Select Committee on Work and Pensions Minutes of Evidence


Examination of Witnesses (Questions 1-19)

MR LEIGH LEWIS, MR ADAM SHARPLES AND MR PHIL WYNN OWEN

28 MARCH 2007

  Q1 Chairman: Good morning, everybody, welcome to this evidence session on the Department's Autumn Performance Report. Sometime just after eleven we will go into private session, so at that point we will have to ask members of the public to leave. Would you like to introduce your team?

  Mr Lewis: Yes, indeed. I am Leigh Lewis, the Permanent Secretary at the Department. On my right is Adam Sharples, the Director General of the Work, Welfare and Equality Group, and on my left is Phil Wynn Owen, the Director General of the Pensions and Strategy Group.

  Q2  Chairman: The Department has delivered efficiency savings of around £1 billion and around 20,000 posts have now been deleted from the establishment. You have what can only be called a challenging CSR for the next three year period; are you going to be able to cope or are there going to perhaps be impacts on service delivery?

  Mr Lewis: Chairman, I think we are going to be able to cope. We have done well up to now and we are very much on track to deliver the efficiency targets, both in terms of headcount and financial savings that we were set as part of SRO4. That job is not yet complete, we still have some further ground to cover, particularly on headcount, by the end of the SRO4 period, that is by March 2008. Then the SRO7 period is a testing one in which there is a 5% year on year reduction in the Department's budget; that is not going to be an easy reduction to deliver while maintaining the quality of our service, but we are confident that we can do it and we have an evolving business strategy for our Department as a whole which my executive team and I have worked very hard on with our top leadership group. I will not go into every detail now but, yes, we do have confidence that it is going to be challenging but that we can do it.

  Q3  Chairman: A cynic would say if you are managing were you overstaffed before?

  Mr Lewis: When you look back you can always look at areas where, with hindsight, you were probably using more resource than ideally you needed, but I certainly do not want to give any impression that this was a Department which before the SRO4 period was living off its fat and not working very hard. What we have actually done is to have made ourselves much more efficient, both in harnessing IT to provide more of our services, organising our services in a more cost-effective way and, in particular, looking at how we can both improve customer service and value for money for the taxpayer at the same time.

  Q4  Chairman: In the forthcoming three-year period it is 5% a year; do you see the impact being largely on staff or programmes or further IT-related efficiencies?

  Mr Lewis: It is all of those and one more, Chairman. Certainly, there will be further staffing reductions undoubtedly over the SRO7 period and we will of course, subject very much to the wishes of our ministers, be looking at programme provision and we will be looking to make further IT enhancements. The other big area that is important to stress is about half of our DEL as it is called, our administrative expenditure of some £8 billion, goes to external providers of services to the Department, in particular our big providers of telecommunications, IT, our estate, et cetera, and we are engaged in very intensive discussions with each of those main providers because they are also going to have to contribute to the efficiency savings which we are going to have to make.

  Q5  Chairman: The Freud review posited some interesting questions about particular programmes to be delivered in the future. Will that be reflected in your thinking in how you manage that extra year period and do you see the essence of Freud actually means that that will be translated into action?

  Mr Lewis: The formal position of course is that the Freud report was a report to Government rather than a report by Government and ministers are clear that they want to consult on the recommendations in the Freud report and they are interested in gathering views on it, but it presents a picture which is certainly a plausible one for the future in terms of the way we will operate, not only in terms of some of the policy areas but also in terms of our own directly delivered provision seeing an absolute core, for example, for our Jobcentre Plus business, dealing with the mainstream client group which Freud says it deals with extremely effectively, but using the private and voluntary sector more for those groups who are hardest to help. That is certainly the Freud vision and we are going to consider it very carefully indeed.

  Q6  Chairman: But essentially is not Freud just offering an alternative way of financing programmes for the long term?

  Mr Lewis: In one sense that is the case, because what David Freud is saying is that the market, given the right incentive structure, will be prepared to put forward some of the finance necessary to provide intensive support services for those people who are hardest to help. That of course is one of the areas on which the Government is anxious to get the views of a wide variety of stakeholders in relation to that report.

  Q7  Michael Jabez Foster: The Pension Service and pension credit: the Pension Service is one of the jewels in the crown of the Department and most people are extremely happy about the arrangements, but why are the PSA targets so likely to be missed, given the hands-on approach that the Department takes there?

  Mr Lewis: I will start this one off if I may and then ask my colleague Phil Wynn Owen to perhaps go into a little bit more of the detail. In fact, I appeared, as perhaps you will know, before a sister committee of the House in December of last year, the Committee of Public Accounts, to speak about that very issue. It is worth saying that the National Audit Office report was very complimentary about the efforts of the Pension Service to secure take-up of pension credit. It talked about the Pension Service having a very good strategy in place which should deliver increasing value for money, and so on. As I said myself to the Committee, and I almost used these words, what has become clear is that we have begun to plateau around the figure of 2.7 million households receiving pension credit. That figure has still been inching up month-by-month, but it has become clear that we are unlikely to get beyond 3 million. I do not think this is because a lack of effort or ingenuity on the part of the Pension Service, and I set out for the Committee of Public Accounts a whole range of ways in which the Pension Service has been seeking to secure take-up. Probably what is clear is that we are at something of a natural level in terms of pension credit take-up, and there certainly is quite some evidence from particularly the local service staff engaged by the Pension Service that there are a group of pensioners who may have an entitlement, know they have an entitlement but simply choose not to apply for that entitlement. That is not to say that there are not pensioners out there who we have not yet reached and we do not need to work harder in order to reach, but I think it has become clear that despite enormous efforts by the Pension Service we have begun to plateau at around the 2.7 million level.

  Q8  Michael Jabez Foster: Do you agree then that most pensioners are aware of the entitlement? There may be a complication about doing it, but it is not a knowledge issue, they now know it exists and they just do not do it.

  Mr Lewis: I wonder if Phil might like to take that up.

  Mr Wynn Owen: In addition to what Leigh has said it might be worth saying in terms of the data that when I appeared here last year I was talking to the 2003-04 Family Resources Survey data; we have since published 2004-05 and we are catching up in terms of data. We are planning to publish tomorrow the 2005-06 stock data and we will be writing to the Committee Chairman and placing the material in the House of Commons library. But for the purposes of today you will understand I am bound by national statistics conventions and will be talking to the 2004-05 data. Broadly, we do not believe the picture is changing over time; as Leigh said, we are plateauing around the 2.7 million households mark and having to run quite hard to just maintain small incremental improvement year-on-year because we have around 260,000 households, largely through death, sadly, leaving the stock of those receiving pension credit each year. The FRS data suggests the entitled population, as I told you last year, may be around the 4 million benefit units number, but with the household receipt of pension credit around 2.7 million we have had to go down to the working level in the Pension Service to understand where the other people are. What we have identified is around about 600,000 people whom we term "eligible non-recipients" where all the information we have about them suggests they may be eligible, we know where they live and we can trace them. The vast majority of those have been contacted, often more than once. Over 80% of those 600,000 eligible non-recipients were identified and targeted specifically through campaign activity last year and I should say that over three-quarters of those eligible non-recipients have now been contacted five times or more. So we think we are actually at saturation level in terms of marketing to those additional people and households that we think may be entitled. The reasons they appear not to take up the benefit vary and we have done quite a lot of social research; on the softer side the reasons they express as to why they are not claiming might be something to do with lack of knowledge. For instance, 73% of the eligible non-recipients are owner-occupiers who may think that owning their own house disqualifies them from claiming, which it does not actually, as you may know, whereas 45% of recipients own their own house. Similarly, they may think that having an occupational pension—some of them have a small occupational pension—may indeed bar them: it does not. They may be concerned about interaction with other benefits that we have sought to safeguard against; they may find the whole process too intrusive, particularly if they are only eligible for small amounts. We think almost a 18% of them are entitled to less than a fiver a week and around a third to less than a tenner a week, so these may be the largely savings credit recipients who individually judge that it is not worth the candle to actually pursue the claim.

  Q9  Michael Jabez Foster: The people we are most concerned about are those that are entitled to guarantee credit, those who need the minimum income guarantee effectively.

  Mr Wynn Owen: The guarantee credit, we think the Pension Service has done best there; we think they have done very well across the piece but the guaranteed credit take-up is running somewhere in a range of between 70 and 81% of eligible units. That is good; compared to the last six months of the minimum income guarantee which was running at 64 to 77%, we think there is probably a 10% increase in take-up of eligible households, comparing guaranteed credit to MIG some years back, so we are very close to saturation there. That is not to say we have reached everyone and we are obviously continuing a marketing effort, we spent about £25.4 million over the last four years.

  Mr Lewis: It is just worth adding that when I appeared before the PAC with the chief executive of the Pension Service, Alexis Cleveland, she described that her postbag now has a not completely insignificant number of letters saying would you stop ringing me, writing to me, I know about it, I do not want to claim, if you see what I mean. Again, that is not to suggest that that is a majority issue, but it is an issue that, in terms of service delivery, we are beginning to have to balance. Once you have written to or contacted people five times, how long do you carry on?

  Q10  Michael Jabez Foster: Are you re-thinking? I see you were planning one million extra visits and two million extra mail-outs in the current year, is that something you are going to review if you really do believe you have reached saturation point?

  Mr Lewis: What we are trying to do—and the NAO was very complimentary, as I say, about what has already been done—is become cleverer still. We are trying very much to use data, particularly HMRC data and our own data to really identify the households which may have a significant entitlement. We are trying to work very much with other organisations, voluntary organisations, through what the Pension Service call joint partnerships, and our local service is undoubtedly a resource-intensive resource but it is also a very effective resource and it is often the visit by an individual who can persuade a pensioner that it is in his or her interest to claim, whereas a letter may simply go the way of other letters, if you see what I mean.

  Q11  Michael Jabez Foster: One more point, there is empirical evidence that the baby-boomers now retiring are sort of retiring—it may be a short-term change—with occupational pensions, thus better off than the people before them and perhaps better off than those that follow. Is that coming through yet, or have you any evidence to suggest that that will happen, that fewer people will actually become eligible because they are better off?

  Mr Wynn Owen: It is possible, but it is very early days yet. If you take VE Day plus 60 years plus nine months for gestation, the baby-boomers who are lucky enough to retire at 60—and not all people do of course—began to retire last spring, so I do not think that we will actually see the baby-boom effect kicking through into this data in a material way for three or four years hence, until they start hitting 65, but you are absolutely right, there will be an appreciable increase in the stock of people who are retiring from now on in and it may be that that generation, or the lucky ones in that generation who have had access to an occupational pension scheme, are richer than previous generations. We are doing everything we can through appropriate data-matching with safeguards, working with the Inland Revenue, for instance, to identify who has ISAs, with individuals to identify their occupational pensions, to pick up that effect and to actually target our Pension Service marketing on the people who really need pension credit, particularly the guarantee credit you mentioned earlier. Just on Leigh's earlier point about local service, they have done a marvellous job over the past couple of years in picking up most of the burden of accessing individuals in their homes. That is of course very expensive and the cost per acquisition, although it has come down, is still running at over £420 in 2005-06, for a local service visit whereas direct mail, for instance, is just over £60. We hope to see and plan to see the balance change over time with the new Pensions Transformation Programme coming into the Pension Service's contact centres. Customers are now able to apply and have their entitlement decided in a single short phone call—a process which has traditionally taken weeks. As that is extended into telephony claims for pension credit happening more and more in that system, we should be able to pick up the stock of people coming into eligibility for pension credit including those baby-boomers who are not fortunate enough to have a substantial occupational pension as they make that phone call for their basic state pension. It should mean we see the balance of where we are making pension credit accessible to people shift from the local service back towards the call centre basis over coming years. That is what I hope to see and that will help the customer by making it a swifter transaction and should drive down our costs.

  Q12  Jenny Willott: I want to ask some questions about fraud and error. The report shows that DWP was on course to achieve a 50% reduction in income support and jobseeker's allowance fraud and error rates by March 2006, but there is a graph in figure 33 which shows that fraud has dropped but both official error and customer error have remained pretty constant over the period. Why has more progress not been made in that particular area?

  Mr Lewis: Let me take some of that. The first is to say we believe we have met the SRO2 target and we are very pleased, because that was a demanding target to reduce losses from fraud and error, as you say, in income support and JSA by 50% by 2006. In the way of statistics and statistical sampling, the answer which our statisticians have provided is that the actual fall lies in the range between 45 and 55%, but you do not have to be the world's greatest genius to work out that the mid-point is 50%, so we are taking that as our target having been met. You are absolutely right to say that overall, going beyond that, our performance in many ways is good and it is worth saying that the National Audit Office in a benchmarking study where it looked at other countries and how they tackled this issue—and they published their report in July 2006—said that they thought our department was at the forefront, both in developing estimates of losses and actually in terms of awareness of fraud and error and activities to combat the problem. What we have got really is something of a curate's egg; the total of benefit being overpaid has fallen year-by-year since 2000-01 in percentage terms, we are now at around 2.2% of total benefits paid. Within that total, fraud has been falling very substantially and very fast from over 2% in 2000-01 to 0.6% in the most recent year. The ones that have been bucking the trend have been customer error and official error and they have, if anything, been slightly rising. That is why we are focusing so much on both of those subjects and, as perhaps the Committee will know, I have established myself within the Department both an official error taskforce which reports directly to me and a benefits simplification unit, and I wrote to the Chairman with an account of their first year's activities. I will not instantly go into a great deal more detail because you may have more specific questions, but simply to say without in any way lessening our focus on fraud and colleagues will perhaps have seen the "no ifs, no buts" campaign that has been running over the last few months, but we are giving an absolute priority to seeking to reduce both official error and customer error.

  Q13  Jenny Willott: Why has it not reduced so far? Why is there such a difference between the drop in fraud and the fact that error has stayed constant?

  Mr Lewis: It is quite a conundrum and there is no one simple answer. Quite a lot of this actually does have to do with the complexity of the benefits system; we do have a complex benefits system, and there are many, many reasons for that. It means that at times our staff make mistakes in interpreting the rules and deciding on entitlements and it means—and that is the difference of course between customer error and fraud, fraud is where somebody sets out deliberately to misrepresent or claim something to which they are not entitled, customer error is where they make a mistake but it is not a wilful mistake. Customers make mistakes because they find the system complex as well. We are trying to tackle those through a whole range of issues; in terms of our customers we are trying to make our guidance much simpler, it is vastly better now than it was in terms of the leaflets we have produced, their readability, their clarity, the support that we can offer to people. In terms of official error we have established, for example, a taskforce within Jobcentre Plus, we have established a case-cleansing exercise within the Pension Service, but a key strand is to make the system simpler. We have the Treasury Committee literally along the corridor talking at this moment in parallel about the Budget, but we were very pleased indeed as a Department that the Budget did include four major simplification measures to the benefit system which we have been working on in the Department for a long time. They will not in themselves suddenly make a hugely complex system a very simple system; that would be expecting too much, but nevertheless as a step on a journey to try and make this system a simpler one they were important actually.

  Q14  Jenny Willott: If we come up with some bright ideas on this Committee about how to make the benefit system simpler, that would help would it?

  Mr Lewis: It would help enormously. Here probably I will be struck down by the Chairman, but it is both sides of the coin because of course for all the right reasons within a democratic society it can often be parliamentarians who are part of making it more complex as well because they receive representations from individuals, groups, where the system is not quite working for them, and then there is a tendency could we not just kind of make it a bit more fine-grained yet. It is the cumulative impact over many years of those kinds of processes.

  Q15  Jenny Willott: Moving on to housing benefit fraud and error figures, both 2002 and 2004 targets show a slippage, i.e. not meeting them. In fact, fraud and error actually increased in the 12 months to September 2005, there was a 6% increase, so it was quite a significant rise. How are you going to tackle that? One of the things that struck me looking at the figures in a further breakdown from Parliamentary Questions was that customer error had nearly doubled, so there is clearly a problem there. Can you give us an idea of how you are actually going to tackle that? I know you have a new strategy but what is it that is actually going to make a difference?

  Mr Lewis: Yes, I certainly can. It is the case that we have not met, so that is definitive, our 2002 target and the most recent figures—we are soon to know of course about our 2004 target—are going in the wrong direction, so there is no hiding away from that. Again, it is interesting, we have the same basic position going on which is that fraud is continuing to fall on housing benefit but both customer error and, to a lesser extent, official error, are rising. Customer error as you say is rising more sharply than official error and that has been accompanied by a fall—it is not a fall that we necessarily entirely understand—in the number of customers who report changes to their local authority et cetera and, obviously, if they do not report changes then their claim is likely to go into error at that point. What are we doing? As you say, we did launch an action plan; our Minister James Plaskitt launched an action plan in February and it is based on four main strands. I will not go into great detail on every one but the four strands are making better use of information and data, in particular using our customer information system which we are now linked to with local authorities, they have access to it, and it has for the first time a single version of the truth in terms of an individual's entitlement, and I think it is a huge advance that local authorities have access to it. Just picking up the point I was making, encouraging customers to report changes, for example where over 100 local authorities are now using targeted mailshots, letters which we have actually helped design, and improving the transfer, particularly between ourselves, HMRC and local authorities, because there is quite a complex web here of housing benefit entitlement, tax credits and our own benefits. On the local authority front we are introducing a new performance regime for local authorities from this very April, which will have individual targets for every authority.

  Q16  Jenny Willott: Will the figures for the year to September 2006 show any improvement or are they going to show a worsening situation as well?

  Mr Lewis: The honest answer is I just do not know, the figures for that year October 2005 to September 2006 will be available in July, but they are just not available now, so we just do not know.

  Q17  Jenny Willott: Do you have any early indications? How confident are you that it will improve over that period?

  Mr Lewis: In preparing for today's hearing that was a question that I asked of my statisticians, but the answer came back that there is no in-year data at the moment, for the current year.

  Q18  Jenny Willott: You have already answered a couple of questions about the efficiency savings programme; as staff numbers continue to reduce is that having an impact on the number of anti-fraud officers? Have they reduced or increased in number since the introduction of the efficiency savings programme?

  Mr Lewis: I have not actually got that figure in my head and I do not want to risk misleading the Committee, so what I will do if I may is write to you. My understanding is that we have not significantly reduced our fraud effort but, as I say, I will write to you. It is the same answer though as in almost every part of the Department; if you are reducing your overall staffing—and we are—yet seeking to maintain or improve your levels of service and what you are delivering, then in a sense you just have to become better and smarter at doing it. We have some very, very effective anti-fraud staff and anti-fraud operations in the Department but we have to go on getting better at doing it. Certainly, it remains a very, very high priority in the Department.

  Jenny Willott: Thank you very much.

  Q19  Chairman: Can I ask you a technical question. If somebody receives an adverse benefit decision, appeals and is successful on appeal, is that counted as official error?

  Mr Lewis: Gosh. I do not absolutely know that for certain. Adam, can you help me at all?

  Mr Sharples: The measurement is done by taking a sample of cases and then looking at those cases and asking whether, at the time the case is reviewed, there is an overpayment or not, so it would depend on precisely the point that the case has got to. Clearly, if benefit had been refused but was still being paid, that would count as an overpayment, but if the appeal was subsequently won then obviously benefits should be in payment, but the fact of there being an appeal against a decision does not prove that that decision was wrong.


 
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