that that might be a likely level.

  46. Will benefit claimants and those who also have pensions have a real choice of having payments done through their own bank accounts, the basic bank account or the Post Office card account?
  (Mr Smith) The answer to that is yes. I anticipated that there might well be questions on this. We can pass them around now or you can look at them later but I have just brought two examples. One is the letter to the child benefit recipients which started going out from Monday and the letter from the Veterans' Agency which has been going out for a few weeks[5]. You can see I have highlighted there that there is clear reference to people being able to access their benefits at the Post Office and via the Post Office card account.

  47. The reason I ask that is you will recall when we met previously informally that I raised the same point. We had an excellent meeting at the Burnley Pension Centre—to refer to a previous Parliamentary Question just last week—I was very impressed with the set-up there but what did concern me in the script, which is well done by and large, was the script default position was "if you are a new pensioner you will get your benefit paid through your bank account". There was no reference at all to the basic bank account. There was absolutely no reference to the Post Office card account. That has certainly been picked up in discussions I have had personally with Post Office employees. We went to my constituency and we had an informal session and there was great concern. This new set-up is well respected by the postmasters but the problem is there is next to no marketing, next to no promotion, next to no enthusiasm in a real way to promote this Post Office card account and without that I can see the demise of post offices across the length and breadth of this country.
  (Mr Smith) First of all, I would not want to suggest that I think the health or the success of post offices and the maintenance of the network depends solely or even primarily on the Post Office card account. Remember the Universal Banking Service aims to make basic bank accounts and other banking products available through Post Offices. There is the investment we have made, the £500m in enabling the Horizon automation to take place and the £270m that is going in to implement the Performance and Innovation Unit Report's recommendations. We are investing an enormous amount, as is the Post Office itself, in the modernisation of the Post Office network and the service they are able to give. I think it is through giving that service in a good, efficient way so that people want to use the post offices that they have the means to ensure that there is a good future for the network at the head. As I say, we are not capping the Post Office card account, people are given the opportunity to take it out. It is not going to be the right thing for everybody. There is not a direct debit facility. We should not forget the large number of claimants, currently 59 per cent of new retirement pension customers, who are choosing ACT at the moment. There is an extent in this to which people have been voting with their feet. It is very important that the pledge that where people want their money in cash at the post office we are able to deliver on that pledge. There is a significant number for whom the Post Office card account is the means of doing that and we want to make sure that they have that opportunity and that it works as efficiently as possible.

  48. That is all fine and well but the problem in my experience is simply this, that people do not know there are basic bank accounts, people certainly do not know there are Post Office card accounts, they are not being marketed. The Postmasters Association, and I am not a shop steward today, have made it clear to me—these are the experts, these are the people who are seeing these 15.4 million day in and day out—the Post Office itself is not promoting it particularly well. Because of financial services regulations postmasters now advise clients about this. I am very concerned about the low profile that Post Office card accounts and basic current accounts have had. I do not want you to just take my word for it, you will be aware that the Treasury Committee recently expressed disappointment at the progress of this and they called for "more proactive and innovative marketing if they are to be taken seriously", that is the government, "on their express commitment to overcome financial exclusion".
  (Mr Smith) Can I make two points in response to that. First, on the general question of direct payment, there is a big information and, indeed, advertising campaign being prepared which I think is due to start in January. Can I also say that as far as the choices confronting individual clients are concerned, I think it is sensible to phase this in over a period. If they are not going to need for some time to do something about this, I am not sure it is sensible to awaken a general feeling of anxiety. In terms of responsiveness to customers and the efficiency with which we, the Post Office, the Inland Revenue and others are actually serving the public, it does make sense for this change to be grown through the system gradually rather than having new systems confronted with big bang surges in demand, which is just the sort of thing that very often makes IT and service innovation go wrong, not just in the public sector but in the private sector as well. I do not apologise if we are moving into this in an incremental gradual way. I just want to stress that we are not capping or steering people away from Post Office card accounts but it is fair and right to point out that there are other products which many people are choosing and which in many ways are advantageous.

  49. I think most people would agree with the migration period over the two year period. Letters are going out now to new pensioners and new parents for child benefit and this is up and running in April, as you know, we need to be selling these products now. I have got serious concerns about the lack of marketing and the lack of a high profile of this Post Office card account. It is not your sole interest to make sure that you have profitability for postmasters, I understand that, but for many post offices more than 40 per cent of their income comes from benefit transactions. Two things are going to happen. We can still have benefit efficiency for your Department and ensure that our rural network, particularly throughout the UK survives. I have major concerns that by taking away 40 per cent of Post Office income, which will happen for many post offices, we will see the closure of the Post Office network in many areas and also constituents do not know what the real choices are in my experience. I cannot talk for the whole Committee but I had impressed upon me during the Committee's visit in Inverness that there is a very low profile of the Post Office account. Postmasters themselves are telling me that day in and day out the public are saying "what do I do in April on the changeover?" Can you tell me on that question what are your estimates, obviously with your partners in the DTI, for Post Office card account use in the first, second and third years of operation?
  (Mr Smith) I think it would be wiser for me to send you those figures rather than give them off the top of my head.[6]

  50. A final point. The big four banks, HSBC, Barclays, NatWest and Lloyds TSB, as you know have around 68 per cent of current accounts in the UK at present. Can you perhaps tell the Committee why only 14 per cent of basic bank accounts are within that very major group? Is it because there is a major lack of interest among major banks to set up these basic bank accounts, which is a crucial element in the Universal Bank Service?
  (Mr Smith) It is probably a question you really have to put to the banks rather than to me. I cannot answer for the priority that they give to different parts of their product range. I would say in developing universal banking it is good that we have been able to conclude agreements now with all of the major banks to get the basic service up and running. They are not always easy discussions. I am very grateful for the input from the banks that made this possible. This whole move to ACT, to direct payment, and in particular the establishment of the Universal Banking Service, this is a very difficult project, of course it is, bringing together the interests of millions of clients out there, our responsibility as government across different departments, the banks, the post offices, the important interests of those running the Post Office network. I think it is a tribute to all concerned that the project has got to where it has. Of course some people have anxieties and it is important that those are addressed. As I say, on promotion as the advertising campaign comes through and as people see the letters for themselves they will see that there is no hidden agenda here and will appreciate that this is a change which makes sense which will be more convenient for clients and which does, through the extension of banking services into the post offices, offer one of the principal means by which post offices can secure a good future for themselves.

  51. My very final point is to say that I am not sure I fully agree with your points about the banks' position. The universal bank approach is the government's baby and the basic bank account is something that the Government is negotiating with them to try and develop. If the big four cannot develop more than 14 per cent of basic bank accounts we have got real worries. The point is it has not been promoted well enough. The second point is if you run a large bank like Barclays, why set up a basic bank account if you can get customers going into the mainstream accounts where you make more money? Perhaps you could give us figures on the development of the Post Office card account over the next three years and you could also give us your estimation with the DTI of the number of basic bank accounts that you think will be set up over the next three years because I was not successful in my question to the DTI so I thought I would try you.
  (Mr Smith) We will certainly supply such information as we can. It is, of course, difficult to estimate some of these things because it will depend on the choice of customers themselves.


  52. I want to support everything that David Stewart has said. I believe that the information you are getting does not really reflect the concern that is out in the country. Do you have a plan B? Supposing everything that can work well does work well, the universal bank is in place, the Post Office card account is up and running. I can see that that will still be a challenge but personally I think there are still very high risks associated with the scale and the way it is going. Do ministers know what they will do next if it starts to come apart at the seams? Is there a plan B? If there is not, I would be concerned about that.
  (Mr Smith) Yes, contingency plans have been drawn up and are being actively considered for contingencies that we might have to prepare for if confronted with the unexpected.

  53. For example, if the migration started to go wrong could you freeze the migration until you fixed it? You are not going to force this through the two year period if some of the mechanics, the transmission facilities and the universal bank start to produce unintended and unforeseen problems?
  (Mr Smith) With all of the other agencies, and the Post Office are such crucial partners in this, we are scoping the risks, drawing up contingencies and, indeed, taking the advice of others, like the Office of Government and Commerce, to ensure that the preparations that are being put in place are soundly grounded and we could change our plans were that necessary in the light of experience.

  54. So you would be willing to take representations if we started to see that happening, you would draw attention to that?
  (Mr Smith) Certainly, if you start to see anything going wrong tell us and your suggestions will be very carefully considered.

  55. Thank you. The second point from me—really it is a short circuit—is I am concerned that there are seven organisations working with Postwatch and they are still very concerned about, for example, the fact that there is no generic agreed material available in the post offices now. We are all being asked questions by our own retired populations about what they should do next. Worse than that, the rumours I have heard are that the Government have done a deal with the Post Office which will restrict agreed advertising and generic material that goes out. In fact it is worse than that, that they have signed a contract with the Post Office which limits the marketing of the card account. I do not know if these things are true or not but they have been talking to officials today, they have not been able to get to see ministers. If Postwatch can set up a meeting—we are talking about organisations like Age Concern here—would you get the ministers to meet them because my concern is the same as David Stewart's, that you are not getting the true picture? I am not saying that people are hiding things from you but the concerns out there are actually much greater than perhaps they are within the Department. You would give some reassurance to voluntary organisations if you would agree to get ministerial colleagues, or even yourself, for a short time to try and talk through some of these things. It is not in anyone's interest if these rumours, if they are untrue, are taking root and are causing more trauma and worry than is necessary.
  (Mr Smith) Certainly if we can help assuage fears and provide information and otherwise help the whole process forward in a sensible way by meeting with others, including ministerial involvement, I am very happy to consider that. On your earlier point about people being concerned about what they have to do and by when, it is important to underline that until people are advised by letter that they need to do anything they do not need to worry about this.

  Chairman: Thank you for that.

Rob Marris

  56. It will not surprise you and I am sure in your usual Blue Peter way you will have prepared something about the IT aspects. Your letter to MPs on 19 September six weeks ago said there was still some way to go. Can you give us any idea of whether you have got an indicative date for "A-day", as your Department calls it, and for migration?
  (Mr Smith) I have little to add really to what I put in the letter. The testing is progressing. It is progressing quite well but until I can be certain that it makes sense to start on a particular date I am not going to give indications of when that might be.

  57. You seem to be piloting this on current cases according to your letter, which I have to say surprised me, I thought you were looking and had been looking in the Department, albeit before you yourself were in post, at going live in April for new cases. Is this a change or perhaps I misunderstood it?
  (Mr Smith) No, it is not a change in policy at all. As you say, "A-day", when it comes, will engage first with new cases and then "C-day", when existing cases convert over on to the new system, comes later. I think there is perhaps confusion here between the IT system and the Child Support reform system. Yes, some existing cases within the existing Child Support rules are being operated with the new IT, and this is perfectly sensible in bringing a new system into effect. You see if dealing with real cases it can handle things and you examine the scaleability because it is often the difference between dealing with a few thousand cases and dealing with hundreds of thousands of cases. Yes, when "A-day" comes that is when the new system comes into effect in terms of the new basis of calculation.

  58. You are expecting "A" before "C"?
  (Mr Smith) What we are really doing is using the testing now on real cases with real members of staff and real agencies to make sure that it really works before we bring the new basis of calculation in.

  59. So you are still expecting "A-day" before "C-day", are you?
  (Mr Smith) Yes.

4   Automatic Credit Transfer. Back

5   Samples of departmental letters from the Child Benefit Centre and the Veterans' Agency were passed by the Secretary of State to Committee members. Back

6   Please refer to the supplementary memorandum from the Secretary of State to the Chairman of the Committee, paras 2 and 3, Ev 18-19. Back

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