Examination of Witnesses (Questions 220-239)
MS RACHEL LOMAX, MR JOHN CODLING AND MS ALEXIS CLEVELAND
MONDAY 4 FEBRUARY 2002
220. Which people are not listening to you? Is it that lot sitting there on the Treasury bench?
(Ms Lomax) No. There are two answers. One is obviously that there are other demands on the public purse from the Health Service and Education and Transport and all the rest. Although certainly our argument is that this is spend to save, the return on major investment in upgrading our systems will be lower programme expenditure and therefore that money will be available to fund improvements in other services. We certainly use that argument and it is one reason why we secured some extra funding. The other serious argument is that if we are to do this successfully and well, given the track record, we need to do it fairly deliberately. We can't just dash at it, throw money at the problem. I really do not want to preside over another series of large, over-ambitious, rushed, badly managed, systems. We are undertaking about as much as we can manage and deliver, I hope, well. That is an important point.
221. I see that you have started making preparations in case of having to enter the euro. Planning and preparation work has been implemented to identify changes required in the event of a decision to go into the single currency. If you are thinking of introducing a new system, it says here that you would need to have processes in order to process transactions in euros. Is the decision in relation to the euro in any way impinging on the timing of your decision? I am not suggesting that 2006 is a key year, but is it factor which is delaying you going ahead with the IT solution?
(Ms Lomax) No. The 2006 date reflects what we think is manageable to replace the systems. Were we to need to adapt our computer systems and processes because we joined the euro, we would probably need to do some significant replanning, depending on the timescales.
222. Have you done any costing on that yet?
(Ms Lomax) Yes, we have done some costings.
223. What is your estimate of the cost of conversion?
(Mr Codling) There are two different issues here. There is a programme of work costing of the order of £5 to £10 million on preparing for the euro in terms of contingency planning. In the event that the euro was introduced we would need a fundamental reappraisal of our modernisation programme. All new systems are being made euro-compliant, but in the event that the euro was introduced, we would have to re-appraise our modernisation programme because of the extent to which the calculations in sterling are built into primary and secondary legislation and because of the changes to the actual systems themselves.
224. There must be some cost estimated somewhere in the system. What cost are we talking about?
(Ms Lomax) The cost of making the whole system euro compliant is several times the cost of making it millennium bug compliant. It depends slightly how you do it.
How much did that cost?
(Ms Lomax) That cost us perhaps £60 million.
226. Sixty million to make it millennium compliant and several times that . . . When you say several, several can mean anything from three up.
(Ms Lomax) I think it is about £1/4 billion . . . I do not know the figure off the top of my head, but it is that sort of order.
227. £250 million?
(Ms Lomax) It is a lot of money. Converting both the tax and the Social Security systems would cost a fair amount. If you need an exact figure, I shall have to go back and check it. It could be that sort of order.
228. Perhaps you could let us have a note on it. It would be of interest to us.
(Ms Lomax) There are different ways of doing it; some of them cheaper than others. It is still quite big ticket stuff.
229. We have been up and down this course so many times over the years and it looks as though until at least 2006 we are going to keep going up and down because you are going to be mainly dependent on a heavy clerical element anyhow over that period so human error is going to enter in, so there is little or no hope of you or your successor evading an annual appearance at this Committee. You said £2 billion fraud in the system. How much of that do you attribute to organised crime? Some years ago organised crime became quite a feature of our hearings. Now it suddenly seems to have disappeared.
(Ms Lomax) I cannot answer that question. I just do not know.
230. We used to have confidential information on how much was lost through mailbag raids and that sort of thing. How has it suddenly dropped out of sight because it has anything but ceased existing?
(Ms Lomax) The voice from behind me tells me that the estimate of how much we lose from organised crime is probably something like £100 million, so small in relation to the total.
231. Yes, small in relation to the total.
(Ms Lomax) You mentioned post office related crime. We have made dramatic progress on reducing order book losses.
232. Yes, I see that Consignia and you have been working together.
(Ms Lomax) Yes, indeed, but also, thanks to the roll-out of the order book control system in the last year, we have had a dramatic reduction in instrument of payment fraud.
233. That was part of the intention with the card.
(Ms Lomax) It is very difficult to believe that a lot of that was innocent. We had 2,000 successful prosecutions last year which were associated with instruments of payment losses and that is where you get organised crime.
234. Tell us about this £100 million. This really is of interest because this is where you have the big people in deliberate large-scale fraud. Are there particular benefits which are targeted, which are the principal targets for organised crime?
(Ms Lomax) You are pushing at the boundaries of my knowledge here. I have always believed that instrument of payment fraud was associated particularly with organised crime.
235. One hundred million takes an awful lot.
(Ms Lomax) It takes an awful lot and that is a lot more than the instrument of payment. There is obviously an element in Housing Benefit.
236. Do you mean landlords or both.
(Ms Lomax) I am talking about all Housing Benefit fraud. Multiple identities and false documentation are areas for organised crime. Some of the work we have been doing on enhanced security for National Insurance numbers will be addressing that and has addressed that in the last year.
237. In the back of my memory, I do not know whether this clicks with you, Sir John, but six or seven years ago we found that most of the organised crime was London based and specialist investigative teams were set up in London. Is that still likely to be the case? Are Birmingham and Manchester far behind or is it a Metropolitan phenomenon. That is what I am getting at.
(Ms Lomax) A lot of it is London based, is it not? That is certainly where the bulk of our effort is directed.
(Ms Cleveland) You have tracked the root. It really does spread from London into large cities.
238. Which suggests that it is gang based.
(Ms Cleveland) Yes, and perhaps drugs related.
239. Is your assessment that it is growing? It is £100 million which is big, big money.
(Ms Lomax) I do not know the answer to that one.
(Ms Cleveland) I think it is reducing.
(Ms Lomax) I am being advised to tell you that it is going down. I hesitate to do so because I cannot confirm it. I am conscious that my answers on this are a bit defective. If you would like us to give you a note on organised crime, I shall happily do so.
8 Note by witness: There is a considerable margin of uncertainty around the Euro. Back
9 Ev 21, Appendix 1. Back
10 Ev 21-22, Appendix 1. Back