Examination of Witnesses (Questions 1-19)
MS RACHEL LOMAX, MR JOHN CODLING AND MS ALEXIS CLEVELAND
MONDAY 4 FEBRUARY 2002
1. Good afternoon, welcome to the Committee of Public Accounts. We welcome Ms Rachel Lomax, Permanent Secretary at the Department for Work and Pensions, formerly the Department of Social Security and we also welcome Ms Alexis Cleveland who is the Chief Executive of the Benefits Agency. You have a colleague with you as well.
(Ms Lomax) This is Mr John Codling, who is the Principal Finance Officer of the Department for Works and Pensions, previously Finance Officer of the DSS and Benefits Agency.
2. This afternoon we are looking at error and fraud in Income Support. This should be grist to the mill of one of our colleagues, Mr Gibb, because very large sums of money are involved here. We are talking about losing £900 million a year in Income Support at the moment through fraud and error. How confident are you of managing to meet the Government's target of reducing fraud and error in Income Support and Jobseeker's Allowance to 4.5 per cent by 2006? If you achieve that you will be down to about £1/2 billion lost every year. These percentages probably mean very little to the general public but we are talking about very large sums of money indeed.
(Ms Lomax) It is a very demanding objective. It means a 50 per cent reduction compared with where we were in September 1998, but we have already made good progress. We have a comprehensive counter-fraud strategy and in the last two years we have made big progress as a result of paying very serious management attention to improving performance right across the board in the administration of Income Support. We have a number of other initiatives which we have been working on, the effect of which has not yet been fully felt. I would particularly single out more face to face interaction with our customers as a result of introducing Jobcentre Plus and the new ways of working that they will be introducing. A more active case management approach to this client group should produce dividends. Looking further down the track, we are planning a major programme of IT modernisation which, as the NAO report points out, could be of major assistance. It is not the only thing we are doing but it will be important.
3. We will talk about IT in a moment. The key constraint, as I am sure you will appreciate, and you might want to confirm, is the complexity of the income support regulations. Can you tell us a bit more about what you have done to try to deal with the complexity, how you can simplify regulations in future? This must be a key element in reducing fraud I would have thought.
(Ms Lomax) It is the one thing that people who administer income support on the front line always say: if you could make it simpler it really would improve our chances of tackling fraud. At the policy level, it is not a simple matter to simplify the benefit. An awful lot of the complexity is in there for what seemed like a very good reason at the time. What we have here is a benefit which is designed to cover a very wide variety of individual circumstances and which is extremely costly. The numbers are very big. The effort of targeting in itself tends to introduce complexity. Sometimes complexity is introduced as a result of what will seem like a step in the right direction, for example in promoting work incentives, benefit run-ons introduce complexity. I do not want to give the impression that we think it is a lost cause, only that a simple initiative to reduce complexity is in itself a major endeavour. Every time we consider a new policy area, or new policy initiative, we do look at the administrative consequences and the implications for fraud and error of making the change. In areas where the Government is prepared to spend more money, we have been able to suggest doing it in ways which also reduce complexity. Some of the tax credits, for example, pension credit, where the case load is more stable, we can make benefit awards for longer, not putting people in the position of having to report change in circumstances so frequently. That is a promising area.
4. That is a very cautious reply and rather depressing in many ways. I am sure that your main endeavour, as a Permanent Secretary, must be how to ensure that your accounts are not qualified every year. I imagine you must be focusing your mind on one way of doing that which is to make these benefits less complex. May I just give you one example? If you talk about the old age pension, there you just have one piece of evidence, how old you are, you are not concerned about how many children or anything else; one flat rate and there is very little fraud, very little error and all the rest of it. I just wonder whether when you are looking at income support in these sorts of terms, I know you get much more rough justice, but you get so much more of a simplified system. You deal so much more effectively with fraud and error that actually you may be able in the long run to recoup more of your losses and provide more for those most in need.
(Ms Lomax) It is certainly true that we lose more through fraud and error on income support than we spend in administering the benefit. When I am arguing for additional resources to administer income support, that is a statistic we often use. Complex benefits are very expensive to administer tautly. Part of the trouble with income support is that it depends on self-declaration of means. The areas which are most difficult to police are income, savings and living together as man and wife. With any benefit which is conditional on those sorts of things it is going to be very difficult to remove the potential for fraud and error.
5. Are you thinking in terms of moving towards annual assessments as we do with the Inland Revenue?
(Ms Lomax) Income Support is a benefit of last resort for people who are basically budgeting from week to week. The problem with annual assessments is that there has to be an end-year reconciliation and trying to claw back money from people, most of whom frankly are pretty close to the bread line, is a very difficult thing. It might be a recipe for us running up a lot of irrecoverable debt.
6. Obviously the complexity of the whole system is, I am sure, something other colleagues will want to come back to in some detail, so I shall leave it there. Can we talk about IT just for a moment? We are having to wait until 2006 to get the new IT systems in place. Given the record of your Department, how confident are you that this is a realistic deadline? It is a pretty late deadline in any event, having waited this long. Is it a realistic deadline? The first question is: why do we have to wait so long? Given that we are going to have to wait until 2006 in any event, can you actually get it right by then?
(Ms Lomax) There are two answers to that. One is that even by 2006 we will not have replaced all our Income Support systems. They are absolutely huge. What we are looking at is a programme of modernisation which is going to take about a decade. We shall have made progress before 2006, indeed we are making progress at the moment. One of the things which enables us to make progress is that we are breaking down the process of modernising our systems into separate chunks. That is one of the big lessons we have learned from the various large-scale projects which you hinted at a few minutes ago. You do need to break down this process of IT modernisation into much more manageable chunks and get some things right and then move onto the next one and have gateway reviews and not try to do it all in one great exercise.
7. So the answer is yes, you are going to get it right by 2006?
(Ms Lomax) We shall try very hard.
8. It is not a very challenging deadline, is it?
(Ms Lomax) We shall have made great progress towards modernising our systems by 2006. We shall see some results before then; I hope we shall see some serious results. At the moment we are live running Child Support on systems which we shall be introducing in a few months time. We have already done that. We have already introduced over 12,000 new desktops into our offices. We are actually doing things now. It is just that to replace most of the legacy systems, the back-end systems, will take us some years, the 60 per cent of them covered by the target. These are huge systems.
9. Talking of huge systems, some of the disasters we have had in your Department in recent years have been when you try to do too much too soon and you are doing a huge operation in April when you are merging the Benefits Agency and the Employment Service. Can you assure us that your staff will not take their eye off the fraud and error ball while they are attempting to deal with what is a massive reorganisation?
(Ms Lomax) Part of the answer is the same as the one I have just given on IT, which is to try to do things in stages. At the beginning of April, yes, staff will be assigned to new agencies, but many of them will be doing the same on 2 April as they were doing on 31 March. We will roll out the new model gradually, indeed we have already started to implement the Jobcentre Plus model in 56 offices round the country. Today we have started at the Burnley Empower Centre the new pensions process. We are breaking it down in stages so that we do not suddenly confront staff with a totally unmanageable amount of change. We are extremely conscious that major change poses risks to the day job, to operational performance and we have tried to assign very clear, specific accountabilities for people to keep their eye on the performance of the day job as we go through these major changes.
10. I have had letters from constituents, maybe others have, about the strike action at the moment and staff feel they have been put under pressure and barriers are coming down. Do you want to say a word about that?
(Ms Lomax) I should be interested to know what was in the letters from constituents.
11. From your staff. Not from my constituents, I do not think they care; it is the staff who are worried.
(Ms Lomax) We have had about half a million customers through our new offices and the evidence is that their reaction has been overwhelmingly positive, as has been that of the staff who work in the new offices. The actual new offices, if anybody has had a chance to have a look at them, are really light years away from the old Benefits Offices. I do not have firm figures yet on the risk to performance, which may lie behind what you were asking me about, from the industrial action we have seen, it is too soon, but in terms of continuous action it affected a very small proportion of the staff and the offices, about five per cent. We are not expecting it to have a material impact on the performance statistics of the sort we are discussing today. The two-day action, which we have had two lots of now, has been very patchily supported. Less than one in four staff have supported the call for discontinuous action and we think that it will generate a few backlogs but they are being actively managed. Over the time horizons we are talking about for the PSA target we are not expecting the effect to be material.
12. Let me turn now to the Chief Executive of the Agency. You will see from paragraph 3.11 that you have a huge range in performance between the best and the worst. What are you doing to bring the worst up to the best in terms of performance?
(Ms Cleveland) We are doing a lot of things. First of all was to try to identify what was causing that variation in performance. We have been looking at staff experience, staff turnover, the training they have had, the way managers have organised the work in the offices, the processes they have used and also the client population they were serving. Then we have put in place a number of strategies in each of those areas to address the specific issues. We have changed the way we are actually measuring the performance in each area in the sense of differential targets between offices. An office which is performing at 75 per cent, if it is set a target of 87 per cent, is not really going to strive to achieve it. If you set it with a few percentage points ahead, it gives the staff really something to aim at. So we have been breaking the targets down in that way. We have also encouraged areas to share best practice. We have set up twinning arrangements between good performers and poor performers so we have sent extra staff into those offices and we top-sliced part of the budget. It was not just set out on a pro rata basis on case load; we actually distributed it in line to achieving more equalisation of performance.
13. I am sure others have been round Benefit Offices in inner London. You are talking about enormously complex systems, it may take up to a year to train people, you have a huge turnover of staff. I know you are now trying to do more in terms of differential payments to try to encourage people to come to London and stay. Is this too little too late?
(Ms Cleveland) At one level we are already showing some improvement this year because the turnover of staff has reduced in 2001-02. That may just be the effect of wider economic conditions. As part of the last pay review we did take the opportunity to reduce the number of years it takes someone to get to the maximum of the pay scale. Ms Lomax was talking about levels of pay but at the maximum level we are fairly competitive. It is not high pay, but it is at least able to hold its own. The trouble is the length of time it takes new recruits to reach that maximum. Where we had specific issues over recruitment and retention, we have introduced allowances of up to £1,500 over and above the scale rates which people are getting specifically to address that problem.
14. For those of us who go round Benefit Offices one rather has an impression that people are just working to a bible and there is not much scope for individuality in the way that you deal with these benefits. What are you doing to encourage innovation and create a sense that people can come up with good ideas and percolate them up to you and throughout the system?
(Ms Cleveland) First of all, I make no apology for trying to get some consistency in performance across the piece. We have actually had to take steps to say that this is the way it is done. If we found that best practice says organise your work in this way, then that is the way we expect managers to organise the work. We have been pushing for more conformance from that point of view. In terms of turning the performance round and people being innovative, for example this year we created a fund of £26 million which individual offices could bid against for bright ideas they had for improving performance. Some of it might be for local training and some of it has been for more outreach work into communities where there were particular difficulties, some of it for extra staff to clear perhaps a backlog of work to give people a clear head of steam to go forward from.
15. What is the total estimated underpayment to claimants?
(Ms Cleveland) I do not have a figure across the whole of the piece in terms of the overall underpayments. We have it for some of the specific benefits but not the total.
16. When you are going through the errors and you are calculating the amount of underpayments to claimants is that figure offset against the overestimate of £900 million which has been put forward in the report as being the total due to fraud and errors?
(Ms Cleveland) My understanding is that the monetary value of error is the sum of the overpayments and the underpayments and they are not offset; it is an error whether it is an overpayment or an underpayment.
17. What the report says is that £900 million of overpayments have been made through error and fraud. What I am asking you first of all is how much the underpayments are. We all know errors can be over or underpayments; they may just be the wrong date on the cheque. There are several different errors which may be made. What I am asking is whether the £900 million figure reflects an offset between the two or is simply the overpayments.
(Ms Cleveland) No; it is simply the overpayments.
18. A true figure for the Department's overpayments is not necessarily reflected then by the figure of £900 million that you have put here. Is that correct?
(Ms Cleveland) No, we are saying that there will be some underpayments as well which are not reported in that.
19. Indeed. So if one is netting out what you should be paying to all of your claimants against what you are actually paying to all of your claimants, the figure would not be £900 million more than you should be paying. Is that correct?
(Ms Cleveland) Yes.