Select Committee on Social Security Minutes of Evidence

Examination of witnesses (Questions 1 - 19)




  1. Good afternoon, ladies and gentlemen. May I declare the public session of evidence open and welcome the Secretary of State, our first meeting, I think, the first appearance by the Secretary of State since his appointment last year, and we are delighted and grateful that he has found the time to join us this afternoon to look at the annual departmental report and related matters. We are also helped by the presence of Dr Stephen Hickey, who is the Principal Finance Officer at the DSS, and Mr Neil Couling, who is in the Planning and Finance Division, and please feel free to pull in your officials as you feel necessary. As I keep on reminding people, this is not "Mastermind"; we are simple seekers after truth, as I am sure you know.
  (Mr Darling) I have heard that one before.

  2. Alas, I know you have. I wonder if it would be helpful, since it is your first appearance, if you were to say a word or two to set the scene as to what you think the new priorities and perspectives are from your own point of view and then we can go into the areas of questions which are of interest to us. Alistair Darling.
  (Mr Darling) Thank you very much. I was beginning to wonder if you were ever going to ask me to appear before you since I was appointed about a year ago, though I do know that you have inquiries coming up later on in the year where you want my ministers or perhaps me to come and speak to you, and we would be more than happy to do that. As you say, it is just about a year since I was appointed and in that year we have published about half a dozen Green Papers on welfare reform, gateway to work, the new single gateway on disability, on bereavement, the Green Paper on pensions last December, on safeguarding social security, our strategy against fraud, and, of course, the White Paper on child support about a month ago, and there is, of course, the Welfare Reform Bill which is now going through the House. There are three main objectives that I have set myself. Firstly, I want to ensure that the Government's strategy to eradicate child poverty is well under way. The Prime Minister gave that undertaking earlier this year and the reforms we are making to child benefit, the introduction of Sure Start, the Child Support Agency reforms, which will get money to a million extra children, are all part of that. The second thing that we wanted to do was to change the whole culture that governs the way in which we help people of working age to get into work. You will be aware that the Government's strategy is that the best form of welfare is work for those who can and we have introduced major tax and benefit changes. We are making sure that work pays through a variety of means introduced by my Department and also by the Chancellor and other departments. This year also sees the introduction of a radically new approach, with the new One Service bringing together the Benefits Agency and the Employment Service for the first time, but the whole system is geared to ensuring that if somebody is out of work, for whatever reason, that is not the end of the road. We want the whole system, both in terms of help and benefits, to tilt them back into work, where that is possible, and clearly, of course, we have to provide security for those who cannot work and, indeed, we are doing that. Thirdly, there is the position of pensioners and there are two strands here: firstly, helping today's pensioners. Although the incomes of pensioners as a whole have increased in the last 20 years, the incomes of the poorest pensioners most certainly have not, and our strategy there, through the minimum income guarantee, has been to help those poorer pensioners because those are the ones who really, when we took over from the last government, were the pensioners most in need. Of course, we have also put in place longer-term pension reform, which will ensure that we end the situation where, at the moment, one person in three of working age is heading for retirement on means-tested benefit. We want to ensure that if you work for a lifetime then you retire above that and the changes that we have made do that. The last thing I would say to you, Chairman, is that policy is very important clearly in this Department but equally important, and I fear sometimes neglected in the past, has been the operations of the Department. There is not much point in having a good policy if it does not work and I have attached considerable importance in the last 12 months to ensuring that the new policies we introduce do work, as well as spending a considerable amount of time trying to recover the situation from some of the things that we have inherited which patently do not work, of which NIRS2 is perhaps just one example—there is also the Benefit Payment Card and so on—because it is very important, when you bear in mind that 70 per cent of the population deal with the DSS every day of the year, that we ensure that the system works efficiently and effectively as well as, of course, if we get the gateways right, if we get the systems right, then it means we have much tighter control over our programme expenditure. I give you one example in closing. When we got into power, two out of every five income support cases were wrong. We have now made those decisions far more accurate. We will save £1 billion on that alone this Parliament and that is money that is going towards increasing child benefit. That is just a brief resume of what our strategy is. We have started, we have done quite a lot in the first two years, we have a great deal more to do, as I set out in speeches I gave on Sunday, which you may have seen, but I would be more than happy to answer any questions you have on these matters or, indeed, anything else in the report or anything else we have done in the last year.

  3. Thank you very much. I should say straight off that we are deeply grateful for the help we are given by the staff in the work that we do when, for example, we go visiting benefits offices and some of the people in the front line, as we have done. I want you to take careful note that the travelling that this Select Committee has done this year has been restricted to Preston, Sheffield, Camden and Lewisham and no points outside the United Kingdom, which I think maybe upsets some of the Members of the Committee.
  (Mr Darling) Your position is under threat then, is it?

  4. My position is under threat. But we get very good assistance in terms of the arrangements to be made when we do visit these places. One of the things that we find when we get there is that the staff—and they do not say this in any real complaining sense—are on the receiving end of what one of them described as a blizzard of change in terms of some of the policies. Irrespective of whether it is good or bad—and you put a very good case for saying it is all positive stuff—irrespective of whether it is right or wrong, what arrangements are you putting in hand to make sure that people who are really behind the screens and dispensing the benefits at the front line fully understand the vision and the direction in which you are trying to take the Department?
  (Mr Darling) There are two separate strands here. Let me deal with them and you may want to deal with them separately because I think they are both quite interesting. Firstly, I think it is crucially important that all the 90,000 people that the DSS employs, either directly or indirectly through its agencies, understand what they are there for. It is very important that everybody who comes to work in the morning actually knows what they are supposed to be delivering. If, for example, you take the Benefits Agency, for many years I think many of them saw themselves as simply being, if you like, a banker of last resort. They were there to hand out benefits. I think many of them felt that they were not highly regarded by their ultimate employers, the government of the day, and they were sometimes operating in very difficult positions. Indeed, one of them once said to me that he had joined to help people get on and get into work and he felt that 18 years had been spent as a benefits policeman and that was not what he actually wanted to do. We are introducing the new One Service, which will mean a completely different change of culture, not just in the way in which we deal with the public but on the part of the staff, because yes, of course, they have to ensure that the amount of money they pay out is the right amount but their job is primarily to ensure that if you have somebody who is out of work they do the best they can to get them back into work. So it is far more a personal adviser role than simply processing, as in the past. Another example where the staff need to understand what they are doing is that under the last government there was a clear instruction to process claims as quickly as possible because that was the main driver. We changed that about a year ago to say the most important thing is to get the claim right in the first place and that is why, if you look at our programme expenditure, it is lower than expected, partly due to the fact that we are spending more time getting these things right because it is much easier to put it right in the first place than it is to recover the situation when someone may be owing us money. The second thing that I think is important, some ten years after these agencies were set up, is to look at the relationship between the DSS HQ and the management of these agencies. The Permanent Secretary is, as you know, slightly newer than I am to the Department and the two of us have over the past few months been reflecting on how we think the Department could be better engineered, better focused, and I have asked her to examine the relationship between the DSS and its agencies. The agency structure will remain the same, because I think that is important, but what I do think we need to look at is whether or not we need to have a planning department and they need to have a planning department, to make sure that we determine the policy, we determine the direction, and they deliver it and they do not maintain a life of their own somehow independent of what the Government is doing. It is not a review, as I say, of the structure of the agencies. I think that structure has worked, though there may be some case for tweaking it at the edges. Nor is it a review of staff numbers or anything like that. It is actually how best we can engineer things between HQ and the agencies to ensure we deliver the Government's objectives.

  5. That is very important and I think that is work we would be interested in keeping in touch with as a Committee. How long do you think it will take to complete this assessment and produce some early indications of what actual changes you may believe are necessary?
  (Mr Darling) I would hope we could complete this in months. I cannot tell you whether it is going to be four or six months but I would certainly want to have a clear picture by the spring of next year as to where we want to go. We will be bringing in one or two people from the private sector who have worked for organisations that have also gone through restructuring, which have similar structures to our own, many branches, sometimes hundreds of miles away from headquarters, where they have sub-structures beneath the headquarters. I think it is very important that everybody in the enterprise, from the chief executives of the agencies, their senior management team, right down to the front-line staff, understand what we are doing, and it is also important, although our administration costs are quite small compared with our programme spend—our administration costs are some £3 billion—I do not believe for one minute that there is not every reason to ensure that we spend our money in the best possible way. I would rather spend the money on our programme expenditure than on administration, which is among a number of other areas I have been extremely keen to bring up-to-date in the way in which we do things.

  6. We might in next year's annual report see some proofs of the review you have just outlined?
  (Mr Darling) I would certainly hope so, yes.

  7. That is very helpful. May I ask two questions, staying with the annual departmental report, and may I preface what I am going to ask by saying that, taken together with the public service agreements that we now have, we are now in possession of a degree of detailed information that we never had before and that is extremely welcome. But concentrating for a moment on the totals of public expenditure, I would not mind just a sentence or two from you—and there are no tricks in this question—about how you see the drifting of the percentage share of GDP that we commit to your budget, whether you think it is stable, whether you think in the next three-year comprehensive spending period it will drift up or stay the same or are you aiming to decrease it? The other thing is a point of detail. When we are looking at the annual report I find it difficult myself—I do not know if I speak for others—in the way the figures are presented in the annual report to disaggregate the natural drift that comes through demographic change, inflation and other natural factors, from the increases that may accrue from policy changes. If I could illustrate that with the disability living allowance, if you look that, you have an increase in expenditure, if I am reading these figures right, of £1.6 billion during this Parliament, which is a huge amount of money, but if you drop down into it, only some £15 million of that growth—according to my quick researches last night—is attributable to the policy decision to extend DLA to higher mobility to the under-fives, which is very welcome. The point I am making, and I am not trying to be clever about whether the Government are being good about increasing the expenditure amount, is about the interpretation of the figures and trying to see explicitly whether the total increases come from greater eligibility through demographic change as opposed to policy change, if you understand where I am trying to get to?
  (Mr Darling) I understand. You have asked a question that could take all afternoon to answer in some ways, but let us have a stab at it. Let me deal with DLA, first of all, because you asked a quite specific question there.

  8. I was only using that as an example. I do not want to drag you into the territory.
  (Mr Darling) No, I just want to make a point about that. On DLA, the extra money for the three- to five-year-olds of course will not come until 2001. It is part of the package that I announced last autumn which is still going through the House. So during the CSR period it figures relatively in very small measure because it does not appear until then. As far as the DLA itself is concerned, what has been happening is that there has been less of a takeup than perhaps some people expected and it has been happening for some time. The other thing that is perhaps worth noting about DLA is that nearly 40 per cent of applications are rejected because people are not eligible. We still have quite a lot of work to do on the gateways to DLA, but the expenditure you see there, there will be an increase because we know there are people who are eligible who are not applying at the present time. But I just give that as an example. You asked about the three- to five-year-olds. Let me deal with the overall expenditure. Basically the position is this, that the rate at which DSS spending is growing this Parliament is running at about half that of the last Parliament. It will increase by just under 3 per cent during the course of this Parliament. It was about 4 per cent in the last Parliament and it peaked at about 10 per cent in 1992-93. You are right that there are two elements of the increase. One is demographic. There are more pensioners, for example, but there are other areas in which we have deliberately increased expenditure. We are spending some £4 billion more on pensioners, the minimum income guarantee, for instance, winter fuel payments and so on. If you take the help we give children, we are deliberately increasing the amount of money that we spend on child benefit because we think it is right as a policy matter to do that. The working families tax credit, which will come in this October, again that is a deliberate policy decision to increase that. Where, on the other hand, we are saving money is, firstly, on accuracy and I talked about that a minute ago. There are now for the first time in years fewer than a million lone parents on income support and because of economic conditions, because of the New Deal, that is beginning to have an effect. The fact that there are now 400,000 more people in work, the fact that nearly a quarter of a million people are on the main New Deal, they are all contributing to keeping social security expenditure under control and we attach considerable importance to doing that, but there will be areas in which there are increases in discretionary expenditure. You asked me, could we present the departmental report better. Of course, we can improve it. We are trying to disaggregate things as much as possible, but I can assure you that where the Government is spending more money, then we are very happy to shout about it because we are spending more money in areas that I think most people would support. Just to put it in perspective, nearly half of what we spend goes to pensioners, about 25 per cent goes on people with disability, just over 20 per cent on people of working age and about 8 per cent on families. That is the rough spread, but if you as a Select Committee wish to see us present our figures in a different way next year, we will certainly consider that. There comes a point where the volume gets awfully thick.

  9. I understand that. Could I leave the thought with you that it would certainly be helpful to me if there was some way, without smothering the whole thing in a level of detail that would make it so dense and difficult to comprehend, of disaggregating the spend that is going to happen, but if the Government did nothing at all to make any policy changes there would be an uplift in the spend, as I understand it, because of demographics?
  (Mr Darling) In some areas, yes, but not in others.

  10. I agree, but in those areas, if it is possible to identify what the Government is responsible for in terms of increases or, dare I say, decreases in spend because of policy changes, and make those decisions and the effect of those decisions clearer, I think it would help the process of understanding.
  (Mr Darling) I can give you some illustrations, if that would help you. If you look at families with children there is an increase of £1.9 billion by 2002-03 and £1 billion of that is because of discretionary increases. But certainly I would be very happy, if it would help you, to let you have a note giving some examples of where we have increased expenditure on a discretionary basis[1].

  11. It would help me, if nobody else. A final question from me: I wanted to turn to public service agreements very briefly because I think that they are a very beneficial step forward in terms of trying to present levels of detail by which the performance of governments can be measured, and I acknowledge that freely. I think the Government are to be congratulated. I noticed, however, that you had always planned that you got an interim PSA. You published some plans in December 1998 and then there was a further revised version published in March 1999. There was a change from December to March in the public service agreement. Could you say a word about why that should be? The figures increased and some of the targets got harder but perhaps you could explain to us why it was necessary to do that?
  (Mr Darling) Mainly because in the six months between July, when I took over, and the beginning of this year I spent a considerable amount of time looking round the Department and seeing what we could deliver and what we should be delivering. Other departments for various reasons were able to get their PSAs concluded at a slightly earlier stage. In the DSS, apart from the fact that it is by far the biggest department and we spend a third of all Government spending, an awful lot of what we do is driven by what other departments do. Consequently, it took longer than other departments to finalise the PSAs. I think we improved them from the interim PSAs and made them a lot better in many ways, but that is the reason for the delay.

  12. I just noticed with interest, that if you could compare and contrast the December version with the March version, you could determine the difference between the previous political stewardship of the Department and the current. The first change that comes in in the March version of the document is a new target to work with HM Treasury with the aim of ensuring that the ratio of in-work benefits and earnings benefits to out-of-work benefits does not worsen. To what extent is this a new Treasury-driven view of departmental policy?
  (Mr Darling) There is a lot of rubbish talked about the relationship between the Treasury and my Department and other departments. As you know, I spent 15 very happy months as Chief Secretary of the Treasury and I had the same view then as I have now as Secretary of State for Social Security. The Treasury and the DSS do need to work together. If you take tax and benefits, for example, they are part of the same continuum, if you like, and it would be extraordinary and impossible, in fact, for the two departments not to work together. So I see nothing sinister in this. Indeed, though it is not directly relevant to this particular Committee but you wanted an observation gratis, if you like, from someone who has been a minister for just over two years now, I think that the need for Whitehall departments to work with each other and across departments is actually quite significant and, given that HMT has clearly a responsibility for controlling public expenditure, and given the fact that we spend a third of all public expenditure, it would be quite extraordinary if we did not work together. We do so extremely effectively and, happily, we see eye to eye on the vast majority of things.

  13. Some of these targets are quite challenging. Some of them, on the other hand, look better on paper than they actually are. When you look at the PSA on electronic government, it says that the Department will ensure that 25 per cent of all business transactions should be capable of being carried out electronically by 2002. When I read that first, superficially, I thought that is a massive hurdle and test to pass but, of course, when you look at it in detail again it is actually the capability that you are setting yourself a target for and I think that if you have the capability of making payments, certainly at the moment, that would take away that part of it before you got anywhere near 2002.
  (Mr Darling) No, the words were picked carefully. What we want to achieve by 2002, what we want to do is be well on the way to delivering a system that can make payments far more by electronic means than by manual means. As you know, most of our payments made now are made by order books that are very similar to the ration books that were issued in the 1930s. So what we are signalling here is that we want to turn the current situation round to begin to put in place the necessary IT and so on to deliver it. I think separately you want to ask me about IT and perhaps about the Benefit Payment Card. I will do it now if you want but I know that maybe other Members want to deal with this part of it, but that will give you some examples that perhaps might help the Committee if I explain where we want to be by 2002 and where we certainly intend to be very shortly after that. So the systems will be geared up, will be put in place, to 2002. A lot of the delivery will actually happen when we move to ACT, for example, credit transfers into banks. That will start to be delivered from 2003.

  14. But if you take payments out of the picture, the Department's capability for results, excluding payments, is really very low; it is 2 and 4 per cent, takeup percentage and capability percentage. That is the current capability and the target for 2002, funnily enough, is 2 and 4. Could you maybe look at electronic delivery excluding payments in terms of improving those targets? Because if you are able to get claims made electronically, then I really think that you are starting to make some real progress.
  (Mr Darling) Yes. There are two aspects. One is, of course, just bear in mind that most of what we do is pay money. That is what the DSS exists for to a large extent, so that accounts for the bulk of our transactions. But you are quite right that we need to do far more to be able to take claims over the phone, to take them electronically, and when you get to the IT section of today's hearing I will be happy to talk about that because when you come into the DSS for the first time—and I had this experience and so did the Permanent Secretary when she was appointed—and you go round the offices you cannot help but be struck by how much of it is still being done in the way that it was probably done 20 or 30 years ago. So far as IT is concerned, as you know, just about every part of the Department's IT needs to be replaced now. It has suffered from years of under-investment, it has suffered from planning blight, it has suffered from all sorts of difficulties, and we are putting in place a system that will ensure that systematically over the next few years we bring the system up-to-date so that far more can be done electronically. A hundred years after the telephone was invented we make surprisingly little use of it. Bear in mind that e-mail is now becoming commonplace. In the next five or ten years people will want to do business with us over the Internet. We are not geared up to doing that now and we certainly intend to be, but given the history not just of this Department but other government departments in IT, I prefer to be cautious about this, which is why in the PSA what I am signing up for is to be geared up ready to move across a number of areas by 2002 and then to proceed further with implementation thereafter. But I emphasise this point, especially having regard to NIRS2 and the Benefit Payment Card, that it is most important that when we introduce the systems they actually work.

  Chairman: Could I ask Mr Leigh to ask you some questions on information technology.

Mr Leigh

  15. Could I start by asking you about the ACCORD project, which is described in your departmental report as one of those PFI projects which are big, politically sensitive, highly replicable or ground-breaking. Can you give us an update assessment of ACCORD?
  (Mr Darling) Yes. By way of background, ACCORD was something that was put in place just at the tail-end of the last Parliament and carried forward by my predecessor and it is the name given to the over-arching project to replace the IT systems in the Department that I was referring to. One of the first things I came across when I became Secretary of State was the difficulties with NIRS2. I have spent an inordinate amount of ministerial time trying to sort out the Benefit Payment Card and both those experiences have led me to conclude that when we replace the DSS computer systems we should do so in manageable chunks. I think the original idea behind ACCORD was to replace the whole thing in one go. Bear in mind that our computer systems are probably the biggest in the Western world. There are very few people who have computer systems the size of ours and you cannot go to somebody and buy an off-the-shelf product. You do have to build something that is designed for the DSS. So what we are doing—and I hope we will be able to make an announcement towards the end of this year—is to replace our systems in manageable bits to ensure that they actually work. If you take the Child Support Agency, for example, the IT system there needs to be replaced. Clearly that is linked to our income support systems because the two are related, but what I want to do is to ensure that when we replace the IT system there, when we ensure that the new One Service at the front end of our offices have, for example, a screen on which they can get all the information which we hold on the clients, that technology is in place as quickly as possible, but it is done so in deliverable chunks, bits that work. So the answer to your question is that I hope in the next few months before the end of this year to make a further announcement on that to tell you where we have gone, but certainly, having looked at what I inherited and the difficulties that flow from somebody's brilliant idea, which is only spoilt by the fact that halfway along the road someone finds it does not work, I do not want to repeat that mistake again.

  16. We will get to NIRS 2 in a moment but sticking with ACCORD, are you happy so far with the work of the AFFINITY consortium—EDS, IBM, Cable & Wireless, PricewaterhouseCoopers? Are you happy with what they have done so far on the ACCORD project? Is it going well? I take on board what you say about wanting to do it in manageable chunks.
  (Mr Darling) What we have done, as you know, is signed an over-arching contract with them to do further work to see what would be necessary. The work has been extremely useful, informed, as I say, both by our experience elsewhere as well as EDS and their experience in the work they do. Yes, the work has been useful. What I think we now need to do is focus our minds on what needs to be replaced and when it needs to be replaced and then how we actually do that.

  17. The work has been useful but not definitive then?
  (Mr Darling) It is not concluded yet, no.

  18. If we go to NIRS 2, you will know that the Public Accounts Committee has recently said some very damning things about it.[2] It has described the situation as, "profoundly unsatisfactory ... there has been a clear failure to deliver services to the citizen" and the Inland Revenue has now taken over the project. Can you give us any assurances as to the date when all the backlog of important data will be cleared so that the NIRS 2 system can deliver the information to make the accurate payments that we all want to see?
  (Mr Darling) Just for the sake of accuracy, it is not accurate to say that the Inland Revenue has taken over the NIRS 2 project in itself. What happened was the Inland Revenue, as you know, has taken over the Contributions Agency and with the Contributions Agency went their computer. Had we kept the Contributions Agency, we would have kept the computer.

  19. Fair enough.
  (Mr Darling) So it is something of a mixed blessing. I do not have day-to-day responsibility for this computer any more. The answer to your question is that it is now able to post more records than the original national insurance recording system would be able to do. However, there is still a significant backlog of cases which were not posted last year, and that will not be fully resolved until the end of this year, beginning of next year. You have mentioned the PAC Report. The operation of this contract has been far from satisfactory. Of course with the benefit of hindsight we could say, "We would not have done it this way", but as I said to you I certainly looked at this and determined we were never going to get ourselves into another situation like this. This contract was signed in 1995, it ought to have been operating in 1997, it was not operating, and then when we looked at the details of what could be done, there were all sorts of difficulties, and one of the problems you have is that it is not like a car, you cannot say, "I am sending it back and will get another one", we had to work with the suppliers to try and make the thing work. My priority throughout last year was to try and do that. The Government will respond to the Public Accounts Committee in due course, the only thing I would take exception to is the suggestion made by the Chairman that somehow it was all our fault. We are responsible for it now and we will take that full responsibility, but if you look at the origins of this contract, as I say, I am not saying we would not have taken a different position two years ago but it is not quite as simple as was perhaps suggested.

1   See Evidence p16. Back

2   22nd Report of Session 1998-99 from the Committee of Public Accounts, Delays to the New National Insurance Recording System, HC 182. Back

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