Examination of witnesses (Questions 80
- 99)
MONDAY 9 MARCH 1998
SIR JOHN
BOURN, KCB,
MR ANDREW
TURNBULL, CB,
CVO, MR
BRUCE SHARPE,
MR JOHN
CLOUGH, MBE
and MR FRANK
MARTIN
80. Indeed, it does. They quite clearly
did not and you did not know about it until the costs came in
and you had no control?
(Mr Clough) No, that is not really the case because
what we do is monitor over 20,000 properties per annum. My monitoring
officers who visit the homes and spend up to an hour in those
homes do make an assessment of the reasonableness of the costs.
Where we consider there to be a pattern of unreasonableness, where
a particular installer may clearly be charging more, we have on
a six monthly basis reviewed these in the past under old HEES,
if we can call it that. Those installers have been visited by
the compliance officer who actually audits their property, audits
their systems, audits their costs. We have challenged them in
the past to review their costings and indeed in every instance
they have done.
81. Why did you not challenge them at the
time when they were submitting their forecast on this?
(Mr Clough) Because by definition they were the
best people able at that point in time to judge what their prices
would be for that kind of work.
82. Yet clearly figure 23 suggests that
they were getting it substantially wrong?
(Mr Clough) It suggests that they got the balance
wrong and that information was available in hindsight, it was
not available in prospect.
83. The difficulty is the lack of control.
If I can turn you to figure 26, which takes a look at the differences
in average cost of claim for draught proofing a two bed roomed
flat by installers working in the same area.
(Mr Clough) Yes.
84. Here we see there is an average difference
of £50 between different installers in different areas. The
largest variations are in Scotland and the East Midlands. How
can you explain this difference in average cost? Was it because
we failed to control them at the start?
(Mr Clough) As the National Audit Office pointed
out in their report many of these differences can be explained
by the mix and type of measures, the type of property that they
homed in here on flats and looked at two bed roomed flats.
85. What they actually said in paragraph
3.54 was "There will be justifiable variations...",
in the first sentence, but "... also identified examples
of variations which warrant further investigation". I would
quite like to know why it is there are such huge variations in
the simple draught proofing of a two bed roomed flat which does
not seem to me to be justifiable on the basis of the cost of material,
the training levels and the distance to be travelled unless you
can say to me conclusively that these variations are down to those
legitimate changes?
(Mr Clough) If I can give you a specific example,
let us choose Scotland because that is the worst case there.
86. Indeed[3].
(Mr Clough) I think probably one of the best examples
would be in figure 27 where it would appear on the basis of that
that three installers are operating in the same area doing a two
bed roomed flat charging very different amounts and indeed the
highest was very much higher than the grant maximum. When in fact
you look at those particular claims, which we have done because
this was an area clearly that we wanted to get to the bottom of,
you find that these are Edwardian and Victorian terraces in Glasgow
with very large sliding casement sash windows. I have the breakdown
of those particular claims which I am happy to provide. An assessment
done by our monitoring officer at the time demonstrates that generally
these were very good value for money because of the size of property.
It is not a fair assessment to say that poor people generally
live in small homes, many of them live in very large difficult
to heat homes.
87. Let me turn you to figure 24 still around
the area of costs. Is it just coincidence that whilst there is
a wide variation most of the claims are at or near the grant maximum
for each type of work? Is it because your grant is so accurate
given this huge variation? No. Is it just perhaps everyone has
worked out the cost to get this grant and they are charging this
amount with a little bit of variation either way? It sounds like
a good fix to me.
(Mr Clough) What tends to happen is that despite
our plea to the various installer companies that they should actually
indicate what the correct charge for this type of work would be,
in many instances it would be above the grant maximum. Generally
speaking these people in necessitous circumstances are unable
to meet the additional cost, often the additional cost is made
through a hardship fund from a local authority or a regional electricity
company might do the top-up. There is an issue here with regards
to the installers knowing that they are only going to get the
maximum grant from us. They fill that in on the form and that
provides this sort of statistical information. In fact if you
were to actually judge the amount of work done you might come
up with a slightly different distribution. It is a case of "why
tell you it costs £400 when I know you are only going to
give me £315, so I will put £315 down and let me find
the top-up". That tends to be the reason.
88. Who finds the top-up?
(Mr Clough) The top-up can come either from the
client but in most cases will come from a hardship fund.
89. It does not come from the installer
obviously.
(Mr Clough) Unless the installer runs some sort
of hardship fund where they share their profits. Some of them
do.
90. I am just intrigued too about what might
go on in a particular area. On page 47, paragraph 3.31, you talk
about the vast majority of areas having two or three installers.
You try to create at least two installers in each area. How big
is an area? Is it Northampton? Is it Birmingham? Just give me
a feel.
(Mr Clough) There are 456 local authorities, there
are 156 installer areas. Largely speaking you are talking about
three local authorities.
91. Three local authorities. So you might
have two installers covering three local authorities?
(Mr Clough) Yes.
92. Does that sound like enough competition
to get the price down to you?
(Mr Clough) I am not sure what the right level
of competition is.
93. You do not know what the right level
of competition is to get the price down?
(Mr Clough) I know that if we market test and
invite everyone who is working in this field to be part of the
holding list who can then be invited to carry out work, if we
are still (a) having interest in that then people know about it
and (b) if there is not overwhelming interest in that then we
are working with the industry in the size that it is.
94. In an area it would be wrong of me even
to suggest that the two installers in that area might talk to
one another about their pricing. It would be wrong of me to even
think that the two installers might have a small cartel going
and, therefore, are keeping their prices artificially high.
(Mr Clough) They may do but that is a risk that
they would run and my experience in the commercial world is cartels
very rarely operate for very long. There is always somebody who
on the face of it would agree that there might be some price fixing
and inevitably some party to that would break the pricing arrangement.
That is one of the reasons why clearly we want competition in
an area and we encourage competition in an area, but to suggest
that these people will operate that sort of cartel——
95. The answer you have given me is you
do not know this is going on and with only two suppliers in one
large area of three local authorities I guess I am just too suspicious
perhaps to believe there is not some of that going on. I just
want to know what quality control, what price control, what way
you ensure that is not happening rather than assuming that it
is not.
(Mr Turnbull) Can I say those two are chosen from
a larger list, it is not just two that compete in the competition.
There is competition amongst a large number of installers to be
those two. Then we come to the question of why did we change the
scheme and what was the nature of that change? Instead of bidding
for a three bed roomed house, a flat or whatever, the installers
were asked to bid for a square metre of insulation, a square metre
of cavity wall, a window of such and such a type, an external
door, an internal door, or whatever. There is now the possibility
of monitoring much more closely the prices that they charge for
individual items. There is a reference in here to developing a
computer programme which will identify where someone puts in claims
that are for a terraced house, for example, where those claims
are out of line. Also automatically if they put in a claim which
is (a) above the grant maximum and (b) above the figure that they
bid then the excess is disallowed.
96. I want to finish on this point about
costs. Because the actual costs are outpacing the forecast costs
quite considerably, as I put in the first information we looked
at, and because so many people are getting right towards the maximum
grant, that is the huge column in the middle of that graph, and
because we have only got two installers per area, it all looks
like a bit of a fix. Everyone knows what they are going to get,
they put the money in, there is no incentive to be more efficient
than the next person and there are no real controls, or there
have not been to date, over their actual costs because you appointed
them on the basis of their forecast costs. I just find the whole
area of cost control seems to be incredibly woolly.
(Mr Turnbull) But are you judging it on the scheme
as now or on the scheme that the NAO investigated?
97. I think our job is to take what the
NAO investigated and to pursue you on what appear to be some fundamental
flaws in the last seven years' worth of operation which may have
meant that fewer of the poorest households in this country have
had their houses insulated than they could have done.
(Mr Turnbull) It depends whether you give us credit
for having changed it.
98. This year?
(Mr Turnbull) Yes.
99. Six years this scheme has been going.
We can give you credit for finally getting around to it but I
have to say that for the past six years there is not a lot of
credit to be had. On page 17, paragraph 1.13 says that the Chancellor
cut the VAT on energy saving materials from 17.5 per cent to five
per cent and that would help to insulate an additional 40,000
homes per year.
(Mr Turnbull) Yes.
3 Note: See Evidence, Appendix 1, p. 22 (PAC
221). Back
| 
