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7.18 p.m.

Lord Carter: My Lords, the House will be grateful to the noble Earl for putting down this Question. I have to say in the dinner break on Thursday evening it is hardly standing room only. However, this is a very important subject and I am grateful to him for putting down the Question on the Order Paper.

I start by saying, and I am sure the noble Earl would agree, that on this side of the House we fully support efficient administration and the elimination of fraud. I read with great interest a recent speech by the Secretary of State, Mr. Peter Lilley, entitled Welfare

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State of the Art and I am extremely grateful to the Minister for sending me a copy. I propose to base my remarks on that speech, as did the noble Earl.

There is a significant sentence in the introduction:

    "I want if possible to achieve this without cutting basic benefits".

Obviously that is a reference to the target of a 25 per cent. reduction in operating costs. In the ordinary meaning of language, the implication is clear that if the target is not achieved basic benefits will be cut. It would be helpful if the Minister could assure me that I have misunderstood the reference.

In his speech the Secretary of State points out that running costs account for some 4 to 5 per cent. of the total budget of £3 billion to £4 billion per annum. That used to be the case in the National Health Service, when administration accounted for about 5 per cent. of the total costs. Then we had the reforms and the internal market, and now administration costs have doubled to about 11 per cent. of the NHS budget. If the Minister does nothing else this evening he would do a great service if he could assure the House that the proposed change programme in the DSS will not be based on another crackpot notion like the internal market.

Something is missing from the argument. I do not criticise the omission because the speech was about operational matters. However, it is worth reflecting on the fact that much greater savings in the department's budget of £90 billion could be made by reducing unemployment and by tackling poverty than by saving £1 billion on administration. For example, the number of claimants on income support in May 1990 was 4.2 million, and in May 1995 it was 5.7 million. That figure comes from the May 1995 income support quarterly statistical inquiry.

The Secretary of State also points out that the department arranges £300 million per annum in child maintenance. When I read that, I could not help wondering about the administrative costs of interpreting the algebraic formulae in the Child Support Act that we all struggle with.

One of the possible savings in administration costs would result from the department having better methods of estimating the likely take-up of benefits. Two examples spring to mind. For many years I and many others battled in this House to have the old mobility allowance extended to the severely mentally handicapped. The Government's arguments against the change were based on extraordinary estimates of likely take-up. Figures of well in excess of 100,000 possible claimants were produced. We argued continually that the likely take-up was less than 10,000 people. The extension of mobility allowance was eventually introduced by the Government, and their final estimate of the likely take-up was of the order of 10,000 claimants. I do not know how many man-hours were expended in the department on working up the spurious estimates, but there must have been a substantial cost involved. Another example concerns the introduction of the disability living allowance. The Minister will have the figures, but I seem to remember that the take-up was very much greater than the department had estimated. Again, a cost was involved in that error.

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There is a curious complementarity about the estimates of the costs associated with the department's activities. For example, the cost of fraud in income support, unemployment benefit and housing benefit has been estimated at just over £2 billion, which is almost exactly the estimate of the value of unclaimed benefits.

Concern has been expressed about the true meaning of the proposition in the Change Programme that:

    "We should pay people not to perform processes but to achieve results".

We all know what happened with the Child Support Agency, with its targets for benefit saving. What are the results which are envisaged? Will there not be a subconscious reluctance to ensure the full take-up of benefits both in terms of entitlement and numbers, since a less than full take-up means savings in the budget?

Another provision states:

    "The ethos of public service is essential but state monopoly of provision is not".

Under that heading it is pointed out that headquarters will concentrate on what services will be provided but leave the operational managers to determine how best to provide them. I hope that there will be stringent internal procedures to prevent abuse in the letting of contracts. We all know the horror stories about the purchasing services in the NHS, the fraudulent computer contracts and the rest. It would be helpful if the Minister could say a word about the internal audit procedures and other control measures where contracts are to be let in the private sector to ensure that the savings in costs envisaged are not wiped out by some form of abuse in the letting of the contracts.

So far as I can see, there is nothing in the programme about any attempts to improve the take-up of benefits. I have already referred to the estimate of £2 billion which is unclaimed. Are there programmes aimed at reducing that figure?

On the general question of saving costs, can the Minister elucidate the figures for the estimated savings from the proposed anti-fraud measures? The Budget Red Book stated that by 1988-89, social security anti-fraud measures are expected to save about £2.5 billion a year. In the social security up-rating Statement last November the claim was made that anti-fraud measures would save £2.5 billion over three years. Perhaps the Minister can explain the apparent discrepancy between the Budget Red Book and the social security up-rating statement.

Of course there are a number of major policy decisions which lead directly to increases in administration costs. I say at once that that is a problem for all parties in reviewing their policies on the provision of social security. We all know that the extension of means testing automatically increases administration costs. Means-tested benefits were 17 per cent. of benefit expenditure in 1978-79; they were 35 per cent. of benefit expenditure in 1995-96. They have doubled as a proportion of benefit expenditure.

We all know that complexity means cost. As the noble Earl said, the National Audit Office has refused to pass the department's income support account every

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year since 1988 on the grounds that the error and fraud rates are so high. The Permanent Secretary of the department observed to the Public Accounts Committee last month that:

    "We are dealing with something so inherently complicated that it's always going to be difficult to get it right".

Turning to the Social Fund, 61 per cent. of its total budget is spent on administration. Does the Social Fund get the Oscar for the highest proportion of budget spent on administration?

Reducing the number of home visits must add to the possibility of fraud. Some 6.5 million home visits were carried out in 1978-79. The number was down to 0.5 million by 1994-95. Mr. Lilley has said that the number of home visits will be increased by 1 million, but even the increased figure of 1.5 million has to be compared with 6.5 million 17 years ago. How is that kind of reduction in home visits supposed to lead to reduction in fraud? Indeed, does the department have figures for the trade-off between the cost of home visits and the reduction in fraud?

As I said at the outset, we share the Government's wish for efficient administration and the reduction of fraud. Everybody interested in the proper administration of the public purse wants to see efficiency, but that has to be balanced by equity. I have the feeling that the Government's proposals have a great deal to do with efficiency, however defined, but I am not convinced that equity is equally highly regarded.

7.27 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, we have had a short but interesting debate on what is a very important issue. I hope that I can manage to answer the majority of the points that have been raised, if not directly as question and answer then in the course of my speech. I want to address not only some of the points made but also try to place the proposals put by my right honourable friend the Secretary of State in their context and explain to the House and the two noble Lords who have taken part in the debate what we intend. In that way I hope that I can answer most of the questions that have been put to me.

We are committed to providing good quality public services while reducing the burden on the taxpayer. Indeed, the Department of Social Security has already delivered, in its administration costs, efficiency savings of £400 million since the financial year 1991-92. We are now seeking more fundamental ways of achieving business and efficiency improvements.

We are committed to delivering the right money to the right people at the right time. On the other hand, because people tend to forget that we have another side--through the Contributions Agency--we are committed to collecting the right money from the right people at the right time, and indeed every time.

That is why my right honourable friend Mr. Lilley recently announced the department's change programme in a speech to senior managers from across the department, including the executive agencies. I have placed a copy of that speech in the Library today.

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This change programme is a key step in our long-term review of the social security system. Under the change programme we aim to deliver the social security programme both more efficiently and more effectively. That will form the basis of the department's business plan over the next three years.

Perhaps I may say this to the noble Lord, Lord Carter. The programme is not about cutting benefits. We seek to cut unnecessary costs in paying benefits. Collecting national insurance, for example, and paying the benefits are what the whole programme is looking at to see how we can improve efficiency and effectiveness.

We are certain that we cannot achieve further significant running cost savings just by more pruning or by asking our staff to work harder. We shall not make the improvements we need in operations by harder work or by racing against the clock. We need to think laterally and creatively about what we do. That is the approach that we are adopting in the change programme.

We are not talking about carrying out the same operations as now with 25 per cent. less money. Cash budgets will increase modestly in the first and most difficult coming year. But over the three-year period we shall have to improve productivity by 25 per cent. in order to absorb inflation and rising workloads. In the longer term the team which has been studying this programme estimates that savings of as much as £1 billion a year are possible.

The noble Earl, Lord Russell, asked me some alternatives: would I reach the savings figure regardless of whether the necessary changes are made? At the very beginning of the scheme the last thing I shall do is to suggest that we shall fail at both. That way leads to a failure to do either. We believe that we can achieve the efficiency savings that we seek through possible changes in the way in which we administer the system. As the changes are developed and come to fruition as proposals, Ministers will consider them all and judge them against a number of criteria. Acceptability will be one. Do we believe that they are feasible? In every case we shall make those judgments as we go along. If I may put it this way, we shall bring a number of factors to bear on all the proposals, as will our officials. As I say, I believe a little lateral thinking is the expression used for this kind of work. We are attempting to get away from the mind-set that we have always done it this way and that is the way we must continue to do it.

The noble Earl is giving me what I trust is a false choice. I believe that we shall be able to deliver both the changes and the savings that I hope we can achieve over the three-year period of the public expenditure round. As your Lordships know, public expenditure is laid out in three-year terms: this coming year, the year after and the third year. We intend to deliver this project over three years. It is not something that we intend to deliver this year or next year, although obviously some aspects will come on stream.

In considering what we do and the customers we serve, I believe that it was the noble Lord, Lord Carter, who asked me about the link with the number of people on benefit. The noble Earl asked me the same: are we undertaking this programme oblivious of whether our

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workload goes up or down? I shall return to this. For a number of reasons we expect our workload to increase in the years to come. It goes back to a question that the noble Earl asked me recently. He was puzzled as to why income support continued to rise when unemployment came down. He stimulated me into having a look at the figures. I shall be replying to him, but the debate gives me the opportunity to say this.

The number of unemployed people on income support is coming down. It depends how one looks at the figures. I believe that they are coming down quite quickly; some noble Lords may say that they are coming down gently. The number of people over 60 is on a slightly gently rising curve; the number of lone parents is on a fairly steep curve; and the number of disabled is on a fairly steep curve. The figure for "others" is coming down from the peak reached in 1993. So there are a number of different factors at work.

The noble Earl put the question to me about the unemployed. If the figure involved only the unemployed, the numbers are coming down as one would expect given the fact that unemployment is coming down. But there are other claimants for income support in addition to the unemployed.

We take account of the trends in the number of people on benefit in deciding how we fund the system. As I develop my argument, I hope the noble Earl will understand that while the numbers are important, they are not that important when we consider what we seek to achieve in the change programme.

The step improvements in efficiency involve three elements. First, we define the services we want to deliver then design new processes to achieve them. Secondly, we draw on the experience of staff at all levels in our organisation to generate radical ideas for change. Thirdly, we put in place systems and incentives to encourage continuous improvements. The change programme, therefore, is based on seven propositions. The first proposition is that too many current procedures are rooted in the past clerical world. Our first priority must be to review our current processes, streamline them where possible, and use developments in information technology not to execute clerical procedures more rapidly but to design new, more effective ways of delivering our business. I think that it is fair to say that in the past when we have moved to computer-based systems, to information technology systems, we have often simply translated the paper-chase that we have been used to following and have asked the computer to do that. We have not asked the question: can we do the job in a different and better way by use of the IT? That is the fundamental question.

The noble Earl asked me what process re-engineering was about. That is what process re-engineering is about. In fact, I can give him another example of process re-engineering. It will enable me to answer one or two of his questions as well.

Traditionally we have paid benefits via books and Giros. I shall not bore your Lordships by highlighting some of the problems that arise in that system. We are fundamentally re-engineering how we do that by moving over to cards and to that system of payment

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through post offices. That allows me to assure the noble Earl that the system we are developing through the Post Office and the Benefits Agency, through the private finance initiative, will continue to allow people to have their benefits paid through the Post Office, and, of course, through their banks and building societies if that is what they wish. That method is more economic for us and has much security about it.

But we believe that the use of cards will increase the security because the card itself, whether stolen or just picked up after being lost, will not convey any information to the person who steals it. It will not say how much the benefit is worth; it will not state the address of the person who is due for benefit; it will not even give the Post Office at which benefit is due to be paid. There are a number of basic safety measures in the card which we believe will cut down the fraud that occurs through the misuse of books and Giros. Therefore the thief will have to do a lot of work before he can use the card; and the opportunist thief, as I believe many thieves are, will not find the card system very good. Immediately a stolen card is reported, we shall be able to close off the system. The Post Office will pay only if the central system tells it to do so. We shall be able to put a stop on a card more quickly than on a book. That is an example of process re-engineering.

The second proposition is that benefit entitlement rules are often outdated. They are inconsistent between benefits and, we believe, more complex than necessary. It is right that the rules on entitlement to benefit should be specified in law. However, benefit entitlement rules are often outdated, they are inconsistent between benefits and we believe they are more complex than is necessary.

While there have been successful attempts at benefit simplification, income support replacing supplementary benefit for example, each benefit has its own rules. They reflect the period the benefit was introduced. Unfortunately benefits often overlap, leading to complexities which staff and claimants find difficult to comprehend. Two benefits can treat the same fact differently. We are examining all social security rules, including benefit entitlement rules, with the prime purpose of seeing whether we can simplify their administration. That is what I believe my right honourable friend referred to when he spoke on the "Today" programme. I find the point on self-assessment quite interesting. I do not think we have any plans for people to "self-assess" in the way I understand it--in other words, to do the calculation, come out at the end with a figure and say, "That is what you owe us". We do not have plans like that at all.

The third proposition we have in mind is this. Laying down procedures in law is a barrier to efficient customer services. The prescription in legislation of procedures as well as rules makes it hard to streamline the administration of decision-making. Fundamental to the change programme will be a review of the legal basis of decision-making and appeals. We need to develop a decision-making process which leads to speedier decisions, generates more accurate assessments, will be simpler to understand, will make it easier to rectify

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mistakes and will provide a less formal and legalistic appeals process, with legal expertise concentrated on more complex cases.

Fourthly, a proposition which I am sure noble Lords will heartily endorse is that it costs less to get things right first time than to check, revise and repeat work done wrong initially. Both noble Lords in various ways raised aspects of that. Up to 60 per cent. of income support claim forms are filled in incorrectly and 30 per cent. of all work on IS claims involves obtaining further information. We need to review the information we give to claimants and require from them, the clarity of our forms and requests for information and whether claimants can be given incentives to provide the necessary information to support their claim at the outset so that we do not have to spend time going back to them and asking for more information or clarifying information that they have already given us.

Of course there will always be those who will need assistance when claiming. We will review our customer services to focus them on those who really need help. I can say to the noble Earl that we are always re-examining our network of benefit offices all around the country. We fully intend to continue the principle of giving people access to an interview at a benefit office.

I cannot tell the noble Earl that we shall ever set in stone the current network. Things change. Sometimes offices simply have to be moved because their lease comes to an end. I cannot give him an assurance that there will be absolutely no change in the structure of benefit offices. What I can say is that we do not propose to remove the face-to-face contact from customers who need that level of support.

Interestingly enough, some surveys that we have done increasingly indicate that our customers prefer contact by telephone. That is a rising part of the way our customers like to deal with the agency.

The fifth proposition is that we need the information just once. The counterpart of requiring claimants to accept some responsibility for providing information about their claim must be that we require only the minimum necessary information from them. So we are aiming to develop a system which will establish a single personal account for each claimant with information relating to all their benefit. We will review reporting requirements. There may also be scope for reducing the obligation to inform the agency about all changes of circumstances. At present some two-thirds of changes of circumstances notified to us result in no change in the value of benefit. So we will review reporting requirements to see how many are absolutely necessary.

Sixthly, we should pay people not to perform processes but to achieve results. We can create incentives for continuous improvements in quality and efficiency. In future we must specify the services we want provided but leave those providing them to find the best way of achieving the desired results. We should fund people to achieve results which are specified in terms of quality. For operations managers and staff we aim to remove the barriers to efficiency created by unnecessary bureaucracy.

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Seventhly, the ethos of public service is essential but state monopoly of provision is not. While our priority has to be to make decisions fairly in accordance with the law, the department should use suppliers who offer the best value for money, irrespective of whether they are in-house or private sector. We will further develop a mixed economy--as we are doing with the Benefits Agency/Post Office Counters Limited project on cards--with services provided by both the public and private sector. We intend to use the private finance initiative whenever possible to develop new projects. The performance of both public and private sector would be assessed on a comparable basis. I assure the noble Lord, Lord Carter, that we are very careful about the financial aspects and financial probity of contracts that we let.

It will be some time before the impact on staff levels can be gauged. As I have tried to explain, we are at the beginning of a process of seeing what tools are available to us to change. But there is no doubt that greater productivity will mean fewer staff posts. However, on anybody's terms, we will remain a very large employer. We must do all we can to accommodate change by natural staff turnover and by voluntary movements. We must equally do all we can to help those who do move on.

The change management team spans all the agencies and department headquarters. They have discussed ideas for change with staff at all levels and they consulted businessmen who have successfully implemented similar changes in their organisations.

The noble Lord, Lord Carter, mentioned his anxiety about how that would bear down on fraud. The elimination of fraud is part of our fundamental objective, not an afterthought. There is no question of sacrificing anti-fraud activity to achieve other change programme objectives. Indeed, the extra funds secured for the security programme and for combating housing benefit fraud are ring-fenced and cannot be diverted to other activities. Steps to simplify entitlement and to improve the accuracy of initial claims, to bring together all the customer information in a single customer account and other components of the change programme will all make fraud more difficult, not easier. And it will enable our staff to be directly involved in the battle against fraud. I hope that assures the noble Lord on that particular point.

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