Examination of Witnesses (Questions 20
WEDNESDAY 23 JANUARY 2002
20. I am also suggesting that from the outset
it was wide open to people mis-using it. It is not just that you
might get people of poor quality, but you might get people thinking
"This is easy to do".
(Mr Lauener) On the point you make on it being wide
open to being mis-used, I think all the evidence we haveand
we are still building the story and it is vital we get to the
bottom of what happenedis that the problems we have had
really accelerated in the summer. Up until that point they seemed
manageable and we introduced additional quality assurance mechanisms,
but it was from the summer onwards that we had major problems
21. So people caught on about it?
(Mr Lauener) There is plenty of evidence that unscrupulous
providers started to exploit the scheme in a major way from about
the summer onwards.
22. I am staggered by the seeming lack of quality
assurance and monitoring structure that seems to have been in
place where public funds are concerned, particularly with regard
to the fact that indeed at least one service provider, I think
in September 2000, wrote to the Department setting out that the
system was very clearly open to abuse. I wondered what additional
structures you put in place since the Department received those
(Mr Grover) Last summer we did put in two additional
elements of the structure.
The first was a provider agreement which providers, as a condition
of registration, had to sign setting out a set of principles that
they undertook to adhere to which included things like not mis-selling,
not putting unfair pressure on learners to learn, with that provider.
The reason for putting that agreement in place, of course, was
that then gave us a reason, if we found evidence that the provider
was not meeting the terms of that agreement, to be able to remove
them from the list of registered providers, otherwise it would
have been a difficult thing to do, and that is something we have
done in the period since then when evidence has come to light
that registered providers have not complied with the terms of
that agreement. So that is one element that was put in place in
response to the worries that emerged. The other which I have already
mentioned was some additional advice for learners about the sorts
of things they should be looking at, which included qualification
levels and what would be available at the end of the coursethe
sorts of things they ought to consider in deciding for themselves
what learning they wanted to undertake.
23. Do you accept that not enough was done after
those original warnings were received?
(Mr Grover) As I think the Minister said when he appeared
in front of the Committee, it became apparent that putting those
additional elements in place was not enough to stop the problem
that was emerging, what Peter Lauener has just described, so clearly
it was not sufficient building on what we had by way of a basic
system, which was what lay behind the decision to suspend and
then close the scheme.
24. One of the other themes that has run through
the ILA is that the number of applicants was far greater than
predicted. I wonder how much you thought that was down to the
lack of quality assurance and the obvious elements of fraud that
were in-built within the system?
(Mr Grover) It did take off a great deal faster than
we had expected, far faster than the market research I have referred
to in describing the work we did in advance had suggested. I think
it was not until the sorts of evidence of acceleration from June
or so onwards emerged that we began to feel that what we were
seeing was not something that was a genuine explosion of interest
in learning if you likethough there was certainly that
element there and it is important not to lose sight of that. There
were a lot of new learners brought in who were satisfied with
the learning that they got. It certainly did tap a real vein of
wish to learn, but it also did become apparent that the way the
scheme was structured was not sufficiently robust to enable us
to tackle the situation.
Chairman: This Committee understands and applauds
the expansion of the Individual Learning Accounts but what we
are here to discuss is why it went wrong and what damage has been
done to individual learning by what has occurred.
25. I do not think, with all due respect, that
answers my question. Do you think that the expansion, or the increasing
numbers that were over and above the expectations of the Department,
was down to the element of fraud and the lack of robustness of
the quality assurance within the Department structures at that
(Mr Lauener) I think the answer is not entirely
26. But there is an element that is due to that?
(Mr Lauener) There is certainly an element: we are
investigating all the complaints and discussing many cases, as
the Committee knows, with the police but those same elements that
allowed things that we would all say are unacceptable and must
not be part of the new programme are the same elements that allow
the scheme to be very flexible and to allow bona fide providers
to encourage new learners into the market by actively promoting
it to people that will benefit. I think the secret, therefore,
is to find a way of making sure we do not lose that while making
sure that we get rid of the exploitation and fraudulent activity.
The answer has to include better quality assurance arrangements.
27. What this Committee wants to hear is why
could it not have been fixed? What has never really been said
by any minister or anybody giving evidence to the Committee so
far is would not less damage have been done to the whole process
of individual learning and ILAs if you had actually fixed ithad
a temporary halt but fixed itrather than, first of all,
freeze it, then end it, and now re-invent it with a big gap that
is doing a lot of damage both to providers and learners? Why could
you not have fixed it, rather than just cancel it?
(Mr Lauener) I think most damaging of all would have
been to have had a gap, made some changes, reintroduced it, think
we had fixed it and then had more problems. We felt that we had
to get right to the bottom of what has been happening over the
last few months. Although the picture is becoming clearerand
John Healey described last week the way numbers have been taken
out of the systemwe still do not have the whole picture
and until we have that whole picture, which of course we will
make available when we have had the results of all the analysis
and the further work that is under way with Capita and Cap Gemini
Ernst & Young, we cannot be absolutely confident that new
arrangements will be better. There are already ingredients that
we can see and have talked about and better quality assurance
is a part of that, but I think we have to get the whole story,
get right to the bottom of the problems we have had, and make
sure that the problems we have had cannot recur.
28. That is a very good civil service answer.
The fact of the matter is you are going to have more criticism
and this Committee is going to be more entrenched in its criticism,
as will other people. If, on analysis, we find it could have been
fixed and this hiaetus has been caused by over-reaction to something
that could have been fixed and the problems were manageable, that
is going to cause, I think, greater vulnerability if we discover
in time that you could have fixed it and all the pain and suffering
that providers and learners have been going through was unnecessary?
Would you not agree?
(Mr Lauener) The judgment we took was that it was
too risky an option to stop and patch and re-launch as soon as
possible. We had to get to the bottom of all the problems and
I think the best thing for all the excellent providers that have
done a lot to get more learners back into the scheme is to drive
out the unscrupulous providers and make sure they cannot come
back in, and I think that is the best security in the long term
and the best way of re-establishing the success.
Chairman: I hear what you say but I do not know
how convinced I am about that.
29. Could you remind us of the total budget
spend on the scheme to date?
(Mr Lauener) Yes. It is the figure that John Healey
gave in his letter of last week. For the two years including the
Training and Enterprise Council funding that I referred to before,
against a budget of £202.1 million for the two years 2000-2001/2001-2002,
the spend to date is £62.9 in excess of that, so the overspend
is £62.9 million. It will very shortly be slightly more than
that because, as John Healey explained last week, we are making
a further payment run for billing that was made on 22 and 23 November,
and the money from that will be in providers' accounts. Where
we have been satisfied that it is right and appropriate to make
the claims the money will be in accounts by this Friday, so the
spend will edge up a little bit.
30. So the overspend is just under 30 per cent
of the budget allocation and is likely to go over 30 per cent?
(Mr Lauener) It will go up again because, in addition
to that payment I have just talked about, we have made the commitment
that learning that has been booked by 23 November will be paid
for and there is six months for that learning to happen. We are
working now on the arrangements for ensuring that providers can
claim for that learning. There is quite a bit to do but we are
working hard on that, so the overspend will go up above the £62.9
31. You talked of £150 million when you
were replying earlier and that somehow that was separate and that
was not public money, but that was the money from the TEC reserves
which had been built up over a number of years as a result of
creaming off of public sector contracts with the Employment Service.
(Mr Lauener) It was TEC money, a lot of which came
from TEC reserves. It was money from TEC resources and in some
cases money which would otherwise have been spent on other things.
32. So it was substantially public money also?
(Mr Lauener) TEC reserves were originally substantially
made on the back of the government funding and this element has
been recycled for the benefit of the Individual Learning Account
programme, as of course set out in the Manifesto of 1997.
33. If I can come back to your comments on the
learning-provider agreements, you said in response to the question
as to what steps were taken to improve the quality assurance after
the first warnings were given that you published a revised learning-provider
agreement. Now, my recollection, and with all the documents I
just cannot put my finger on it, my recollection is that within
that learning-provider agreement, it does still explicitly sanction
third party-selling of ILAs, so even after the warnings had been
given about abuse of the system, you produced a new learning-provider
agreement which explicitly sanctioned the "Costa Brava timeshare"
approach to this.
(Mr Grover) The learning-provider agreement is actually
the very last document in the second bundle, if the Committee
is able to find it, and, as I said, it set out the conditions
we expected learning providers to adhere to in making provision
as a basis for us to look at their registration if there were
complaints about them. There is not anything in that agreement,
as you rightly say, about the practice of submitting block applications.
That is one of the areas it became apparent was a source of abuse
and we did end that practice and make that unacceptable. I cannot
immediately recall the exact date, but we did stop that practice,
but that was one of the things we were trying to
34. I just want to move on because it was not
just the question of submitting block applications, but my recollection,
from looking through the documents last night, and it may not
be the learning-provider agreement, but it may be somewhere else,
is that there is explicit sanction of third-party selling of ILAs
as long as the third-party salesperson is employed by the learning
provider. I come back to my point that in the guidelines for this
scheme the Department had explicitly sanctioned this approach
and, therefore, it was inevitable that a degree of unscrupulous
practice was going to take place. Can you just confirm that is
the case, that you had not explicitly ruled out learner providers
employing other people to recruit eventual students of ILAs?
(Mr Lauener) I think what you describe is correct,
but I think the point I was trying to make earlier is relevant
which is that under the ambit of a provider who is in agreement
with the aims and ambitions of the scheme, that is not necessarily
a bad thing. It is a way of getting more people into learning
than would otherwise be there, but there are many arrangements
where it is an extremely bad thing, where there is no interest
in the learning on the part of the third party or the provider
but it is purely due to a desire to make money out of the scheme,
so it is that which is bad rather than necessarily the third-party
35. Given the experience, for example, on this
point of franchising within the further educational sector between
1993 and 1997, which in itself was a major scandal for which the
Department was then responsible, was it not pretty inevitable
that the lax rules of this scheme would lead to a replication
of franchising scandals, albeit on a small scale?
(Mr Lauener) I think it is easy to say with hindsight
that all the problems that we have had were inevitable because
of the design of the scheme. It is quite clear that we have had
problems that none of us wanted with the delivery of the scheme
and they are completely unacceptable problems. Again
36. My argument is that it is not a question
of hindsight now, but it is a question where the Department was
warned explicitly in advance that this would happen.
(Mr Lauener) I think the point I am making is still
relevant which is there is a difference with the franchising arrangement,
that a significant contribution, either 20 per cent or 80 per
cent or £25, is expected from the individual. Again I quite
accept contribution does not equate to satisfactory quality assurance
on its own, but it is an important element of this which was designed
in from the start to ensure that this was not only government
funding and we are quite clear again that if that contribution
has not been made, then we pursue providers for recovery and indeed
we have in some cases already sought and secured the recovery
of public money where the individual contribution was not made.
Chairman: This is a very useful line of inquiry,
but we are running out of time.
37. You said that when the TECs piloted the
ILAs, they stuck to existing training providers because they knew
the quality and I think you said that Scotland continued to do
that, whereas England went down this route. Is that correct?
(Mr Grover) Scotland, as I understand it, had a different
system, but what they did was use in effect a list of providers
which was held by the Scottish University for Industry. It is
a proxy list of providers funded through Scottish University for
Industry. That is my understanding anyway.
38. So Scotland went down a safe route. Are
there any comparative figures as yet of (a) how many allegations
of fraud there are coming from Scotland compared to England and
(b) how successful the Scottish scheme was in bringing in a wider
range of new learners compared to the English system?
(Mr Grover) I am afraid I do not have those figures
immediately available, although, as you may recall, the Scottish
Executive decided to close down the scheme in Scotland as from
the 20 December because they were concerned about the risk to
learners and some of the issues which had been raised were worries
about the risk to the public purse, so I cannot answer for the
Scottish Executive, but it seems that they have similar worries
about the way in which the scheme is run and so they took that
39. But presumably you would look for figures
like that in comparison because if you had such a lax system in
England because you wanted to expand into new trainer providers
and in turn bring people into education who would not normally
go back into it, if Scotland managed to do that without having
so much fraud, that would obviously have taught you some important
(Mr Grover) Of course, Chairman, we would very much
want to look at the way in which the Scottish system ran and see
whether lessons could be learned from it, yes, certainly.
1 Note by witness:
There were actually five additional elements in total.
So extra to the two mentioned we also:
- Established a compliance
- Stopped registering
new providers; and
- Required all new ILA
applicants to register via the ILA Website or telephone helpine. Back