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Session 2001- 02
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Delegated Legislation Committee Debates

Draft Contracting Out (Functions of Local Authorities: Income-related Benefits) Order 2002

First Standing Committee on Delegated Legislation

Monday 15 July 2002

[Mr. John Butterfill in the Chair]

Draft Contracting Out

(Functions of Local Authorities: Income-Related Benefits) Order 2002

4.30 pm

The Chairman: As it is very warm, I am perfectly happy if right. hon. and hon. Members remove their jackets.

The Parliamentary Under-Secretary of State for Work and Pensions (Malcolm Wicks): I beg to move,

    That the Committee has considered the draft Contracting Out (Functions of Local Authorities: Income-Related Benefits) Order 2002.

I welcome you, Mr. Butterfill, to the Chair. I also welcome your announcement, if only because there may be only one or two summer days this year.

In 1995, all local authorities were required by law to expose a certain percentage of their white-collar services, including financial and housing management services and consequently benefits administration, to competitive tendering. The requirement for compulsory competitive tendering ended in January 2000, and it was replaced from April 2000 by best value. The best value framework requires local authorities to plan positively for diversity and to secure the most efficient and effective means of delivering their services. Contracting out some aspects of housing benefit may be best value, and the order means that there will no longer be the need for unnecessary double handling with those authorities that contract out—about 30 do so—or use agency staff.

The legal responsibility for administering housing and council tax benefits and discretionary housing payments rests with local authorities, but they may contract out aspects of the work in administering housing and council tax benefits that they are not expressly required by law to carry out themselves. That means that many administrative tasks that support or implement housing benefit or council tax benefit decisions may already be contracted out.

However, several important functions cannot be contracted out. Contractors may perform almost all tasks associated with an individual's claim, but not make decisions that determine entitlement to benefit. They may make recommendations on entitlement but an officer directly employed by the local authority must make the final decision. Those restrictions also apply to agency staff working for but not directly employed by the local council.

Checking the work of contractor or agency staff and making a benefit decision places a large burden on local authorities. For example, in some London boroughs, the number of full-time officers needed to make such decisions varies between eight and 15. Those officers are dedicated to the function, which leads to unnecessary and expensive double handling—extra costs can amount to £400,000 per annum in each local authority—and is not demonstrably effective in controlling and monitoring the role of contractors. In addition, customers suffer a delay in payment of up to two working days while local authorities check the contractor's work and make benefit decisions.

The housing Green Paper, ''Quality and Choice: A Decent Home for All'' was published in April 2000 and recognised that, in relation to both the social inclusion agenda and the Government's wider housing objective, housing benefit has an important role to play in supporting people moving from welfare to work. As part of that remit, the Government agreed to stimulate better performance in local authorities by freeing up or simplifying aspects of the scheme, and we are energetically engaged in that project.

Within that context, I realise that much progress can be made simply by improving standards of administration, and I agreed to review the key issue of allowing contract and agency staff the powers to determine housing benefit claims. My aim in introducing that change is to make the administration of housing benefit easier and to stop unduly restrictive practices, which are costly, create in-built delays and involve double handling by those local authorities that contract out services or employ agency staff.

Mr. David Heath (Somerton and Frome): If a local authority has no direct role in the administration other than the original contracting-out process, is the administration process still investigable at all stages by the local government ombudsman? If so, why is there no provision in the order for the contractor to provide information to the ombudsman on request?

Malcolm Wicks: In all circumstances, the changes that I hope to introduce, subject to the Committee's approval, will not interfere with that. The local authority remains the housing benefit authority. All the usual checks and balances, including those of the ombudsman and local audit, still apply. The order does not allow local authorities to abdicate their responsibilities for housing benefit. They remain fully accountable and responsible for all housing benefit and council tax benefit expenditure. Authorities will be expected to have proper controls and checks in place to ensure that contractors work to an acceptable standard.

Mr. Heath rose—

Malcolm Wicks: I am happy to give way later. If I make some progress, one or two points may become clearer.

I have ensured that the order contains a provision stating that the contractor must pass on to the local authority for checking at least 10 per cent. of decisions made on every working day. In addition, the administration will be subject to independent checks by external audit, as I have said, and by the benefit fraud inspectorate. I have made it clear that I see an increased role for the BFI to inspect those local councils that decide to contract out decision making. Guidance will be issued to impress on authorities the need to check those cases properly, which is, after all, in their interests.

In my view, the order is compatible with the European convention on human rights. Article 3(1) of the order gives local authorities a power to authorise other people to undertake functions relating to housing benefit, council tax benefit and discretionary housing payments that only the local council can undertake currently. That will enable contractors and agency staff to undertake those functions, particularly decision making, in so far as the local authority authorises them to do so.

Article 3(2) specifies the functions that local authorities will not be allowed to authorise other people to undertake. Those relate mainly to areas in which, because of subsidy or fraud implications, it is felt inappropriate that anyone other than the authority should make the decision.

Article 4 imposes the condition that the authorised person must pass a random sample of at least 10 per cent. of each day's decisions to the local authority to enable it to check the quality of the work.

Mr. Heath: I just want to clear something up. I applaud the random checking provision that the Minister has written into the order, but there does not appear to be a similar requirement for specific checking of a claim during the process. He has asserted that the process is open to all the usual chains of audit and the local government ombudsman, but that does not appear in the substance of the order. It should appear. The random checking requirement is necessarily explained in the order.

Malcolm Wicks: I might return to that point later, if I can be more helpful, but where a function has been contracted out to a company, the company will have its own quality control and checks. That should be part of the contract with the local authority. I am at pains to avoid the current absurdity whereby all the claims checked by an agency worker or a contracted-out company have to be rechecked by a local authority staff member. That is a waste of public money and causes a delay. To ensure that there is proper quality control, the 10 per cent. sample survey method has been suggested.

Article 5 provides that a local authority cannot authorise decisions on claims by a person who has a financial interest in the outcome of a claim, or where rent is payable to them for a dwelling in respect of which a claim is made, to avoid any conflict of interest.

I am aware that there have been criticisms of those local authorities that have contracted out services, and there have been several well-publicised failures. There are lessons to be learnt from the past, but contracting out needs to be managed better. To that end, local councils will be issued with guidance that they can use to ensure that strong contract management is in place. The Audit Commission report, ''Housing Benefit: the National Perspective'' published in June says that outsourcing can make a difference to any council service, and that consideration of procurement options should be an important part of the best value agenda.

The Audit Commission discovered that problems have often arisen because the process of outsourcing has not been managed well. In the right circumstances, and if carefully thought out and managed, outsourcing can provide an improved service.

When drafting the order we consulted representatives of the local authority associations, which were supportive of the order, the Social Security Advisory Committee and officials of the Scottish Executive and the National Assembly for Wales. Letters to me from the Social Security Advisory Committee chairmen and my response were placed in the Library. The order will ensure that those local authorities that use, or wish to use, contractors or agency staff in determining benefit claims will be less hampered by administrative bureaucracy. I commend the order to the Committee.

4.41 pm

Mr. James Clappison (Hertsmere): I join the Minister in expressing my pleasure in serving under your chairmanship, Mr. Butterfill. I declare my interest in the issue, which is set out in the Register of Members' Interests.

I want to make three points. First, the Minister said a little about how the work performed by the contractors and agents will be checked by the local authority. I would like to hear more about the random sampling process. Does he expect that the random sample of cases that is passed to the local authority will be checked by that authority? Is he completely satisfied that that is the most efficient way of checking up on the work and the decision taking that will be carried out by the contractors and the agents? Will it be kept under review to see whether it is the most efficient and effective way of checking up on their work?

Secondly, the Minister mentioned delay, which is referred to in the explanatory memorandum, and double handling, which has created delay in the past. Will the elimination of double handling reduce delays that are experienced by claimants? Evidence shows that there are problems at present; claimants experience delays in the payment of their claims. Does the Minister expect that there will be a measurable reduction in those delays as a result of the order and the changes that it puts in place in the administrative arrangements, especially in relation to double handling?

Thirdly, the Minister mentioned fraud and the benefit fraud inspectorate. As he knows, local authorities have their own fraud investigators. Can the Minister assure us that they will have access to the work undertaken by the contractors and agents? Will they be able to investigate fraud in these cases? Will the Minister also assure us that contractors and agencies will bear in mind the risk of fraud when taking decisions and carrying out their administrative tasks? There are apparent variations between local authorities in the extent to which fraud is investigated and prosecuted. Will the Minister assure us that priority will be given under the system to cracking down diligently on fraud?

4.45 pm


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