Examination of Witnesses (Questions 20-39)
DEPARTMENT OF
WORK AND
PENSIONS
9 MARCH 2005
Q20 Chairman: You are
relying on new IT systems, are you not? Your Department has a
not very good record of introducing IT systems that work.
Sir Richard Mottram: I think my
Department actually has a very good record of introducing new
IT systems, Chairman. We have one substantial problem of a kind
and a contract which we have no intention ever of repeating. If
you look at our broader track record, you could argue it is one
of the best in central Government.
Q21 Chairman: These staff
reductions will not impact on your ability to deal with fraud
and error?
Sir Richard Mottram: It is our
intention, Chairman, that they not only do not impact on it, but
actually that we make further progress on fraud and error because
we have public service agreement targets to reduce it.
Q22 Chairman: You overpaid
£9 billion in the last three years, and you are going to
recover £550 million of that. Why is that?
Sir Richard Mottram: We forecast—we
have estimates that suggest that we have a total level of fraud
and error in the system, which is £9 billion over three years.
Not all of that of course would be recoverable. The fraud is only
recoverable if you can track it down. Some of the error is official
error of a kind that you would not recover; and similarly for
customer error, you have to identify it in relation to individual
customers, which is not the same as the forecast we make about
the £3 billion fraud and error in the system.
Q23 Mr Steinberg: When
they brought in the new way of paying benefits, one of the selling
points so far as I was concerned to my constituents was that it
would reduce fraud in terms of the giro book. We were told by
direct debit this would reduce fraud. What evidence is there now
to show it has reduced fraud? Is there any evidence?
Sir Richard Mottram: I do not
know whether we have yet got the evidence in detail, but what
it will certainly do is, since we have now eliminated order books,
instrument of payment fraud will, by definition, no longer be
possible.
Q24 Mr Steinberg: I asked
if it had reduced fraud.
Sir Richard Mottram: That is the
fraud.
Q25 Mr Steinberg: So give
me the figures for it.
Sir Richard Mottram: The figure
is £80 million.[2]
Q26 Mr Steinberg: So we
save £80 million this year because of the direct debit savings.
Sir Richard Mottram: This year
has been a transitional year because we obviously have order books,
and I do not have the figures with me.
Q27 Mr Steinberg: What
would you expect it to save?
Sir Richard Mottram: In the current
year?
Q28 Mr Steinberg: In the
future.
Sir Richard Mottram: It will save
the whole instrument of payment fraud because there will no longer
be a possibility of fraud.
Q29 Mr Steinberg: Yes,
but what is that?
Sir Richard Mottram: It is £80
million.
Q30 Mr Steinberg: The
maximum amount would be £80 million a year it would save.
Would it be more than that?
Mr Codling: Our latest estimate
of the savings deriving from the new method of payments in terms
of benefit savings in net terms is £45 million, and it will
be £160 million on administrative savings. That is in the
current year. These figures rise significantly in the future.
They are rising to £60 million benefit savings and in excess
of £400 million per annum on method of payment savings before
offsetting the cost of the Post Office card account.
The Committee suspended from 3.50 pm to 3.57 pm
for a division in the House
Q31 Mr Steinberg: How
many customers are now paid by direct debit?
Sir Richard Mottram: About 22
million.[3]
Q32 Mr Steinberg: Have
you reached your target?
Sir Richard Mottram: We have indeed
reached the target. The total that we pay by direct payment is
25,576,000 as at 4 March.
Q33 Mr Steinberg: That
is the target.
Sir Richard Mottram: The Public
Services Agreement target was to have 85% of our customers paid
by direct payment. We have more than achieved that, but in fact
for financial and customer service reasons 85% is not our aspiration;
we want much higher than that.
Q34 Mr Steinberg: Clearly
fraud and error is a major drain on the resources of this country,
and the taxpayer pays for it at the end of the day. It appears
to be going down, but it is going down very slowly. I had understood
it was £3 billion and we are now told it is £2.5 billion.
Sir Richard Mottram: No, you are
not told it is £2.5 billion.
Q35 Mr Steinberg: Where
the hell is that half a million?
Sir Richard Mottram: Because the—
Mr Steinberg: It does not matter.
Q36 Chairman: I think
this is quite important and we ought to tease this out. We are
still having difficulty in getting to the bottom of this, so explain
to us.
Sir Richard Mottram: The position
is that in 2000-01 the broad estimate rounded to the nearest half
a billion was £3 billion, and that was roughly £2 billion
worth of fraud and £1 billion worth of error. Our latest
estimates—and I am not announcing anything new today, but
I do not want to go back over all that again—are £3
billion rounded to the nearest half billion, but the fraud element
has substantially reduced, so it is now roughly speaking
£1.5 billion/£1.5 billion. The difficulty
in all of this is that you might say to me as your next question,
"although fraud has gone down, the error has gone up by exactly
the same amount" and the answer is it has not; but because
we have rounded the total estimate in such a broad-brush way,
it makes it very complicated. Each of the estimates in 2000-01
was rounded to the nearest half billion. If you now did exactly
the same thing you would find it is still apparently £3 billion,
but the division is different. If, however, we were allowed to
un-round these numbers, you would see some progress.
Mr Steinberg: That has answered that
well. Now that we understand . . .
Chairman: Your answers are getting clearer.
Q37 Mr Steinberg: We still
have £3 billion of fraud and error. That is an enormous amount
of money, Sir Richard.
Sir Richard Mottram: It is indeed.
Q38 Mr Steinberg: When
are you going to reduce it considerably? When are you going to
come to this Committee and say, "gentlemen and ladies, I
can now report to you that it is down to under £1 billion,
the very small amount of £1 billion" When can we expect
that?
Sir Richard Mottram: Not for a
considerable number of years.
Q39 Mr Steinberg: How
many years?
Sir Richard Mottram: I am not
in a position to say.
2 Note by Witness: This figure is made up of
around £60 million (which will be eliminated by the move
to Direct Payment) and around £20 million on girocheque fraud
which could continue. Back
3
Note by Witness: The exact latest figure is quoted in
response to Question 32. Back
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