Select Committee on Education and Skills Minutes of Evidence

Examination of Witnesses (Questions 20 - 39)



Ms Munn

  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 have—and we are still building the story and it is vital we get to the bottom of what happened—is 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.

Mr Simmonds

  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 warnings?
  (Mr Grover) Last summer we did put in two additional elements of the structure.[1] 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 course—the 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 like—though 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.

Mr Simmonds

  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 time?
  (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 it—had a temporary halt but fixed it—rather 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 clearer—and John Healey described last week the way numbers have been taken out of the system—we 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.

Mr Chaytor

  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 million.

  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 selling.

  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.

Paul Holmes

  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 decision.

  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 lessons?
  (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 unit;
     -  Stopped registering new providers; and
     -  Required all new ILA applicants to register via the ILA Website or telephone helpine. 

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