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Report by the Secretary of State for Work and Pensions under Section 82 of the Welfare Reform and Pensions Act 1999

The Committee consisted of the following Members:

Chairman: Mr. Mike Hancock
Cohen, Harry (Leyton and Wanstead) (Lab)
Engel, Natascha (North-East Derbyshire) (Lab)
Henderson, Mr. Doug (Newcastle upon Tyne, North) (Lab)
Heppell, Mr. John (Vice-Chamberlain of Her Majesty's Household)
Hunt, Mr. Jeremy (South-West Surrey) (Con)
Jenkin, Mr. Bernard (North Essex) (Con)
Keeley, Barbara (Worsley) (Lab)
Khan, Mr. Sadiq (Tooting) (Lab)
Lancaster, Mr. Mark (North-East Milton Keynes) (Con)
Laws, Mr. David (Yeovil) (LD)
Lepper, David (Brighton, Pavilion) (Lab/Co-op)
Mulholland, Greg (Leeds, North-West) (LD)
Murphy, Mr. Jim (Minister for Employment and Welfare Reform)
Ottaway, Richard (Croydon, South) (Con)
Penning, Mike (Hemel Hempstead) (Con)
Rooney, Mr. Terry (Bradford, North) (Lab)
Singh, Mr. Marsha (Bradford, West) (Lab)
Sarah Davies, Committee Clerk
† attended the Committee

Sixth Delegated Legislation Committee

Tuesday 12 December 2006

[Mr. Mike Hancock in the Chair]

Report by the Secretary of State for Work and Pensions under Section 82 of the Welfare Reform and Pensions Act 1999

4.30 pm
The Minister for Employment and Welfare Reform (Mr. Jim Murphy): I beg to move,
That the Committee has considered the Report by the Secretary of State for Work and Pensions under Section 82 of the Welfare and Pensions Act 1999.
Thank you, Mr. Hancock, for chairing what I hope will be relatively brief proceedings on this early London evening.
The report is a request for authority to incur expenditure on a new service to support the employment and support allowance, before receipt of Royal Assent to the Welfare Reform Bill. The expenditure is necessary to ensure that the IT system required to support the delivery of the new employment and support allowance will be ready in time for implementation. The Government have made it clear in Public Bill Committee and elsewhere that we are committed to introducing the ESA from 2008.
Before setting out the main features of the report, I should explain that the final report has emerged as a result of consultation with the Select Committee on Work and Pensions. That consultation proved very helpful, and I should like to put on record my thanks to the Chairman—my hon. Friend the. Member for Bradford, North (Mr. Rooney), and the members of the Select Committee, who played such an important role and who examined the detail of our proposals with great thoroughness. The Committee asked us to strengthen parts of the report, and we have done so. We have also consulted the Treasury and the National Audit Office, who have both assisted us in progressing the report.
The report has been produced to ensure that we have an IT system in place to support the implementation of the new ESA. Like all IT projects, this will be a complex task, producing a system that allows details to be recorded, and payments to be calculated and made. To achieve that requires significant planning. Planning has already begun, but under usual expenditure rules we are rightly limited in what we can do in advance of Royal Assent. If we are to deliver on time we must start preparing for change as early as possible.
The condition for use of the power in section 82(1) of the Welfare Reform and Pensions Act 1999 is, as set out in section 82(1)(b), that the Secretary of State believes that a change brought about by an Act for a social security function will not be effectively provided from the date when the Act comes into force, unless there is preparatory expenditure for coping with the change in advance of the Act getting Royal Assent. That is clearly the case here. The Government wish to ensure that the benefits that the new ESA will bring—benefits that received support from all parties in Committee—will be realised as soon as possible.
The report seeks authorisation for a total of £31.25 million in expenditure by the Department for Work and Pensions on ESA IT implementation. That will cover expenditure until July 2007, by which time we would expect the Bill to have received Royal Assent. I hope that the careful consideration of the draft report by the Select Committee will allay any concerns that hon. Members may have had about the extent of spending control. The Department has also put in place robust processes to ensure that expenditure is closely monitored. In line with the recommendations of the Select Committee, spending will be reported on a bi-monthly basis.
To conclude, the use of the power under section 82 of the Welfare Reform and Pensions Act 1999 will enable the earliest possible implementation of the ESA, bringing with it the associated benefits to those who need to seek our support because of illness or disability. That underpins all that we seek to achieve in the remaining stages of the Welfare Reform Bill, both here and in the other place. I commend the report to the Committee.
4.34 pm
Mr. Jeremy Hunt (South-West Surrey) (Con): I welcome you to the Chair, Mr. Hancock, and I welcome the Minister to his place. I see a couple of Welfare Reform Bill Committee survivors here—the hon. Member for Nottingham, East (Mr. Heppell) and the hon. Member for North-East Derbyshire (Mrs. Engel). As the Minister and both of those Members know, we debated the Welfare Reform Bill in Committee in what was on the whole a very constructive manner, and we made a lot of progress. In that spirit I just wish to probe the Minister a little bit on some points relating to section 82. I ask the Minister to address some of the Opposition’s concerns about past mistakes in IT expenditure and to say how he will ensure that such mistakes are not made in the future.
This is the second time that the Government have asked for money under section 82 of the Welfare Reform and Pensions Act 1999 since it became law. Last time, they asked for money for a new computer system for the Child Support Agency. Given how disastrously that money was spent and the appalling consequences for hundreds of thousands of families, the Minister will agree with me that it is important to know what lessons can be learnt.
In the first debate on section 82 of the 1999 Act, the then Minister, the hon. Member for Wallasey (Angela Eagle), explained the reason for requesting the money. She said that
“when Parliament and the public believe that change is necessary—that is clearly the case with child support—there is pressure for change to be introduced as quickly as possible.”—[Official Report, First Standing Committee on Delegated Legislation, 5 April 1999; c. 1.]
The Minister made a similar comment today, referring to the April 2008 deadline for starting the employment and support allowance. In that first debate, the Minister spoke very critically about the IT system that she was seeking to replace. She described it amongst other things as “a hopeless system” that needed to be replaced with a modern system based on up-to-date components. She painted a picture of the previous Conservative Administration going up Tottenham Court road with a load of used fivers, trying to get a knock-down deal.
My hon. Friend the Member for Brentwood and Ongar (Mr. Pickles) said in a restrained way that by speaking in the way that she did the Minister was setting a very high standard for herself in terms of computer competence. We now know that the Government failed to meet that high standard. Hundreds of millions of pounds was wasted but there are still 347,000 unsolved cases that depended on that system. The fact that they are unsolved is causing untold human misery, which affects most Members of this House and led to the resignation of the chief executive of the CSA in 2004. These are very serious matters.
The National Audit Office said of that system that overall the new scheme performed no better than its predecessor. We know that in the end the Government decided to scrap the entire system—we are hearing about it in Parliament this week—costing the taxpayer £539 million. EDS was the supplier in that contract, and it is likely to be involved in a new ESA contract. We also know that what happened with the CSA IT system was not a unique example; there has been a pattern of failure in Government IT contracts.
The Public Accounts Committee reported a succession of IT programmes and projects characterised by delay, overspends, poor performance and abandonment, including the NHS IT programme originally estimated to cost £6.2 billion and now estimated at £12.4 billion by the National Audit Office. There is a deficit of £70 million on the Criminal Records Bureau contract with Capita, with £273 million wasted on individual learning accounts scrapped in 2001 and so on.
Computer Weekly calculates that the cost of cancelled or over-budget Government IT projects between 1997 and 2003 was greater than £1.5 billion. One cannot help but be reminded of Ronald Reagan, who said, “A million here, a million there, soon we’ll be talking about real money.” I hope that the Minister’s response will be slightly less gung ho and more humble than his predecessor who talked of going up Tottenham Court road with used fivers.
The previous Minister said in March 1999 that responsibility for the strategic management of the Department’s information technology services would be transferred from the Information Technology Services Agency to within the Department’s headquarters. Given the failures, is that decision now seen to be wise? I should be interested to know if it is being reviewed.
I welcome the improved parliamentary process under section 82, in particular that there have been two reports from the Select Committee, on 25 October and 29 November. I welcome what was said in writing. The Minister restated that the DWP had taken on board all the observations and recommendations of the Select Committee reports.
I want to ask the Minister a few questions. First, the Select Committee wisely suggested that the National Audit Office should be asked to review the reasonableness of the cost estimates that form part of the section 82 report. Given the short time scales, however, the Comptroller and Auditor General stated:
“Within the current timescale it has not been possible to undertake a full examination of expenditure proposals.”
Instead, he has examined only the process by which data were obtained to provide a high-level cost and risk analysis performed by the Department. Why was the NAO not given more time? Given the catalogue of mistakes that we have had in other IT systems, would it not perhaps have been wise to give it more time? Perhaps the Minister will explain his thinking on the matter. Is he prepared to honour the Select Committee’s request that in future the DWP give the CAG more time?
Secondly, the Select Committee is concerned that the final report did not include an updated table of likely expenditure under section 82 and that the numbers were different from those supplied to the NAO. The updated figure was £30.42 million, down from the figure of £31.25 million that appears in the draft and final section 82 reports. The statement that the final report
“reflects the Department’s best current estimate of required expenditure”
is not correct. The numbers change, of course, but should not the final report have had the very latest figures? If the House is to approve expenditure, we must have accurate figures laid before us. Perhaps the Minister could explain what went wrong there.
The Select Committee was also disappointed that the Department has done no value for money analysis of alternative courses of action. It describes that part of the report as “weak”, and clearly suggests that more detailed information should be included in future section 82 reports. There is a huge number of unknowns in this project. For example, the Department said that it would use the same code as that used for the pension credit system. The NAO report says:
“The project estimates have been prepared on the assumption that much of the front end and back end of the new system can be based on the existing, successful, Pension Transformation System and Jobseekers Allowance Payment System. Up to 80 per cent. of the Employment and Support Allowance System is expected to use design principles and code from the other two systems.”
I read the text slightly wearily, because I have a background in IT and am aware of the complications when trying to specify IT projects and also the risks in saying that one system is similar to another.
The pension credit customer account management system and jobseeker’s allowance payments are fundamentally different, and are considerably less complex than the ESA. For example, neither has an equivalent to the two groups in the ESA—the support group and the work-related activity group. It is not just about the two separate categories, but the way in which they relate to each other because the Government have said that those in the support group can volunteer for services offered to those in the work-related activity group.
To my knowledge, neither the pension credit, nor the JSA have significant legacy system issues whereas the Government have said that they will allow those currently on incapacity benefit to migrate to ESA as resources allow, which could involve a potential legacy issue. Also, to my knowledge, there is no conditionality with pension credit, and the way in which conditionality works with ESA is likely to be considerably more complex than for JSA.
Neither pension credit nor the JSA system have the complications of the personal capability assessment. In short, this very complicated new system is being based on relatively simple existing ones. Does the Minister have any evidence that it will work? The National Audit Office says:
“The Employment and Support Allowance is a more complex benefit than Pension Credit, reflecting the needs of the Customer Group, who will require more regular contact with the department. This will lead to a longer development timescale, and differences in the detailed IT system required to deliver the new benefit.”
It also says that it is impossible to estimate costs accurately when some key decisions have not been made in respect to
“the operational business model, and also the extent of connectivity between front and back ends.”
Have those decisions been made? If they have not, will the Minister clarify whether progress has been made towards doing so and whether he has a more accurate specification for the project, bearing in mind the time limit in this debate?
Finally, I would like to ask the Minister about the risk analysis that the Department has conducted. The DWP has said that the development costs for ESA could increase by as much as 40 per cent., which would constitute an additional £80 million, of which £11 million would fall within the section 82 period. What will be the Minister's strategy if that happens? Would the project be put on hold until the Welfare Reform Bill obtained Royal Assent? What is missing is any coherent analysis of just why so many Government IT contracts have gone so badly wrong, and what lessons can be learned.
May I gently warn the Government of the dangers of over-reliance on management consultants? Contracts depend not just on the quality of contractors, but on the quality of the people managing the contracts. Following the Gershon headcount reductions, does the Department have enough officials with sufficient experience to manage complicated projects? Problems often occur because the specification changes mid-contract, which in turn happens because policy makers have not thought through their plans in sufficient detail. The relatively sketchy detail in the Welfare Reform Bill suggests that that might be the case this time too. Have lessons been learned in that respect, in terms of making sure that there is a proper specification before the start of the IT project?
A final reason why systems often fail is the lack of early involvement of end users in testing. The success of a system depends on accurately predicting usage patterns, which in practice can never be done if users are excluded from the process until it is too late. Will the Department have a proper, early system of user-acceptance testing?
What I would like to hear from Ministers is some evidence that the Government have learned from previous mistakes. In particular—within the constraints of commercial confidentiality—will he say whether he plans to award any contracts to EDS, which was responsible for building the failed CSA system? The last time money was granted under section 82 of the Welfare Reform and Pensions Act 1999, it led to a waste of £539 million.
Mr. Doug Henderson (Newcastle upon Tyne, North) (Lab): I hear what the hon. Gentleman is saying, but does he seriously expect the Minister to say in Committee whether his Department is going to issue a contract to a particular supplier?
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Prepared 14 December 2006