Examination of Witnesses (Questions 900-919)
MR JAMES
PLASKITT
22 MAY 2006
Q900 Kerry McCarthy: In terms of
the money, the target for the allocations is that we want the
money to be paid out by March 2008. When does the money start
coming on stream?
Mr Plaskitt: Next month. It runs
from next month to March 2008 so it is a 21 month period.
Q901 Kerry McCarthy: There has been
some concern expressed that certain areas that are already better
served by not for profit lenders, where they already have well
established credit unions, are going to benefit much more from
this fund than other areas. Have you taken that into account?
Mr Plaskitt: Yes. In terms of
looking at the people we want to do these contracts with, we are
looking firstly to ensure that there is the widest possible geographical
coverage. We are looking for long term sustainability for these
programmes. That is why it has been done on a commercial basis
because of the problems we have seen before. This government might
put up grants to do something like this. They are short term and
when the grant money finishes the programme finishes. What we
are looking for here—you can think of it in the sense of
seed corn—is money to get these programmes started, for
them then to become self-fulfilling so that they are sustainable
and perpetuated well out into the future. The 36 million in the
growth fund is available right up until March 2008 but we will
be prepared to support some of these networks in other ways beyond
2008. We are going to ask for financial reports from these 90
organisations for up to 10 years so we anticipate these being
long term programmes.
Q902 Kerry McCarthy: In terms of
sustainability, when do you start looking at what happens after
March 2008?
Mr Plaskitt: We are looking at
that already. One of the reasons why the 90 have made it through
is because we are convinced that their programmes have long term
sustainability because that is what we are looking for here.
Q903 Mr Love: Can I turn to the social
fund? Can you tell us what role you see for the social fund in
providing affordable credit for low income households?
Mr Plaskitt: I think we can do
a lot more here. As you know at the moment the social fund makes
loans through a variety of aspects of the social fund. I see that
as performing a role and it is certainly useful for people who
need money either on a short term or indeed very urgently in the
case of crisis loans. What I am exploring with the stakeholders
and the credit unions is whether working with them we could do
much more in the way of providing affordable credit to people.
I am convinced that the social fund does not punch its weight
in terms of the financial resources the government puts behind
it. I think it is possible to do a good deal more in terms of
sustainable support for people and more in terms of affordable
credit lines than it does at the moment. That is the nature of
the discussions I have started. They are very informal discussions
at this stage but a lot of people are quite interested in developing
the view that I have about the social fund.
Q904 Mr Love: According to the evidence
we received, credit unions and CDFIs are interested in this area
but I would like to come back to that. What research has the DWP
done about the level of unmet need and can you quantify that in
any way for us in this particular area.
Mr Plaskitt: In respect of the
social fund?
Q905 Mr Love: Yes.
Mr Plaskitt: There clearly is
unmet need and this is one of the problems with the social fund
because in a way the support that it offers is uneven and, to
some extent, unpredictable. It is administered in different localities.
They have their particular budgets to administer to and, frankly,
sometimes whether or not you get support from the social fund
in the discretionary areas of it can depend on where you are and
what time in the financial year you present to ask for support.
We can give additional funding for localities if they are running
out of social fund money before the end of the year. We always
have a reserve to use and we do allocate that as and when necessary.
To my mind, this points to the difficulty in the way the social
fund is drawn up. It is very rule based. It is very complex in
many areas. What I would like to see in the discussions I am having
with stakeholders and others is how we can take that resource,
use it in a more flexible way and, instead of just passively responding
to a particular need that someone presents with, how we can get
the longer term engagement with them, steer them towards advice
on financial management, perhaps towards saving, towards realistic
and acceptable forms of affordable credit. It does not do much
of that at the moment but if it could the social fund would do
an awful lot more than it does at the moment.
Q906 Mr Love: Joseph Rowntree first
did some research in this area and, while the department increased
the amount going into the discretionary social fund by £90
million over the last three years they suggested you would need
to at least double that amount to meet that unmet need. Would
you disagree with that conclusion?
Mr Plaskitt: We put an additional
£210 million into the social fund and that should go quite
a long way to meet the unmet need, but that money is just coming
into the fund now. We will have to see how it rolls out and whether
it does meet the additional need. I know all of the stakeholders
I am in discussion with have greatly welcomed the fact that that
extra £210 million has gone in. Welcome though that is, I
am still saying with the increased resource I think we could do
more with the social fund than we do at the moment.
Q907 Mr Love: The CAB said to us
that the social fund is not popular in general with benefit recipients
because it is rather inflexible. Has there been any thought given
to making it a bit more flexible? Coming back to the point you
made at the beginning, can you comment on whether or not there
is a partnership developing between the DWP, credit unions and
CDFIs, because these seem keen to be able to refer those who cannot
get from the social fund and that seems an ideal way at least
to have the flexibility to offer these people some affordable
credit opportunities.
Mr Plaskitt: Firstly, the changes
that we introduced on 3 April to the budgeting loan scheme have
already made it more flexible and certainly have gone some way
to tackling the complexity in the system that they have criticised
and that I also think is a real issue. There is some progress
on that. Your second question was are we developing a partnership
with the credit unions. Yes. They know that I am opening some
questions about long term reform of the social fund and I am having
a meeting with the credit union representatives next month face
to face to discuss exactly this issue and to sound them out on
what they think we could do with this. I want to hear what suggestions
they have to put forward because I remain of the view that we
could do more with the social fund in terms of extending social
and financial inclusion.
Q908 Mr Fallon: How much does it
cost the government to operate the Post Office Card Account each
year?
Mr Plaskitt: About £200 million.
Q909 Mr Fallon: How much will you
save of that by scrapping it and replacing it with a successor
account?
Mr Plaskitt: There is no proposal
to scrap the contract. The contract that we agreed with the Post
Office back in 2002 exclusively states that it runs from 2003
until 2010. Nothing of that has changed. We will continue to honour
the contract right the way through to 2010 in exactly the way
that we said we would.
Q910 Mr Fallon: You are not renewing
it. You are simply playing with words, are you not?
Mr Plaskitt: No. The contract
was written very clearly to run from 2003 to 2010. The contract
was always going to end in 2010 as the Post Office has always
known. Whether or not the Post Office Card Account will continue
is a separate issue. I have always anticipated and we anticipate
that there will need to be a successor to the Post Office Card
Account but what form it takes and what functions it has are still
to be determined. After all, the current contract runs until 2010.
There are four years more to run. My department, myself and my
officials are in discussion with the Post Office already about
the time between now and 2010 when the contract ends. Some important
things are happening. Both my department and the Post Office are
piloting ways in which we can migrate Post Office Card Account
customers to other accounts. The Post Office are bringing new
accounts into existence. They themselves are going to engage in
a migration pilot exercise next month.
Q911 Mr Fallon: Any successor to
the Post Office Card Account will have 200 million a year spent
on it or will this be part of your cuts?
Mr Plaskitt: There are no cuts
here.
Q912 Mr Fallon: You will be spending
200 million on the successor account?
Mr Plaskitt: No, because we do
not know at this stage how many people will have that account.
We have 3.7 million of our customers with Post Office Card Accounts
but, if the migration exercise between now and 2010 works effectively
and the Post Office manage to migrate some of those customers
onto new Post Office accounts, there will therefore be fewer people
going forward to a successor to the Post Office Card Account.
Equally, if people migrate from their Post Office Card Account
to a bank account with Post Office accessibility, fewer will be
going forward so at this stage we do not know. As we approach
2010 and we see the results of the migration exercise, we will
have a clearer idea of what the successor will look like. It was
quite interesting that Mr Cook, managing director of the Post
Office, told your Committee in your evidence session on 9 May
that he too was looking forward from the Post Office's perspective
to a successor account, because he did tell you that you cannot
do much with a Post Office Card Account. He reminded you that
what he would like to see is a card account that has more capability
which would enable you to access cash in different ways and pay
bills. He said that would be a big step forward for current customers
who they regard as excluded: "We"—that is, the
Post Office—"could produce such a successor vehicle."
It depends on how their thinking evolves as to what it is and
what its costs might be.
Q913 Mr Fallon: Given that the banks
have contributed so much to the Post Office Card Account financially,
why is it that they told us last week that you have not opened
any discussions with them about migration of those people who
use the card account at the moment but do not have any bank account?
I think there are over a million of those. Why have you not started
discussing with them how they might be migrating to a basic bank
account?
Mr Plaskitt: We discussed it with
the Bankers' Association and we briefed them thoroughly on 22
February. That is my understanding of how the banks are likely
to receive information from us, rather than doing it individually
to each individual bank of whom there are of course many.
Q914 Chairman: That meeting came
about following a discussion between Ian Mullen and Stephen Timms,
the then Minister, at a pension event. Maybe it was informal but
when the bankers were here last week they were concerned that
there was no real discussion taking place. Is that correct?
Mr Plaskitt: That is right. I
saw that they said that. My officials did meet with the association
on 22 February and fully briefed them on where my department's
thinking was about the Post Office Card Account, its evolution
and its successor and, as far as I am aware, the association expressed
no difficulty with the position that we gave them. Whether they
are then communicating that on to their individual banks is up
to the association.
Mr Fallon: All four chief executives
seem to be unaware of that.
Q915 Peter Viggers: Why has your
support for the Post Office Card Account been so grudging from
the beginning?
Mr Plaskitt: It is not grudging
at all. We have a contract which we signed up to in 2002 with
the Post Office, the contract is being fully honoured and will
be throughout its entire duration. I think it is worth perhaps
reminding the Committee of some of the things that that contract
says. One sentence is really crucial and I think will assist you
because I know that many Members have expressed concern about
what is happening here. It is important to remember that the contract
states that the card account is an interim step for account holders
who will be encouraged by both parties—that is the Post
Office and my department—to migrate to other accounts that
provide better services. That is the contract and that is what
we are honouring. Not only are we honouring the funding of the
contract, in no way grudging about that whatsoever; we are also
honouring the other part of the contract that says we should be
engaged in the business of migrating people to more appropriate
accounts.
Q916 Peter Viggers: You estimated
that two million people would want a Post Office Card Account
and about five million have applied.
Mr Plaskitt: No. The estimate
was three million that my department made and my department has
3.7 million customers with Post Office Card Accounts.
Q917 Peter Viggers: The information
we have been given is as I have stated it. 1.25 million people
do not have any other form of account. Which groups do you think
they are most likely to be drawn from? Are they likely to be drawn
from the most deprived pensioners, people with less financial
awareness?
Mr Plaskitt: I think there will
be a mixture. Some will be our pensioner customers. Some will
be working age benefit customers who do not have bank accounts
either. All of these people, the one million approximately, who
only have a Post Office Card Account and do not at this stage
have any other account, are financial excluded. That is not just
my view; it is what your Committee has been told by the chairman
of the financial inclusion task force and by others. What we have
an opportunity to do here, as we move forward and successor and
alternative accounts appear, is to help hopefully as many as we
can of that million people become financially included by moving
to an account that does give them opportunities and facilities
that the Post Office Card Account does not at the moment give
them.
Q918 Peter Viggers: Our briefing
is that there are 1.25 million people without another bank account
other than a Post Office Card Account and you intend to migrate—I
note the use of the transitive verb—them to accounts with
more functions. Which are the groups most likely to be left behind?
I put it to you as a rhetorical question. Is it those least likely
to be financially included in any other way?
Mr Plaskitt: The ones who will,
as you put it, be left behind are the ones who, for one reason
or another, will simply not want to go forward with any of the
alternative accounts that already exist, with any of the new accounts
that the Post Office will be introducing between now and 2010
for whatever reason. The reason will be theirs. It is not for
me to anticipate. There will be some people who, for whatever
reason, will not want to go forward with anything else. We do
not know at this stage how many that will be. Hopefully, we can
get the number to be as low as possible because what we want is
a maximum amount of financial inclusion. I hope we are all signed
up to that. It is impossible to say how many that will be but,
as it becomes clearer, we can think about the nature of the successor
account to the Post Office Card Account which those people may
move to. You have heard the Post Office themselves tell you that
if it is one they operate they want it to have more features than
the Post Office Card Account. I certainly hope it would.
Q919 Peter Viggers: Citizens' Advice
told us, "You cannot take four million who rely on benefits,
a lot of them older people who use that as their payment system,
and suddenly close the door on that payment method in 2010."
How do you respond?
Mr Plaskitt: I absolutely agree
with them. It would be highly irresponsible suddenly to close
the door on them in 2010. That is precisely why, four years before
the end of the contract, we are now working on the migration exercise.
We were committed to do that by the contract. We are doing that.
That is the responsible thing to do. That means there will not
be a cliff edge in 2010 and no one will fall off it. That is not
what we want to happen. That is why it is right to do the migration
exercise now, which is exactly what we are doing. The Post Office
is doing migration exercises as well.
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