Examination of Witnesses (Question Numbers
1-19)
DEPARTMENT FOR
WORK AND
PENSIONS
Q1 Chairman: Welcome all to the Committee
of Public Accounts. First of all, I would like to welcome the
Comptroller and Auditor General of Zimbabwe who is in the audience;
you are very welcome, Sir. Today we are considering the Comptroller
and Auditor General's Report on the Department for Work and
Pensions: Management of Benefit Overpayment Debt. We welcome
back to our Committee Sir Leigh Lewis, who is the Permanent Secretary
at the Department for Work and Pensions. The Report does show
an improvement in the Department's performance in relation to
debt management with recoveries increasing from £180 million
in 2005-06 to £272 million in 2007-08. However, the total
amount of debt owed by the Department's customers continues to
rise. Sir Leigh, I want to try and press you further on how you
think we are going to make more progress. Shall we look at the
value of the debt stock; of course, it is enormous. To help us
we can look at page 16, figure ten. You will see there, Sir Leigh,
the total amount owed by customers has increased every year since
at least 2003-04. What steps are you taking to bring this debt
under control?
Sir Leigh Lewis: Thank you, Chairman.
I do think it is right and fair to say, as the NAO acknowledged,
that we have made very considerable progress in increasing the
amount of debt recovered. You are absolutely right to say the
debt stock has risen substantially over the last four or five
years, though the rate of increase has slowed in the last year
or so. There are some good reasons, if that does not sound slightly
perverse, as to why the debt stock has risen, in particular because
we have very substantially increased the number of referrals being
made by our two main businesses within the Department—Jobcentre
Plus and the Pension, Disability and Carers Service—to our
debt recovery team in the centre, which Carol Sheridan heads.
Debt referrals have increased by 60% since 2005-06. In a sense,
what we are doing is pouring more debt into the machine which
seeks to recover it. Although we are doing well at recovering
quite a significant proportion of that debt, one consequence is
the debt stock rises because you do not ever recover or write-off
100% of that extra debt coming in. What are we going to do to
try and make it better still? Continue the efforts we have put
into this over recent years. We have seen productivity increase
very substantially, we are using IT far better and I think we
have got much more sophisticated tools and techniques. A lot more
of the same is the answer.
Q2 Chairman: Let us try and talk
this through because obviously there are still very large sums
owing: £1.8 billion is a huge amount of money. Can you talk
us through it? It seems to me you need to try and take action
early on because you can only recover one debt at a time. Later
on we can talk about multiple debts, debts which have been around
for up to ten years. How are you trying to focus in on people
early on? How are you going to try and determine what groups are
particularly liable to build up debt, they may be in and out of
jobs, that sort of thing? How are you making your systems more
sophisticated so that you can spot a likely debtor?
Sir Leigh Lewis: The very first
thing we are trying to do is to stem the flow into the pot, not
by simply not identifying debt or referring it, quite the contrary,
we are trying to ensure that we identify and refer the great majority
of all debt. Debt only arises if we have error in the first place.
Error can arise—we have discussed that in this Committee
before—as a result of fraud, official error, customer error
and so on. The very first point of reference is the very substantial
efforts to reduce the amount of error that is being generated
and which leads to debt. We are at our lowest ever level of fraud
and error as a proportion of the Department's expenditure. We
are concentrating much more than we have done in the past on large
debtors, for example. It is really interesting that of that total
debt stock of £1.85 billion you have just referred to, a
third of that is owed by those owing more than £10,000, despite
the fact that they make up less than 3% of all debtors. Conversely,
only about 8% of that debt, £155 million, is owed by those
owing less than £500, though they make up in quantity 60%
of all the debtors. You probably do not have to be a brilliant
mathematician to work out that putting more effort in to those
who owe you the most money is very worthwhile. One of the things
we have done only recently but it is now in place, which was prompted
by this Report, is to set up a large debtors unit specifically
to focus on whether we can do more to recover from those relatively
small numbers of people who owe us the most money.
Q3 Chairman: This target in paragraph
5 of £279 million, is that sufficiently stretching you? You
are meeting it quite easily at the moment, are you not?
Sir Leigh Lewis: It has felt pretty
stretching from inside and last year we did just beat it, we got
£281 million. We are aiming this year for what may seem to
the Committee only a very, very marginal difference on that, effectively
a stand-still target. Our target for the current year is £282
million and we are slightly ahead of that. One reason why we did
not set a more stretching target for this year, and we otherwise
would have done so, is, as the Report brings out, because of the
very substantial rise in unemployment. We have made available
within our own Department up to 300 people at different periods
of this year to go across and support Jobcentre Plus in handling
that huge increased volume of claims. If it had not been for that,
we would have set a substantially greater target. In one sense,
if we achieve—and we look as if we will at the half-year
point—this year's target of £282 million with that
significantly reduced resource then in productivity terms it will
be a further substantial increase.
Q4 Chairman: If you look at paragraphs
2.11 and 2.12, `risk profiling of debts', you will see in 2.12
that we recommended HMRC develop scoring techniques to categorise
debtors by risk. We will touch on this a bit more in a moment,
but do you have the systems in place to perhaps discover where
the debts are, where the real risks are? Are you satisfied that
you cannot do more perhaps?
Sir Leigh Lewis: No, we are not
satisfied that we cannot do more. We have got a lot of information,
but have we got a really sophisticated risk profile which simply
will attach weights to very different kinds of groups and have
we got a mathematical model which really takes us down that road
and works out the relative rate of return from very different
groups; at the moment we are not at that level of sophistication,
though we are doing pretty well. We are certainly looking at that
again in the light of this Report with a view to making substantial
further progress.
Q5 Chairman: The writing off of debts
is obviously quite worrying for us. You mentioned in paragraph
3.33 on page 23 of this Report: "Total debt written off in
2007-08 was over £205 million". Tell us how you are
trying to minimise the writing off of debt?
Sir Leigh Lewis: First of all,
what is our policy on the write-off of debts? It is almost the
same policy which almost any commercial organisation employs and
we have looked across the piece at that. Our policy, putting it
simply, is to write off debts which we believe we have no prospect
of recovering cost-effectively. For example, we write off most
debts which are less than £65, unless they have arisen as
a result of fraud. It is different if they have arisen as a result
of fraud. We write off debts where they have arisen, sadly, after
the death of a customer if they are less than £25. We write
off some debts because of hardship; where we are persuaded that
seeking to recover them further would create undue hardship for
the individuals concerned. Then we have a final category where
we believe upon examination that we simply have no realistic prospect
of recovering that debt and there simply comes a point where that
is a value-for-money judgment.
Q6 Chairman: Shall we look at the
old debts now. If we look at page 15, figure eight, this is quite
a worrying little figure. You have got a very large amount of
debt which is at least ten years old. You are never going to recover
this, are you?
Sir Leigh Lewis: It is quite interesting
because we do recover substantial amounts of older debt. It is
absolutely not true to say that we do not recover debt which is
significantly older. For example, in 2008-09, of the total that
we recovered of £281 million, 31% of that, £88 million,
was more than ten years old. Although some of that debt is pretty
aged, we certainly do not give up on it and we recover substantial
amounts of it.
Q7 Chairman: If you look at the figure
next door to it, you will see large numbers of people with multiple
debts. There are 44,000 people with six to ten debts and 12,000
with 11 to 20 debts. Again, how are you going to try and target
people with multiple debts? If you only recover one debt at a
time, with these people you are recovering it at a snail's pace.
Sir Leigh Lewis: In a sense, we
are inevitably inhibited by that where people owe us multiple
debts because almost as a matter of fact you can only easily recover
one debt at a time. As I am sure the Committee will know, Chairman,
it is brought out in the Report, there are limits laid down by
Parliament—although they change annually—as to the
amount of debt we can recover, particularly from what is called
in this area `on-benefit debts', people who are still receiving
benefits. There are limits for very good reasons, but they are
relatively low limits and inevitably that does constrain the amount
of debt we can recover.
Q8 Chairman: To sum up what I have
been asking you, because you can recover at such a slow rate,
you are going to put a lot more emphasis on earlier recovery,
are you, to make sure the debt does not build up in the first
place, or not even recovery, just ensure you get the systems right
in the first place so you do not overpay them.
Sir Leigh Lewis: Exactly. The
first priority is to try and reduce the amount of error in the
system which generates that debt. We have discussed that many
times in this Committee, but we are doing better than we have
ever done in the past on that. Secondly, it is to try and recover
debt early because, as you say, the people you are trying to recover
it from typically are there and relatively easy to reach. Thirdly,
it is to try to employ slightly more sophisticated metrics of
our debt book, if you would put it in that way, for example concentrating
on those relatively few people who owe you the most.
Chairman: Thank you very much.
Q9 Nigel Griffiths: Can I draw your
attention to page 19 and the off-benefit debtors, those who have
come off benefit. What the Report shows is 76% of those debtors
have not made any payment in the 12 months to September 2008 and
15% do not appear to have made any payment at all in the past
three or four years to that period. Why is this?
Sir Leigh Lewis: Inevitably it
is easier to recover debt from those who are on benefit than it
is from those who are off-benefit, not least, self-evidently,
for those who are on benefit we know where they are and we are
in contact with them and because we are paying them money, subject
to those rules I have just described, it is relatively easy to
recover debt from them. Where somebody is off benefit, we may
not know at all where they are, so we have to use tracing techniques,
et cetera, to try and identify them.
Q10 Nigel Griffiths: This must be
common in the private sector given that so many people are on
credit.
Sir Leigh Lewis: Yes, it is.
Q11 Nigel Griffiths: Do you use their
techniques?
Sir Leigh Lewis: We do.
Q12 Nigel Griffiths: Do you use them
successfully?
Sir Leigh Lewis: We share their
techniques. We do a lot of looking at what the commercial sector
is doing and we use private sector debt agencies to seek to supplement
our own efforts to recover some of that debt. We do all of those
things. From what I have seen in preparing for this hearing, I
think it is fair to say that no customer-facing organisation,
public or private, which is in the nature of a business where
quite substantial debts are incurred by some of its customers
has a magic wand solution to this, debt recovery is quite hard.
Q13 Nigel Griffiths: What you must
be benchmarking your 24% against is what other organisations in
the private sector achieve. Is 24% a creditable figure or not?
Sir Leigh Lewis: It does not sound
a figure that you should express huge credit for because by definition
we would want it to be higher. About two-thirds of our entire
debt book did make some payment last year and I think that is
seriously creditable.
Q14 Nigel Griffiths: Let us stick
to off-benefit debtors. What I think the Committee wants to know
is what is the position out there in the non-benefit, non-government
owed debt area? Is 24% the sort of figure that others are achieving
or are they exceeding them? If they are exceeding them, what are
you doing to match that?
Sir Leigh Lewis: The honest answer,
and not for want of trying to find out, is we do not know. We
have done quite a bit to try and benchmark ourselves against others
in the private and public sector and it can be really quite hard
to identify what others are recovering as a proportion of debt.
Just to give you one example of where we really are trying to
do better here: we are working more closely with HMRC than we
have ever done because often the same people will owe HMRC debt
and owe us debt in the DWP. It is quite often the case that one
of those departments will have lost contact with that individual,
simply not know where they are, but the other has still got contact.
Within all the bounds of data protection and so on, we are now
working much more closely together to trace debtors on behalf
of one another than we have done before, which is one example.
Q15 Nigel Griffiths: Are you doing
that with the private sector as well?
Sir Leigh Lewis: I might turn
to Carol Sheridan in a moment and ask her to talk about that.
I think we do use debt reference agencies to try and identify
people with whom we have lost touch.
Mrs Sheridan: Yes, we do. We use
certain debt reference agencies to try and trace people and also
where we have not had any success, we do refer those cases to
our private sector suppliers to see if they can also have success
in tracing. They do have doorstep tracing agencies which we do
not use internally, so we have a double success in that way.
Q16 Nigel Griffiths: Share your thoughts
with me about whether you think it is possible to improve markedly
on that 24% figure or whether that is the nature of the people
who are in debt and manage to evade repaying it through moving
or bogus names or whatever.
Sir Leigh Lewis: I do not think
I want to take a stab at that, not because I do not want to try
and help the Committee but I think there would be a risk that
I would be almost conjuring a number from the air if I did so.
I do not think that figure is good enough, just to be clear, we
have got to believe we can do better.
Q17 Nigel Griffiths: The tougher
question is what do you want to achieve, but I was kind of giving
you a get-out clause.
Sir Leigh Lewis: What I want to
achieve is what we are achieving: I want to go on achieving an
ever greater amount of debt recovered for the taxpayer at an ever
more cost-effective ratio in terms of the resource we are putting
into it. We have markedly improved over the last four to five
years but, as colleagues, if you were sitting inside some of the
meetings on this subject I take within the Department, no-one
would think the Permanent Secretary is sitting there complacently
saying, "Well, that is good enough then".
Mr Codling: In terms of private
sector debt collection, we have something like 315,000 cases with
private sector agents with a value of about £220 million
as at August this year, but against that number of cases, in 2008-09
those private sector agents recovered about £5.25 million
and in the first four months of this year they recovered £3.6
million. That is relatively modest, even compared with the sort
of percentages you were referring to a few minutes ago.
Q18 Nigel Griffiths: I would like
to move on to paragraph 2.8, which deals with the 100,000 people
with four or more individual debts. It highlights one of the issues
as people who move into work and out of work sequentially, which
is bound to happen the more tolerant and encouraging we get of
people with the sorts of disabilities which allow them to focus
their time but then something catches up with them. What mechanisms
are in place to try and help them as well as recover?
Sir Leigh Lewis: This is one area
where absolutely we can do better and the Report brings out how
we can do better. Simply, as we have traditionally organised this
work—there were always good reasons for it at the time—we
had one group of our staff recovering debts from people on benefit,
another group of staff seeking to recover debts from people off-benefit
and one of the difficulties of that is precisely as you say, people
frequently move from one to another and, therefore, still now,
but not for very much longer I hope, the work then has to be moved
from one group of staff to another with all the attendant costs
and diseconomies which that brings. We have now got a very firm
intention that from the beginning of 2010-11, so from March of
next year, we are going to have what Carol's team calls a `combined
single work queue', which means simply that any member of our
debt recovery staff will have the detail, the information and
the technology to go on recovering that debt, even if Mr Smith
moves from benefit, off-benefit and back on again. That should
help us very substantially. To respond to your question, it is
one area where I continue to have an ambition to do a lot better
than we are doing at the moment.
Q19 Nigel Griffiths: What techniques
and mechanisms do you have to motivate your staff to tell you
what improvements they think should be made?
Sir Leigh Lewis: We have got very
good motivation and it is something we are doing, not just in
the area of debt but right across the Department as part of what
we rather unimaginatively call our `change programme'. That is
that over recent years we have used the technique used by a number
of major organisations called `LEAN'. Lean basically says that
rather than having people in the centre at senior level saying
how it should be done, Lean basically starts exactly from the
other end, it gives your staff the time and the techniques to
work out how it can be better. One quick example of that is through
Jobcentre Plus we have developed an electronic debt referral form,
which means we are referring three times as many cases with half
the staff.
The Committee suspended from 3.59 pm to 4.08
pm for a division in the House.
Chairman: We are now quorate. Mr Paul
Burstow?
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