UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 681-vi i

HOUSE OF COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE THE

JUSTICE COMMITTEE

ACCESS TO JUSTICE: GOVERNMENT’S PROPOSED REFORMS FOR LEGAL AID

WEDNESDAY 2 MARCH 2011

NICK HURD MP

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Justice Committee

on Wednesday 2 March 2011

Members present:

Sir Alan Beith (Chair)

Mr Robert Buckland

Chris Evans

Ben Gummer

Mr Elfyn Llwyd

Claire Perry

Elizabeth Truss

Karl Turner

Examination of Witness

Witness: Nick Hurd MP, Minister for Social Justice, Cabinet Office, gave evidence.

Chair: Mr Hurd, welcome. Members of the Committee may need to declare interests before we start. I shall start with Mr Buckland.

Mr Buckland: For nearly 20 years I was a barrister practising legal aid, chiefly criminal legal aid. I still have a practising certificate, but I have not taken on any new cases since the election. I sit as a recorder at the Crown court.

Mr Llwyd: I was a solicitor for 16 years. I have been a member of the Bar for 13. I have practised in publicly funded work, both in crime and family, but not currently.

Karl Turner: I am a member of my local chambers in Hull. I have not been paid public money, but I have practised in the past three months.

Q424 Chair: The reason why we have asked you to come along, Minister-we are grateful to you for doing so-arises from our work on changes to legal aid. We have had a number of evidence sessions. We will shortly publish a report, which we are just about to prepare. It became clear to us in the course of our work that assumptions are being made about the capacity of the voluntary sector to deal with some of the things that have been dealt with hitherto by legal aid, often through support to those same voluntary bodies like citizens advice bureaux and neighbourhood law centres.

Do you recognise that you already have a task in looking at the ability of the voluntary sector to pick up the slack, which the Government think that it can pick up?

Mr Hurd: In the specific context of advice to our constituents, yes we do. That is why the Cabinet Office has got involved at this juncture. As MPs, we all know the value of our local citizens advice bureaux. We also know that demand on them is increasing. We also know that their funding streams are often complicated and diverse. In certain points of the system of the network, there is extreme vulnerability at the moment, often depending on the attitude of the relevant local authority.

As members of the Committee will know, for a lot of citizens advice bureaux the really important funding in the short term is the funding from the local authority, which is the core funding they expect to leverage in different ways. Yes, there clearly is a problem, not least with the potential triple whammy of local authority cuts, reform of legal aid and, until recently, uncertainty about the short-term future of the financial inclusion funding, which is why the Cabinet Office was recently invited to do three things, which I shall explain briefly to clarify our role.

We have been asked to pull together some hard information about what is happening on the ground, because it is not mapped in a very robust way. Secondly, we have been asked to pull together stakeholders-to use the jargon-to consider two things: first, what can be done in the short term to mitigate the damage where there is greatest risk and, secondly, what can be done to build a more sustainable future for this incredibly important network? That will include recommendations on what the Government can do, and also recommendations to the sector itself in terms of adjustments. That process is recent and is under way.

There was a meeting last week of about 60 key stakeholders. Recommendations have come out of that meeting. They are being framed very urgently to a group of Ministers, which is being convened on 9 March to consider the matter. There is an urgency in the system to review this.

I am sorry to go on at length, but my final point is that we did to some degree anticipate this, because the Cabinet Office fought very hard in the comprehensive spending review to get £100 million of taxpayers’ money set aside. The transition fund made that explicitly open to providers of advice. I am advised that some 93 citizens advice bureaux applied to that fund. That is generally the context in which the Cabinet Office is operating.

Q425 Chair: Thank you. We are going to look at each of the specific measures like the transition fund, the big society bank and continuing with the financial inclusion fund, in the course of our questioning, but let us stay for the moment with the general issue. You recognise in your reply that the organisations feel a cumulative impact from a whole series of measures. The financial inclusion fund was one of them, but others, as you say, include levels of local authority funding. When the CAB gave evidence to us, they gave careful evidence in which they avoided assertions that all local authority funding was about to be withdrawn, but, unavoidably, they had an unclear picture, because it varies in different areas. You have to recognise that part of the context is that they relied on local authority funding simply to maintain the infrastructure, to which they added work funded, for example, by the Legal Services Commission, if they had specific legal aid contracts. The Cabinet Office recognises that even where local authorities have maintained a good level of funding and have only limited cuts, there is a cumulative impact that is proving difficult for them.

Mr Hurd: Yes. A number of Departments are involved in this process. That is why it was considered sensible that the Cabinet Office should step up in its co-ordinating function to knock some heads together. On local authorities, I acknowledge the picture that you framed, about the importance of that core funding from the local authority and the opportunity to leverage that. I have written to every MP, inviting them to bring in their voluntary and community sector. Many have done so, and there is almost always someone from the CAB on that visit. This message has come through loud and clear: they are most concerned about the core funding from the local authority and the threat to it. Not everywhere, because, as you have acknowledged, it is an uneven picture across the country, but in the short term, that is what the concern seems to be, and we can discuss the Government’s response to that, if it is appropriate.

Q426 Mr Llwyd: I would like to ask you generally about the ability of the not-for-profit sector to provide assistance in the absence of legal aid funding, due to the impending cuts. I will give you some context. Age UK said: "Our concern is that while it is true that both Age UK nationally and our partners in local Age UKs and Age Concerns do provide some help and advice with welfare benefits it is most often not at a level comparative to that provided through legal aid." Furthermore, the Free Representation Unit said, "we should point out that the consultation document gives a misleading impression of FRU…It points out correctly that FRU represents clients in tribunals. It then illogically uses FRU’s representation work in tribunals as part of the justification for withdrawing Legal Help for initial advice work in welfare benefits cases."

Given these rather obvious and deep funding difficulties, which will be and are being faced by not-for-profit organisations, how realistic do you think it is to expect them to plug any gaps left by the cuts?

Mr Hurd: Is that a question about the short term or long term?

Q427 Mr Llwyd: You can address both. Whichever you prefer, although both if you can.

Mr Hurd: In the short term, we are focused on two things. I am speaking purely through the prism of the Cabinet Office. The first is the working of the transition fund, which was deliberately set up to provide relief and a lifeline for organisations that were particularly vulnerable. We wanted to set it up in a way that was quick and as unbureaucratic as possible, because we recognised the need to get money out there as quickly as possible. You will know that although £100 million is an extremely significant commitment, it was always likely to be less than demand. If we had had more money, we would have offered it, but there just isn’t the money around. We had to set some quite strict eligibility criteria for that, but we left it explicitly open for providers of advice. As I said, something like 93 have applied, and one on the Isle of Wight has already been told that it has been successful.

The second short-term response is about local authorities. As we have already discussed, they are the problem in the short term. This is politically difficult because in the age of localism the ability of central Government to direct and control what local authorities do is rightly limited. Several months ago the Prime Minister sent an extremely clear steer to local authorities: "Look to make your own efficiencies and savings in-house before taking what might seem like an easy option to cut outside."

In response to that, as most Members will know, the picture is extremely mixed across the country. County councils such as Wiltshire, as Claire knows, have kept their investment in the voluntary sector; Reading has increased it, and my local authority is continuing to take efficiencies out of the back office, having received the worst financial settlement in 10 years. However, it is not an even picture across the country. There are other places where this process is not being handled in the way that we would like. We are monitoring the situation carefully, because hard information is important. There has not been good enough mapping on this, and we are determined to get a better picture of what is actually going on.

We have also moved quite recently. The Committee may not be aware that yesterday the Secretary of State for Communities and Local Government made it clear that we are prepared to set what he calls tests of reasonableness for the behaviour of local authorities-in the proportionality of cuts, the notice given for cuts and the time given to people on the wrong end of decisions to adjust what they are doing. He stated those tests of reasonableness, and also said that he is prepared to consider putting them on a statutory basis. That is quite a significant move in response to our very genuine concern about what is happening out there as a result of decisions by local authorities. They are faced with tough choices, but this is the context in the short term. I am sorry, but this has been a very long answer.

In the long term, the other problem is what happens after 2012 in terms of the funding coming from Departments, which we at the Cabinet Office are actively reviewing in terms of the effort to bring people together and to look at what recommendations we can make to Departments, but also recommendations that we can make to the sector itself in terms of positive changes that it can make; for example, to create more sustainable and diverse funding streams. That was a long answer.

Q428 Mr Llwyd: I for one never criticise Ministers who give full answers. I appreciate it.

On the question of CABs, you will appreciate that there is a great deal of concern in that sector about the immediate future. Would I be right in thinking-you will tell me if I am wrong-that the transitional fund will apply to them, for them to be able to continue giving advice? In other words, could they apply for funding if they fell short? As you well appreciate, much of the money that they receive comes from local government, who themselves are having to cut their cloth. Could you help me on that?

Mr Hurd: I shall set out a little bit of detail on the transition fund. It is £100 million. As I said, our whole instinct was to set something up quickly that could get money out quickly and in as unbureaucratic a way as possible, as far as the Government can. We are grateful to the Big Lottery Fund for stepping in very quickly to set it up. The idea was to try to make £10 million available in the current financial year and £90 million in the next, and run it as one process. It was announced in October, applications closed on 21 January, and we have already started the process of announcing 18 successful applicants, including a law centre on the Isle of Wight.

We deliberately made it open to providers of advice, because we anticipated a problem. As I said, 93 advice providers of different sorts have applied. I have no means of knowing how many will be successful in that process-BIG are running this at arm’s length-but it is there, and that is what it is set up to do.

I think you will appreciate the reasons why, given the potential, we had to set some quite clear eligibility criteria. There are three metrics that are important to register. The first was a threshold of turnover income, which was £50,000 a year. We took advice on that, which was that if this exercise was trying to direct resources to those who are most vulnerable it was above that income threshold that vulnerability was likely to be most concentrated. We set the threshold of vulnerability measured in terms of proportion of income from the state at around 60%. The other vulnerability metric was in terms of an anticipated cut of around 30%. This was an exercise really focused on those organisations who are most vulnerable and want to continue delivering a public service.

The last critical criteria is that it is not funding for business as usual; it is funding for change, funding for transition, and funding to organisations who have the beginning of a plan to get out of the situation they were in, not least in terms of trying to develop sustainable and diverse income streams. That caused some frustration in the system, but we had to set some eligibility criteria that were robust. We had to send a signal that this was about trying to help organisations build a more sustainable future.

Chair: Because we have come to the transition fund as a result of that question, I want to slightly change the order in which we are going to do things and deal with the transition fund now, so I will bring in Mr Buckland.

Q429 Mr Buckland: I am really drilling down as to time scales, Minister. As a Committee we are focusing on the legal aid Green Paper. First, I would like to know how much input you had in the preparatory stages of that paper.

Mr Hurd: Not a great deal, although I wouldn’t expect to, Robert. I was made aware quite quickly in the Cabinet Office of the risk that it would result in lower levels of funding legal aid, and therefore the potential consequences of that for the voluntary network that we are discussing. It was in that context, not least, that we did the preparatory work for setting up the transition fund, so that is the degree to which I was advised.

Q430 Mr Buckland: Secondly, the process that the Green Paper has initiated is going to be quite lengthy. We do not expect legislation to be published until later in the year, and therefore not passed by both Houses of Parliament until perhaps next year. Law centres, such as the Wiltshire law centre in my constituency, have had substantial funding from the Legal Services Commission for years up to this financial year. Assuming that the Green Paper isn’t altered much and becomes the basis of legislation that is passed, we then come to 2012-13. It is really that period that concerns a lot of practitioners and service providers. Are you able to sketch out for us your view of what the situation would be then, with regard to potential sources of funding for these sorts of organisation?

Mr Hurd: Not in a huge amount of detail. Obviously the transition fund is not relevant at that stage; it is a very short-term measure to help people who have been placed in a hole, need some help, and have a plan to get out of it themselves. That is there, it is important, and it is a big commitment, but it doesn’t answer your question.

The work that we are now doing very urgently at the Cabinet Office is pulling people together, including Government Departments-cross-departmental work-and other stakeholders, including foundations and trusts who have a big interest in this area, such as Barings who are sitting in on this session. We are asking this kind of question. Given the risk in that funding period, what recommendations do we make, in terms of what they can do to help, to Government Departments, principally MOJ and BIS who are the big funding streams in this? Also, critically, what recommendations can we make to the sector-if I can call it that-in terms of how they help themselves?

I do not underestimate the difficulty of that. I have listened to enough people in CABs saying, "Look, the problem is we’re not donkey sanctuaries; it’s very hard for us to raise money from the public. Don’t rely on that as a funding stream." This will place a great deal of pressure on the system to be more entrepreneurial-if I can use that expression-in looking at ways to diversify. The Isle of Wight law centre, which has already received a grant from the transition fund, is trying to develop what it calls an independent personalisation brokerage, and on that basis it has been given a grant to try and develop that. It is a huge challenge and this is extremely difficult, but I think it is entirely right that we were asked to intervene at this stage to try and bring some strategic coherence. Joining up Government is extremely hard, but that is the role of the Cabinet Office.

Q431 Mr Buckland: One of the problems we have progressively identified is that very often law centres and legal aid providers are clearing up the mess left by other Departments and their decisions. For example, DWP in 08-09 spent £27.4 million on legal help relating to tribunal welfare cases. A large part of that is the result of errors made by another Department.

Chair: We are going to come back to that issue later.

Mr Hurd: I suspected you might.

Q432 Chair: If I could just reserve that, because I wanted-to use Mr Buckland’s expression-to drill down a little into the issue of the transition fund. I was very interested, and you reflected it in what you said, to hear that applicants have been told that in some circumstances they may be able to spend on current services but that is very restricted. I am quoting here from what I assume is a Cabinet Office statement: "the changes your organisation needs to make to meet the programme outcomes"-which is what they are supposed to be spending on. "In some cases it may be appropriate for you to spend a small amount of your grant on continuing to deliver services but you will need to explain why this will help you achieve the programme outcome." In other words, if the organisation continues to use the money to fund the provision of legal advice to people, that can only happen on the basis that it is transitioning to a scheme in which that is funded from some other source. Can you give us an example?

Mr Hurd: The programme outcome, to place this on record, is that "civil society organisations, which deliver high-quality public services"-I am sorry to read this out-"are more resilient, agile and able to take opportunities presented by a changing funding environment." I come back to the fact that we had to set strict eligibility criteria for this. If we had simply said, "This is a big pile of taxpayers’ money available to keep organisations going on just doing what they were doing before, because they have got themselves into a situation where they are so dependent on the state and taxpayers’ money," there would have been a bit of an uproar from across the rest of the sector. Many organisations would have come to us and said, "Well, we actually diversified our income streams, and we did not let ourselves become so dependent on the state. Why are they being rewarded rather than us?" The message we wanted to send, therefore, is that this is not just to fund business as usual; it is a lifeline to help you get out of the hole, as long as you have a plan yourself, or you are committed to a plan.

I do not underestimate the difficulty of trying to develop more diverse income streams or more entrepreneurial models that suggest that you may have a more sustainable future, or put yourself in a more robust position in order to benefit from the future opportunities in terms of delivering public services that we are absolutely committed to opening out. I am afraid we had to send a clear message, and that caused some frustration. I do not underestimate that, but I am afraid with the limited resources we had and given the scale of the anxiety that is out there we had to be very clear about what we were trying to achieve.

Q433 Chair: What is the time scale for the remaining £90 million?

Mr Hurd: There has been some frustration about this, but in the context of wanting to get something set up quickly that was unbureaucratic and could give people some certainty as quickly as possible, we decided to run one process and leave it open for organisations that perhaps did not have hard confirmation that their grant or contract was going to be cut but had very good grounds for believing that. We ran one process. It closed on 21 January. That has caused some frustration because some organisations were perhaps slow to pick up on the opportunity. Again, we felt that we needed to run a very clear-

Chair: What is the time scale?

Mr Hurd: The fund is closed.

Q434 Chair: The second £90 million?

Mr Hurd: Yes. There was one process. Applications closed on 21 January, and they are now being sifted by BIG, our independent partner in this. It has already announced 18 applications that have been processed and approved quickly-about £1.7 million. There will be another round of approvals in March and successively through to June. That is it.

Q435 Chair: So anybody who has not applied by now has missed the boat?

Mr Hurd: Yes, they have. We are scrabbling round trying to find some opportunities to top it up, but most members of the Committee will recognise that there is not a magic money tree; there isn’t a great deal of money around. We recognise that there is a lot of demand for the money, and are doing what we can to pull together resources to try to top it up.

Q436 Claire Perry: Can I touch on the issue of innovation that you mentioned, Minister? That seems to have been a fundamental criterion in the way that many of these organisations receive grants. Many of us felt, from the submissions we took, that it was difficult for charities to look at what other organisations were doing, because they are so busy fighting fires and giving out good advice. What are you doing to help organisations see the effective law centre in the Isle of Wight, or the CAB that is tendering for contracts, so that they can make themselves a little more resilient?

Mr Hurd: That is a hugely important point, because there is a quite understandable tendency, particularly when you are grappling with the issues that those bodies are grappling with, to sit in your circle. One explicit thing that we are looking at as a result of the meeting last week, which I mentioned, is the scope to work with partners, to do exactly what you are saying, Claire, which is to help throw a spotlight on innovative practice across the network and make better connections between organisations, so that they can learn from each other effectively. That is potentially an extremely valuable initiative for which we can be a catalyst. That was certainly one of the things discussed at the meeting. I imagine that will be tabled to Ministers at the meeting on 9 March. That seems a very sensible approach to take.

Q437 Ben Gummer: On the issue of scrabbling around for pots of cash, an interesting idea in the Green Paper-

Mr Hurd: Which Green Paper? Ours or theirs?

Q438 Ben Gummer: The one that we are discussing here. The idea is to use the interest on client accounts up to the £25 limit, and to skim that off and put it towards law centres or other legal aid areas. Have you been able to find out how much money can be generated through such a scheme, and whether that would make an appreciable contribution?

Mr Hurd: I haven’t personally, and I can’t give you a direct response to that. I would expect that to be picked up in the urgent review that we are doing, looking at all the options available.

Q439 Ben Gummer: That could be a fruitful source of funding.

Mr Hurd: That is a useful contribution, and I am sure it will go into the mix.

Chair: Somewhere else for you to scrabble.

Q440 Chris Evans: Would you set out your vision for the big society bank? Can you think of any examples of how it could help people access legal aid more efficiently and effectively?

Mr Hurd: Given that the Committee has an interest in the bank, one of the things I can certainly do is immediately send the Committee a copy of a document we published two weeks ago on our social investment strategy. It sets out our plans to do what we can to grow this market called social investment and set the big society bank firmly in that context.

Chair: I think we have it.

Mr Hurd: Do you? In which case, that is done. Perhaps I can say a few words on the strategic mission of the bank. I will keep it quite brief, if you have had the document. Members can come back to me, and then, Chris, you could perhaps just direct your specific interest.

The bank will exist, when it is capitalised, to grow the social investment market. What is that market? It is the pool of capital that is prepared to consider a blend of financial return and social impact. Without wanting to sound too naive and idealistic about it, the ultimate goal is to make a much better connection between the social sector and the trillions of pounds of assets sitting in mainstream financial institutions being managed on our behalf as savers. There is really no connection between those two worlds at the moment. Social investment is the bridge. This will not happen overnight; it is not a short-term panacea for the challenges we have just talked about.

Over time, there is an opportunity to shape what we think will be a third pillar of funding for the sector, which will be social investment making it much easier for social entrepreneurs to access capital-not revenue, but capital. There is clearly a need. The bank will operate in that space, as a wholesaler, working though intermediaries, and we can explore why. Its mission will be to invest on the basis that it would expect some sort of return, and therefore encourage others to invest. It will be set up, we believe, with £200 million of capital from the largest UK banks plus-our working estimate at the moment-£400 million from dormant bank accounts. It is a significant opportunity, but it is a long-term strategic intervention.

How might it help the sector we are concerned about to date? It depends on two things. First is the ability of the sector to develop financeable proposals, or opportunities for money to be invested on the basis that there could be some form of return however long it takes. Secondly, it depends on the appetite or willingness of the specialist intermediaries in this space to develop products. It is too early to say how that will pan out, but we know, because I have inquired, that specialist intermediaries, such as Charity Bank, are lending money on a small scale to the sector at the moment.

There is potentially an opportunity, and if we can play a role, as a Government, to facilitate connections between intermediaries and the sector to explore whether there is an opportunity to structure funds, bonds or mechanisms that might allow this, we are happy to be proactive in that role. The bank will be independent. There are some core principles: it has to be independent of Government and it has to be a wholesaler. We cannot steer it. It will invest based on the quality of what comes out of the market. I hope that has given a reasonably clear idea of why it exists and how it might apply.

Q441 Chris Evans: I accept what you have said, and I think that the dormant bank accounts idea, especially, is good. My major concern is when you say that it has to be self-sufficient and earn a financial return. How would a law centre, for example, earn a return? They would probably look to something such as the big society bank for money. How would you envisage them getting a return?

Mr Hurd: It depends on whether they can offer something that can be financed in terms of physical assets or contracts that generate revenue from which working capital can be financed. The context is a new world in which the public service markets will be thrown open to a wider range of providers, so there will be more opportunities in this area. It depends on the ability to present something that can be financed and contains within it the prospect of some return.

In terms of how demanding the capital will be, that will be effectively negotiated with the banks. I am delighted that Sir Ronald Cohen, who is enormously experienced in this field, is advising us in terms of locking in the social mission of the organisation. That is hugely important. I am clear, and the document is very clear, that if the bank is to help grow the market, it must be in a position to take differentiated risk and to offer genuine long-term patient capital. It must not be in a situation where it is simply competing with what the private sector can already deliver. That adds no value to the system at all, so we are very clear on that, and that is the attitude that we will be taking into discussions with the bank around its social mission, the investment, and critically, the bank’s risk strategy.

Q442 Chris Evans: I’m glad it’s not a short-term thing, because it is important that this type of project is seen in the long term. In terms of timing, when do you think front-line providers will see some benefit from the bank, if you can give a time?

Mr Hurd: Okay. You have allowed me to talk about the intricacies of setting up a social investment bank, which people have been talking about for 10 years but it hasn’t materialised, because it is a fantastically complicated thing to do. Now that you have opened the door, I can answer that-and it depends on a lot of variables that we don’t control.

This is what we are expecting to happen. We have a commitment from the largest banks to put up £200 million of capital, and we are actively now working on how we approach the negotiations with them around governance structures, social mission and all the things that you would expect. In parallel, we have to process the dormant bank accounts, which have to go through quite a complicated fund. Our objective is to take £200 million of private sector capital and inject the dormant bank accounts in a secondary stage, once they’ve cleared the various hoops. The hoops are as follows: they are required by legislation to pass through an institution called a reclaim fund, and the Co-op has stood up to perform that function. This mechanism is necessary to protect the interests of the people whose money it is,-the people who have allowed that money to sit in bank accounts for more than 15 years. As I’m sure you’re aware, we have to be very careful with this money. The Co-op is the steward of that, and I am sure that it will take an extremely conservative view about how much money needs to be held back to meet potential claims. So, that’s variable number one.

We think the total scale of the opportunity-and we have been informed about this by the British Bankers Association-will be around £400 million. We expect, by the end of quarter 2 of this year, that the reclaim fund will have released somewhere between £60 million and £100 million of dormant bank accounts to the Big Lottery Fund, which again, is the funnel required by the dormant bank accounts Act. What we are going to do is set up an interim shadow bank or investment committee. As soon as the money is available, they will be free to start making investment decisions and to start deploying investments, very much anticipating the kind of work that the big society bank will be doing. By then, this may be acting in parallel with the private bank, if it has been set up.

Why is this necessary? It is because there is a final complication, which is that dormant bank accounts have to go through a state-aid approval process. That is the advice we have received. It is extremely frustrating, but it appears to be robust, so we have to go through a Brussels process of clearing this, and it is not clear how long it will take. However, we want that £60 million to £100 million to be deployed immediately- acting within state-aid exemptions, which are not too onerous-and we will run a process of clearing it. At the end of the process, we hope that we will be able to inject into the private bank whatever has not been invested of the £60 million to £100 million, plus the rest of the dormant bank accounts. It is set out in the document.

Chair: I think that is as much as we need to know for our purposes.

Q443 Chris Evans: I’ll end with a specific question, while we are talking about legal aid. Will the big society bank lead to investment in the types of services that might be able to supplement or replace those that are historically funded by legal aid?

Mr Hurd: I come back to my first point, which is that the bank will be independent. It will respond to the market. It has been asked to respect an overarching high-level priority of opportunities for youth, because that was the clear priority set by the previous Administration. However, it will be independent to make its own investment decisions based on the quality of the investment proposals that are put to it. So, there is clearly a possibility, but it depends on the quality of the investment proposal put to it. There won’t be an explicit steer from the Government on that.

Q444 Chair: I can see how it might work for a charity that had revenue-earning activity or investment-for example, a charity looking after a historic building that is a tourist attraction and has a revenue stream, which needed to borrow some money, although it could of course do that in other ways-but I cannot quite see how it would work in the area we are concerned about. By definition, the people who come in for legal advice are not people who will provide you with a revenue stream, because they are the people that cannot afford to buy legal advice.

Mr Hurd: I expect it to be difficult, and this will be a test of the entrepreneurial innovation we talked about before. In my view and to put it simplistically, two things can be financed-though there are probably variations-and they are contracts and assets.

Although patchy across the network, there are physical assets which, in theory, could be financed if the trustees and leaders of these organisations felt comfortable with it. As I said, there are at the moment examples of debt finance in the system, around property development. As part of the big society agenda, we also want to encourage, through things like the right to buy, much more community activity in taking over assets and property, and setting up ventures. I very much hope that the big society bank would be in a position to deliver some capital towards that stream of activity.

However, how this will all play out, I am afraid, will depend on the market and the ability of intermediaries and organisations to structure high-quality investment proposals that people are prepared to back.

Chair: One possibility that occurs to me, and it relates slightly to something we will discuss later, would be if an organisation or public body with a need for advice itself contracted a voluntary body to ensure that that advice was available. There is a revenue stream in that form. In which case, however, you might not need the intermediary of the bank to have money up front in order to do that. But we will return later to the issue of people who cause appeals and processes to be necessary.

I want to turn to the financial inclusion fund. Mr Turner.

Q445 Karl Turner: Minister, all Members, on both sides of the House, would welcome the Government decision to extend the financial inclusion fund for a further year, but the Committee wonders why the Government decided to do so for a further year but not for future years.

Mr Hurd: That is a question for BIS, because that is its funding stream. All I would say, coming back to the process I described and Robert Buckland’s earlier question, is that clearly one of the big challenges for the sector is what happens towards the end, with the money. What happens further down the track? That is part of the conversation we are now facilitating, as I understand it. Although BIS has made no explicit commitments, there is a process of review.

Q446 Karl Turner: Is it accepted, therefore, Minister, that there is clearly a need for such funding?

Mr Hurd: Again, it is not my specialised area. Instinctively, I would say yes, based on my constituency experience, but for a more detailed answer to this question you would have to haul a BIS Minister in front of you.

Q447 Chair: You must have had some access to the reasoning behind this decision.

Mr Hurd: To be honest, Chair, and again coming back to my description of the process going on in Government at the moment, the Cabinet Office has been brought in really quite recently to pull this together. This is all very recent. These are conversations that are ongoing between officials and will be ongoing between Ministers in this meeting that I am talking about, but this is all quite recent. The issue is clearly under review within BIS, which has made that commitment for one more year-what happens after that is uncertain. But there needs to be clarity about it.

Q448 Karl Turner: The decision was made on 12 February. What were the discussions on this in your Department?

Mr Hurd: The decision was for the people at BIS-they made it, they communicated it to us and, frankly, it was welcome. I hope that the Committee welcomes it. What happens next, in terms of beyond that period, is now up for review, and that is part of the process that we are now actively trying to facilitate through the co-ordinating role that the Cabinet Office plays.

Q449 Karl Turner: I think there is a suggestion from the Government that the Consumer Financial Education Body will take over and provide national, free debt advice. Is that your understanding?

Mr Hurd: Again, that is off my turf, and I am sorry if that is frustrating for you. The review process is urgent. It’s under way. That is all in the mix of the discussion.

Q450 Karl Turner: There is no plan, as far as you are concerned.

Mr Hurd: I wouldn’t necessarily be aware of it, in terms of my day-to-day responsibilities at the moment, or in a position to give the Committee an absolutely definitive picture. Our job at the moment is to pool people together and have a discussion about the short term and the long term, and that is obviously part of it. The process started with a meeting last week.

Q451Chair: I find it a bit puzzling that your Department is the one which has to pick up the pieces and has a particular responsibility for the voluntary sector, and even when good news comes along it seems almost to come as a surprise to the Cabinet Office. You are not part of the process of discussion-you are starting to look at it now.

Mr Hurd: That is not entirely fair, in the sense that there was an anticipation of a problem. We have gone through the transition fund in detail. We were brought into the loop as far as that was concerned. We were extremely aware, not least because of the conversations that I had with individual CABs, that part of the uncertainty was around the financial inclusion piece. Of course, we were informed when BIS announced that. We were part of the process of making that decision, taken at a higher pay grade than mine, and we are now holding the ring in the long-term review of what happens next. Obviously, what BIS does is part of that process. But can I tell you what the conclusions of that review are today? No.

Q452 Elizabeth Truss: Throughout the evidence process on looking into legal aid, we have heard a lot about how costs are being borne in legal aid that are really generated by other Departments, for example the DWP. One of the suggested ideas is the "polluter pays" principle, such that the DWP would have an incentive to make sure that its processes work effectively and that it doesn’t make mistakes, so that those costs do not have to be picked up in the legal aid process. What’s your view of that?

Mr Hurd: I don’t have a strong one, to be honest, because-again, this will be frustrating to the Committee-that is not my policy responsibility. The MOJ will lead on that issue, and the Minister has been before you discussing it in some detail. What I do know is that it is all wrapped up in the consultation process on the Green Paper, and it is clearly a very important part of that process. The MOJ is the ultimate arbiter on that.

Q453 Elizabeth Truss: The impression we got when we had an interview with Jonathan Djanogly, the relevant Minister, was that the Ministry of Justice sometimes collects costs from other Departments, but they do so in retrospect. Surely, it would be a role for the Cabinet Office to set up intergovernmental charging on those matters, because that is not something that the MOJ could necessarily obtain alone. The impression that I got when we gathered evidence before was that the Ministry of Justice did not feel able to do it. Is that a role that the Cabinet Office should take on, in your view?

Mr Hurd: I am not entirely persuaded by it. What one might call the "polluter pays" principle was one of the issues discussed, as you would expect, at the meeting last week, and I am sure that it will be discussed at ministerial level, but it is too early for me to say what the position of Ministers will be on that. My personal view is always that I am a strong supporter of the "polluter pays" principle in relation to environmental taxes. My philosophy in life is that if you are part of the problem, you should seek to be part of the solution. I was very struck by, and found myself very supportive of, what Jonathan was saying in evidence to you, and how it might be better if the whole thrust of the system was to try and make sure that problems were resolved before you got to the end of the process. It is clearly multiple inefficiencies in the system that bring the system to bear on the front end rather than the back end. I come back to my starting point. This is not something on which I have had to take a strong view in my day-to-day life as a Minister to date.

Q454 Elizabeth Truss: It would, though, potentially be the role of the Cabinet Office to impose a system. In drawing up the overall budget, has that been taken into account in DWP, including, for example, the impact on legal aid when it is coming up with its programmes? The Committee feels that the legal aid budget is being looked at in isolation, and the cost drivers generating the legal aid budget have not necessarily been considered across Departments.

Has the Cabinet Office looked at the civil service structures in the Department, in particular in the MOJ, because another of the cost drivers for legal aid appears to be the long processes that the MOJ is involved in on various elements such as the CPS and the Legal Services Commission? The Cabinet Office is responsible for a review of public bodies. Is that something that has been looked at in terms of how those savings could be made, and how that compares with other Departments and internal efficiencies? I am concerned about the tail wagging the dog.

Mr Hurd: I can give you some reassurance that the cost-cutting exercise that we are conducting urgently is one in which the DWP is actively involved. The whole issue of looking in the round is something that the Cabinet Office is well set up to do and to facilitate, and that is very much part of the process. In relation to the specific issue on the "polluter pays" principle, I come back to my main point. The MOJ will respond to that in the consultation, because it is clearly going to be responded to. The Minister made that quite clear. It will form part of the discussions that have just started at inter-ministerial level, in which the DWP is actively involved. Can I give the Committee a forward look at what the conclusions of the discussion will be? I’m afraid I can’t.

Q455 Elizabeth Truss: Can I press you on the internal question within the MOJ? Has the Cabinet Office looked at the performance of the Department, in particular the performance of the various quangos within the Department, in comparison to other Departments to see whether that is a cost driver?

Mr Hurd: As you know, there has been a thorough review of quangos across the architecture of Government, and the Cabinet Office has played a leading role in that. The other things that we can look at are the whole procurement contract management and recording systems for the legal aid system, the opportunity for those to be managed in a more efficient way and the opportunity that that might provide to free up more resources.

We are responsible for central procurement, and we have taken some pride in the efficiency that we have already brought to bear in that process. My boss, the Minister for the Cabinet Office, has put it on the record that he thinks that we have already saved something like £3 billion just through smarter procurement, which is an astonishingly large amount of money in a very short period of time. We would want to be assured that the ongoing process of contract management and procurement was as efficient as it could possibly be.

Q456 Claire Perry: On the related issue of innovation and social investment, a lot of that requires identifying and collecting benefits that are accruing across Government Departments. Obviously, we have a social impact bond that is entirely within the MOJ budget at the moment, but as we start to get more creative, what work is the Cabinet Office doing-I refer to Miss Truss’s point-to try to work across the silos, either in terms of the cost or benefits that different financing structures could deliver?

Mr Hurd: This is a fascinating area in which there is clearly huge potential, but the architecture of Government works against it, particularly in the policies of prevention and the opportunity to break down silos and get public agencies to work together. The problem is often defining who benefits and persuading them to pay for it. For example, if an intervention strategy keeps people out of hospital, who should pay the hospital when the system is very badly set up to deliver that?

On the social finance market, you mentioned social impact bonds and they offer a fascinating opportunity to try to make that work. They carry with them the opportunity to bring in private capital to share some of the risk and some of the savings that arise from it. They are quite easy to talk about but they are incredibly difficult to do, which is why there is still only one in the market. We are actively working and trying to encourage other Departments to think about opportunities to structure social impact bonds that allow the system to be smarter-to take risks to try to facilitate more preventive work that might allow much greater savings down the track.

This is ongoing work, but I would not want to give the impression that there would suddenly be an explosion. They are really complicated to structure, but there is a great deal of interest out there in the financial world to get involved with this. The challenge is more governmental in terms of trying to get people to work together on this in a way that everyone is comfortable with.

Q457 Mr Llwyd: Can I take you back to the important question which Ms Truss put to you about a cost sanction, the "polluter pays" and so on? It was put to you quite properly as one of the drivers of expenditure within the legal aid budget. Could I ask you to look at it from the other end? If there were a potential cost sanction, would that not encourage good governance and thereby provide better service for our constituents?

Mr Hurd: I understood this was the thrust of the questioning at the previous sitting. I am uncomfortable going into terrain which is properly the responsibility of the Minister you spoke to. I would not expect him to express too many opinions on charity policy and I am therefore very reluctant to express too many opinions on areas for which he is responsible.

Q458 Chair: If we sound a little frustrated it is probably because the Green Paper itself rests on a number of assumptions about what can happen across government and in other parts of the public sector. Progress in solving some of the problems it identifies can only be made if there is a lot of work between different Departments. If the Cabinet Office cannot exercise some supervision and some forward movement on that, who else can?

Mr Hurd: I am not saying that the Cabinet Office is not doing that; I think I have given a reasonably accurate picture of what we are trying to facilitate now which is three things: more accurate mapping of what happening on the ground; a cross-departmental discussion, but also involving other stakeholders, about the longer term and the short term in terms of mitigation strategy; and the opportunity to improve the resilience and sustainability of the voluntary advice sector. That is cross-departmental.

What we are facilitating is very recent. The first major meeting, very successful as it was, was last week and so I am not in a position to give you the detail that you quite understandably seek at this stage in your inquiry, not least because the recommendations of this meeting have to go to a ministerial meeting and then be processed in a way that you are extremely familiar with. I am sorry if that is deeply frustrating for the Committee but it is just where we are.

Chair: I am sure you have given us an accurate picture and we are very grateful for that and for your evidence today. It does however show that there is lot more colouring in to be done in this area.

Mr Hurd: There is and it is urgent, which is why we are applying ourselves very urgently to it.

Chair: Thank you very much indeed.