Taken before the Work and Pensions Committee on Wednesday 10 September 2003
Sir Archy Kirkwood, in the Chair
Witnesses: RT HON ANDREW SMITH, Member of Parliament, Secretary of State for Work and Pensions, and ROD CLARK, Director, Strategy, Planning and Performance, DWP, examined.
Q1 Chairman: May I welcome the Secretary of State, Andrew Smith, who has with him this morning Mr Rod Clark, the Director of Strategy, Planning and Performance at the Department of Work and Pensions. We are spending all too short a time between now and 11.30 looking at the whole compass really of the of the department work, both in terms of policy and of administration. We are very grateful for your appearance this morning, Secretary of State. Would you like to start?
Mr Smith: I will just make a few very brief remarks because I understand, of course, that you want to get into the questions. As you have said, I am pleased to be joined by Rod Clark, our Head of Strategy, Planning and Performance, who also leads the team which co-ordinates the departmental report. May I say something general about the sheer scale of change, which as you are aware is underway across the Department, and our responsibilities? There is a massive programme of reform here on which to deliver. As you know, in the last six months, the child support reforms have gone live; we have embarked on the huge payment modernisation programme; and next month sees the start of pension credits. On top of this, throughout the organisation and our agencies, we are also radically changing the way in which people do the day job. This is an opportunity for me to acknowledge the enormous contribution our staff are making and their heroic efforts up and down the country. As you know, we have completely restructured the Department and its agencies and we are modernising our antiquated IT. It is altogether one of the biggest change programmes in Europe. Of course, bringing all that together is an enormous undertaking. I do believe, as the Departmental Report shows, that we are making progress. I think we are steadily moving from what was a passive benefits system to one that actively engages people in rights and responsibilities and extends opportunity. I do believe that, building on the foundations we have put in place, we can and will deliver on policies for work for those who can work and security for those who cannot; that we can and will get still more people into jobs and more children and pensioners out of poverty; reform benefits; and transform the rights and opportunities of disabled people. As ever, with such a demanding programme of change and with the aspirations we have, there is a great deal more to do. I do believe the Departmental Report reports and I am very grateful to all of our staff for the contribution they have made.
Q2 Chairman: I would echo the debt that the Committee owes to the staff, particularly the staff in your Department who work with us. We receive a very good service. I am pleased that you recognise that you are facing the challenge of change because change is often difficult for people and it causes uncertainty and all the rest of it. That is not something that you would recognise by reading the Departmental Report. I want to spend three or four minutes on this, and this is boring bureaucracy but I think it is important because the document that you presented, although it is very well written - and I have no complaints about it at all - as departmental reports go, is very detailed, but it does not help us very much. This is not just us as a committee but I think there is a community out there, academics and pressure groups, who are looking to try actually to find out what the real challenges are. You rightly say - and most of it I think the Committee is content to go along with in terms of the policy changes - that you are trying to get an idea of exactly what the strategy and the performance indicators you are working to are. That is difficult, looking at the report as it is currently cast. Someone said to me yesterday it is like a tourist's view of the Department; it is actually not very informative. I believe it could be more informative. That would involve the Department in a little bit more candour. I think the public would welcome a more realistic view of the fact that there are difficulties. Could I put it to you this way? In the last two sessions we had before the summer recess, anybody who sat at the back of both the Child Support Agency and the Job Centre Plus sessions would recognise that there is a little bit of constructive tension in the system, if I can put it that way. None of that is reflected here. I have read this very carefully and there is not a mass of detail. I am in favour of performance indicators in public service agreements, and I am not making complaints about that. All I am saying is that reading it, I was none the wiser, and I think that is a shame. Let me just illustrate that by pointing to two things to make the point before I go on. I want to make a suggestion about how we might work together to improve this. At page 2 of the Departmental Report, under "objectives", you give the departmental objectives. That is fine and understandable. Objective five is to improve the rights and opportunities for disabled people in a fair and inclusive society. That is a perfectly reasonable objective but, when you look at the performance targets that are behind that objective, they are, for example and I just quote one, in the three years to 2006, increase the employment rate for people with disabilities, taking account of the economic cycle and significantly reduce the difference between their employment rate and their overall rate; work to improve the rights of disabled people to remove barriers to their participation in society. That is fine, and I make no complaint about it, but it does not actually tell us as a Committee how you are getting on to achieve the objectives that you set for yourself. I do not know if the National Audit Office settles for this kind of level of measurement, but the question really is this: is that what you use on a day-by-day basis to try and get to where you want to be in 2006 on the disability front, for example, or is there more? Are there other internal working performance targets behind this annual report? If there are, can we see them? If there are not, I have some serous doubts - and maybe this is more for Mr Clark than the Secretary of State - are they serous, up to scratch, modern, industry standard figures that give you any indication of how you are doing? There is no comparative information. There is no unit cost calculation. Actually in the old days the departmental reports used to have some of that. Is there not a better way of doing this which has a bit more candour in the report in terms of the difficulties you are facing, because you are facing some - you must be because that is what life is in government - and, secondly, the data that you have here does not enable us to give you a mark out of ten. That is a worry for us because we obviously want to give you high marks.
Mr Smith: First, let me say that I will genuinely welcome and as far as I can act upon the comments and advice of the Committee as to how we can make this more accessible, more useful to you, commentators and the general public. I am glad you at least acknowledge that you are happy with the way it is written. That is a start. I am not sure in the past all departmental reports would have passed that test. It is at least in that sense accessible. On the example you gave with reference to recent sessions - and I am sure we will come on more to this later - in relation to what has happened with IT and the Child Support Agency, of course that is subsequent to the period that is actually being reported on here, so you would not expect all of that to be reflected here. On your substantive point, which is the length between the overall objectives and specific targets, first of all, I would say, on extending rights and opportunities of disabled people, that I think the measure to which you did refer - the overall employment rate, the improvement of that and narrowing the gap to an employment rate for disabled people and others - is one very important measure of progress against that high level objective. There is a tension in the establishment of PSA targets in relation to objectives as to how many targets you actually have as your headline PSA targets. I think we have faced criticism as a government generally - and I dealt with this across the board when I was at the Treasury - in the overall number of PSA targets that we had. We had far too many targets, and so we had to narrow them down. When you do narrow them down, obviously choices have to be made and you must pick some of those that you think are most important. In relation to disability, employment obviously is one such. In answer to your question, I will invite Rod Clark to amplify the position on this. Yes, of course, within the Department there is more extensive departmental planning to connect our policy development, allocation of resources and programme development and to connect the targets which managers and their staff are actually working to on the ground to the higher level objectives.
Mr Clark: To add a few points to that, when it comes to setting PSA targets, there is a tension between trying to capture your objective, where you are trying to get, and just going for a measure because the measure exists, which does not quite target what you are after. If you look at the disability target, the employment rate, as Andrew says, is a key one, and is something on which there is good progress and it is a good measure on which to move. The second half of it, the rather more qualitative area, is a statement of what the Government is trying to achieve in this area, a very important goal. You can read elsewhere in the report some of the things that are in train in terms of the legislation around disability rights, such as publicity campaigns and so on. I think there are some very hard things happening to demonstrate progress against that measure. To pick up on the other point, yes, there is an awful lot of planning that sits underneath these PSA targets. Earlier this year, we published internally within the Department quite a full account what our plans are to support those targets. Of course, we will be reporting further in the autumn when we publish a further report on progress to date against that.
Q3 Chairman: Is it an act of intended kindness that you do not share the mass of managerial information with the rest of the world? Are you trying to spare us from the internal detail? If I understood you, you said there is published and shared information. That reassures me that there is moe behind the scenes. I do not think you can run a business of your size based on the PSA targets we are looking at this morning. Would you be able to show us a copy of that, if we took an individual department or objective like objective 5,which is for disability, and actually burrow into it in more detail? The community outside which follows these arguments quite carefully would appreciate being able to understand the fine tuning that you are using. Target 9 of the Spending Review 2002 targets at page 157 of the report actually says that you are supposed to be setting targets for, amongst other things, unit costs for each of the Department's major businesses. That is a quote from your own report. I do not think we are getting enough of that. I have to draw this section to a conclusion.
Mr Smith: May I make two brief comments? First, on sharing more of the internal planning information, I will certainly take away that request and come back to you. I take the point that you are making. On the unit costs, at the time of the Annual Report I do not think the unit costs had been developed. Some unit costs to which we were working have subsequently been developed. In order to operate a proper system of unit cost management, we really need the new resource management system across the Department to be up and running, and it is not up and running. But in their interim, we have agreed with the Treasury some unit cost targets for the main areas of Department business.
Q4 Chairman: You are willing to share those?
Mr Smith: Yes. One of the things I was referring to in connecting our objectives and PSA targets to the internal management and front-line delivery was our three-year delivery plan. I am advised that the Committee did have a copy of this.
Chairman: I make no complaint about that. I am content that that is a perfectly reasonable answer on work in progress. We will take one short supplementary from Andrew Selous.
Q5 Andrew Selous: As much on a point of principle as anything else, it is my understanding of Select Committees that as long as something is not commercial or in confidence, as a Select Committee we more or less have the right to call for the paper, which I think are the words before Parliament. If the Chairman has requested that and it is not commercial or in confidence, I hope we can have a reasonable expectation that we will have that planning guidance, as outlined by the Chairman.
Mr Smith: That is why I hope I was giving a very positive reply and was able to confirm that you had actually had the three-year delivery plan. The qualification I would make is if there are any commercial matters ,but I am very happy and want to co-operate with the Committee on this.
Chairman: Let us move on to the policy side of the morning's work.
Q6 Mr Goodman: I want to ask you a few questions about the CSA in the context of targets. Why is the target for the proportion of parents with care receiving maintenance not higher than 60 per cent? You seem to be assuming that 40 per cent of parents with care are not going to receive payments.
Mr Smith: If you recognise that under the old system the actual figure is something like 30 per cent, 60 per cent represents significant progress. I would like everybody to get the money to which they should be entitled. What you try to do with these targets is to set points which do significantly improve performance and, with effort, are achievable. It is worth recognising also, in relation to the 60 per cent target, that something like 8 per cent of the group will have a nil assessment. Therefore an overall 60 per cent target applied to those who will actually have an assessment is probably nearer to two-thirds.
Q7 Mr Goodman: What is the effect of 40 per cent not receiving maintenance going to have on child poverty?
Mr Smith: Of course the more who received their maintenance, the more progress we make in tackling child poverty, which is why I say that of course I want all non-resident parents to meet their obligations. We all know the history of the old system, the large extent of non-compliance. To be fair to the CSA and the progress that it has been making, cash compliance has improved enormously in recently years. They have been making good progress, but of course there is still more to do. We want this new, simpler system as and when the IT is working satisfactorily and we see the performance, which I am confident we can get from the new system, and then making further progress on that will contribute to this.
Q8 Mr Goodman: You are not expecting this 60 per cent target and the 40 per cent of people who do not get it to have any specific effect on the Government's child poverty targets?
Mr Smith: In so far as it represents an improvement in performance over what has happened to date, which it will, it will make a positive contribution.
Q9 Mr Goodman: Are you actually going to hit these targets? You may have had a chance to read the evidence that we received from Doug Smith. You scarcely need us to tell you that it is important to put it on the record, nonetheless, that the problems are absolutely horrendous. The evidence session was scarcely satisfactory. It seems to be costing 20 per cent more to process each claim. EDS seems to be getting about £5,000 an hour and there are one million old cases waiting to be processed. That is the backlog. In the light of all this, and in the light of the fact that we have received no assurances that things are going to get any better so that we would be satisfied, are you going to hit this target? If not, how close are you going to come?
Mr Smith: First of all, you are right, the Committee is right, and I can assure you that I certainly share the sentiments as far as the disappointed in the performance of the IT system and the impact that that has had on the start of the new system. Having said that, since the evidence session that you have had, there has been further improvement. Progress is being made. The IT is still not working satisfactorily, but there has been a substantial improvement on where it was when you had that evidence session. There is also feedback that where the system is working properly, staff actually do appreciate the advantages which it offers, and moreover, there is some at least anecdotal evidence that non-resident parents, not least because of the greater simplicity of the basis of calculation and feeling that they know where they stand, are readier to comply with it. As for the headline and figures that we are talking about on the new system, of something like 132,000 applications which have been made, action has been taken on some 39,000 cases and 16,000 of those have been closed; in 23,000, cases calculations have been made; in 4,000 of those cases, the first payment has been made and some 2,500 parents with care have received the child support premium. That is still some way short of where we want to be with the operation of this system, but it is a substantial further step forward from the sorts of figures that were given to you at the CSA evidence session.
Q10 Mr Goodman: Secretary of State, you have just given a lot of figures, which is quite reasonable. We would have expected you to do that. What you did not say in your answer is whether you were confident you would hit the target.
Mr Smith: I believe we can still hit these targets.
Q11 Mr Goodman: You are not certain?
Mr Smith: I am not certain we will hit the targets. I can assure the Committee that I, my colleagues and the CSA staff will be doing everything possible to hit the targets, and I believe it is still a realistic goal for us to be working towards. For example, I am assured by the Chief Executive of the Chid Support Agency that by the end of this financial year, on the progress that is already being made, we will be meeting the six-week clearance target; that is, measuring the gap between receipt of an application and the calculation being made. The fact that we have this impairment to the IT and that the initial performance, the teething problems if you like, have been very much larger than we anticipated, does not mean that this is not fundamentally a better system overall. It does not mean that the IT when it is working properly cannot more adequately support the staff in the job that they are doing. I still do believe we can and will hit those targets.
Q12 Mr Goodman: What progress is the Department making in deciding what part of last year's nearly £2 billion worth of uncollected debt owed to the CSA is actually uncollectable and what part can be collected?
Mr Smith: Historically I think it has been the case that around 70 per cent of debt has been judged uncollectable and a substantial proportion of the outstanding debt accrued under the old system. There is little likelihood of its being collected. As I mentioned earlier, the cash compliance on an on-going basis has quite dramatically improved. That does represent more payments being received and does keep the accumulation of debt lower than it otherwise would have been. The vital thing here is that, with the introduction of the new system, as and when it is working properly, that is a key part of the strategy that the CSA contracts more staff from doing assessments to actually following up and collection. I still believe that will happen and make a difference.
Q13 Mr Goodman: How much of that £2 billion probable uncollectable figure has actually been collected?
Mr Smith: It has not been; that is why it is there.
Q14 Mr Goodman: How much do you expect that to be?
Mr Smith: I had better let you have a note on the figure we can achieve.
Q15 Mr Dismore: I would like to follow up on this issue of outstanding debt. As I understand it, only £37.5 million is being referred to specialist endorsement teams as outstanding debt but the 2002-03 Agency account shows nearly £800 million as outstanding debt. Effectively, why is so little being referred? What about the other £0.75 billion? Are you saying it is not going to be collected?
Mr Smith: There is much less likelihood of its being collected. They have to focus on the debt that they believe they can collect. As I said in answer to the previous question, I think it is very important that we do have a transfer of staff attention from assessment to collection and enforcement. I believe that the new system will assist this because it is inherently simpler and non-resident parents have a much clearer idea where they stand. As I say, there is anecdotal evidence that we are getting greater co-operation as a consequence.
Q16 Mr Dismore: That is the issue I wanted to put to you next. When we saw Doug Smith, he was very vague about how may staff transferred over what time frame. The Departmental Report is quite vague about that. How many extra staff do you see being put on enforcement in the current year?
Mr Smith: In preparing for the Select Committee, of course I asked about this. I am told that the CSA is reviewing this. I do not have the results of that review yet. When I get them, I will give them to the Select Committee. I think, in defence of the CSA and the Chief Executive, I would say that in the period that they have had and the difficulties with the IT, which the Committee heard about in the evidence session, you will understand that we have to get that right before we are going to see the benefits of the greater proportion of staff resources that can actually be devoted to collection and enforcement.
Q17 Mr Dismore: The bulk of the problem I think in trying to collect money is that if it gets out that the CSA are not really determined to get the money, it snowballs and more and more non-resident parents are increasingly not paying up because they think they can get away with it. The less active enforcement there is, the bigger the problem becomes. As I understand it, Doug Smith told us there had only been 100 prosecutions for failing to provide information or providing false information. It seems to me that is far too low compared to where it should be. We have not got the power to take away driving licences. There have only been two cases of driving licences being taken away, yet the magistrates actually suspended nine orders when it was shown to work and people actually paid up. It seems to me, on that very tiny sample, that it is a very effective penalty to get people to pay up. Why are we not doing more of that?
Mr Smith: I believe we should be doing more of this. That is the view I shall be giving when this review of enforcement activity is completed. As I said, the objective of course of the availability of these measures is as a deterrent. The objective is not to take away people's driving licences or to send them to prison; it is to get them to comply. The number of people who have actually had their driving licences taken away or who have gone to prison is not a fair reflection of the impact that it is having. Do not get me wrong. I do take the point that the Committee is making. I share the perspective. The amount of debt outstanding is too high; we need to do more to collect it. We need more vigorous enforcement activity to ensure that the accumulation of outstanding debt does not mount. We need to send a very strong message, followed up by enforcement action, to non-resident parents that it is their obligation to their children to pay this money, and it should be paid.
Q18 Mr Dismore: I am sorry to keep pressing this but I remember when we did what was effectively the pre-legislative scrutiny of the original reports on the old Social Security Committee many years ago that we had exactly the same message from the then Minister, saying exactly the same thing, in almost identical words. Yet that has not happened. The difficulty we have is that there is a £2 billion written-off debt which Paul Goodman referred to; we have the Agency report stating that there is £800 million of outstanding debt, which is presumably not formally written off. Is that going to be added on to the £2 billion already? The fact is that we are not providing an effective deterrent because there are simply not enough prosecutions of people who are not paying. If I were to ask you how many non-resident parents were not paying, it would be many times the 100 who have actually been prosecuted and even more than the two who have lost their driving licences. I very much share your sentiments but those sentiments have to be translated into action, and that is not happening. Certainly, I put an example from my own constituency to Doug Smith, and you will have read about that and you will see more about it tomorrow morning. The fact remains that everybody on the Committee echoed that experience from their own constituency casework. When we talk to other Members, that is their view as well. We are sick and tired of lone parents coming to our constituency surgeries complaining about the resident fathers not paying up and running rings around the CSA because the CSA simply cannot get its act together. We share your sentiments, but I think we need some meat on this. When are we going to see some real progress?
Mr Smith: As I have said, I share these objectives. I have people in my constituency surgeries as well. I have made it very clear to the CSA that I want to see improved debt collection and reinforcement of the obligations to which you have referred. I would point out, and I think it is very important in fairness to the staff at the CSA to refer to the progress that they have made on cash compliance, that from a system that was an utter and complete shambles, they have improved performance on cash compliance and have actually hit cash compliance targets, but there is a great deal more which needs to be done. The malfunctioning of the IT on the new system has been a substantial barrier. I am as frustrated as anybody about having the new system working properly so that we do get the redeployed efforts on enforcement and collection. When I have that information from the CSA, n will share it with the Committee.
Q19 Rob Marris: Most cases are still on the old system. Only 50 per cent of CSA cases are fully compliant; that means that 50 per cent are non-fully compliant or partially compliant. That was the figure seven months ago. Why is it taking so long for the review on the amount of staff? I am sure the staff work very hard, those who are doing it. The impression we get is that there are simply not enough of them. Why has the review been so delayed?
Mr Smith: You can imagine the management challenge that the CSA faces here. They are moving from one system to a new system for new cases, so they are keeping two systems going in parallel. In addition, they have these problems that you heard about in the evidence session, the downtime with the system and the need to get it working properly. I think that does account for the delay. I can understand why managers are not in a position to conclude the review until they know where they stand in relation to the performance of the system and the number of staff that they have available. I am very clear about the direction of travel I want to see here and the greater urgency with which I want to see us making the improvement that it is in everybody interests to achieve.
Q20 Andrew Selous: I want to return, if I may, to the question of driving licences, which was raised by Andrew Dismore. I take no pleasure in anyone having their driving licence removed, even non-resident parents of CSA who are not complying with their obligations. As Andrew Dismore has already pointed out to you, the facts are that where you have gone down this route, you have been overwhelmingly successful in ensuring payment and in the vast majority of cases when you started out, you have not had to take driving licences away. The mere threat of it and proceeding down that route has suddenly miraculously produced payment. Could we please have a clear commitment from you that you will personally look into this issue and ensure that the CSA takes this issue very much more seriously because I, and I think many of us, are convinced that that is one of the few sticks that you actually have. The evidence is that it works. You say you are concerned about enforcement. My personal belief is that this will go a very long way to actually helping the receipt of payment from many parents with care. Can we have a personal commitment from you on this?
Mr Smith: Yes, you can, and I am pleased to give that assurance, not only in relation to driving licences but in relation to the whole range of the enforcement mechanisms that we have at our disposal, attachment of earnings, and so on.
Q21 Andrew Selous: It seems to me that if a non-resident parent is an employee, there is not that much difficulty in the CSA getting the money from them, in the vast majority of cases. The big difficulty comes when people are self-employed, they run their own businesses, or indeed, as with a number of people now, instead of being paid by their employer, they actually bill their employer for their services; they are in realty an employee but, to avoid a deduction of earnings, they bill their employers for their services. I know from personal experience of people doing this. I believe the Chief Executive is a former senior tax inspector. Can you also give us an assurance that the Department will look much more closely at those non-resident parents who are avoiding payment through the different routes that I have just described? I have to say that I do not think your present arrangements are anywhere near adequate as far as these cases are concerned.
Mr Smith: I give that assurance as well. It is obviously very important that there is close collaboration, for example with the Inland Revenue. I recall when this was raised on the floor of the Commons that the compliance rates of the self-employed, whilst poorer than those of the employed, for the reasons to which you allude, have actually been improving. I know there has been more enforcement activity directed towards their compliance as well. There is ever closer collaboration with the Inland Revenue. In am happy to give you the assurance that I will personally see what more can be done.
Q22 Andrew Selous: I think you will remember from the last departmental question sessions that one Member actually raised the prospect of scrapping the whole of the CSA and going back to a family law based system. We are possibly verging towards that sort of territory unless the enforcement can really work very much better than it is at the moment.
Mr Smith: I think it was because the system worked so unevenly and inadequately that it was felt we needed a proper child support system and agency. It has made very significant progress and I am convinced that the right thing to do is to get it working properly and not to go through all the administrative and legal upheaval of trying to start again. I think that set back both the money going to parents with care and the culture of recognition of rights and responsibilities that we are establishing.
Chairman: I do not think we would have any difficulty spending a whole session on the CSA. In draw a line under that and move on to other areas.
Q23 Mr Waterson: We are in the final flight path, as it were, to the pension credit system coming in. It is perhaps an irony that a lot of problems we have heard about with the CSA arise from new technology operating on an old formula, whereas here we have the opposite situation of old technology coping with a new formula. How confident are you, Secretary of State, in the light of the tax credits fiasco earlier this year, that the pension service and the computers and everything else will be able to cope with the massive burden of the new system?
Mr Smith: I think it is important to point out with regard to the tax credits that, notwithstanding the difficulties which the Government and the Inland Revenue did apologise for, just how much benefit that has meant to 4.5 million people in this country. I am confident that lessons have been learnt and that we will satisfactorily deliver the pension credits. You ask what lessons have been learned. From the beginning, the planning of pension credit has been on the basis of a phased approach to the take up, of not having the sort of big bang that can so easily overwhelm systems and create problems. There has been very extensive staff training for the pension credit. As you say, rather than having a wholesale new approach to the IT, we have been using, and where necessary adapting, the interfaces with tried and trusted technology, and that is less likely to give us unexpected problems. The evidence to date is that the pensions service is coping well with applications for pension credits. As you will be aware, the TV advertisements started last week. This always gives very big peaks in demand on our telephone call centres. The call centres were able to cope with the demand. I think, from memory, something like 95 per cent of calls were being answered within five seconds. It is a good performance.
Q24 Mr Waterson: We may test that assertion at some point. I think it was the Head of Help the Aged who the other day described the byzantine complexity of pension credit. I think we all concede that it is not terribly straightforward for many pensioners. I am aware of the advertising, I am sure there will be advertising in local papers and all that kind of thing, which is quite right and proper. Do you think that the pension credit help line has the capacity to deal with two million pensions who are entitled to receive credit from 6 October?
Mr Smith: Yes. Of course, if for some reason every pensioner in the country, or a significant proportion of them, for whatever reason, tried to ring at the same time, I am not going to say that there could not be difficulties. But, as I mentioned earlier, the whole strategy on this, the approach of starting to write to pensioners last April and continuing that on a staggered basis right through to next June to ensure that any entitlement after the beginning of the pension credit on 6 October will actually be back-dated to 6 October or to the point of eligibility, is so that no one loses out by making a later rather than an earlier application. Also, of course, the fact that we can vary the advertising, TV or press advertising, to take account of how well the system is coping with the demand is a factor of careful planning, which I believe will result in a good service to pensioners. We have all got to work very hard to make sure that they get that good service.
Q25 Mr Waterson: You do not think in six months' time we will be dragging some of your officials or some people from the pension service back here to explain why it has not worked?
Mr Smith: No.
Q26 Mr Waterson: I think the stated aim or target is to be paying three million pension households the pension credit by 2006. Are you confident that you are going to achieve that target?
Mr Smith: Yes.
Q27 Mr Waterson: So it is more than an aspiration?
Mr Smith: It is more than aspiration. I do not think any of these targets are easy and that is, of course, a very substantial increase on the number who are in receipt of the minimum income guarantee. It is not a limit to my aspiration. I would like to do very much better than that, if we can, but you ask me if I believe we can get it paid to three million by 2006, and I believe we can and will.
Q28 Mr Waterson: I am sure we can all agree that the biggest challenge with any kind of benefits for pensioners is take-up, understanding your entitlement, making your claim, plodding your way through the undergrowth, getting the claim paid, and all the rest of it. Why do our figures and your targets assume that something like one million pensioners who are entitled will not actually claim or receive the pension credit?
Mr Smith: Those who might be less likely to claim it or to receive it may be those who are getting a smaller benefit from it, for example. Certainly we have given priority, first of all, to converting the existing cases on to pension credit. Again, I am confident that can be done by the time of the start of pension credits on 6 October. We are prioritising and trying to contact and get the message across to those who are most likely to gain from the pension credit. In terms of take-up, as I say, I want it to be a high as possible. I believe that through the systems we have put in place and the strategy we are adopting by writing to every pensioner household in the country, backing up and amplifying that by advertising, reinforced by the work of the local pension service with home visits where required, and the work indeed of organisations representing elderly people and working in partnership in promoting take-up, we are doing everything we can to ensure that people are aware of it and claim it. Moreover, the claim process itself is primarily based on people ringing in on a free phone number and the staff on the end of that telephone having dialogue with the pensioner and completing the form for them. It is electronically done. You do not get one of these forms where loads of the sections do not apply to you. When the form goes back to the pensioner, he or she has to check and sign it. I think this is a good way of doing it. We are getting a lot of positive feedback from pensioners about the help they are getting from the pension service. Of course, it is relatively early days in terms of overall volume. Frankly, I am encouraged by the way it is going.
Q29 Mr Waterson: Thank God, Secretary of State, as you have said, we are dealing with tried and trusted technology on this issue. Could I ask you if it bothers you that on your own projections there are going to be one million pensioners who do not take it up?
Mr Smith: As I have said, I would like take-up to be as high as possible. If there is some pensioner who should be benefiting from this and is not, does that bother me? Yes, it does.
Q30 Mr Waterson: I want to move slightly sideways to deal with stakeholder pensions and target 7 in the Departmental Report. On the first of the bullet points, giving more people access to fund second pensions et cetera, you say the target has been achieved in that 1.25 million stakeholder pensions had been sold by December last year. In the second two points in the targets the Department says it is on course, but it does not reckon the initial information on the numbers accruing entitlement will be available until next year, 2004. How do you know you are on course?
Mr Smith: First, on stakeholders, let me say that the more recent figures, obviously since January, show 1.5 million, and so the number continues to grow. I think the answer to measuring the progress on the state second pension depends on scans of the NIRS 2 system. I think that is right. I imagine that is the reason why that more detailed assessment cannot be made until next year. This is on course in terms of having established the eligibility and people starting to accrue their entitlements, and indeed from April this year the first payment starting to be made.
Q31 Mr Waterson: Looking at it in the round, how many people are you aiming should ultimately buy these stakeholder pensions? What is your target figure overall?
Mr Smith: I do not have an exact figure on that. Part of the reason, of course, is that in the provision people make for their retirement, a process we want to be one of genuinely informed choice, the stakeholder pension is not the only product that is going to be available to them. Therefore, I do not think it is for us to prescribe a particular level of take-up of stakeholders. I am encouraged by the number that has been taken up, now more than 1.5 million, for a new product in the difficult climate there has been for the reputation of investment in pensions over the last few years, and I think it is an encouraging start. Moreover, a significant proportion of those is being taken out by people on less than £30,000 a year, and a considerable proportion by younger employees as well. I do not know how widely we want to get into the whole issue of our strategy on pensions. There is obviously a lot more to say about that if you want me to do so.
Q32 Mr Waterson: Would it be fair to summarise this by saying that, based on incomplete information so far, you think you are on course but to an unknown destination?
Mr Smith: No. We are talking about two different things here. One was successfully introducing stakeholder pensions, which I believe you mentioned, and the other is progress on the state second pension, where as I have said, on the information we have, we have got that off to a good start, but the more detailed statistical information depends on procedures which are probably not possible to do right now with NIRS 2.
Q33 Mr Waterson: I have one last question. Your objective (iii) is to combat poverty and provide security for pensioners, which I am sure we can all sign up to, but you have no specific target as to pensioner poverty. Why is that?
Mr Smith: First of all, we do have a target, which you already referred to, the three million in receipt of pension credit. I think that will make a very substantial contribution to increasing pensioner incomes and how pensioner households in the country benefit by an average of something like £400. I do not think it would be fair for you to claim that there is no relation between progress on pension credit and tackling pensioner poverty. Income is not the whole story when it comes to poverty, nor indeed more widely to security and independence, but it is a very important part of the picture. If the Committee would be interested in commenting to the Department and doing further work with the Department on how we might develop more broadly measures on pensioner policy, I would be interested in so doing.
Q34 Mr Goodman: Am I right in assuming that one of the reasons you do not have a target for pension poverty is that you believe there are difficulties in establishing what the definition of pensioner poverty would be?
Mr Smith: I think there are certainly issues around both the definition and the measurement. We may be coming on later to what are to some extent the analogous issues in the area of child poverty.
Chairman: Again, we could spend the rest of the morning going into that issue but time is against us. We move to the area of disability living allowance.
Q35 Miss Begg: I have a couple of concerns about the disability living allowance. I should preface my remarks by saying that I think it is a very good benefit and makes quite a difference to the lives of disabled people because it is non-means tested and people in work get it as well. It is a difficult benefit to get and, because it is a passport benefit, it leads to all sort of other things. I am happy that the criteria should be robust, that only people who genuinely deserve the DLA get it. However, my question is: why is the form so difficult? At the moment, all disabilities are covered in one form, making the form virtually unmanageable and very difficult for someone with a disability to fill in on their own, no matter what level of intelligence they may have. The suggestion I make is: is it going to be possible to separate out questions about mental health and have a separate form for those who have a physical disability? The questions for those with disabilities are very different and lead to a lot of confusion. Someone with a physical disability simply cannot understand what on earth the form is getting at and cannot understand it. Is there anything in train to either simplify the form or change the format of the form? I understand something has been trialed in Glasgow with people phoning in so that they can actually narrow down the focus of the form, so that there would be a much more simplified form throughout. At the moment, unless someone goes to a professional, a welfare rights officer, it is very difficult to get that form filled in correctly in the first place.
Mr Smith: First of all, you are right: it is important that we improve the quality of customer service so that we can and make the application process simpler and more straightforward for people. I would be happy to give the Committee a note with further detail. I understand we are trialing simpler forms, and that so far these do seem to be working well. I should add more generally that, as we look forward to the Spending Review next year and plan our priorities for the years ahead, I think the modernisation and improvement of client experience in the disability and carer aspects of our responsibilities is an important area, which colleagues and I will be looking at very closely. You also referred to difficulties and take-up of DLA. Notwithstanding what you have mentioned, and Doug Smith mentioned as well of course, take-up has been increasing quite fast. Obviously that reflects need and a considerable number of people who need it are getting it. I think we can improve the process further.
Q36 Miss Begg: It is important that we improve the process, partly because there is still a large number of people who are taking their case to appeal and are winning on that appeal. That suggests that there is something flawed in the initial assessment, that so many are actually successful when they take their case to a tribunal.
Mr Smith: The conditions of eligibility are intrinsically quite complex because of the assessment being tailored so much to the individual's circumstances. It is a good thing and a good principle, but it does import complexity into the system and perhaps that makes it more likely that things on appeal are changed. A high proportion of the appeals occur where decisions are changed as a result of subsequent information coming in that was not available at the time the original assessment was made. Perhaps that points to improving the comprehensiveness of the initial information-gathering and assessment. I agree with you that this is an area where we need to improve.
Q37 Miss Begg: In fact, it is that very point of the extra information that is made available that is causing a great deal of difficulty. In the periodic reviews that are presently taking place, and I have a number as I suspect my colleagues do, from my own discussions in the constituency with people I know well, they have been subject to a periodic review, have had their benefits reduced or taken away completely, and have had them reinstated after they have gone to a tribunal. It is not good enough to say that the money will be back-dated, particularly with the mobility element of the DLA. If someone has used the mobility element of the DLA to buy a Motability car, in the interim the car is driven away from them and they have great difficulty and extra expense possibly in getting the car reinstated. I have discovered subsequently, by writing to Motability, that they do have some leeway in allowing someone to keep their Motability car while their appeal is in process, but that is not widely known. If the disabled person does not know that and asks for that to be put in place, it does not happen. Indeed, if you phone the mobility help line that our constituents would be using, the person on the other end of the phone does not know that is available either. There are a number of cases where great distress has been caused, not just through loss of the benefit but also the loss of mobility and their ability to work as a result of that; and the whole process could take four or six months before it is righted, and leaving the person out of pocket. Why are so many of the periodic reviews resulting in the benefit being taken away or reduced, and then again subsequently why is the information not gathered in the first place to make sure that that does not happen so that we do get it returned on appeal?
Mr Smith: I imagine that is down to the same factors I referred to previously, the inherent complexity of the assessment and, as you say, subsequent relevant information becoming available that was not there originally. It is fair to point out that on the periodic reviews people do get their allowances increased, as well as reduced. The point you have made is a valid one. I do understand how very important it is to people in their individual circumstances, and I will make it my business after this hearing to look in much greater detail at the sorts of practical difficulties, for instance the interface with Motability to which you refer.
Q38 Miss Begg: Can I make a suggestion? Where a claimant is to have their benefit either taken away or completely or reduced, it is at that stage that they are asked if there is any extra information that can be provided. The case I am thinking of in particular is someone I know well, who is almost completely blind, is deaf and has a bad back and has been retired from a sheltered workshop. He knew he had got worse, and so possibly was not quite as precise about his needs when he had the home visit. As a result, he was getting his benefit reduced. But if he had been forewarned that that was going to be the decision, that might have alerted him that he had not perhaps been quite so precise in what was wrong with him, and it would have saved the four months of trauma that my constituent went through in order to make sure that the review is done at that stage rather than at the formal process of the tribunal.
Mr Smith: That is a helpful suggestion and I will make sure it is followed up.
Q39 Ms Buck: We are just about to go into the pilots in ten areas for the standard housing allowance in the private rented sector. Can you give us a rough idea of how that is set up and how you are judging progress towards setting up pilots?
Mr Smith: Progress is going well. There is an overall delivery plan, and each individual area has drawn up its own delivery plan. Of course, there is different phasing in different areas of the speed with which the pilot is to be brought into operation - roughly from this October to next April. One of the pilot areas did withdraw, and that was Middlesbrough, which you may or may not have been aware of. A lot of work is being done, obviously, with the local authorities, in terms of the publicity materials, as well as the systems they need to operate the new allowance; and a lot of work is being done both with tenants' groups, residents' associations and landlords' groups. It is a bold and radical thing that we are doing here. A lot of good work is going in locally, as well as what we are doing nationally, to make this a success.
Q40 Ms Buck: Is it possible that you could let the Committee have what you will be using as a model for the evaluation of the success of these? It is something we have discussed before, and, clearly, it can be judged in a whole number of ways. It can be judged on the extent to which property comes on to the market; the number of people who will find their payments are reduced, and all those kinds of things; but also measures like whether there will be an increase in the flow of families into social housing because of a shortfall. I have discussed this with Malcolm, but it would be very helpful now if we could just have a full list of all the different indicators you are going to be measuring to establish the success of it.
Mr Smith: I will be happy to share our evaluation plans and methodology with the Committee.
Q41 Ms Buck: One question is that at any given time in different parts of the country, the private rental market will be at a different stage. I am trying to be reassured that you will be looking at the pilots with a very clear eye to what stage that market is in. In London in the last year or so, the private rental market has eased a lot and it is about to get worse again. We need to make sure that your snapshot of the pilot is not going to tell us everything we need to know about how the market is going to work.
Mr Smith: I take that point. We have got to try and capture a lot of the information we collect and the evaluation we undertake would be sensitive to those variations.
Q42 Ms Buck: On that point, what about the roll-out? What are you now saying about the roll-out of the standard housing allowance model across the private rented sector more generally, given that the pilots have not yet started?
Mr Smith: We want to learn from the experience of the pilots before reaching a decision.
Q43 Ms Buck: There will be no decision on roll-out.
Mr Smith: We are keen that this is the direction that we want to go on, but I believe strongly that it makes sense to learn lessons from the pilots before committing definitely to that, and the timescale on which it might happen. The big important question, of course, is how far this can be replicated in the social housing sector.
Q44 Ms Buck: You have indicated that you want to move on to that very quickly. I say again, that we have not even started pilots for the private rented sector. The social rented sector will throw up a whole different set of issues and problems across the country. Just bring us up to date with -----
Mr Smith: As you say, this is something we are keen to explore - and I am sure the Committee will see the attractions of also applying it in the social rented sector where it made sense. I stress that it depends on how well this can work with the private rented sector pilots. It also depends on finding sufficient areas where it would make sense to pilot this, because the social sector rents were closer or at the market rent to the area, where there was a supply of suitable accommodation such that there was some meaningful choice that tenants could make, and that there was in the interaction between those in housing need and the local available stock some mobility within the system. The impact of the allowance and the empowerment in the choice it puts in the hands of tenants depends on how much choice they can exercise. I think that that is very limited in many areas of social housing provision at the moment. You have to find the right sort of conditions, where the pilot stands a chance of being able to demonstrate what it can achieve. I am not sure that it is that easy.
Q45 Ms Buck: I hear what you say, and I am very grateful for what you are saying, because there is assurance there -----
Mr Smith: We need to move in a measured, careful way.
Q46 Ms Buck: Exactly - and yet sometimes we are away from this more measured kind of discussion, and announcements are being made that give a very strong indication in both cases, both the private rented and the social rented sector, that this is the direction that we are going in, and we are moving ahead. Can you give us a pretty firm assurance that it will be a couple of years of pilot and evaluation before we even take a further step into the private rented sector?
Mr Smith: I am not going to say that we would not initiate further developments on this until after two years. I think it has to depend on how it goes. I think it has to depend on how it goes.
Q47 Ms Buck: Is there not a real danger in that, because here you are; you have done absolutely the right thing - you are trying out an innovative, risky strategy; there will be pay-offs if it does work and it might not work in some areas. You are doing the pilots, which is a sensible thing to do; and yet to all intents and purposes we are flagging up the sign saying, almost regardless of the pilots, "this is where we are going and it could be a disaster".
Mr Smith: I think that you are right. You have to get the right balance here. If it seems to be working well and there is enthusiasm to extend it, giving proper time for evaluation. The commitment I was reluctant to give was that we would wait two years before even initiating further moves to extend this either to other areas or to the social sector. That is not the same thing as getting that extension underway.
Q48 Ms Buck: "Only" implies to me that in a sense there was a danger that warning signs might be ignored - I am not talking about a collapse of the system - "we have decided what we are going to do; we are moving all the time, constantly initiating". It certainly implies to me that we are saying, "this is definitely what we are going to do. We might be smoothing off rough edges, but we are not going to wait to find out if it works."
Mr Smith: We do need to see if it works. I am concerned not to give a commitment that might block off more rapid development of this if it seemed to be working. If these pilots are a success, we may well get other local authorities coming on to us, saying that they are very keen to try this. I think it would be bad in those circumstances if I was saying, "no, we are not even prepared to consider that greater extension until we have had some evaluation report 24 or 36 months down the road". There is a balance to be struck here. I take your point that you cannot simply forge on with this without properly evaluating the experience to date; but, equally, I do not want to put evaluation barriers in the way of sensible development. To give an example, as we undertook these pilots, Blackpool local authority, for example, was very keen to be involved. This is a good thing. It is nice to have a pilot authority that was so enthusiastic and commending themselves to us. I want to go with the grain of the enthusiasm for reform that there is out there, whilst making sure that we do learn the lessons from the pilots as we do so.
Q49 Ms Buck: Can we agree that what we are talking about is potentially extending the pilots on a voluntary basis? That seems to me to be unarguable. Of course, we want to innovate and pilot and test, but that is different from being committed in principle and potentially in practice to a roll-out in either sector until we have an idea. It will take at least a year because of the vagaries of the market or whatever, to have a clear idea.
Mr Smith: It is sensible to learn from experience before making further commitments. Equally, I do not see why now I have to make a commitment as to when I am going to make a future commitment. If I do that, I will justify it and have to justify it with the information available to me at the time, and that of course will have to include what evidence has been collected, what it shows, whether there might be some problems lurking further ahead that the evaluation has not yet captured. I hope I can reassure you. We are moving carefully on this, but I do not want at this stage to put unnecessary barriers on the road to reform.
Q50 Ms Buck: I will take that as not being a full speed ahead to roll out until we know. Obviously, the clear majority of tenants on this path would remain under the existing system where, in the private rented sector, over two thirds have a benefits shortfall. I do not know if you have had a chance to hear a little bit about the findings of the Save the Children report on Severe and Enduring Poverty last week, but one of the clear findings of that was that the minimum income level for preventing child poverty - broadly income support level and tax credit - is being undermined - and one of the problems is that we have so many people in severe and enduring poverty - by people who are having shortfalls on their income support or its equivalent. The causes of that are social fund repayments, housing benefit shortfall, council tax payment restriction. Does it worry you - I am sure it worries you, but how much does it worry you and what can you do about the fact that for the people who we are supposed to be protecting on this minimum income level, we are taking money away from so many of them in order for them to pay for their housing and to repay a basic level of debt? Can we really leave all of these people struggling to pay their housing costs out of what should be the minimum that they are expected to live on and bring their children up on?
Mr Smith: Specifically on the housing benefit question, what that report is really homing in on is how adequately the reference run system is working. This is something we keep under review, and we are trying to give closer attention to, in the sense of seeing whether it properly does the job that it is defined to do, that is ignoring outliers and picking up a median point in the market rents that are available within a defined area, but also the variation around that median and, therefore, what the chances are of someone who is on low income and needs housing actually being able to get a home that is affordable. The evidence you are pointing to is that there are lots of people. Obviously, the definition of the areas comes into this as well, so this is something that I am keen to give close attention to.
Q51 Ms Buck: I will leave that just by saying, surely you would agree that if 70 per cent of HB claimants in the private rented sector are facing a restriction, then we cannot be talking about outliers?
Mr Smith: I think the outliers are a separate question; it is a question of whether the methodology has been employed properly and whether the data on which it is based is accurate. Obviously, there is a serious question of whether the proportion facing restrictions is at the level you indicate. The other thing - and this is why the pilots are so important - housing benefit reform really is so important and intractable and difficult for all sorts of reasons - is we have to be careful that the system is not artificially inflating rents or itself contributing to fraud and abuse.
Q52 Ms Buck: Neither must it contribute to poverty.
Mr Smith: No, sure.
Chairman: I think Karen has mentioned a concern that all members of the Committee have about housing benefit reform and the different impact it has in different parts of the country with different market conditions. It is very different in the Borders from North Kensington, so we have to watch it with great care.
Q53 Mrs Humble: Housing benefit is different in Blackpool, and as one of the local MPs I am going to be monitoring the pilot project there very carefully. Can I, however, turn to the targets in your report for working people. Earlier in this session you were questioned on very precise targets in other areas. The targets for working people, however, are very imprecise. You do not actually have a target for employment, except to say that you want to increase employment over an economic cycle. Well, providing one extra job will do that. Just how meaningful is that as a target?
Mr Smith: Judged against the history of this country on employment and mass unemployment, it is a perfectly good and sensible target to have. Moreover, we are making good progress against it. I do believe that the strength of the labour market, levels of employment, lower levels of unemployment - both because of economic stability and economic growth but also because of our active labour market measures - the New Deal programmes and so on - there is always more to do, but I do believe it is a success story that the country can be proud of.
Q54 Mrs Humble: Then how do you respond to those people who have the temerity to say that many unemployed people would have got jobs without any involvement whatsoever from your department? This is your opportunity to justify the raison d'être of the Jobcentre/Jobcentre Plus. How do you measure the value added that your department brings to this situation? Given that you have a fairly vague target, what plan or strategy do you have? How do you monitor the effectiveness of what your department does and justify then your role in the increase in employment? There has been a very substantial increase in employment; but to what extent is it down to you?
Mr Smith: We have independent study/evaluation of the contribution that these programmes make. It is quite an intricate business, separating out the different factors. For example, the NIESR study of the New Deal for Young People showed that in the first couple of years youth employment was very substantially increased as a consequence of the programme, to the extent that when you took all the costs and benefits, it was actually paying for itself. That is an example. There was a more recent study in the summer of the New Deal for Lone Parents, which estimated that around half of the additional job entries, on which the programmes were making good progress, were definitely attributable to the programme. Someone might say, "does that not mean that half your effort is not doing any good?" The answer is that it is a bit like advertising; you do not know when you start which half is going to benefit from the programme, and attempts to devise screening devices that can predict who is most likely to benefit and who is not have not been successful in the past. I am convinced that everything from the active attachment through the JSA regime, which really is a cornerstone of the UK approach, through to the different new deals, innovations like the employment zones, are adding value; but of course there is a crucial contribution through economic stability and economic growth. Of course, you have to make the attempt also to assess taking account of the economic cycle so that you have a clear idea of what is down to the programme and what is down to the economy as a whole. I think there is objective evidence that we are adding value. What is more difficult and intangible, but which I believe nonetheless makes a contribution as well, is the culture of expectations out there, the fact that people without jobs do expect to have to look for a job, and they do expect to have some help in finding the job. If we take the impact of the New Deal for Young People, for example, I think few would doubt that there has been a transformation in the sort of expectations where previously a lot of young people were thinking "I am not going to go into a job" and the fifth option of staying in bed was available to all too many. I think there has been a shift in the culture, which has an impact as well. I might add that in terms of international comparisons and so on, Jobcentre Plus is inundated with requests from people in other countries to come and look at what is going on in Jobcentre Plus, to see the new deals working on the ground. What is happening in Britain is generally acknowledged in many other countries to be cutting edge and leading the way. Therefore, I think we are adding value, and there is a lot to be proud of. There is a lot more to do as well.
Q55 Mrs Humble: You have clearly argued the case for your department's involvement there. To what extent, though, do you monitor the sorts of jobs that people go into? Again, one criticism that has been levelled is that many people who obtain employment obtain jobs that are low-paid often, part-time, sometimes they lose that job and become unemployed again and get another job, or drift around in the market. To what extent do you look at the quality of the jobs that claimants are obtaining and the advice that is given to them in that area?
Mr Smith: Obviously, that is something that is evaluated. The first most important thing of course is how sustainable a job is, and we have that yardstick of the proportion in the job 13 weeks or beyond 13 weeks. We are separately developing and getting underway a project on measures that can help people's advancement in their subsequent job - what sort of help with advice and skills, and even in work support can help people progress. That is important, but it is also crucial that we do not lose sight of something else. If people are in jobs, satisfying the minimum wage and hopefully doing better than that - but still we have a system of minimum protection of people - I do believe that people are better off having that job, and the best way of ensuring you can get another job is to get the first job. So I think there is a ladder of opportunity here in the labour market, and whilst appreciating the wider considerations, I am sceptical of anything that suggests that we do not need to keep closely focussed on helping people get into jobs. I have often said that it is a funny Welfare to Work Programme that does not end up with more people in work.
Q56 Mrs Humble: Can I follow up on that aspect because one of the objectives specified in the departmental report is to promote work as the best form of welfare and to tackle poverty. You do not actually have any targets to improve welfare or to reduce poverty among working age people. Why not?
Mr Smith: As you say, I do believe that work is the best route out of poverty for those who can take it on. It is a perfectly reasonable objective of society to want people to progress into jobs, and there is a whole skills agenda and the contribution that my department makes to that. We are looking at how best, through projects, to develop our understanding of how we can help people progress. I think it is important to focus on people having the job, and more generally through the Low Pay Commission, other commentators and general public discussion, we reach a view as a society as to what the minimum wage should be. There other factors that can impact on poverty which are relate to work incentives or disincentives to move into work like the difficulties of staying in a job and how that impacts on poverty, and we do look at those closely. Next week we will be publishing the next edition of the Annual Opportunities for All report, which the Department produces, which tracks a variety of indicators relevant to poverty. There is an interesting section in there where we are looking at the interaction between family size and poverty. That might well be relevant to the question you are raising of relative in-work poverty because to the extent that the in-work fiscal support like tax credits may be less sensitive to family size than the out-of-work support benefits, that may have a bearing. The impact of family size, which has some sensitive interactions with ethnicity and other considerations, we are only at the start of understanding properly the role it has in relative incomes. I give that as an example, and you will see when you see the report Opportunities for All that we are concerned about in-work as well as out-of-work incomes. There are other relevant and very important areas, which we have not had a chance to discuss in this session. There is the whole question of ethnicity and the challenge we face on ethnic inequality. Again, there is a section in the report which deals with that.
Q57 Mrs Humble: You have anticipated my final question. One of the things that this Committee has noticed is that there has been very little research undertaken by the Department for us to use, and for you in the Department to use. One area where there seems to be very little information is about the particular problems of minority ethnic communities and the high rates of unemployment. I am sure that we will look with interested at the work being done in that area. It will certainly help us in our enquiries, and I am sure it will give you a focus and a new target no doubt.
Mr Smith: We have already got the important target - they are all important targets, but this is particularly important - of narrowing the gap between the employment rate in particular groups in society and the average employment rate. It is another factor in answering your earlier question about what value our programmes add. Our programmes are dedicated to particularly disadvantaged groups. It is not proof, but one indicator of progress would be narrowing the gap between their employment experience and the average. One important thing which should give us all cause for concern is that whilst that gap has been narrowing encouragingly in relation to lone parents and people over 50, and has been making progress, although not as fast as we would like, in relation to disabled people and the most disadvantaged communities, the most challenging area is that of ethnic inequality where the gap does not appear to have narrowed. I would be very happy to ensure that the Committee had a comprehensive list of the research we and others have undertaken in this area. I am very keen to apply the lessons of the evidence of what works. It is a complex issue, and one has to be very careful about not attributing indiscriminately to all ethnic minorities an experience which varies considerably from one ethnic community to the other. Our broad estimate is that as much a half of that employment and unemployment inequality can be attributed to factors that are sometimes described as human capital - skills, education and so on. The other half, though, undoubtedly still has a substantial element of discrimination. How we most effectively counter discrimination amongst different ethnic groups is a very important challenge for our whole society.
Q58 Chairman: In the dying moments of the session, can you describe briefly the general position in relation to welfare and modernisation? What is the current spend estimate? Where are the benefits, and are you getting the benefits; and, in particular, what financial savings do you think you are going to achieve in the longer term? I know that there are lots of difficulties about implementation in some individual projects, but on a strategic level can you give us your current thoughts on where we are? It is a big sum of money. We are watching carefully what the Department is doing. We understand that there are technical problems, but what is the take on that at the moment?
Mr Smith: The take on the strategic perspective on welfare modernisation? As we have touched on in the session, improving efficiency and the quality of customer service is a very important goal across the Department's activities. I believe we are making progress but there is a lot further to go. My strategic perspective on this - and this operates within many of our agencies as well as across the Department as a whole - is IT modernisation, staff training and development of customer responsiveness, in order to shift from what you might categorise as a very, very large department with a larger number of employees, many of them involved in back room processing activity, and a lot of them not paid terribly well, to IT modernisation and the new organisation around the main client groups. This will improve the efficiency of the operation and have fewer people working in the backroom processing, with more of that being automated and more staff in the frontline support roles, whether advising and supporting pensioners or helping disabled people working on the new deals as personal advisers. There will be fewer of them in total. We have quite ambitious targets in terms of the reduction of staff from 130,000 in March this year to 112,000 by 2006, a 14 per cent reduction; but I would like to see them on average better paid, better trained, and doing a more client/customer responsive job. As I said at the beginning, I believe we can have still more people in work, still more effective support for those who cannot work, more people gaining the benefits to which they are entitled; and, more generally, support to help them forward in their lives to the security and independence that they want, whilst making continuing progress in combatting poverty, whether or not of children, pensioners or those of working age.
Q59 Chairman: I am sure that that is right, and we see some signs of that, but there are difficulties along the way. I think everybody would support those laudable aims, but target 8 in the spending review for 2000 talked about reducing the average cost of processing retirement pension claims by 20 per cent by 2004, and this was a target that had got lost from 2000 to 2002. I do not want to go into that in any great detail, but the point I want to make is that in the spending round for 2002 the Department was looking at quite precise financial savings. You are talking about culture change and service delivery, and all of these things are absolutely right, and we concur with all of that. I am really asking whether it is possible to keep an eye on. You have more important objectives of trying to make the thing work, which I understand; but we should not lose sight of the fact that there should be an opportunity at the very basis of this modernisation programme to make more efficient use of public money. I am afraid that in the process of trying to get everything to work right, we may lose sight of the fact that we are trying to make use of public money with targets like reduction of processing costs as well. Have you still got some financial savings up your sleeve that you hope we might achieve eventually?
Mr Smith: Let us not forget the financial savings we are already making through having unemployment so much lower than it was. You are absolutely right: as well as the change in a strategic sense, of course our modernisation programme is intended to make better use of the public's money. Over the ten-year lifespan of the modernisation programme, we are forecasting a total DEL saving of £8 billion, and total AMY saving of £3.9 billion, which I am advised is a net present value of £4 billion, and an internal rate of return of 31 per cent. Those are estimates.
Q60 Chairman: That is still a valid objective that you think you are on course to achieving?
Mr Smith: Yes. It is still the order of magnitude of the transformation that we want to bring about, bringing better value for money. In terms of your more detailed question about costs of processing, when we share the unit cost information, both the interim figures we have agreed - and in due course with the resource management system, more comprehensive unit costs - I think you will see that we are also tracking that and are ambitious to bring about further improvements.
Q61 Chairman: I will happily settle for that. I think people would expect us to ask you this. You are facing some potentially difficult industrial relations times if the public prints are to be believed. There may be some tension within the Department. The Committee can see, particularly in London areas, offices that are perforce on standard pay rates, paying people a lot less than you would expect people to be able to live on. Are you confident you have enough flexibility to make sure - I do not hold any brief for the PCS at all, but we can see, as a committee, when we go round, the real pressure, particularly at the lower end of the professionals who are delivering the service. Have you got enough flexibility to make sure that you can reach a settlement with PCS? If you have not, what is plan B to make sure the benefits will still get paid in the midst of what could be official informal action or wildcat action in some of the delivery centres in the Department?
Mr Smith: Obviously, we will do everything we can to negotiate a settlement and reach an agreement that satisfies both the demand for money and the overall level of settlements in the economy. It is very important that the public sees the benefits of extra investment getting down to frontline services. As I indicated, part of my approach is that we do want greater efficiency, and we can achieve these ambitious goals in reducing the overall number of staff; but the quid pro quo for that is that we need to be able to pay people a decent rate for the job that they are doing. I will do all I can to reach a satisfactory settlement. I do not think you would expect me to go into the details about a negotiating strategy. Of course, we have to be firm, as we have had to be in the past, to achieve our objectives, including the very important objective of removing the screens from our new Jobcentre Plus offices. Where we need to be tough, we will be tough; but I do try and look at these issues through the eyes of our frontline staff as well. I am very mindful of the point you make, especially in the high-cost areas.
Q62 Chairman: A high turnover of staff can undo an awful lot of the very good positive policy work you are doing further up the process. That is something we will continue to work on.
Mr Smith: You also spoke about contingencies. One certainly hopes that it does not come to that, but as you will be aware from what has happened in the past, we do have contingencies for industrial action whether on the part of our own staff or of others.
Q63 Chairman: That has been a very valuable and fruitful session. May we impose on you by sending one or two additional questions that could be addressed by correspondence, because of the difficulties of time?
Mr Smith: Certainly
Q64 Chairman: We should like to thank the staff who deal with the Committee and all the rest of the members of staff, frontline staff included, for the very valuable work they continue to do.
Mr Smith: I will be very pleased to pass that on.