Examination of Witnesses (Questions 1-19)
RT HON
ALAN JOHNSON
MP, MS ALEXIS
CLEVELAND AND
MR ROD
CLARK
2 FEBRUARY 2005
Q1 Chairman: Good morning, ladies and
gentlemen, can I call the Committee to order and welcome this
morning the Secretary of State Alan Johnson, who is supported
this morning by Alexis Cleveland, who is the Chief Executive of
the Pension Service, welcome, and Rod Clark, the Director of Strategy,
Planning and Performance for the Department. You are all very
welcome, and thank you for the information that we have had in
advance of the session. You should know that we have had some
very productive exchanges of correspondence with Malcolm, who
is Minister for Pensions, and we appreciate that. I should also
say that we had a very informative and interesting visit to Glasgow
to the Pensions Solutions Service, which I left cheered up as
a result of the visit; that does not always happen. It is good
to know that there is some serious thought being given to that,
and we might touch on some of that later in the questioning. Really
this is a simple session for us of trying to understand everything
that we can know about some of the quite challenging changes that
are coming to the staff complement, so I think we need to understand
that as a Committee just to see how the Department is working
in a staff profile, and I think Parliament would expect us to
do that. We understand also that you are still in the middle of
some of this and it is dealing with people's jobs. On the one
hand you have an interest in trying to underpin their confidence
as much as you can because there is obviously an attrition rate
which is also part of the worry in the management of all this,
but this morning's session, I think, will shed some light on the
plans and we would like to know as much as we can know, sensibly,
so that we can satisfy ourselves that the Department is doing
everything it can to get the service delivery to the clients that
we all represent. That is really the focus of this morning's session,
it is an important session, we are grateful for your attendance
and maybe you can start, Alan, by just making a short introductory
statement and then we can go straight into the questioning.
Alan Johnson: Thank you, chairman,
it is a pleasure to join you this morning and to be accompanied
by Alexis and Rod who have more of a grasp of some of the more
technical details that I am very pleased you are burrowing into.
We are in the middle of one of the biggest change programmes that
has taken place anywhere in the world, we are transforming our
customer services, and to do that in the environment that we are
in in terms of the reduction in headcount which we think is absolutely
achievable—it is as achievable now as it was when I first
came before this Committee—that we can do that whilst maintaining
customer service, carry on this transformation, with the support
of our splendid staff. I am pleased you picked on the Pension
Service; I know you want to range wider but, to be frank, when
I looked at the figures in the Pension Service—Alexis knows
this—when I first went through the door in September, about
where we were before we moved to the Pension Service in 2002,
where we are now in terms of staffing and where we plan to be,
I can understand people's concern as to can we maintain the service
to the customer and drive through that kind of transformational
change. I am now convinced we can and I hope we can convince the
Committee that we can. I am pleased you went to Glasgow because
that is where we have got some splendid examples of the kind of
fairly simple changes that we can make, as well as some of the
more radical changes that can transform the service to customers.
Just a word about staffing as well, I mentioned the importance
of the staff in this, and one of the big risks of driving through
a change like this is the effect on staff morale. When I spoke
to you before we did not have an agreement with our unions about
how we go through this process; now we do, and I am very pleased
about that because it means that now we can move ahead whereas
previously we were not really implementing the changes, we were
holding open vacancies, we were always hopeful that we could get
an agreement that would avoid compulsory redundancies and would
have a process that the unions were confident in. We have got
that now and I should also say that the unions are out to ballot
PCS on a three-year pay deal. It is a three-year pay deal that
is very exciting in terms of what it does to the lowest paid and
also offers a very important period of stability. That is still
subject to a ballot, but I think that is another promising development,
given that relationships with the staff are going to be absolutely
crucial to make this a success.
Q2 Chairman: Thank you for that.
Really the baseline we are working from is that your predecessor
Andrew Smith wrote to the Committee on 10 March 2004 and he gave
us a little thumbnail of what he expected at that stage to happen
to the various elements of the Department. That was the first
time we saw that and I think it was in the public domain for the
first time, since when of course there have been changes in the
comprehensive spending review last July and there have been further
thoughts and policy changes. Can you just update us on the headline
figures? I know it is difficult to do figures orally like this,
but where are the significant changes, because we were looking
then at planned cuts of 18,345 staff across the departments and
the burden of that was taking a 43% reduction in the Pension Service.
Can you give us a brief resume of what the main changes have been
since that position was vouchsafed to us by Andrew Smith in March
last year?
Alan Johnson: Perhaps I could
just take you through the overall totals and then delve into that
a little bit more, but the overall totals of where we are now
and where we plan to be by 2007-08 are that by the end of this
financial year we plan to have 122,444 staff; by the end of the
next financial year 2005-06 to be down to 111,296 staff; by 2006-07
106,592 and by 2007-08 to 100,000. In terms of the contribution
from the different parts of DWP we have not finalised that yet,
but when we do you will be the first to know, we will send you
a note as we promised you and it will not be too long. Obviously,
there have been some changes, you will be aware, on CSA in particular,
where there is a very sensible recommendation from your Committee,
and so those kinds of changes have to be reflected in alterations
elsewhere. We think we are almost there, but I do not think too
much has changed from Andrew's indication about the kind of proportion
that we could reduce. For instance, in the Appeal Service it is
very easy, it is 100% reduction because it is going to the Department
for Constitutional Affairs, and for Jobcentre Plus we were planning
on around a 15% reduction, for disability and care at around 17%,
and that is still the kind of broad outline. I am afraid you will
have to wait a little longer before we have got the final figures
as to how that all equates within the Department.
Q3 Chairman: That is helpful; we
might try and drill into that in a little more detail, but I understand
perfectly well that if you have not got the final arithmetic worked
out, that is fair enough; as long as we get access to it as soon
as it is sensible to know it, that would be helpful. To what extent
is all of that still dependent on information technology systems?
To what extent, if you hit a couple of serious problems with some
of the work that is being done on the CMS or CIS systems, is the
risk analysis based on the requirement of technology working to
achieve those figures that you have just given us?
Alan Johnson: It is still an element,
but this is not just based upon IT, it is about more efficient
procurement, it is about organising businesses and services more
efficiently, and I think you have seen some of that in Glasgow.
On IT, where we have been over this ground quite a bit, we do
need to ensure that we have back-up arrangements that are sensible,
we do need to ensure that we do not place too many eggs in one
basket, we do need to ensure that we have got contingency plans.
We have the lessons of certain IT systems in certain parts of
the DWP—which shall remain nameless—and we spread
those lessons elsewhere. So IT is still important, but it is not
the only element, it is one of three major elements for how we
can achieve these efficiencies. I do not know whether Alexis can
add to that.
Ms Cleveland: You mentioned the
Customer Information System in particular and that is one for
which I am the senior responsible officer, but I also have a big
incentive to make that work because also I am the first customer
of it for the Pensions Transformation Programme. That one is on
track and we are actually implementing that in March this year.
The first system that is relying on that does not come in until
August, so when we are looking at some of these infrastructure
changes there is a cushion to allow for some slippage that works
through.
Q4 Chairman: Can you give us the
assurance, Alan, that the Gershon requirement that all of these
efficiency savings should be done in a way that protects public
service delivery levels and maintains the payments in a way that
is guaranteed—I mean, the Gershon Report, when you look
at it, actually embeds that as a requirement—and that all
of this work between now and 2008 has that important element throughout
the whole planned process?
Alan Johnson: I can indeed, chairman,
that is crucial to this, but as I think I said on my previous
visit to this Committee we cannot pretend that reducing the staff
by 25% and going through the system of retraining and placing
people in different positions, that we can avoid the odd patch
of problems. I just want to be absolutely clear here, this is
such a big change and it involves such a lot of moving around
and retraining—because we want to avoid redundancies if
we possibly can, and we certainly have been successful to date—that
I would not sit here and pretend that there might not be the odd
minor problem in quality of service, but the overall principle
is that we end up with existing and improved services to the customer
in accordance with the Gershon principles.
Chairman: That is very helpful indeed.
Let us just turn to some of the elements of the Department and
have some questions from Ann Begg.
Q5 Miss Begg: I want to start off
with the future of the Pension Service. With regard to job cuts
across the Pension Service, we understand that they are going
to come in three stages—to 15,200 to March 2005; 14,605
to March 2006 and to 8,000 (a nice round figure) by 2008. Is that
still correct in terms of the stages and can you give us an idea
of what the rationale is behind those stages and why there are
these jumps down?
Ms Cleveland: Those numbers are
not quite correct because, as the Secretary of State made clear,
we are still in the planning for the Spending Review numbers that
come through, and as a result of that we have pushed some of the
later waves of change that we are implementing to the right. Yes,
it is certainly correct that we are looking to have an end state
position of closer to 8,000 people, but that will not now be through
until 2011-12 which is when we finally complete this programme
as we go through. We have tried to take an incremental approach
to the improvements that we are making in the Pension Service
and we are doing that through waves of change. We are currently
implementing what we are calling wave zero, which is looking at
headcount reductions and efficiencies through first of all removing
some of the additional staff that we had to recruit to deliver
the peak of the pension credit claims last year, but secondly
to pull forward from the Pensions Transformation Programme some
of the process and business efficiencies that are not reliant
on IT; so it is how do we get people up a productivity curve more
rapidly, how do we actually improve the utilisation and the productivity
of our staff. So they are very much non-IT-related programmes.
We then have four waves of change that gradually take us deeper
into the Pension Service business. The first one is looking at
retirement pension and pension credit new claims and looking to
bring that together so that a single agent can deal with both
of those, then going into more complicated change of circumstance
in relation to that, and then the other waves just go into the
deeper cases in relation to it, but the first two waves are the
ones that generate about 85% of the savings.
Q6 Miss Begg: Are you hoping that
that staff reduction will be through voluntary redundancies, or
are staff moving to other parts of the DWP, or do you anticipate
that you are actually going to be making staff redundant?
Ms Cleveland: At the moment, and
certainly what we have been doing this year, where we are taking
several thousand people out of the Pension Service now, all of
that this year is being done by either transfer within DWP, transfers
to other Government departments or through voluntary severance.
We are not moving into compulsory redundancy, I assure you.
Q7 Miss Begg: The PCS tell us that
the staff that are moving voluntarily are actually, very often,
the ones who joined recently, who have been expensively trained
when you were ramping up the introduction of the pension credit.
Is that a fair assessment and has that not got implications, obviously,
for the future development of staff?
Ms Cleveland: No, it is not actually
the case, it is actually far more even across the grouping. I
think what is true to say is that in people leaving the Pension
Service it is a fairly even distribution amongst the duration
of employment with us. The people with longer periods of employment
are tending to go to other parts of DWP and other Government departments;
the people who have joined us more recently are tending to go
to jobs outside of the civil service.
Q8 Miss Begg: There is obviously
an implication if you are expensively training staff and then
losing them, and I would agree with the Minister that there is
concern about that same issue in Aberdeen, in Jobcentres, that
because the announcement has been that all these jobs are going
to be lost, it is actually your good staff who are leaving, the
ones who are frontline, who are perhaps a bit more innovative
and want to do something more because they are frightened for
their own jobs. Are you getting that sense across the Pension
Service?
Ms Cleveland: No, as I say, I
think it is more of an even spread of our people leaving and taking
opportunities as they arise, which we have been encouraging people
to do, because we want to maintain as much of that expertise as
is appropriate within the Department, but also from some exit
interviews we have done with people they are not necessarily going
to be lost to the public sector because we know that local authorities
are very keen to pick up our people, because they are benefit-trained,
to do housing benefit and council tax benefit as well. I think
that as we move forward it is something that we are going to have
to continue to look at, because as we make our staff more customer-focused
and actually build up their customer handling skills, perhaps
relying less on their benefit processing skills, they become a
very attractive resource to other employers as well.
Q9 Miss Begg: If we can turn to where
all this is going to happen, you have told us that you plan to
invest in new IT and business processing at ten sites and keep
the future of a further eight sites under review; when are you
going to be able to announce what is going to happen to those
eight sites and what does that announcement depend on?
Ms Cleveland: It is 12 sites that
we are actually taking forward—I think that was in the announcement.
The others are a key part of the Pension Service as we roll forward
and, on average, we are going to need them for at least another
two years. What we are looking to do though is work very closely
with colleagues in DWP, particularly in the Child Support Agency
and Jobcentre Plus, and if they have a requirement for more frontline
staff within the centralised contact centre business, we would
be looking to redeploy some of those people perhaps sooner than
that. Others of them will be required right through to really
the end of the transformation programme, in particular the National
Pensions Centre in Newcastle.
Q10 Miss Begg: When we were in Glasgow
yesterday we saw a DVD of the process of a new pensioner making
a claim, going round and round the country it seemed to be, for
two months, and I think that illustrated just how bureaucratic,
how inefficient, paper-based it is—quite a nightmare basically.
That was probably a clear illustration that if you can get that
sorted then obviously you are going to need far fewer processing
staff, that was absolutely clear. In previous evidence you said
to us that we should not blame Sir Peter Gershon for the reductions
in the efficiency agenda that was driven internally, and we certainly
saw an illustration of that on Monday. However, Sir Peter Gershon's
report needs a bit more than the targets you probably would have
had, had it just been left to you internally, so what pressures
have been on you to actually up the ante, if you like, with regard
to the Gershon Report, to actually find even more savings in terms
of staff numbers?
Ms Cleveland: None whatsoever.
If you look at it in terms of the pensions transformation business
case and the way we are looking forward, potentially we started
at the baseline period for Gershon at over 19,000 people in the
organisation and we have an end state now which, within the Spending
Review period, will be higher than that. Certainly, in terms of
our staff efficiency and other costs that we are cutting across
the revised business processes, within pensions we more than achieve
any requirement from Gershon. Indeed, the work we have done this
year on the pre-IT investment work almost takes us to the Gershon
levels of savings.
Q11 Miss Begg: So you are basically
saying that when Gershon reported you did not go back and look
at everything again and say, right, can we do even more?
Ms Cleveland: No, we were confident
that actually we had been through every single process that we
have got, we have looked at trying to optimise that, we have taken
benchmarks and looked at other organisations and the way they
have taken it forward, and we thought that was the highest level
of savings and business change that we could actually manage during
this period. I am not saying that when we get to the end state
we will not be able to find more in the way that we do it, but
you have got to look at how much can we actually change over this
period.
Chairman: Thank you. Nigel Waterson.
Q12 Mr Waterson: Good morning. I
want to talk about the Pensions Transformation Programme, PTP.
It says on my note here, with no doubt an unconscious irony, that
this is an example of the Department moving away from what it
calls the "big bang" development of new IT, although
DWP has brought a new meaning to big bang in the context of IT.
Why was the decision taken to re-phase the IT investment of the
PTP, was this primarily for operational reasons or due to funding
constraints?
Ms Cleveland: It was affordability
within the change programme across DWP and the prioritisation
of programmes, because it is a big investment for us. In terms
of the headcount and efficiency challenge, the first two waves
deliver a lot of that and a lot of customer service improvements,
so they were prioritised, and we are hoping to pick up the later
waves as part of the SR 06 settlement.
Q13 Mr Waterson: The papers we have
seen suggest that there are still issues remaining over funding
after July this year. Have they been resolved and, if not, when
are they likely to be? Assuming the funding is going to be okay,
do you think that any of the policy changes or dependent projects
has the potential to significantly impact on the ability of the
pensions agency to deliver the anticipated savings in SR 2004,
or prevent the project being implemented at all?
Ms Cleveland: New technology is
a big part of this and before we went down this track as part
of the early work we actually built what we called a navigable
model, which was to prove that the technology would all link together.
Behind this, for the basic payments and customer management, we
are building on the existing systems, just adding something on,
so we will always have that to in some respects fall back on as
we take it forward. But also the sort of productivity gains we
have we think are quite achievable, and we are working very closely
with Malcolm Wicks in particular, Minister for Pensions, on some
of the changes that we would like to see made, which actually
have an impact on the customer as well as ourselves, the verification
issue for example.
Q14 Mr Waterson: Can you tell us
what the key objectives are of waves three and four, and why has
the decision been made to push these two waves into SR 2006? Is
that actually going to be sensible and cost-efficient or would
it cost a great deal to move them backwards or forwards as it
were?
Ms Cleveland: Wave 3 focuses on
bringing in some new technology diary management and scheduling
for our local service people, it looks at providing them with
automatic links through to the same legacy system so that they
can do more automatically and input data in people's homes or
at information points, rather than doing that on paper. It also
goes into some of the more complicated and more difficult changes
of circumstances and, potentially, a few more difficult cases
for new claims, which in the first waves we are going to do clerically,
we are not going to try and do it all in one go; we are going
for the 80/20 rule as we go forward. So waves three and four are
just gradually adding richness and functionality to what has been
put in in waves one and two.
Alan Johnson: But it is true to
say, is it not, Alexis, that we have completed 85% of the headcount
reduction under waves one and two in this Spending Review.
Q15 Mr Waterson: You have a target,
as I understand it, to reduce the number of staff in the Pension
Service by 8,000 by 2008.
Ms Cleveland: No, that is not
true, the 2008 target is going to be considerably higher than
that. I think the 8,000 figure is our business case figure which
is at the end of the total programme.
Q16 Mr Waterson: So what is the figure
likely to be in round terms?
Ms Cleveland: We are still negotiating
and in discussion with the Secretary of State on that.
Q17 Mr Waterson: Leaving that aside,
recent experience from the CSA has proved that with any of these
projects, big bang or otherwise, that it is worthwhile having
a contingency plan in case you cannot make the staff reductions
which are posited on a successful IT introduction; have you got
a contingency plan?
Ms Cleveland: We have a lot of
contingency built into the plan and I think we are building on
the success of what we have already done this year, which is taken
a large number of staff out of the organisation. Some of our contingency
is in relation to the IT systems that we are putting in, but we
have already proved that we can actually do a lot of these things,
so we are really now for wave one into implementation, so we are
into the training of staff, and as we go forward we are building
contingency where we can and we have put some optimism bias into
these numbers already. So we actually think we can get below this,
but we have put some optimism bias into the figures.
Q18 Mr Waterson: Finally—and
this may be more a question for the Secretary of State—the
elephant in the room as it were is the possibility of having a
whole new pensions system to grapple with. Is there any work being
done currently in the Department on the implications for IT, for
staff, for everything else of scrapping the contributions principle
and bringing in detailed rules about residency, for example?
Alan Johnson: No, is the answer
to that. We actually think that there is a need to try to build
a national consensus about where we go on pensions. We do believe
that the Pensions Commission were absolutely right in saying the
last thing we need is knee-jerk reactions, and that we are looking
to parties of all political persuasions. One day, I have to accept,
chairman, we may not be in power—difficult to believe I
understand—and what we have to make sure, as the Pensions
Commission said, is that we try to get this political consensus
so that things do not veer from one system to another. I think
that is very important and I think it would be pretty perverse
if we were now working on systems to the level of asking the Pension
Service to plan ahead for their staffing, when really there is
an awful lot of ground to cover before we know where we will be
in ten years time, let alone twenty.
Q19 Mr Waterson: If some announcement
were floated in the next few days it would be based on no work
so far by the Department, or by the Pension Service anyway.
Ms Cleveland: We have not done
work against that specific option, but what we have done is look
at what we are planning to do to future-proof in there. Actually,
the work that we are doing is about pulling together information
about customers, thus having a single view of the customer. If
the policy behind that changes, actually we would still want to
have that single view of the customer, so you might need a different
IT system to do the calculations or anything based on a universal
pension, but you would still need to bring it into a single view
of the customer.
Mr Waterson: Good luck with the future-proofing.
Thank you very much.
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