Examination of witnesses (Questions 20
- 39)
TUESDAY 20 JULY 1999
RT HON
ALISTAIR DARLING,
DR STEPHEN
HICKEY and MR
NEIL COULING
20. I do not want to get into the blame game
because we can do that on the floor of the House, I want to get
your assurance on the date of clearing this backlog because that
is what people outside would like to know. You are saying the
end of this year, beginning of next, are you?
(Mr Darling) The Contributions Agency believes that
by the end of this year we can get that backlog cleared up. Clearly,
we have responsibilities as a Department to pay compensation to
those people who have lost out and we are doing that, we have
spent £1.8 million so far doing that. But the situation is
highly unsatisfactory and, again, it illustrates the difficulty
of putting all your eggs in one basket; if a system that is fundamental
to the social security system does not work when you switch it
on, you can see the consequences of it.
21. Thank you very much. We will now pass on
to the HORIZON project which, as you know, you pulled out of—the
Post Office benefit payment card system. Can you give us any idea
to what extent, or how, you can cut down on fraudulent encashment
of giros by using other methods such as bar-coding of payment
books instead of the benefit payment card? This was the point
of the benefit payment card, was it not? We all want to cut down
on fraud, so how are we going to do it?
(Mr Darling) Had the benefit payment card worked,
it would have cut down on fraud. Our problem was that it was patently
obvious it did not work and it was not going to work and the suppliers
were not prepared to carry on without getting more and more money
for it. That is why I, the Chief Secretary and the Secretary of
State for Trade & Industry, jointly came to the view after
several months of leaving no stone unturned that it could not
continue. What we all agreed is from 2003 we will steadily migrate
the majority of payments we make away from order books into direct
ACT. That will help immensely with fraud savings, it will help
substantially to the tune of nearly £400 million a year on
the administrative costs that we incur in making these payments.
Of course, there are other risks with bank accounts like identifying
who our customers are, but we are doing a lot of work now to minimise
those risks. In the meantime, although payments will continue
until 2003 before being phased out, order books being phased out
by 2005, we are introducing bar-codes on order books so we can
keep better track of where they are. At the moment, as you know,
they are prone to fraud, they can be lost, innocently or otherwise,
and the other thing is that we do not know where they are in the
system sometimes for several weeks which does not make for good
control. So the advantage is we will be able to make significant
fraud savings but, if you look at the administrative costs, 22
per cent of what we spend on administration goes on actually making
these payments by order book and we will cut that down to something
like 8 per cent.
22. In answer to an earlier question you said
that compulsory ACT will start to be delivered, if I understood,
in 2003. Is that right?
(Mr Darling) Yes. At the moment about 30 per cent
of our customers get payments by ACT and an increasing number
of new customers, particularly on pensions and child benefit,
tell us they want to get their payments by ACT. About 85 per cent
of benefit customers do have bank accounts. What we will do is
systematically, from 2003, say, "We would like to make your
payments into ACT."
23. What happens if they refuse?
(Mr Darling) We think there is probably about 5 per
cent of our customers who have not got bank accounts and who will
not be able to get bank accounts. We will develop separate arrangements
for them but the payments will not be made by order books, they
will be made by ACT into either a post office or a bank. What
we will probably do is go down the route the Australians have
where somebody gets a plastic card and they can access their money
from that post office, but we know where the payment is, it has
gone from us into that bank or post office, and they can then
draw it out. What we cannot carry on with is making payments by
order books because it is extremely expensive and extremely inefficient.
We are taking time to do that because, firstly, the system needs
to adapt and, secondly, part of our objective is to ensure that
the Post Office itself can adapt. That was clearly set out in
the recent White Paper.
24. That was my next question. I know you are
not directly responsible for rural post offices but can they survive
without making benefit payments?
(Mr Darling) Yes. The Secretary of State for Trade
& Industry published a White Paper on the Future of the Post
Office, as you know, a couple of weeks ago, and perhaps it would
help the Committee to know that when the three of us sat down
to look at this we had two objectives. One was to ensure that
the post office network remains intact. Remember, a lot of people
want to use the post office not just for receiving their benefits
or their pensions or whatever but also for other convenience purposes
because many of them operate shops. Secondly, to ensure the social
security payments were made efficiently and effectively. That
was our twin objective. As I say, it was not a question of dropping
the benefit payment card, it was not there to be dropped, it just
was not functioning. So what we did was to develop a strategy
which allowed us to make our payments by ACT but to give the Post
Office time to change. Of course, there are a lot of other things
happening to the Post Office as well, giving it greater commercial
freedom, and we believe that the strategy that we have set out
will deliver a Post Office network at the same time as ensuring
the way in which my Department operates is a great deal more efficient
and effective than it is at the moment.
Dr Naysmith
25. You said, Secretary of State, that 5 per
cent of your clients did not have a bank account and could not
get one. That sounds to me a fairly low estimate. I wonder how
vigorous that figure is.
(Mr Darling) Bear in mind that you can have many surveys
and get different conclusions but our best estimate is that 85
per cent of benefit customers, including child support and right
across the whole spectrum, have got bank accounts, and about 15
per cent do not. Of that total, we think 5 per cent could not
have them; there are 5 per cent of people who for one reason or
another a bank would not be willing to take on as a customer.
26. I think that is a bit low, but obviously
you have done a survey.
(Mr Darling) What you are talking about is people
who might have difficulty operating a bank account who a commercial
bank may not be terribly keen on. But bearing in mind the business
that the Benefits Agency and the other agencies bring to banks
is colossal and thinking of the amount of money we spend every
year, we do, as I told the Trade & Industry Select Committee,
have a considerable amount of leverage with banks to persuade
them to offer services at low cost to us and to others, which
at the moment perhaps they are not willing to do. What I am saying
is that I think we can get the majority of people into bank accounts,
in post offices or banks, but there will be a minority of people
who would have difficulty. It is their position that we are looking
at at the moment.
Ms Shipley
27. Can I take issue with you about the leverage
of banks and building societies? It has been my experience in
dealing with this at national level and trying to get them to
change their policy on violence in the home that they are simply
not interested because it is not commercially viable for them
and even pressure from ministers has not moved them an inch. So
I am concerned. I think it is an excellent move, the automated
credit transfer for a large number of people, because it is a
method of saving money and making the whole administrative system
work better and it is good you are looking at the small percentage
who absolutely will not be accepted for a variety of reasons.
I am also very concerned about the middle group of people who
would be eligible for a bank account but are really of a vulnerable
nature without being in the very vulnerable category and I think
we are looking at quite large numbers of people, certainly in
my constituency, who actually cannot handle automated credit.
It is only three years off, have you addressed that problem?
(Mr Darling) We are addressing that. Just bear in
mind that 85 per cent of our customers do have bank accounts already
but only 30 per cent of them are using them for receiving our
benefits. So that is a significant change in itself. On the leverage
point, it costs about 79p to pay benefit by an order book, it
costs 1p to do it by ACT, and the reason we will be able to reduce
the cost to the banks is because we are major customers, we transact
a lot of business, we spend £100 billion a year and that
is quite a good business, there is a lot of volume there, and
we will drive a hard bargain on the part of the public. You are
right, there are some people who would find dealing with banking
difficult and we need to address that particular problem, but,
what I am very sure of, carrying on with order books and giro
books with that particular population is not the best thing because
they would have difficulty there as well. By the very nature of
the social security system, it does deal with people who are extremely
vulnerable and for whom special arrangements should be made. But
if you bear in mind that if I could cut our administrative costs
from 22 per cent to 8 per cent, I have a lot more headroom then
to deal with that problematic area than I certainly have at the
moment, so I think the underlying strategy must be right. By making
the changes that Stephen Byers announced for the Post Office,
we have made sure they can get some of this transaction; it is
there to be got. We want the Post Office network to be there because
it is in parts of the country, as the Chairman very well knows,
where banks are not. So it is a twin strategy and I am sure it
is the right way to go.
Chairman: We have six further areas we want
to try and cover, so I am going to ask my colleagues to be conscious
of that. These are important areas of interest to the Committee.
Can we turn now to child support?
Mr Pond
28. Secretary of State, can I ask you to dwell
on what must be one of your biggest challenges in the policy area,
which is the reform of child support? You have told us in your
opening statement today that you see that as one of the major
planks of the policy to deal with child poverty. We have had the
White Paper and your statement earlier this month and, as you
know, this Committee is going to undertake an inquiry during September
on the White Paper itself and we very much hope that you will
keep open the window of opportunity so we might be able to look
at the draft Bill if that does not hold up the legislation. We
are very willing to do that as a quick inquiry and do it in that
way but I will leave that with you for the moment. If you are
able to give us any warm words on that, that would be appreciated.
In terms of the actual nitty-gritty of the challenge, we have
also had a very candid report from the CSA, their annual report,
about some of the problems they as an agency currently face. One
of the facts in that report is that during 1998-99, 2,453 staff
left the Child Support Agency, no doubt pursued by parents who
have been affected by the Agency, and that is a turnover rate
of 27 per cent. In your statement to the House earlier this month,
you said, "... more than 600 staff will be allocated to deal
with [CSA] interviews, face to face with those who have complaints
or do not understand how a calculation has been made." Can
you clarify for us whether or not this is going to be a re-allocation
of staff within the Agency, whether that 600 is going to be in
addition to overall staffing and whether or not part, or all,
of that 600 is going to be absorbed by the staff turnover which
the Agency faces?
(Mr Darling) You asked two things. Firstly, I think
I did say to you, Chairman, across the floor of the House, that
I was doubtful whether or not we could have given you the draft
Bill to look at, simply because of lack of parliamentary drafting
time. One of the reasons we produced a White Paper was to firm
up our ideas, precisely to let you and others crawl over the detail
again. I note what you say in relation to the Bill but I cannot
give you that undertaking because I cannot pre-empt the Queen's
speech for a start, but I will consider what else we can do to
help you, but I would urge the Committee to concentrate more on
the White Paper hearing. You have asked for ministers to appear,
we would be delighted to do that, if you could only change the
week you have in mind because I think neither of us will be here
that week, but with that caveat we are more than happy to appear,
and if you need access to our staff formally or informally that
is not a problem. On Mr Pond's substantive question, yes, we do
have a problem with staff turnover in the CSA. The DSS and its
agencies are some of the best trainers of staff in the country
and it is very gratifying in one way to see how welcome our staff
are in the private sector, but it is very depressing in another
in that we have to train them up again. For example, when some
of the Edinburgh pension companies have been setting up banks,
instead of advertising they go and set up camp in front of the
Child Support Agency in Falkirk or the Benefits Agency, and we
sometimes have difficulty competing with them. Basically, if you
look at the turnover, the CSA turnover overall is about 11 per
cent and that compares in the Benefits Agency with about 5 per
cent. There are areas where we have lost nearly 27 per cent when
you include temporary and casual staff, but I am trying to run
that down because it is not a particularly good use of resources.
One of the reasons I announced more investment in the White Paper
is because I want to retain more staff and I also want to recruit
better staff. I do not want to go into the detail of what I am
doing there because negotiations are continuing and I do not think
my statements would be particularly helpful in that regard, in
the normal way, between our trade unions and management and so
on. So we hope to be able to ensure we can retain more staff.
You asked about the 600. The object there, as we get better IT,
is to have fewer people processing and certainly fewer people
calculating—because, as you know, 90 per cent of our staff
are calculating child support awards at the moment and only 10
per cent enforcing them. We want to switch more people into face
to face contact with the customers. That is what we want. Clearly,
once you have a simpler formula it will be more apparent as to
how an award has been made but it is basically switching resources.
We are going to recruit more middle management where we have identified
a particular weakness in order to make sure we can offer a better
service.
29. Given the negotiations you have mentioned
you may not be able to answer this question either, but you also
said in your statement that you would be putting an additional
£28 million investment into the CSA to ease these changes
and to improve the way that the Agency operates currently. One
of the biggest problems of turnover according to the CSA annual
report is the problem of low pay. Have you anticipated that part—and
I do not expect you to say how much given the negotiations—of
that £28 million will have to go into pay for staff in order
to overcome the problem of low wages?
(Mr Darling) I might make a general observation. As
I said right at the start, if you have a CSA paying one level
of wages and you have a pension company setting up shop next door
paying another, there is an obvious consequence. We recognise
that. For the sake of completeness, lest people get too excited
about this, the DSS does offer other benefits that the private
sector does not. For example, our family friendly policies are
a lot better than the private sector, we have a lot more flexibility,
we will employ people to work during term time and not during
holiday time, we will let people put their children into school
in the morning and collect them in the afternoon and work in between;
these are areas where we can offer alternatives. So when our staff
consider what offer is made to them and people negotiate these
things, they will look at everything as well as just money. One
of the particular problems in the CSA is because it is a new agency
we have quite a lot of people at the bottom end and it is proving
something of a problem providing promotion and so on. It is not
a Benefits Agency or one of the more mature agencies.
30. One of the issues you mentioned again then
was improvement in IT. You talked in response to questions from
Mr Leigh about the overall IT challenges which the Department
and agencies are facing, and some of us have anxieties that without
getting the IT improvements in place many of the changes in the
structure of child support payments which you are proposing could
in fact fail to deliver the goods. Are you confident that the
IT improvements you have in mind for the CSA will actually deliver?
(Mr Darling) As I was saying to Mr Leigh, one of the
reasons that we have not made an announcement so far is because
I want to be sure that we avoid the problem that you highlight.
You are right, as I said in my statement in the House, simplifying
the formula will be the greatest single improvement, but unless
we have an IT system to back that up we will not deliver all the
improvements we want. One of the reasons that the changes will
not come in until the second half of 2001 is because we will not
have the IT equipment in place until then. By introducing the
IT changes in smaller, more manageable ways although clearly as
part of an integrated whole, I have far greater confidence than
I would if we said, "Let's replace the entire DSS IT system."
I would have very little confidence if we want down that path.
It has to be done in a manageable way.
31. In implementing the proposed changes, you
are proposing that the reforms should be implemented for new cases
not before 2001 at the earliest, but existing cases will be brought
on at a later date. Do you have any notion of what that timescale
will be for introducing existing cases into the reformed structure?
(Mr Darling) I want to do it as quickly as possible
but, again as I said in the House, what I want to avoid is the
situation which happened in 1993 when we set up a new system and
then put all the existing cases onto it and it collapsed within
weeks. I do not think the CSA will survive another collapse. I
think it is very important that we ensure that the new systems
operate, that we can offer the first-class service that the public
are entitled to expect, and then we migrate existing people onto
it. Although I fully understand that if you are an existing customer
you want to move on to the new system, I think you would be much
more enthusiastic about that if we could say that we are switching
you over, you will get the sort of service which can provide you
with a statement telling you how much you are due when you want
to know how much the calculation is, we can tell you instantly,
we can make the calculation in days rather than months. And if
you are a mother, if it has not been paid, we can get on to the
arrears in the same way as a bank gets on to arrears when they
are in 20s and 30s rather than 2 to 3,000 or perhaps more than
that. There is a trade-off between speed and getting the whole
thing tidied up and getting it right. Right across the board I
think we need to spend far more time in the DSS getting payments
of all sorts and systems right before we try them out, and it
is worth taking time to do that.
32. If we can take the issue of arrears, one
of the things you also said in your statement was that there are
many people who do face very considerable arrears through no fault
of their own, largely through administrative difficulties within
the CSA. Is there a case, excepting those examples where it would
be the lone parent who would suffer, for saying there should be
some sort of amnesty in terms of some of those arrears which it
is very clear the CSA will never be able to collect and which
will continue to hang over people's heads?
(Mr Darling) I think there would be a great difficulty
in doing that. The signals it would send to people I think would
be not always understood. Whilst it is true to say that some of
the problems have arisen because of the CSA—and of course
there is a system for dealing with that, where the CSA is unambiguously
at fault we do have a mechanism where, provided somebody keeps
up payments for a certain period of time, we will not pursue all
those arrears—there are a number of other people who deal
with the CSA whose arrears have arisen through their own fault
and there are lots of areas where there might be quite a grey
area as to whose fault it was. I think as a matter of principle,
bearing in mind this is money due to the children—it is
not due to the CSA—I believe to simply write off everything
and start again is something I would be most reluctant to do.
Chairman
33. You were suggesting, helpfully, that ministers
would like to contribute to our CSA inquiry. If we were able to
look at alternative dates—and the only suite of dates I
could see would be 12, 13 and 14 October—which do not interfere
with party conferences, could I put those dates on the table and
ask you to look at ministerial diaries before the summer recess
to see if that is a convenient alternative time? I have not consulted
colleagues about this at all but if it means ministers were able
to attend some sessions, that would be helpful.
(Mr Darling) Let us see what we can do. I understand
the problem of September but the sooner you do this the better.
I would hate there to be a situation where if we were able to
proceed quickly you would then say, "Hold on, we have not
published our report yet." You may come up with some very
good and pertinent points and it would be a great pity if the
Bill was half way through the House before we got them. I did
not bring my diary, but I am sure we can fix something.
Dr Naysmith
34. Now for something completely different,
as they say. Mr Pond has been dealing with one end of the scale,
perhaps I can ask some questions now about the other end of the
age range and get on to stakeholder pensions. In the departmental
report on page 15 it states that the target group for the stakeholder
pensions will be the 5 million people who earn currently between
£9,000 and £20,000 a year and are not in any occupational
scheme. That is a fairly large chunk of the work force who are
not obviously making much provision for their retirement and life
in old age. There has been a lot of discussion and the idea has
been kicking around for a long time now about stakeholder pensions,
the concept has been discussed in the press, there has been consultation
with the industry and also there was the parliamentary debate
which I am sure the Secretary of State remembers on the Welfare
Reform and Pensions Bill. So there is a lot of discussion and
a lot of analysis taking place. Has the concept changed much or
how has it changed because of these consultations and discussion
in Parliament?
(Mr Darling) If you remember, the concept of stakeholder
pensions first surfaced in 1995 when the present Government was
in opposition and I think matters have moved on since then. Certainly
there is a greater clarity now as to what we are meant to be doing.
At the moment the problem we face is that there are many people
who have benefited from occupational pensions, but there are many
more who cannot get into occupational pensions because they do
not work for a firm which is big enough—that is part of
the changes which have taken place—and at the moment their
only alternative is a personal private pension which of course
for people who are on moderate or low earnings is probably not
the best option. So we identified this potential population of
about 5 million people who do not have the option of going into
a collective funded scheme and that is what stakeholder pensions
are meant to do, fill that gap, so you have occupational pensions,
you have stakeholder pensions and you have personal private pensions.
You ask what influence all this debate has had, the debate has
been outside the House as much as inside the House because in
the Welfare Reform Bill as you all will know the pensions part
was probably scrutinised slightly less than some other parts of
it. If you take the Green Paper which we published last December,
put in its proper context with stakeholder pensions there has
been almost universal acceptance of the pension structure we envisage
for the next 50 years. You have got that funded sector I have
referred to, you have got the new state second pension helping
people on low earnings and also helping those on moderate and
high earnings when they go into their funded pension underpinned
by the minimum income guarantee. As a result of the responses
we got, which are not querying the principle but the detail, I
think we have gained quite substantially and you will know that
we are publishing half a dozen consultation papers, three have
gone out, three have still to go out, two will go out in the next
ten days or so, to ensure that we get the detail right so that
come April 2000 we hope to have on the Statute Book and in primary
and secondary legislation the stakeholder pension regime. We will
have coming along the new state second pension and after that
you have a complete structure which I believe will ensure that
all those who can save have the opportunity to save and that we
will increase the amount of pension or income on retirement.
35. I am particularly interested in the consultation
with the pensions industry and insurance companies and I think
it is a bit more than the detail. I know that quite a lot of them
are talking about the charge that they are going to be able to
make for administration. For instance, Nicholas Timmins in the
Financial Times says that "providing a stakeholder
pension is going to be somewhere between tough and very tough".[3]
I think what he is talking about is the one per cent cap on charges.
And Scottish Life looked at it and they concluded that "it
is not economic to distribute stakeholder pensions to individuals".
I am more interested in if your thinking has changed on that aspect
as a result. Are you confident there will be an adequate number
of good quality firms in the marketplace offering stakeholder
pensions as a result of your consultations?
(Mr Darling) I am indeed. I think it would be wrong
for me to mention any individual firms. A number of firms are
keen to get into this business. The incomes of all these people
come to some £60 billion. There is a lot of money around
here, a lot of business that firms are keen to get into.
36. There was a fair bit of mis-selling of pensions
by big firms as well in the past.
(Mr Darling) You will bear in mind that the Government
established the Financial Services Authority and we have got the
new Financial Services and Market Bill going through the House
at the moment to deal with that mis-selling problem. The Government
is determined to drive a hard bargain on behalf of the public
who look to it to protect it. One has to face up to the fact that
the industry's record on charging, particularly on personal pensions,
is not one which they can be particularly proud of. The detail
of how much you charge is something that we are listening to the
arguments on. The consultation period has not finished yet which
is why I cannot tell you what our conclusion is going to be. Of
course, there is an element within a lot of firms of clearly they
want to get more and they will say how terrible it all is. There
are others saying "Yes, we can live with it". We will
listen to the arguments. At the end of the day I have always accepted
that advice is necessary. There are overheads which have got to
be paid for, we are not daft about these things, but what I am
not going to do is end up in a situation where the public are
paying far more than they ought to be. We want these things to
be low cost, but of course it would be foolish to pretend there
is not a cost which has to be met.
37. I am sure you will accept, Secretary of
State, the scheme could lead to customers not being given proper
advice and if that happened it would be a disaster.
(Mr Darling) We want to ensure that people get the
best possible advice. I have spent a long time in the last few
years, in Opposition and quite a lot of time in Government, emphasising
the importance of good quality advice in selling financial services
and my views have not changed one jot. However, I am equally aware,
because I speak to a lot of people in the industry and my constituency
is packed to the gunnels with the industry, that the Government
does have a duty to ensure that we keep costs as low as possible
and I think that can be done at the same time as ensuring the
pension companies are able to cover the costs of the advice and
other things that you refer to.
38. I know you are considering allowing individuals
to hold stakeholder pensions in parallel with other forms of pension,
but you have not made an announcement yet about what you are going
to do about that. When can we expect an announcement?
(Mr Darling) Soon, I hope. The Chairman asked me to
give brief answers!
39. Does soon mean next year?
(Mr Darling) No.
3 Financial Times, 12 July 1999. Back
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