Evidence heard in Public

Questions 1 - 208



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Oral Evidence

Taken before the Public Accounts Committee

on Monday 5 March 2012

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Chris Heaton-Harris

Meg Hillier

Mr Stewart Jackson

Fiona Mactaggart

Austin Mitchell

Ian Swales

Amyas Morse, Comptroller and Auditor General, NAO, Phil Gibby, Director, NAO, and Marius Gallaher, Alternate Treasury Officer of Accounts, gave evidence. Gabrielle Cohen, Assistant Auditor General, NAO, was in attendance.


Child Maintenance and Enforcement Commission: Cost Reduction (HC 1793)

Examination of Witness

Witness: Janet Allbeson, Senior Policy Adviser, Gingerbread, gave evidence.

Q1 Chair: Welcome. Thank you for coming this afternoon. Normally we have two or three people before us, but we thought you were so brilliant that you could do it all on your own.

Let me explain what we want you to talk about. We are looking at the organisation and CMEC as it emerges. This is an opportunity for you, working on the front line with a lot of lone parents who presumably try to extract a bit of money out of this organisation, to express your view on the value that the organisation has given to date, and then to give us a feel for where value for money-that is where we are coming from-will emerge, or not, out of the future policy and the way in which the system then operates. It is up to you to say whatever you like. Nobody is trying to catch you out; we just want to hear what you have to say from your experience and expertise.

Janet Allbeson: I will start by telling you a little about Gingerbread. We run a helpline for single parents that deals with more than 1,200 queries a month, and we give information and advice to single parents in factsheets and online. We get a lot of feedback from single parents about child maintenance and the child maintenance system, but also about how important child maintenance is to them. Single parents continue to be disadvantaged by poverty-almost half of all children of single parents are being brought up in poverty. That includes parents in work: 19% of working single parents are still in poverty if they are working full-time, and 25% of working single parents working part-time. Life can be a struggle-

Chair: You ought define poverty in that context.

Q2 Chris Heaton-Harris: Which definition-is it the Rowntree one?

Janet Allbeson: I am using the 60% of HBAI figure. Life can be a struggle. Maintenance makes it easier at a time when life is getting harder due to tax and benefit cuts, which the Institute for Fiscal Studies estimates will lead to lone mothers being 8.5% worse off in terms of income, and lone fathers 7.5% worse off, by 2014. In that context, child maintenance really matters. It is spent on food, clothes, school expenses and shoes. One of the reasons why children of single parent families are poor is that there is only one income coming in, and getting that regular money from the other parent really matters.

I also want to highlight why the statutory system matters. We agree with the Government: it is good if more parents can agree their own arrangements. The Government are very keen to encourage that, but there will always be cases where it is very difficult to do. Mrs Thatcher set up the CSA because at that time it was felt that too many non-resident parents were walking away from their children when relationships broke down, and were not paying maintenance. In her words, relationships can end, but your responsibilities to your children continue; and although you cannot make irresponsible parents behave responsibly, you can make them pay towards their children’s everyday living expenses. That is the purpose of the CSA, and it is now needed more than ever. At the moment, it helps more than 880,000 children who are reliant on payments from the statutory maintenance service, and last year, it got £1.1 billion in maintenance for children. Those are not trivial amounts of money, and they really matter.

The parents who turn to the CSA tend to be the ones who turn to it because they have no alternative. All the evidence shows they are more conflicted. Usually they have been separated for some time. They may have tried a private voluntary arrangement that has broken down. They tend to be older. All the evidence shows that you start off amicably, then circumstances change. People repartner, they have other babies, it gets more difficult, but of course those original children still need maintaining day in, day out, and that is what the CSA does-it gets regular money week after week, year after year. Poorer parents tend to use the statutory service, because it is easier-

Q3 Chair: Do you have statistics on that? They are not in the Report; perhaps you have them. I wondered how many of the people who actually use the service are on benefits, or some definition like that.

Janet Allbeson: Yes, I can give you some figures. The DWP did a very big study, the relationship breakdown study, which was a big, quantitative survey using a representative sample. Taking amicable relationships between parents as one of the grounds for private arrangements, it showed that 46% of parents who were on friendly terms with their ex had a private arrangement, compared with just under a fifth where the relationship was not at all friendly. Parents are twice as likely to have a voluntary arrangement if their income is more than £10,000 than if it is less than that.

Chair: Twice as likely. Okay.

Janet Allbeson: If you look at the figures in the NAO Report overall, you can see that nearly half of all eligible families use the CSA. I think there are 1.2 million cases within the CSA, out of a total eligible group of 2.5 million families. It is a very important part of getting maintenance to children.

Q4 Chair: Two questions on the changes: first, on the efficiencies of the current system, do you think that you get value for money out of the current system? Secondly, what is your view of how the changes will make it a more effective system and better value for money?

Janet Allbeson: The Report is absolutely right that the service that the CSA, the statutory system, provides has improved over the last few years. There was a three-year operational improvement programme between 2006 and 2009. More money than ever before is now going to children, backlogs are being reduced, the service is faster and a higher proportion of non-resident parents are paying something. There are problems, however, such as the collection of arrears. There is partly a debt legacy from past years of failure, but we think that it could still be more energetic about collection. A report from the NAO, the client account Report, showed that there is about £1 billion of collectable arrears. Last year, the CSA collected £121 million. We think that it could make more energetic use of the massive armoury of collection powers it has at its disposal.

There are a lot of nil-assessed cases-200,000-and that is because they have never been revisited. Hopefully, that is one of the things the new system will do. At the moment, there is no obligation on a non-resident parent to report when his income goes up. A lot of cases have just stayed very flat, perhaps the assessment was done when someone was unemployed quite a long time ago and it has never been revisited.

One of the things that drives parents with care mad and causes immense frustration is the lack of responsiveness of the Agency. Your maintenance may suddenly go down or stop and you do not know why; there is no explanation. Is it because the non-resident parent has stopped paying? Is it because his circumstances have changed? Is it because the CSA has made a mistake and there is a problem at its end? You simply do not know, and it can be very hard to find the right person to talk to. People ring up and ring again. They might discover that the non-resident parent is not paying and they want to find out what the Agency is doing about it. That can be really hard, because somehow the parent with care is seen as a bit of an interruption, an irritant.

People get very frustrated at that simple problem of lack of contact. That is particularly true in the group of cases called clerical cases, which are ones where things have gone wrong with the IT system and they are managed offline in a completely different office. It can be hard to communicate there.

Q5 Chair: Do you have a view of what has gone wrong? Those cases have been there forever, haven’t they?

Janet Allbeson: That is part of the legacy that CMEC/CSA has to grapple with at the moment and it is one of the reasons why it is proposing a new system. That is because the IT of the current system is still not good enough and it is producing these things called stuck cases. A computer upgrade has been put in which has revealed the extent of these cases floating around, and they are systematically being transferred over to another online IT system to deal with, but they are quite expensive to deal with-I remember reading Stephen Geraghty’s comment that they cost three times as much to process-so that is more costly. The throw-out of these cases from the normal online system are causing extra costs.

There is also a lack of transparency, particularly for single parents whose partner is self-employed. You get a figure for the calculation and you think, "That’s funny. It’s only £10 a week. I know he should be paying a lot more than that," but you cannot find out what the income figure is. You have to appeal-that is the only way you can get a breakdown of the income figure. The CSA, for reasons of speed and processing, simply seems to accept the figure that it is given by a non-resident parent, and in lots of cases it may be correct, but there has to be a culture of a bit more questioning, particularly where the non-resident parent has the ability to control how income is presented. For instance, setting up a private company is fantastically tax efficient, but it may also have the effect of giving you a very small amount of earnings, because you pay yourself an earning of just about the minimum wage and take your income in other forms. The CSA will simply take the earnings figure, which is what the basic calculation is based on. Yes, there are complicated procedures called variations and departures to try to challenge that, but they are very hard for single parents to deal with.

6 Chair: We want to come back to your view of the new system, but Ian and Chris are both waiting to ask questions.

Q7 Ian Swales: We all have different constituencies, but I can honestly say that CSA cases are my biggest work load. I had another load on Saturday. I want to ask a couple of questions about your view of the administration. We all talk about IT, but IT is made up of dumb machines; they are only as good as what you put into them. On Saturday, I had a case of someone seeking an assessment in 2009 and the result not being available until 2011. What is going on that it takes two years? Do you know much about the administration?

Janet Allbeson: The frustrating thing is that it is a bit like a black box. You can see there has been a problem, but trying to find out what it is and what went wrong-the whole analysis-is incredibly frustrating for advisers and for the parents themselves. That is why people complain to their MP. You get replies back from the CSA that may give more information than people can get themselves.

Q8 Ian Swales: The thing I find baffling is when we take up the same case twice and get a different story the second time, which I find stunning. It seems as though there is chaotic administration. People even tell me that how you are treated depends on how old your case is-somewhere behind the scenes there are four different approaches being taken. You can blame IT, but it seems as though there is just some sort of administrative mess.

Janet Allbeson: It is very frustrating for the staff, who struggle with the fact that there was an initial system, the old system, and then what was supposed to be the new system was introduced but that did not work either, so they could not transfer all the old cases to that system. So they have two separate systems in parallel, and they now have a third system where because of IT problems, they are having to do cases offline. It is not surprising that it can be quite hard to work out what happens. In some cases, they could have been diligently trying to trace the non-resident parent, who may be trying all sorts of ways to avoid answering all the letters, but you do not know. The really frustrating thing is, unless you make a strong complaint and complain and complain again so that eventually you might get a full and detailed explanation of all the dates and what went wrong, you just don’t know.

Ian Swales: That is helpful-it is not just me, then.

Chair: It is all of us.

Q9 Chris Heaton-Harris: It is definitely not just you.

Can you say something about the complaints procedure now and how the new system might help or hinder it? I have my own view on how the complaints procedure works: it does not seem to work very well. Do people need to come through us as MPs to complain to the CSA?

Janet Allbeson: Originally, when the scheme was set up, the poor old Parliamentary Ombudsman was so inundated with complaints about the CSA that they had to set up an independent complaints adjudicator within the CSA, called the Independent Case Examiner. That is an independent process, but even that takes quite a long time. Last year the agency dealt with about 23,000 complaints and about 8,500 of those went through the MP. It is not a lot. I think the problem is that a lot of people have become very pessimistic and almost resigned-they give up. The cases that you get are probably from the few people who make it to you. It has to be said, MPs do make a difference, because you write and there is a special unit that replies in a lot more detail. It fishes the case out, has a look at it and actually does something about it.

Q10 Mr Bacon: Surely MPs should not be part of the infrastructure of making the system work? The whole point of pressure from MPs’ constituency surgeries, in any area of administration, is when the policy is not working as it is supposed to, and the surgery is just a way of-at least in theory-flagging up the fact that there is a problem. It is not supposed to be a central part of the ongoing mechanism for solving the problem.

Janet Allbeson: The Independent Case Examiner does produce an annual report, where he tries to highlight some of the structural patterns of problems. In a sense, though, the whole grinding machinery is one of the things that the future scheme is trying to address. There are problems with it-everyone knows that. We have tried to stress that what they have to do in the new system is put the customer at the centre. They have to make this process far more user friendly and transparent, so that people know what is happening on their case-they get regular updates, they can follow it and they can get answers. That would help enormously.

Q11 Chair: Can I ask you a bit about the new scheme that is proposed? From your work with the customers, what are you looking for that could make it work better? Have you any concerns about the way that the new proposals are being implemented?

Janet Allbeson: For us, one of the most startling revelations in the Report relates to our campaign against the introduction of charging to use the future service. Under the future system, parents with care will face an up-front charge. The Government have moved on this, so it is going to be £20 to get into the statutory system. Once an assessment is carried out, the non-resident parent will be offered the chance to pay for free if he makes what is called a maintenance direct arrangement-he pays direct to the parent with care. If that breaks down and the Commission is satisfied that the non-resident will not pay, the parent with care can be brought into the collection service, but she will then be charged between 7% and 12%, which will be taken off every child maintenance payment, and the non-resident parent will be charged between 15% and 20% extra on every payment.

Our objection is, where you have a system in which the parent with care is only in that collection service because the other parent has refused to pay and will not pay and the Commission is satisfied that it is proven they have not paid, why take money away from children? This is money that pays for shoes, clothes, food and bills. Why take that money away from the parent with care? Sometimes I drop into saying "her". I should say that 97% of parents with care are women.

Q12 Chair: Can I challenge you there? That is a policy decision the Government have taken and we are trying to explore whether, within the parameters of that policy decision, it will work and is an effective way of getting value for money. Alternatively, would it have been better, as the Report suggests, to have tried to get greater efficiencies in the way the organisation operates? We are not here to value judge that-

Janet Allbeson: No absolutely not.

Chair: We work within the parameters. The Government are introducing this because they want more people to settle outside both DWP systems and the courts. Will that happen? Will it not happen? What is your view? Again, just focus on the value-for-money issues if you can.

Janet Allbeson: One of the striking things is the discrepancy between public statements by Ministers about the justification for charging and the private calculations by officials. The Minister has said that making private arrangements-what they call a family-based arrangement-is something that parents should be able to do for themselves through an FBA in the vast majority of cases. Yet the National Audit Office Report shows that only 15% of the current CSA case load will go for a FBA, whereas 71% will opt for the statutory scheme. The Minister is saying one thing about where the vast majority of cases are going to end up, but the officials are saying another.

In letters to us, the Minister has said that the cost of a typical case is £25,000 over the lifetime of a child using the CSA and it is therefore fair to introduce charging, but if you look at figure 7 on page 20 of the Report, it shows that the cost per case is £417 on average. The Government say that that is a fair charge for the service, given the cost of the system, and that the amount charged will not act as a barrier, but if you look at paragraph 3.7 on page 31-this is what the NAO says, and it is a very optimistic assumption-there is a 30% drop-out of people currently using the CSA. We think that part of that drop-out will be because of the charges: people will drop out because they cannot use it.

The implication of what Ministers have said to us is that the CSA is expensive and they want to put more money into family services instead, to help people to agree. We are very much in favour of investing in good family support services-of course it is better if parents can overcome conflict and deal amicably together with the child-but the implication was that savings from charging were going to go to family services. What the Report makes clear, though, is how fundamental charges are to making the new system pay and to achieving the expected savings targets. We were told by Ministers that charging was not about cost cutting, but as figure 15 shows, if you compare the costs of the current system and those of the future system over, say, the next 10 years, the only thing that makes the future system cheaper is charges.

We have been promised a significantly improved service as a result of the charges, but looking at figure 17, which sets out the very detailed look that the NAO takes at IT, honestly makes me feel quite queasy. It shows horrible signs of going pear-shaped. It looks like parents will be asked to pay-this is money that is going to be taken away from children-and that has become the central way of reaching cost savings. There is no guarantee at the end of the day that it is going to be a better service. I can tell you now that parents will be incredibly angry and MPs will be inundated if people are making this sacrifice in charges to pay for the future scheme and it turns out not to work.

Q13 Fiona Mactaggart: Will you describe for us, from the point of view of the parents you talk to, what a better service would look like?

Janet Allbeson: It would be one that they felt focused on getting money to children. The statutory aim of the system is supposed to be maximising the number of children with effective maintenance arrangements. Sometimes you feel that the focus seems to get lost in budget cuts and whatever. The job is to get money to children, but I think sometimes parents with care feel that they are almost on the sidelines of the calculation. They want much more transparency and good communications with parents. To be fair, some of these things are promised, such as a calculation that people can understand. They want to feel that a fair contribution is being asked for from the non-resident parent, and they want a fair look to be taken at the non-resident parent’s income.

There is a feeling of frustration. One of the dynamics in child maintenance disputes is about whether the correct amount is being paid. Those can be legitimate disputes, but I think they are seen as rather an irritant by the Agency. There has to be a system where there is a degree of transparency about the basis of the calculation-this is the income; this is the percentage; this is the amount. Keeping in touch with parents about when payments are missed and what action is being taken is also important. Communication is one of the big things.

Phil Gibby: Going back a little bit, may I clarify the NAO’s position in terms of fees? We are not questioning in the Report whether or not they should introduce fees, or how the system would work. Our issue arises from the fact that it is difficult to predict what the fee income will be in the final year of the Spending Review, and that creates a risk.

Q14 Mr Bacon: How is the £1.15 billion of fee income in figure 15 calculated? You say in the footnote that it is your analysis of the Commission’s financial forecast, but how do you get to the £1,150 million on page 34?

Phil Gibby: These are the Commission’s estimates of what the fee income will be over a 10-year period. In figure 16 on page 36 you can see how, fee income will rise over the period. Our concern is about the Commission estimate, towards the left hand side, that it will bring in £71 million of fee income in 2014-15. That is the final year of the Spending Review period. If the fee income turns out to be different from that-

Q15 Mr Bacon: Sorry, which year? I don’t see the figure £71 million.

Phil Gibby: These are the different extreme scenarios. The actual estimate lies between the green and the blue-£71 million is what the Commission predicts. I could show you that graphic if you like.

Q16 Mr Bacon: My point is simple. You have typed the numbers for the high and for the low, but not for the one you are talking about.

Phil Gibby: I apologise. Figure 14 on page 32 will give you the individual elements for 2014-15. You get £4 million from the application fee, £4 million from enforcement, £21 million from the parent with care and £42 million from the non-resident parent. That will add up to the £71 million that is expected to be brought in.

Q17 Chair: Do you have evidence that would substantiate the basis for the scheme-that if we put in fees, more people will settle within families? I understand and empathise with your view that fees will mean fewer going in, but do you have evidence for that? Have you done anything that backs that up?

Janet Allbeson: We are all trying to predict what is going to happen. The NAO has said that it thinks the Commission’s estimates are over-optimistic. We have asked single parents what they will do, but we have been slightly overtaken by the fact that the Government have brought down the application charge from £100 to £20, and I am not sure in this assessment whether that factor has been taken into account in terms of its behavioural consequences. We have been doing some preliminary work in a big quantitative survey in which we have raised that issue, although we are getting only very early results now. Interestingly, it suggests that the parents with care who have been consulted so far are concerned not just about the deduction from their own money, but about the fact that a non-resident parent would have to pay a lot more. That is putting them off, because it is money that would not go to their children; it would just disappear.

Q18 Mr Jackson: We might be veering across the border between a value judgment on the policy and the question of efficacy and value for money.

Janet Allbeson: Our concern, which we share with the NAO, is that there is no evidence. We absolutely do not know the behavioural implications of charging. We are trying to find out as best we can. The survey asked non-resident parents whether they would use the collection service, but given that they will have to pay between 15% and 20% extra if they do, it was not surprising that only 13% said that they would.

Q19 Mr Jackson: Can I take you back to the nuts and bolts of the new scheme? I can certainly empathise with what you say about the old scheme because I have sat in advice surgeries looking at printouts that are like hieroglyphics. I cannot understand them. I have two degrees and I struggle. Someone who has perhaps got reams of paper and does not get telephone calls answered will be very frustrated-I can understand that and I totally agree with you about that.

Coming back to the interesting point you made about the demographics of users of the new system, do you see in that system any mechanism to ensure that it moves away from easy wins-that is, PAYE-into those more difficult areas: the self-employed and those not working? Is there a mechanism to ensure that, or is it just a decision that is taken at a relatively low level?

Janet Allbeson: I think what is going to happen with self-employed people is pretty worrying. The service will definitely be cheaper and in some ways better, in that it will be based on figures from HMRC on last year’s earnings-the last complete year’s earnings-and they will take those both from PAYE and self-assessment, but they will only look at earnings. In the case of self-employed people, they will not look at dividend income or other income, even though they will have access to it through HMRC. Instead, they will rely on the parent with care saying, "Can you look into this and see if there’s any other income?" The onus will be on the parent with care to do it.

Q20 Mr Jackson: But do you not think that, because every situation is different, that is a reasonable thing to request-that the parent with care does that, if they have legitimate suspicions about self-employed people hiding income? Everyone is different.

Janet Allbeson: I suppose the frustration is that CMEC potentially has access to that information-it will be in the self-assessment that a non-resident parent has to submit. Why not make use of it when it is front you is, I suppose, our query in terms of ease.

There is no doubt that one of the big advantages of the new system is that it will, hopefully, be updated every year-that is the plan-and we will get away from these nil assessments. They will not be allowed to continue indefinitely.

Q21 Mr Jackson: One last question: has the trend in nil assessments been to increase those numbers over, say, the last five or six years, or have they remained about the same as a proportion?

Janet Allbeson: I do not have the figures to hand. I can send you the figures for the last five to 10 years. I could not say what the trend is.

Phil Gibby: I have only the last four quarters, which is not entirely helpful, but in December 2011 nil liability was 264,200, compared with March 2011, when it was 283,900, so over the last year it has been coming down.

Q22 Mr Jackson: That is a function of general improvement in the overall scheme?

Phil Gibby: I think it is probably reflective also of clearing the backlogs.

Mr Jackson: Thank you.

Q23 Amyas Morse: You were talking earlier on about the quality of service that you would like-the much more responsive service. Despite concerns about IT projects, the fact is that the only way to provide those sort of services is by having a much more effective IT environment, wouldn’t you say? Of course there is a risk in doing it, but this is a road we are going to need to travel, I think.

Janet Allbeson: If there is a more automated system, because that will be cheaper and simpler, there has to be also room for flexibility at the margins. What is alarming about IT is that it appears that the lessons have not been learned from previous attempts at reform. When the Office for Government Commerce says it is not satisfied that the Commission is an intelligent customer, that worries me. The statement that "Critical testing…must now be performed in parallel with programme delivery to remain on track" is pretty frightening.

Q24 Chair: Where do you get all this from?

Janet Allbeson: This is in figure 17 on page 37. That makes me feel pretty queasy.

The Commission told its audit committee there is a high risk that the change programme, which is the whole reform programme, may not deliver phase 2 functionality, which is the bit where existing cases get transferred, within the agreed time scale. That is a problem because one of things that the Government have given assurances on is that they will not start charging people until this system is up and running and working effectively. That is quite right-it is an absolute given that you cannot possibly introduce charging until the system is working effectively-but delay will produce a vicious circle, in that there will be less fee income, yet what the Report shows is how reliant the Commission is on fee income.

Our concern is that to make ends meet, to close the circle and meet the cost charges, the Commission, rather than putting its own house in order and looking at internal efficiencies that it can make, has been too ready to focus on taking money away from hard-working, struggling parents. We very much want the Commission to look at ways of becoming more efficient-that is what the NAO has come up with-so that it can make those necessary savings reductions without looking to charges as its No. 1 way of doing that.

Q25 Meg Hillier: Ms Allbeson, you have seen a number of these changes through. Your last answer seemed to suggest that the challenge is in trying to layer one way of getting more money in-through fees-on top of an imperfect system. We are not asking for your comments on the policy, but do you think, in an ideal world and from the point of value for money, it would be better to get the system in order and then change the policy? Is there a danger of confusion about where things are improving, if indeed they do improve?

Janet Allbeson: Yes. What the Report showed is that the Commission has not got its target operating model in place yet. It is planning to do so by March 2012, which is only six months before the new scheme is due to start. It has no adequate plans on how it will achieve its cash efficiency savings of £151 million; its planning tool is described as not fit for purpose; and the costs of implementing the new scheme will be more in the next 10 years than those of running the existing scheme-unless you introduce charges. There is something wrong there, which suggests that a much tighter look needs to be taken at other efficiencies, rather than relying on taking money away from very hard-pressed parents. By the time these charges are introduced, a lot of the tax and welfare cuts that are on the way will have really started to bite, and money transferred from one parent to another-private transfers-will actually become crucially important in helping protect children from the effect of those welfare cuts.

Chair: That was very clear, full and very helpful, so thank you very much indeed for your contribution this afternoon.

Examination of Witnesses

Witnesses: Robert Devereux, Permanent Secretary, Department for Work and Pensions, and Noel Shanahan, Chief Executive, Child Maintenance and Enforcement Commission, gave evidence.

Q26 Chair: This is a very quiet session-

Robert Devereux: Do you think we can do something about that?

Chair: -until you arrived. Thank you for waiting and listening. I am going to start with a question to Noel Shanahan. How long have you been in post?

Noel Shanahan: Since the middle of last year, since May.

Q27 Chair: So you have your feet under the table then.

Noel Shanahan: Yes.

Q28 Chair: You are facing substantial challenges, in terms of both the money you have to get out of the system and the new system that the Government decided to implement. As I read this Report, it threw out a question to me. Before we can have a sensible conversation about value for money and effectiveness, can you tell me, in the new settlement, what the purpose is of the Agency? What are you trying to achieve? What are you there to do?

Noel Shanahan: The quick, headline answer to that is supporting separated families and securing children’s futures. That really says it all. We are in place to assist parents who are separating to try and overcome their differences and put in place family-based arrangements. For those who cannot achieve that, we are there to run a statutory scheme that’s as lean, mean and efficient as it can possibly be. It is both those. That’s my brief.

Q29 Fiona Mactaggart: Let’s hope it’s not mean.

Noel Shanahan: Yes.

Q30 Chair: So you still see your purpose, both now and in the transformed organisation, as being to maximise the support that you can give to separated families and children?

Noel Shanahan: Absolutely.

Q31 Chair: All right. That is just to be clear. I don’t want to come to fees straight away, as that is obviously contentious, and we will want to get there. There is so much in the rest of the Report that calls into question whether or not you are able to achieve that. I recognise that you have come a long way. I think that we all recognise the journey that you have come on, and it is well articulated in the Report. You have reduced backlogs and the length of time that it takes to deal with new applications, and you have increased the money collected, so well done-well done, but.

Looking at arrears, for example, there is £3.7 billion of arrears. For some reason, only a quarter of that is collectable. Then, for some appalling reason, you only expect to collect less than half. That strikes me as pretty worrying. There is a lot of money outstanding, which ought to be going to families for children. You’re saying you can only collect a quarter of that. I don’t understand that. Then, even out of what you can collect, you say, "Actually, we’re only going to collect less than half."

Noel Shanahan: I think the £3.7 billion or £3.8 billion is really a legacy of the past. This is arrears going back over the last 19 years. About 50% of it is due to the Secretary of State, as well; it is not all due to parents. Through that time-10 or 15 years-a number of assessments were made incorrectly. There was a period of time when punitive maintenance agreements were put in place, frankly. If one parent disappeared and we tried to track them down but couldn’t get hold of them, we made an assessment of their income that was punitive to try to chase them down and frighten them into contacting us to put a proper maintenance agreement in place.

Those punitive agreements are still on the books; they are still on the record. They are not really a reflection of the fact of what that individual was earning at that point in time. There is a legacy in that £3.8 billion, which is, frankly, just incorrect.

Q32 Chair: Then why don’t you clean up the figures? Why can’t they just be cleaned up?

Phil Gibby: From the NAO point of view, we have always put a qualification on the account because of the difficulty we have in terms of identifying the amount of the debt and who it is attributable to.

Q33 Chair: It seems straightforward to me. If there is a whole load in there that is rubbish, clean it up and start with a base that we can work with.

Robert Devereux: The Commission is basically managing to keep new cases going and deal with contacts when parents get in touch with them. They have not set themselves up to work their way through 1 million cases, many of which are, for the reasons that Noel said-

Q34 Chair: But you’ve got to clean to assess yourself. It would be in your interests. If you’re getting your accounts qualified and one of the reasons is-I want to come back, because there is still £1 billion, which you say is collectable, but you are only collecting less than half of that. If your accounts are being qualified because this crazy figure is floating around that has a historical legacy to it, why on earth aren’t we cleaning it up?

Robert Devereux: In the costs that we have in place for the new scheme, one of the things that we have got to do is sort out how much of the arrears we will actually be moving into the new system. That will require us to go through case by case to decide what these numbers actually are.

Q35 Chair: So how long will that take you?

Robert Devereux: The plan at the moment is that that will be done by 2016-17.

Noel Shanahan: The best part of three years.

Robert Devereux: There is a lot of work in there, but we are now resourcing the Commission in order to make sure that they can do that calculation, which has not been the case to date. That’s the way that we are going to take it forward.

Q36 Amyas Morse: The 50% recoverability is the Agency’s number, isn’t it? I think I’m right about that. The 50%, which is an estimate of how much of that total number might be recoverable, comes from the Agency, as I understand it.

Q37 Chair: Okay, so we have understood that £3.7 billion is out with the fairies, but there is £1 billion that you say is collectable, yet you are only expecting to collect-and I bet you go underneath that-less than half of that.

Noel Shanahan: Yes, and as Robert has said, that is part of what we are geared up to try and collect as we go through the transition: effectively closing down the old systems, opening up a new one-

Q38 Chair: I don’t think this is anything to do with it. I am trying to steer away from old versus new. You, not NAO, said there is about £1 billion collectable. This is money that children and families expect to have.

Robert Devereux: Can I try an explanation? We have explained why so much of the past probably is based on almost entirely dodgy data. The next question you need to ask yourself is, "Is it actually cost-effective to collect the sums of money?"

Q39 Chair: Cost-effective to whom?

Robert Devereux: To the people doing the collection, perhaps.

Q40 Chair: But what about the families?

Robert Devereux: What price would you put on that?

Q41 Chair: I have no idea, but if it is collectable and it is money owed to families and this is the purpose of the organisation? I genuinely got very perturbed as I read the Report. I thought, "What’s the purpose of the organisation?" If the purpose of the organisation, which Noel Shanahan articulated, is to ensure that you get money-

Robert Devereux: If you want to have a conversation about that, let us write you a note about this, but I am fairly sure-I will get Noel to correct me if I am wrong-that, actually, there is a calculation here about how much it would cost to collect some of this debt. It is not self-evident that in every case you would want to collect it.

Q42 Chair: I can understand "not in every case". I hear that. There may be somebody who moved somewhere-the Antarctic or something-and you can’t pursue them, but I can’t believe that over half is not collected out of the stuff you say is collectable.

Robert Devereux: Let us give you a longer answer on why the Commission reached that judgment.

Q43 Ian Swales: Do you use outside agencies once you get to a certain point, as some other public departments do, for collection?

Robert Devereux: For the actual collection of arrears? No, we don’t.

Q44 Ian Swales: Is that something you would consider looking at?

Robert Devereux: As part of the way in which the Commission has developed its enforcement procedures, we have now got access to a much richer set of data, including the sort of credit reference-type data, that gives us clues as to who actually might have cash and resources that we can actually target.

Q45 Amyas Morse: You tried it before and it didn’t work. Is that right, more or less?

Noel Shanahan: Yes. It’s been tried before in terms of trying to use debt-collection agencies and so on, with no success-even some touch points to see if debt could be sold. It really can’t be sold. It is really a difficult number. People see that it is very difficult to get, so it is not really a saleable prospect.

Q46 Ian Swales: Why didn’t it work before, then? What were the reasons?

Noel Shanahan: Frankly, chasing down the individuals, and finding the individuals-many of these individuals have worked hard not to be found. Secondly, the basis of the calculation, as I said earlier, is so fraught with errors, actually proving it is difficult.

Q47 Ian Swales: That is why I asked the question, because debt collection agencies are very keen to take work on if they know who the person is and the debt is very clear. So are you saying that, actually, the real problem is you couldn’t give them reliable data on which to go and act?

Noel Shanahan: The amount of work to get it clean-that’s correct. That’s why we have got money set aside for three years: to try and clean it up.

Q48 Austin Mitchell: Debt collecting agencies are one of the most flourishing businesses in modern Britain. Why can’t you just put it out to the bailiffs?

Robert Devereux: This will depend on the distribution and size of the debts. If it is lots and lots of £20s that is a different proposition from lots and lots of £10,000.

Q49 Austin Mitchell: The biggest problems are with the self-employed, aren’t they? All the complaints I get are about orders not being enforced, husbands not paying, husbands evading, husbands concealing their salary. All that has to be dealt with. It has not been dealt with. There is a huge debt resulting from that. Why not just put the bailiffs in?

Robert Devereux: The bailiffs do go in where we think there is a case for-

Q50 Austin Mitchell: They do it for the rates and traffic offences, and parking offences.

Robert Devereux: They do for this, too, at the point at which there is something they can collect.

Q51 Chair: Anyway, you are going to let us have a note. It is just a big figure.

Robert Devereux: We are confusing what we are doing with the question the Chair is asking, which is why we think £1 billion is collectable-which is an interesting word-and then propose to collect half of that. Let us give you proper evidence on that.

Q52 Chair: In giving us that note, which we require quite quickly, so we can do our report, please: do you tell parents when you can’t collect it?

Noel Shanahan: Yes. Parents will be kept up to date with the position that we have with regard to their arrears.

Q53 Chair: That is not our experience. The reason why you find all of us round this table saying this-you will know, because MPs have so many of these cases-is that that is not our experience. There is a debt outstanding. It would be interesting: when you go away, just tell us in the note, but my experience, as a constituency MP, is that the parent does not know that you have thought that it is uncollectable.

Q54 Austin Mitchell: That is right. The parents have to supply the Agency with the information: "My husband works at so-and-so. He’s drawing a wage. He’s working full-time." But it is usually ignored; it does not produce results.

Noel Shanahan: It is fair to say-hands up-that all too often right now it is the client contacting us, prompting us, that drives us to investigate where we are in each of those cases. That is not a position that we are happy with-it is a position that we are going to change-but it is a fair point that that is where we are right now.

Robert Devereux: One thing that your previous witness said was that she hoped that, when payments were not made, the Commission would be on their case. The whole point of the automated system that we are putting in place is that as soon as a payment is missed, we will know about it; our staff can act on it. Noel is creating teams who will pursue it. That is simply not the case at the moment. We are essentially reactive-waiting for the parent with care to say, "I didn’t get a payment that month," with all the problems that you are identifying. We are trying to put ourselves in the driving seat, so that although we do not want people to be within the statutory scheme, if they are within it, we will be much better able to support them.

Q55 Chair: Okay, we look forward to the note on that. What I am trying to do is look first at the existing systems and where the inefficiencies are, before we go to the new system. There is so much to deal with, but let me deal now with the offices. Why on earth do we have 64? I looked at this and thought, "I don’t think any of my constituents ever have dealings with your organisation face to face." I do not know whether the constituents of my colleagues round the table do, but all the dealings that my constituents have with your organisation are on the phone, by letter or by e-mail, so what on earth are we doing, having 64 offices round the place?

Noel Shanahan: The Report points out that in the early beginnings the thought was that there would be a headquarters and six major offices, but in the course of the last 15 or 20 years, the CSA went on fire-there was a real issue. It grabbed as many civil servants and offices as it could to pile through the paperwork. We ended up, at one point, with 250-odd offices. As recently as 2002, there were 114, so 70 is still progress from 2002. Right now, we have a plan to reduce the number of offices. It is already down, in our plans, to 56. I have a plan to continue looking at it, but we need a reality check on what it actually means. In 45, almost 50, of our offices, we are talking about a handful of people, who actually sit round a desk on a Jobcentre Plus site. They rent a few desks. Those are not CSA offices. In reality, we have about 20-

Q56 Chair: How many of those out of the 64?

Noel Shanahan: There are 45 sites where there is a handful of people.

Q57 Chair: Forty-five sites are Jobcentre Plus sites or other DWP sites.

Noel Shanahan: DWP sites, and we have visiting officers in them, investigators and court presenters. Those are mobile workers who sit there.

Chair: Okay, that makes a bit more sense. Does anybody else want to ask anything on offices? The figure did just hit you. Let’s go now to the-

Q58 Amyas Morse: May I ask something, as we are talking about this? Forgive me. That makes sense to me, but why is their performance so variable? Do you mind me asking that? As we looked across all these sites, we saw that, and I’m interested to know what drives it, in your view.

Noel Shanahan: The question is why there is such a difference in performance between our regional offices. Hands up: our ability to monitor productivity, case by case, site by site and service by service, is nowhere near where I want it to be-nowhere near. Our new system will give us rich data that will allow me to monitor, down to individual level, performance and productivity. Right now, that is very difficult to do. We are using past historical performance and extrapolating forward-not a good place to drive out cost. I have a new data warehouse coming in, in the middle of this year, for the new system. We have found a way to use it, so I can put in there data that will help me to drive the current organisation’s structure and get closer, at least down to team manager level, to drive productivity.

Is the position as the Report says? Yes, it is. Is it a position I am happy with? No, it is not. Are we doing something about it? Yes, and the future system will let me drive down to individual performance-

Q59 Chair: What is the time frame for that?

Noel Shanahan: For the data warehouse, it is the middle of this year. That lets me get down to team level on our current system. The future system will come with its rich texture of data. The launch is end of this year.

Q60 Chair: But you could start from this year, making comparisons, driving up productivity and driving down costs?

Noel Shanahan: Absolutely.

Q61 Ian Swales: On offices, will a person always have the same office and the same person looking after them? As the previous witness said, centred on the people who need help is what the objective should be. Will that happen in the new system?

Noel Shanahan: I speak to lots of our clients and one of their frustrations is, "Each time I call, I can talk to a different person." The nature of our opening hours is that we can never guarantee that you will talk to the same person. However, the issue with our current systems is that if any of us logged on now, to figure out what is going on with the case can take many minutes and many screens. The new system is intuitive. You get straight there and it is right in front of you. Any of us, within seconds, can see what is going on to update the client. We are just not there right now.

The thing that we are driving through this year-it is part of our efficiency drive this year-is that too often we say to clients, "We’ll call you back. We don’t know the details, we’ll call you back." When I have touch points with our clients, that is the most infuriating thing that really gets their goat. We have already jumped all over it. We have reduced call-backs by 80% in the last six months. One and done: if you contact us, we want to sort your problems while you are on the phone. That is our drive; that is where we want to get to. That will drive out cost.

Q62 Chair: You will have to find £151 million in financial cuts. We will come to the income, but you are anticipating in this spending review an income of £71 million and you are assuming £12 million in less work. Those are the figures as I get them and they are to be achieved by 2014-15, which is not that long away. You have been in post for a year now, so you are well embedded. Why on earth have you not got what the NAO can identify as proper plans? You have got the figures. You managed to tweak a little bit more out of DWP in the middle of it, but why on earth have you not sorted out how you will get to your cuts figure?

Noel Shanahan: We have a number of plans in place. We did furnish them to the NAO. There are a number of steps in place that will help us get to the £151 million saving. The first one is that all our work on the design automates our processes, so that by the time we get to 2014-15, a number of automated processes will take cost out of the system. We will be closing-

Q63 Chair: That is assuming the IT is delivered on time.

Noel Shanahan: Correct. Of course, we will ensure that we take out the benefits of the new system in the automation.

Q64 Chair: But if the IT is not delivered on time, what difference will that make to your £151 million?

Noel Shanahan: If it is delayed, it will be a delay to the benefits that we take out.

Q65 Chair: It will be a delay to-

Noel Shanahan: It will be a delay to the benefits, obviously.

Q66 Chair: How much?

Noel Shanahan: I cannot give you the exact number, but generally speaking, if there is a delay of a month, it will be in the region of £3 million to £4 million.

Q67 Chair: So, you are assuming it will be in by-I cannot remember when the IT was supposed to be in by.

Noel Shanahan: October 2012 is phase 1.

Q68 Chair: So, every month of delay takes £3 million to £4 million out of the £151 million target by 2014-15?

Noel Shanahan: To put it another way, it presents me with a challenge to find the £3 million or £4 million somewhere else.

Q69 Chair: Of course. It will challenge you. Are you worried about that, Mr Devereux?

Robert Devereux: I certainly would be worried if we thought that the IT was going to be late. The thing that the Report properly identifies is that the Commission has done really well recently in driving up productivity. You should not underestimate the extent to which, if there was some other problem, Noel would be on the case anyway, because actually-

Q70 Chair: But are you worried? We have not come to the IT. The IT does not look the world’s most organised and best-managed project.

Robert Devereux: When we can finally give evidence on the IT, and not just base it on the stuff’s that is in here, I would be able defend that.

Q71 Chair: You are confident that the IT will be in? I am just reading the document.

Robert Devereux: Maybe we can turn to the words.

Q72 Chair: Let us deal with this; I am trying to be logical, so let us deal with-

Robert Devereux: Many of the words on the IT are correctly identifying what was the case. You will also find perfectly positive words about what is now the case, and there is a bit of a distinction here, which is really worth drawing out.

Phil Gibby: Just to clarify from our point of view, we were concerned about the state of the IT earlier on. There has been progress with it. The Commission has assured us that it will not introduce the system until it is clear that it is up and running and it will work properly. What we cannot tell is whether the changes that are being brought in now are enough to mitigate those risks, and therefore whether it will hit that day.

Q73 Chair: The IT?

Robert Devereux: The most recent review by the external Office of Government Commerce, when it looked at phase 1, said that the team’s view is that phase 1 on its own merits a delivery confidence assessment of amber/green. It described the whole project as having substantial risks, which the programme is taking sensible steps to manage, meaning that delivery confidence overall is amber. That is what is being recorded by OGC externally.

Q74 Chair: When was that?

Robert Devereux: July ’11.

Q75 Chair: So, presumably, that was available to you.

Robert Devereux: It was indeed. You will find it is referred to in figure 17.

Q76 Mr Bacon: Was that the OGC report that "concluded that the Commission’s ability to act as an intelligent customer contributed to slippage"? Was that the same report?

Robert Devereux: It is indeed, and it is the one where the word "had", I think, might have been usefully introduced. It is clearly the case, as you can see from the bit at the bottom of that page in figure 17, that the Commission embarked on a process to put this new IT system in, which was using the agile system that we talked about previously. In their case, this has not worked. They have changed horses. That is what the OGC is referring to.

Q77 Mr Bacon: Where would you have inserted the word, "had"?

Robert Devereux: Between "customer" and "contributed".

Q78 Mr Bacon: You mean "had contributed", but no longer?

Robert Devereux: I just read to you their conclusion about the programme as it stands. My guess is that if they genuinely thought that we had a persistent inability to act as an intelligent customer, they would not have given us an amber/green rating.

Q79 Mr Bacon: We have seen lots of OGC reports over the years and they come in all the colours of the rainbow. Mr Gibby is more than familiar with most, having been a veteran of the Rural Payments Agency. Can I just ask you-

Robert Devereux: What other evidence can I bring you? I could go back to our own assertion, which you won’t like, so at least I have tried an external reviewer who has looked at the programme.

Q80 Mr Bacon: Is this sentence still correct, Mr Gibby-I’m reading again from figure 17? Can you just confirm it? "Critical testing activities must now be performed in parallel with programme delivery to remain on track." Is that still the case, or is it something that was the case but is no longer?

Phil Gibby: That is our understanding of the case up until Christmas. I don’t know if it has moved on since then, but yes-

Q81 Mr Bacon: So, Mr Devereux, "Critical testing activities must now be performed in parallel with programme delivery to remain on track." Is that still true?

Robert Devereux: It is.

Q82 Mr Bacon: Right. Can you give me some other examples of Government programmes where testing activities were performed in parallel?

Robert Devereux: Probably the introduction of the employment and support allowance.

Q83 Mr Bacon: Any others?

Robert Devereux: I don’t know.

Q84 Mr Bacon: Tax credits-does that ring a bell? Criminal Records Bureau-does that ring a bell? Rural Payments Agency-does that ring a bell? It is what happened in all of them. The testing was done in parallel in all of them. In some, they hit the go-live button when they knew it didn’t work properly, so we are right to be concerned about this, aren’t we?

Robert Devereux: You are right to be concerned about it, and you are right to assume that Noel and I are spending a lot of time making sure that we do know what-

Q85 Mr Bacon: So you are not going to hit the live button until you are sure it works, even if it means a delay?

Robert Devereux: Absolutely not, and you can assume that that is exactly where Ministers are too. We are perfectly aware of the history.

Q86 Mr Bacon: It is great that you say we can assume, but the history of this-I’m not talking about any particular Administration; I have looked at these sorts of things for while-is that if we, sitting where we sit, were to assume something generally from history, we would actually assume the opposite. So when you say, "You can assume," it is gratifying to hear, but it is not borne out by the track record in the past.

Robert Devereux: What might be different now-I can only speak for the Ministers I am working with-is that we are spending an awful lot of time looking at deliberate plans for testing and all the rest of it. Ministers know exactly where this programme is in far greater detail than some others I have worked with. Their judgment is basically that this is not worth turning on, because you all know exactly what happens if you do turn it on-

Q87 Fiona Mactaggart: Can I ask what has happened since July? This report is about July. I thought Mr Shanahan could tell us about what has been happening since July, which is quite a few months ago. What are the changes, which have, no doubt, contributed to the confidence that Mr Devereux is showing?

Noel Shanahan: We have done a bunch of our user-acceptance tests. Testing will highlight and throw up issues-we will get those issues and fix those issues. We have also now started to see what the end user interface is going to look like, so what does the machine look like for case workers? What does it look like for employers? There will be a customer portal-that also has been completed. We are starting to get a lot of confidence in what this is going to look like, and the dramatic difference it is going to be for our end users.

Q88 Ian Swales: It is not usually my role to help witnesses, but I think it is important to read the last couple of sentences of figure 17, which do actually say, "The Office of Government Commerce (OGC) concluded in July 2011"-well, you can read them as well as I can, but those sentences are a lot more supportive of what has been going on.

Chair: Can I ask a question from earlier-

Robert Devereux: May I answer that? I really do not want to mislead you. We are indeed in the process of user-acceptance testing. As you will all know, we have 90% of the code built for doing this user-acceptance testing. For me the critical date is going to be around April, at the point at which we have finally gone through all the 5,000 test scripts. At that point we will know what quality code we have actually built. That will be fundamental to the rest of our plans.

Q89 Mr Bacon: April?

Robert Devereux: April ’12.

Q90 Chair: Is that phase 1 of your implementation or phase 2?

Robert Devereux: There are two phases. The thing that we are intending to open in October is phase 1. That does not come with charging. The charging starts in July 2013. What I have just described is the first pass of all the user testing for the thing that we want to do in October. You will be perfectly aware from previous systems that until you have completed the testing, you would be wise not to make too many brave assertions, but that is the process that we are going through. We know exactly where our checkpoints are in this programme. There is one in April and another one in August. There is another in September, if we turn it on. For at least one of those, you should reasonably expect us to be asking very hard questions: is this fit for purpose and is it going to work? That is what we are proposing to do.

Q91 Amyas Morse: I do not have any objection to that. The point of the Report and talking about cost-cutting is to say that I agree with that, but also, like many people, having been involved in the implementation of quite a number of IT systems, however well it goes, the fact is that there is a reasonable-I certainly see it as a pathway to delivering better services. Suppose it goes really well, but takes a bit longer. All we are simply saying is that, given that in this review period we are talking about cost reductions being achieved and how confident you can be, don’t you think that it would be a good idea to try to have some other ways of making the target rather than relying on those cost reductions? By the time you know whether it is or is not online in time, it will be a bit late in the period for you to retrieve it in some other way. I do not want to sound like I am trying to undermine what you are doing in terms of systems, because I am not.

Noel Shanahan: I absolutely respect the point. I have two levers that I am trying to pull. First, I started off a number of months ago a line-by-line budget review of corporate headquarters spend. I am taking millions of pounds-worth of costs out of that, which will help me in the spending review period, which, frankly, creates a buffer, so if I get a bit of a delay, I want to consume my own smoke as much as possible. I am finding money from that point of view.

Secondly, as we start to increase take-on of the cases, we will be able to see what that volume take-up is. My headcount predictions to help me through transition go up. If I do not see the volume of cases coming across, I can manage my costs down by simply not recruiting. I think I have strong levers: take costs out of the organisation now, where we can afford to take costs out; improve the existing service, which takes costs out; and a tight grip on recruitment-on head count-which we will put in place only if the demand is there on volume. I have another bit in my pocket: I will have about 300 to 400 fixed-term appointees in the organisation who I can pull out at reasonably short notice. So I have levers to manage down my costs base, depending on what I see the volume is.

Q92 Chair: But you want your volume to be high, because you want to help families?

Noel Shanahan: Ironically, if I really help families, they will go and sort themselves out with family-based arrangements.

Chair: Okay. We will come back to that.

Q93 Amyas Morse: Before we leave that subject, I want to make sure that I have understood. What you are doing, if I understand it-I am very encouraged by it-in addition to your plan is building up a buffer. You say you are taking costs down a bit faster than you had planned to put yourself in a position to make target. Is it unfair at this stage to say roughly how much we are talking about there?

Noel Shanahan: Over this SR period, I can see my way to getting somewhere in the region of £20 million to £30 million.

Q94 Chair: Can I ask something that goes back to the £151 million-I do not know how we got to the "one"? There is £151 million and £71 million. I never understand these "ones." How much is coming out on just reorganising? I looked at figure 9 and was absolutely astounded. This organisation has been one since 2008, has it not? That was before you arrived.

Noel Shanahan: Yes.

Q95 Chair: Maybe it is a question for Mr Devereux? I cannot for the life of me understand why we had to have two corporate structures for all those years.

Robert Devereux: Why did we have two corporate structures? The most obvious answer is that that is one of the reasons why the incoming Government have decided to bring this NDPB back in house. This has been at arm’s length. Those are the choices that the NDPB made. It is clear that they have already changed that, so the Report properly records that they have merged those two sets of structures already.

Q96 Chair: But why out-house as an agency did they need two corporate the structures?

Robert Devereux: That is a question the Commission should answer.

Noel Shanahan: I can help with that, as I have researched the history of this. There was a CSA structure. CMEC was then created effectively to oversee the CSA and to think of new ways to create a new child management service. It had a separate structure. As time went on, that did look crazy. We have now merged them. By the end of this month, we will have taken 10% of the headcount out of head office, as we start to merge them. Part of the buffer I am creating is driving savings further through that, so the elements of two different corporate structures have gone.

Q97 Chair: Okay. The Report also says-I know that the Department does not quite agree with this, but there is sufficient evidence for us to have a go at it-that in Australia per-family costs are much lower. We can play around a bit and say that the NAO has been generous to you in some respects and that it has maybe been a bit wicked to you in other respects, but there is a disparity in those costs. When are you going to see something that gives us a feel that you are efficient? The Report is quite critical. At the very end it says that you are focusing on the new system. If you actually focused a bit more on doing some of this streamlined service-provision process-management outsourcing, potentially that would get your costs out to meet your £150 million plus your £71 million plus your £12 million, without all these risks of new IT systems and collectability of income and all that sort of stuff.

Robert Devereux: Let me try to answer. Noel has just given one point. You have got a lengthy answer about what he is actually doing to drive cost out of the current operation. He has a long track record of doing this. Secondly, on this IT system, you keep implying that it is some sort of free choice vote. Your previous witness wanted a system that enabled a good service. We simply cannot provide a good service on the current system, nor am I prepared to warrant that the current systems will still be operating-

Q98 Chair: But you have to accept-I know that this is a magically new Government and you are a magically new Permanent Secretary-that this is the third attempt at getting an IT system in that works here.

Robert Devereux: Okay. If everybody who had had two failures could not have another go, we would all be dead.

Q99 Chair: We are a bit sceptical.

Mr Bacon: No, we would never have been born, I think is what you are trying to say.

Robert Devereux: Let me come back to the Australian thing because it is a perfectly good question. You know what comparator numbers are like. My view is that there is a gap here. Let me just run you through how I think the numbers work. You are being offered a comparison in headline terms of 56p to 34p. I reckon about 5p of that is because of the cost of our clerical system. The Australians are not sitting there with over 150,000 cases being managed separately. About 7p is actually because the Australians are, as the Report records, collecting more per person than we normally do because the settlements are higher. Even having said all of that, I might get us down to 44p against their 34p.

That is still a gap, although I have halved it, probably. Why is that? It is probably because the Australians are ahead of us in terms of having a rather more modern system. They have also got a different system out there. Their rules about where they can go to collect money and how they collect it are different from ours. They have a different tax system. They use tax rebates, and we do not. It is a perfectly good challenge. You should expect both of us to be seriously on the case of driving value for money in this organisation.

If you do the same comparison of pence per pound saved, on even CMEC’s figures, they have gone from being 56p in 2005-06, down to 42p in 2010-11. You can see an improvement happening there, so rather than use Australia as the obvious benchmark, because it is quite difficult to do these calculations, I would rather you pinned us with actual observed delivery on our own metrics, and that is exactly what we are prepared to be accountable for.

Q100 Chair: I accept that. I am quite keen on international comparators, because it is very difficult with a lot of public services to find a benchmark against which you can make those comparisons. I am encouraging the NAO to give us those. Of course, it is sometimes a little like comparing apples and pears, and I accept that as a bit of a criticism, but I think it gives us a very helpful benchmark, where a service is unique, to try and get something to look at.

Robert Devereux: The other thing that public service in this country can do is be much better at benchmarking between units. You have identified-

Q101 Chair: Who would you benchmark this against?

Robert Devereux: Even benchmarking different parts of the organisation.

Chair: Oh, I see. Yes.

Robert Devereux: I can tell you that within the DWP, the range of-

Q102 Chair: But I think there is some merit in international comparisons.

Robert Devereux: I think there is some merit, but let’s not pretend it is a precise science-that’s all.

Q103 Fiona Mactaggart: My question is that it seems there is a set of figures about how much a case costs, which whirls round the ether, and we cannot know what the real cost per case is. We have costs in figure 7, but I went to the website of the Child Maintenance and Enforcement Commission and discovered something sitting there, saying, "Typical CSA cases can cost around £25,000-difficult ones £40,000 or more." I have the feeling that something that is happening is, "Look! We are making this as cheap as possible and we’re being as efficient as possible," and, "Look! This is really costly, expensive and important." It seems as though a bit of "having cake and eating it" is going on, in terms of pushing both ends of the spectrum, and I would really like to know what the truth is. Is it £25,000? Is it what you have just been saying?

Robert Devereux: Let’s just get to the bottom of the £25,000. The calculation that the NAO has done in figure 7 takes spend in one year and essentially divides it by-

Q104 Fiona Mactaggart: If you turn it into, say, 15 years of an average case, that goes up to £6,225-nowhere near £25,000.

Robert Devereux: Exactly. So, the figure of £25,000?

Noel Shanahan: Yes. Some example cases were drawn out to try and say, what would the lifetime costs of a case be? The particular example of £25,000 was what a typical case has cost, extrapolated over 19 years. The truth is that the average for most of our cases is nine years, but that was saying if there was a full case, from zero to 19 years of age, what would it typically cost, on our current historical rates?

Q105 Chair: Why did you do that, for heaven’s sake? If, in fact, it is only a nine-year-

Noel Shanahan: It was requested by our Minister.

Q106 Mr Bacon: It looked good in negotiations with the Treasury, did it?

Fiona Mactaggart: Exactly. That is the point I was seeking to make, but you made it better.

Robert Devereux: The thing that is clear-I have now spent weeks poring over this-is that there are an awful lot of different moving parts in this story. There is a story about how many of the cases there are, how many are nil-assessed, how many of those are then paid by direct maintenance, how many years are they paying for, and how many children per case. Genuinely, we could generate numbers all day, which is what you have identified. I think the trick is for us to be really clear what particular metric can we see continually giving-

Q107 Chair: Sorry to come back to this, Robert, but I think it is really important: given that the purpose of the organisation, as articulated by you at the beginning, is to maximise the amount of support that can go to families and children, it is a bit disturbing that you get a distortion of the cost to the state of administering a case, which may then lead you to a conclusion that is not necessarily in the interests of families and children. I do not normally do that, but it strikes me, having heard that to-ing and fro-ing, that if your purpose is to maximise, we need figures that we can all understand, and which are honest and transparent, and this Government have committed to that.

Robert Devereux: Can I come back to this, because what Noel said at the start was absolutely correct? What Ministers want to do is give the best possible support for separating families. I think you have consistently interpreted that as the biggest possible amount of money collected through the collection agency. These are different things, so when he says he wants the best possible support, that includes helping people reach arrangements that get nowhere near the collection service.

Q108 Chair: But you do not want to give a false picture of the cost of the service as a way of justifying reducing the use of the service. The more families-

Robert Devereux: I don’t want to do that either.

Q109 Chair: Well, apparently, from what Fiona got-

Phil Gibby: These two cases appear in a press notice for the Commission. To be honest, I would not describe them as typical cases; they are extreme, hypothetical examples of what can happen.

Q110 Fiona Mactaggart: I am sorry, but in my preparation for this meeting I just looked at the website, because that seemed to be a sensible place to go to see how the Commission itself is describing its costs. I went to the bit of the website that talks about costs, and this is what was there. It was not a-

Robert Devereux: If that is what is on the Commission’s website, let us go away and make sure that it has a rather more straightforward exposition, as you have just described.

Chair: Thank you. Someone else is coming in-Ian.

Q111 Ian Swales: On this Committee, obviously, we are about value for money, which, as we often remind ourselves, is about not only money, but services. A lot of people watching this hearing will, in a sense, care less about the operating cost but a lot more about the service being delivered. Looking at figure 4 in the Report, on the number of children benefiting from statutory schemes and various other metrics-by the way, the agency should be congratulated on progress on a number of those metrics, from a frankly diabolical position a few years ago-I would like to know, in among all this cost saving and change that you are talking about, what your customers can expect on these metrics or any other customer-service metrics that you think are important in delivering the Agency’s work.

Noel Shanahan: I would be very up front and say that I think that the people at CMEC/CSA have done a sterling job on bringing these numbers forward, but all of us would admit that the service we deliver to our customers is not one that we are yet proud of-we know there is a long way to go on that.

Q112 Ian Swales: In terms of holding you to account in future, if you like, what kind of things are you looking at? Are these the key measures, or are there other measures? Where do you expect them to be?

Noel Shanahan: There are some real key measures for me that will drive up customer satisfaction in the service, but at the same time will drive out costs once we have the new scheme in and it is working. For example, right now new applications take us about three months, to go through the process and bring online-up to 12 weeks-but we will be doing that in less than four weeks.

Q113 Ian Swales: So that is the statistic about applications cleared within 12 weeks. Your new target will be a percentage to be cleared within four weeks, is that right?

Noel Shanahan: We will be looking to clear them in four weeks. Another key element is the payments scheme, which right now can take us up to 12 weeks to alter-someone lets us know about what we call a change of circumstance, and perhaps the non-resident parent’s pay has changed. We will start to move on that a lot faster and will be looking to make the change within five days. So, again, another quick change making a material difference. If people do not pay their child maintenance, it can take us the best part of three months to chase them down and reinstate. Under the new process, within three days we will have dedicated outbound calling teams chasing them down and chasing them for the money.

We are going to drive through a range of service improvements that will be better for clients and will drive out costs, because we will not have people chasing us and we will be proactively doing it. That will therefore benefit the taxpayer as well.

Q114 Ian Swales: You think that driving for those new standards will, of itself, drive out costs as well.

Noel Shanahan: It will, because right now, as an example, in excess of 20% of the calls that we take-we take 4 million calls-are people just saying, "When am I due my next payment? What is it meant to be?" Part of our new service is that people will be able to update themselves-what they should expect, when they should expect it and when it has arrived. That will drive out, in that case, 20% of our call volume.

Q115 Ian Swales: That is a very encouraging ambition. If you achieve anything like that, it will be a fantastic lesson for others, because these will be enormous changes leading to much higher satisfaction. Good luck with all that.

Chair: Can we now go to the charges, unless anyone has not finished? Sorry, Stewart.

Q116 Mr Stewart Jackson: I just wanted to get an understanding of the particular challenges that you face, and why you are looking at those time scales. If I do not pay my post office account telephone bill on the second reminder, they will call me within 48 hours and say, "You haven’t paid the bill", and they will be putting quite a bit of pressure on me. Within a reasonable period, they will then be sending me nasty letters. Is it the sheer volume of numbers that you are dealing with vis-à-vis the number of people administering those numbers that means you cannot reduce the time?

Robert Devereux: Sorry, you have just described how quickly they get on the phone after your second reminder. Noel was talking about the actual act of non-payment.

Q117 Mr Jackson: Yes, but if I have direct debit and I do not pay, or it gets bounced, they are straight on the phone. I am just trying to get an idea of the reason why you cannot-

Ian Swales: You were talking about three days, were you not?

Noel Shanahan: Do you mean currently?

Mr Jackson: Yes.

Noel Shanahan: Currently, it is heavily a function of the IT system. It does not flag anything up to us to tell us you have not paid. All too often, it is the parent with care who contacts us to say, "My payment has not come through." We are not proud of it, but it is a fact of life-

Q118 Mr Bacon: Can you spend £500 million designing a computer system to replace another computer system that did not work-I am talking about the one that you are now about to replace, because, as the Chair said earlier, this is the third-and not include something that flags up when payments do not occur when they are supposed to?

Robert Devereux: We are. We are talking at cross purposes. The answer to the question why we cannot do it now is that the current system does not tell us-

Q119 Mr Bacon: Mr Jackson is highlighting a very interesting point, and Mr Shanahan’s answer was very clear. We knew seven or eight years ago that we had a computer system that replaced the previous system. It is that system that could not tell you whether-

Noel Shanahan: Instantaneously, it could not. Eventually-

Q120 Mr Bacon: How can one design a system and spend so much money on it, and yet it cannot do something so basic? That is what I am curious about.

Robert Devereux: That is a good question, which I would have to go and research, because, as you are observing, this was seven or eight years ago-

Q121 Chair: Who was responsible for it? It just drives me mad. It is one of the real frustrations of the Committee. This happened, presumably, in 2007?

Noel Shanahan: The year 2003 was the last.

Q122 Chair: So who was responsible then?

Robert Devereux: I would have to let you know.

Q123 Chair: Is that person still in the civil service?

Noel Shanahan: I believe not.

Mr Jackson: I declare an interest. I was on the Bill Committee for the Child Maintenance and Other Payments Bill, for my sins. We were promised a Rolls-Royce service from what we had before.

Chair: Who was the civil servant?

Mr Jackson: It was five years ago, Chair. It is a valid question.

Robert Devereux: Let us tell you-

Q124 Mr Bacon: There is an honourable tradition of going from the Department for Transport to the Department for Work and Pensions, is there not, Mr Devereux?

Robert Devereux: I have no idea.

Q125 Mr Bacon: From clogged traffic to clogged computer systems.

Robert Devereux: As I said previously, I do not know what my possible defence can be here. Noel and I are not getting out of bed every day trying to make a failure of this. We think that we are going to try to succeed in this. You are entitled to be sceptical until you see it switched on, but we are entitled to be proud of what we are doing, and we think we are going to do well.

Q126 Austin Mitchell: You are expecting to save £12 million or so by doing less work. Is that because more people are going into voluntary arrangements between themselves? Why should they do that? Why are voluntary arrangements going to increase? Who is going to police them if they break down? We all know that domestic breakdowns can be Huhne-ised and become a very bitter war over money. Who is going to ensure that voluntary arrangements are enforced?

Robert Devereux: Do you mind if I just go back to the policy question? We are still answering the question in exactly the same way in which the system has worked to date, which is that CMEC is there as a stick to get between two parties who are separated. It is absolutely central to this Government’s policy that that is not a clever way to operate, and that the best thing to do, on all grounds, is to try to support families either not to separate in the first place or, if they are separating, to get themselves some support to ensure that they can be civil and get something sorted out.

Q127 Austin Mitchell: But given the cumbersome nature of the old CSA and the difficulty of getting money out of it, it was always sensible to have an arrangement between yourselves anyway.

Robert Devereux: Yes it was. But the question that Ministers are asking themselves is, "Could we do a lot better if we put better support in place at the point at which people are either separating or coming to the Commission in the first place?" The whole idea of the gateway to the services that Noel will offer in the future is to try to ensure that people are fully apprised of all the support that they can get and all the things they could do to support themselves and their children through separation.

Q128 Austin Mitchell: But this is a gateway. Therefore, this will turn people away. If they are turned away into an arrangement between themselves, who enforces it? If the husband rats, what happens?

Robert Devereux: Okay-two things. The point is not to turn people away but to say that it would be better for them to reach their own agreements, and that we will try to support them. What I want most is for parents to have some common, consistent sense of looking after their children over a long time. The money is one element of that, and it is important to get that straight. If they go down that route and make a family-based arrangement that subsequently fails, they will obviously always have the opportunity to come back again. The contention behind this policy is that it would be better to get more people into such an arrangement in the first place. If they then come in through this gateway, the first thing we will do is say, "We will calculate how much you ought to be paying each other. Having heard the number calculated by the Commission, you may go away and create for yourself a family-based arrangement."

Q129 Chair: You don’t charge them for that?

Robert Devereux: We will charge them one fee for doing the calculation.

Q130 Chair: How much is that?

Robert Devereux: £25. Sorry, I would like to finish the answer because these steps are important. First, let’s try to make sure that we support people before they come anywhere near; next, let’s offer them a calculation service; and thirdly, let’s say, "If you want us to help you put this in place, we’ll calculate a maintenance direct arrangement. We will explain how much money should be paid, and you will put that in payment." That will then become a transfer back to a direct debit from one party to the other-nowhere near Noel. However, it is an enforceable obligation.

If the parent with care rings up and says, "You know that maintenance direct arrangement we put in place-well, he or she hasn’t paid", the case immediately goes back to the enforcement system and will go into collection. Those three options exist before you get to people deciding that they have looked through all the options and don’t want them but would rather go straight to the collection system. All that is a deliberate act of policy to try consistently to ensure that people are reaching their own agreements and not seeing the state as the thing that can most usefully sit between two parties who are separating.

Q131 Austin Mitchell: Okay, but all these are imponderables. You don’t know how many people are going to be turned away or will make their own arrangements. You don’t know what you are going to be able to do to help people, but you are going to charge a fee for it. If you had been able to make the kind of savings that you are expected to make by the first calculation-or even more savings-you wouldn’t have to charge a fee. It seems that the fee for service is going to take between 22p and 32p out of every £1 that is headed to support the kids, which as you said, is the main object of the exercise. You are snaffling 32p from every £1. That is an alternative to cuts. Why don’t you make more cuts, and give more to the kids?

Robert Devereux: I am going to comment on the policy first. I think you have just added together the charge for the non-resident parent and the charge for the parent with care. The charge for the non-resident parent is in addition to the money going to the children; it is not a subtraction. The point about charging is to reinforce the sense that coming to the state is the least best option.

Q132 Austin Mitchell: But the state set up machinery to help kids and there was no charge imposed then. This machinery is to serve the kids, not to exact a charge.

Robert Devereux: Yes, but what I have been trying to describe, as carefully as I can, is that Ministers’ conception about what is wrong and needs to be fixed is bigger than simply fixing the CSA collection system. The whole idea is about trying to get parents to be more self-determining in the way they sort things out, rather than immediately putting a third party in the room. All the evidence suggests that as soon as you have a third party in the room, relationships deteriorate. That is not good for the children, over and above the money.

Q133 Austin Mitchell: Iain Duncan Smith tells us in a letter that we are failing to recognise that a charging regime is a key part of a much bigger vision for supporting families. It seems to me that it is a key part of a vision for taking 32p out of every £1 that goes to families.

Robert Devereux: I am going to repeat myself-

Chair: Okay. I am going to stop that because I recognise where this is going. Let us go to Meg.

Q134 Meg Hillier: Mr Shanahan, the report is pretty damning about your business plans. I can point to page 33 where the headline alone says that the Commission’s business plans are unlikely to be sustainable. If you look at figure 13, there is an acknowledged five-year period between 2013 and 2018 where the gross cost will be significantly bigger than the operational cost. As if by magic, after that it is almost exactly aligned. How robust are your figures? Do you agree with this assessment?And how can you convince us that that is the case and can you explain why that gap is so big at that point?

Q135 Noel Shanahan: Yes. There is a big heavy lifting job to be done to take a million cases across two or three different existing out-of-date platforms, contact those clients, try to assist them to come to family-based arrangements and, if that does not work, to transition them on to a new system, the new future system. We will have to employ a lot of work and activity for about a three-year period to move those clients from our existing systems to our new systems. So you will see that as that drops down and the lines get closer, in 2017 or 2018-off the back of the transition coming to an end, and off the back of all our investment on the IT and the transition investment falling away-we will be driving down the costs right across operations, and that comes out. Also the costs for our corporate HQ will come down, in excess of 40% through that period of time.

So there will be a very small margin there, between the overall operational costs and gross costs. The big gap is our investment. This is really our invest to save programme-there is no two ways about it.

Q136 Meg Hillier: But how can you convince us that that is robust, because you have got this big box of difficult cases? Some of them are difficult for a reason, some of them are difficult because they have been delayed. What are your assumptions in projecting over that time scale? What have you assumed?

Noel Shanahan: Effectively, we have done some time and motion study, in terms of seeing how easy it will be to get hold of people: how many phone calls we need to make; how many letters; how many conversations; how many of these cases can we transition in every month? We believe that we can transition up to about 30,000 a month. And we have put that into our overall corporate system, and that has kicked out the costs, the headcount and everything else that is required.

Q137 Chair: How many clients have you spoken to?

Noel Shanahan: I have spoken to several hundred clients. I have attended focus groups with dozens of clients.

Chair: Okay.

Q138 Meg Hillier: So you have done your modelling, but have you done some modelling that accepts that some people might not be traceable now? And if so, what are you going to do about that?

Noel Shanahan: Absolutely. In our model, we have to assume that there are so many cut-off points, there are so many times we write to people and so many times we will go through a HMRC database to see if we can find them. We are also linked up with Experian, to try to track people down from other bills, etc. We have got the standard stuff to try to track people, but there is a point at which, if we just cannot get hold of people, we close the case.

Q139 Meg Hillier: So you would not pass them over to a bailiff at that point? I suppose a bailiff would not be interested in the case.

Noel Shanahan: A bailiff would not be interested because there is nowhere to go. The point on debt collection is that we have opened up the conversations, we are talking about what the possibilities are and they are just not massively hopeful, because generally debt collectors want clean data, and they want to know where their targets are and where their returns are.

Q140 Meg Hillier: So what are your assumptions on failure rate in terms of contacting parents who are not coughing up at the moment for whatever reason, whether that is because of your delay or because they do not want to?

Noel Shanahan: We suspect that somewhere around the region of 20% will just be very difficult to get hold of.

Q141 Meg Hillier: I am a veteran of the Border Agency, for my sins, and over the years as MPs we have heard promises. Ministers meant them and intended that they would be delivered. We also see work-arounds, so first of all it is that everything will be done by a certain date; and then it will be done, but in a slightly different way; or we will make an initial judgment when we have the paperwork to follow. Can you sit here now and tell us that it will not be messy like that, that it will be absolutely as you have described and how can you convince us that that is the case, and that you have done the maths right, because clearly that is the key thing for us as a Committee?

Noel Shanahan: The big item on this, and it is one of the lessons from 2003 and in fact from 1993 as well, is that the button was pressed to go live on a system that really just was not going to work well enough. That is the biggest lesson we have to learn. Whatever pressures are on us, we cannot go live with this system unless we know it is going to work well. Inevitably there will be some IT work-arounds; I am sure of that. It will never be "perfect" perfect. Nothing I have ever been involved in has ever been 100%. But what is really workable, really deliverable-that is what we have got to aim for, and anything that falls short of that we should not press the button to go live. It will cost us all in the long run if we do.

Q142 Meg Hillier: Okay. I am sure that other Committees will ask Ministers about that. You have moved from the DVLA to this job. How long do you intend to be at the Commission? We would love to have you back-that is what we are really saying.

Noel Shanahan: You will see on that chart that 2017 is the end of transition. So what I want on this is to be able to say-allied with the team that is here, that is in place in CMEC-is that we really transformed the legacy of CSA to a new organisation with new results. Great news for our clients; great news for the taxpayer.

Q143 Meg Hillier: So you will come back to us in 2017?

Noel Shanahan: I’d look forward to doing that.

Robert Devereux: I was guessing you were going to ask us back before then.

Q144 Meg Hillier: So I think 2017 might be the triumphant return.

Q145 Chair: Chris wants to come in, but I want to be clear. I have totted it up. You have said you have to get £234 million out of your budget, some of it by less work. There are all these bits you are adding together. Maybe it is even a higher figure. You told us earlier that you have reduced costs, anyway, more than the £151 million. You have done some work so that if there are delays, as we have talked about, you won’t find that you don’t meet your budget. How much have you taken out? As I understand it, NAO hasn’t seen that. We would like to have some feel for what it is we have done and whether we can-

Phil Gibby: We had information on the £151 million, which is the plan. We know that a fundamental review of costs was being kicked off. I think you were mentioning £30 million as the figure you thought might-

Noel Shanahan: I can see my way to getting an additional £20 million to £30 million. On the £151 million, already this year, we will deliver 10% less head count at corporate head office. Operational costs delivered by the end of this year will be 10% less than last year as well. We have an operational programme going through that will deliver 8% reduction as well through the course of this year.

Q146 Chair: What are the figures on that?

Noel Shanahan: They are all totting up to my £151 million, but I hold my hand up and say I am about £16 million light, and today I have not got a plan. This is in three years’ time. I mentioned earlier that I am not happy about where we are with productivity measures and tools. I am going to have something far better than we have got now within the year, which I will use as a big tool to help me deliver on that £151 million.

Q147 Chair: Okay, but a lot of your financial savings are dependent on the new scheme, which comes in 2014-15. I accept that miracles can happen and that you might get it in on time, but if there were possibly to be a delay in the IT, or if you just happen to get it wrong on behavioural change and the income that you are therefore likely to get in, what then? Where is your contingency on that?

Noel Shanahan: I referred to my contingency earlier. There are two parts. First of all, I am taking cost out now and seeing where I can get that buffer over this spending review period. The second one is the really big lever. I will be absolutely tight on take-up. If I am tight on take-up, I can manage my cost base-head count, largely-so that it doesn’t increase unless the volume coming in matches it.

Q148 Chair: What do you mean, you can be tight on take-up? You mean you can refuse people who come to you for the service?

Noel Shanahan: No. If the demand and the number of customers coming through is not as high as we anticipated-

Q149 Chair: You can take people out.

Noel Shanahan: I won’t recruit.

Q150 Chair: Yes, but if it is?

Noel Shanahan: It will, and that is in the plan.

Q151 Amyas Morse: Just to be clear then, taking it as it is on the table, if it all goes according to plan, with what you’ve got going on, you are going to come in with lower costs than budget, right? I know it is a contingency, but supposing it all launches off on time, you could-I am not asking you to commit to it; I am just saying that if it all went according to plan-you could come in below where your current cost budget is.

Robert Devereux: Amyas, you cannot have it both ways. You either ask us questions that say we will never make the budget, or you ask for contingency. If everything went well, we would all be happy.

Q152 Amyas Morse: I am just asking the questions to know.

Noel Shanahan: I took from the Report, and it was fair, "insufficient contingency". I am making some. I need wriggle room, because life in IT means you need it, and I want it.

Q153 Amyas Morse: I am just asking a question. If it went beautifully, you have some capacity to perform, it sounds like.

Noel Shanahan: That would be the ideal world for me.

Robert Devereux: It might just be worth observing that there are large future savings already written into public spending, which have not yet been doled out. There is a further round of austerity to go.

Q154 Chris Heaton-Harris: My question has just been taken by you, Madam Chair, and by Amyas, which is really kind of you. I was particularly worried. The whole Report basically leads to the point about contingency and the fact that you did not have one, and that somewhere down the line you would have a crunch point, which would not look very pretty. I have happily taken on board what you have said. I desperately want it to work, because you provide me with the majority of my casework, like most of the other people around here, and I do not think the system works particularly professionally now for the parents that I deal with on both sides of the equation-fathers and mothers.

There is a big job for you to do, so I happily support the policy, although I know we are not a policy Committee. I am pleased to hear what you have said, but I am concerned about the phrase you mentioned earlier: the big, heavy lift. Could you take us through that big, heavy lift in a bit more detail, because that really affects your contingency, at the end of the day, does it not?

Noel Shanahan: Yes, it does and it will all be down to the accuracy of our planning and timing, but if you imagine we have 1 million clients and we are going to have to have a look at each case, because each of our cases has two clients and two parts to it  we should communicate with both of them. Part of that communication is making it clear that there are alternatives to the CSA and the statutory scheme and telling them about support mechanisms that are in place to support them coming to family-based arrangements. That is quite a job of work-no two ways about it-but that is why we have got three years to do that. There is a range of communications. The Minister announced recently £20 million-worth of support for family services to support people coming to their own family-based arrangements, so there is a range of tools in place that we need to point people at and help guide people to, but yes, we are there for a fall-back if people need us. Ultimately, we still can have legal cover to apply enforcement, but people can start off with arrangements through the CSA they do not have to pay for under our maintenance direct option. The payments are only there for people that simply do not pay-who do not want to pay automatically. If they can do it themselves, it is free of charge.

Q155 Chris Heaton-Harris: Can you just clarify when you are going to flick the switch on the IT?

Noel Shanahan: Our target date and everything we are geared for is October 12 for phase 1-that is new applications. Midway through 2013 is when we go on phase 2, which introduces the charging process. Only then, and after then, would we start to transition cases from the old system to the new system.

Q156 Chris Heaton-Harris: Are you on track for that?

Noel Shanahan: We are focused to deliver that.

Q157 Ian Swales: You mentioned a few minutes ago the HMRC database in connection with tracking people. For many of your clients and, indeed, a lot of the people round this table, there is always some surprise at the lack of joined-up work that goes on in some of these agencies. I was wondering how you see the new universal credit system, which hopefully will be in way before the end of this time scale, first, affecting your work in terms of tracking people down and so on, and, secondly, answering the previous witness’s question about using income data that is available to you by some means to influence your work. I think you were in the room when the previous witness told us that it is frustrating for clients to have to report on activities of former partners when the agencies have already got data about their income and so on. My question is therefore about joined-up thinking and how universal credit might affect your work.

Robert Devereux: Can I do the universal credit and you pick up on the earnings bit, Noel?

This programme was designed-it was invented-just to make sure there is a regular annual feed of how much earnings the non-resident parent has actually got. The universal credit system takes that on one stage further and starts producing monthly amounts of how much people have earned in order to adjust their benefits. It is not strictly necessary within the bounds of the scheme that we have currently designed for CMEC for it to be a monthly calculation. You can hypothesise that maybe it would be even more accurate if you did it monthly and in principle you could do that, but you would not thank me if I made it more complicated at this stage.

I think the main answer is that it is such a big step forward for the Commission to have regular, annual feeds of what the data is, exactly as the lady from Gingerbread said, and we will bank that. I do not think you need to worry that although there is a further step happening for universal credit, it necessarily casts a shadow over this.

Q158 Ian Swales: The real question then is to what extent you would then use that data that you have from the system. As the lady from Gingerbread said, there is frustration even where you know data, it does not appear to affect the outcome until somebody appeals or complains.

Noel Shanahan: Yes, we use data from HMRC. If for any reason it is not just self-employed people, but also employed people, says that the amount of child maintenance they are going to get doesn’t fit with the lifestyle of the other partner, they come to us, and talk us through why. When there is evidence, or an opportunity to track it down and check it out, we will do that. It may be very difficult because people’s lifestyle is sometimes not in line with their PAYE. We do what we can to check it out-

Q159 Ian Swales: We all know of examples of that, but I am asking whether you are going to build in the assumptions that you already have about a partner’s income, and have an automated way of checking that against their income in the HMRC system. That is the basic question.

Robert Devereux: We are talking at cross-purposes. The whole point of the system is that the data that HMRC has on someone’s earnings is what no one will have access to, so he is not ringing up occasionally; that is fundamental to the design of the system. That is a different point from asking whether HMRC’s information is a fair reflection of the individual’s lifestyle. That is a tax collection problem.

Q160 Ian Swales: But then uses it before the person comes and says something about the lifestyle.

Robert Devereux: Yes.

Q161 Ian Swales: So that will come.

Noel Shanahan: Absolutely. It is part of the process.

Robert Devereux: The annual review that was referred to in the report is precisely the act of getting the latest year’s data from HMRC and updating the earnings, instead of waiting for 1 million parents with care to come and say, "I think he earns such and such."

Q162 Meg Hillier: Is that all income, not just earnings?

Robert Devereux: I’m not sure I know the answer to that question.

Noel Shanahan: As it stands right now, it is all the income that comes through PAYE. That’s the policy we have.

Q163 Chair: So it’s not all income.

Q164 Mr Bacon: This is my question, and it’s precisely the point that the witness from Gingerbread made. HMRC has information about income, not PAYE, but income. If you own lots of shares-Woolworths is perhaps a bad example-that pay dividends, HMRC takes that into account when assessing the overall tax liability, does it not, Mr Shanahan? You are nodding, but the record cannot reflect that. Could you say yes or no to my question?

Noel Shanahan: Could you repeat the question please?

Q165 Mr Bacon: I know that you are not a tax expert. You have done other things, but am I right in thinking that when HMRC assesses someone’s tax liability it takes into account all their income, including income that they have received from dividends?

Noel Shanahan: Yes.

Q166 Mr Bacon: Am I right in thinking, therefore, that as the witness from Gingerbread said, you have in front of you this thing called dividend income, but you are not going to take any notice of it.

Robert Devereux: No.

Q167 Mr Bacon: Is that wrong?

Robert Devereux: No, that is wrong, because we are not going to be collecting information that we are not going to use. That is a fundamental principle.

Q168 Mr Bacon: But you are not asking for all the income, are you?

Robert Devereux: Exactly. You are asking an interesting question, to which I genuinely don’t know the answer-have we self-limited ourselves to earnings, which is an interesting concept, but not income, or is there a way in which we could use income?

Q169 Mr Bacon: This is not a policy question.

Robert Devereux: It is a policy question.

Q170 Mr Bacon: No, it’s not. The question is about efficiency and effectiveness in doing your job-the job that the policy is designed to deliver. This Committee looks at value for money, which comprises economy, efficiency and effectiveness. If information is available to the Government which you are ignoring, that raises questions about effectiveness, which is the remit of this Committee. I am curious about it because, if you are relying on parents with care to come forward and say that their partner owns lots of shares and has extra income, that is less effective than taking advantage of the fact that you already know that information, isn’t it? Again, nodding doesn’t cut it for me. You agree that it is less effective.

Noel Shanahan: Yes.

Q171 Mr Bacon: Thank you.

Q172 Ian Swales: That is what was behind my question, which I am glad Mr Bacon clarified, because I did not ask it in enough detail. If the carer comes forward and makes the comments you referred to earlier about lifestyle and so on, would you then go and look at all sources of income?

Robert Devereux: I do think this is a policy question. Ministers have determined either that they want this based on earnings, or that they want it based on income. I can see exactly why everyone thinks income is the right answer. Can I write you a note to explain whether it is income, and if it is deliberately earnings, what rationale people have thought about for that? I doubt very much whether at any stage the commission is in possession of facts that it cannot themselves put straight into its computer, because that is not the way data sharing normally works under legislative constraints.

Q173 Ian Swales: That note would be very useful.

Robert Devereux: Let us offer it to you, because quite genuinely the point that was made-

Phil Gibby: Can I just clarify one thing, if I may? I cannot comment on the income thing, but I think the other point to bear in mind is the historic-the last-self-assessment or tax return that is used for the next set of maintenance payments. I think there is a 25% tolerance, isn’t there, in terms of whether you would adjust. I think as long as it is within 25% it doesn’t change from that.

Robert Devereux: That is a different point. Let us write you a note. I perfectly understand the question; I just don’t know the answer.

Q174 Mr Jackson: Just a question about whether you are satisfied that you have got the capability to track people down. I say that because I understand that you are at the moment participating in pilot projects with the Electoral Commission on data matching and DWP is the lead Department. So presumably there is the capability, albeit it is among a small number of areas, including my constituency, Peterborough. Would you look to develop something similar? That is about actually physically tracking people down-in this case to find out that they are registered to vote; but it can be used. That is the first thing.

The second thing, briefly: right back at the beginning of your evidence you talked about the imposition of punitive fees. It seemed to me in terms of the legacy issues into the organisation that punitive fees were in inverse proportion to the chance of ever catching up with people. I just wondered: are you going to pursue a similar policy? I don’t understand the rationale for punitive fees if you are never going to track people down. It seems to me that that has totally skewed the figures in terms of likely income, if you are just saying, "Well, 10% we’ll give punitive fees" but you are never going to catch up with these people. I just wonder what your particular view on that one is.

Robert Devereux: Can I just correct that; he was not talking about punitive fees. He was talking about punitive assessments.

Mr Jackson: My error. Assessments.

Robert Devereux: Clearly, the thought process was, "Actually, I’m not making progress here. Let us, as it were, put a rather generous assessment-punitive-in front of this individual, to see if that concentrates their mind." The reason we got into explaining that is because that is the thing which is actually sitting in the database at the moment, calculating all the £3.7 billion arrears-and almost certainly it’s wrong.

Q175 Mr Jackson: But to use the technical term, it’s buggered up the figures, really, hasn’t it?

Robert Devereux: Correct, that is a very technical example. On the other question about data matching, the commission is already routinely running the people it can’t trace through surveillance with both HMRC, with Experian, with others, and whatever additional things that we are trying to do across Government, we will be trying to do the same. So, if you are not paying at the moment, then either we are trying to trace you or we are trying to take enforcement action. That is what we want it to be.

Q176 Austin Mitchell: I am sorry you are not going to use the information on dividends; it seems to me a major part of income for many people. If it comes to MP cases IPSA will be pleased to shower you with information on why our lifestyle is so much lower than our tax liabilities; but that is not the question. It is a reflection.

I was asked to ask this question by operations management people I met. Mr Shanahan, you have got to improve your operational efficiency, so let me ask what training you provide to equip back-office staff-and you said some of those will be short-term or temporary appointments-with the ability to effectively manage the delivery of the operations. So what training and operations management do your back-office staff have?

Noel Shanahan: There is a range of training. It comes in two key parts, often delivered together. The first part is just driving the technology of the systems-even on the clunky systems there, there is quite a lot of training to be able to drive and put applications through and do the normal tasks on those systems. In addition to that is training in terms of service-how to deal with customers; how to talk with customers, who often talk to us in a distressed state; how to manage those conversations; how to try and get to the key point; how to drive a conversation forward on what is an agreed outcome and at the end of it to try and make sure that when that caller is on the line, we have found and addressed all the issues that they have got. So there is a suite of training, depending on which part of the business you are in. Some of it could be more legal-oriented, some of it more service-oriented, some of it more finance-oriented. It depends on where you sit. So there is an overall buffet of training systems and service, and then there can be specific bits on top.

177 Chair: I shall ask some final questions on this, and then I want to raise one other issue. Somewhere in the papers it said that 20,000 of the cases could go to court now. Have you done a costing of that? Have you looked at the relative cost of cases being considered by the court as compared with being considered by the Commission?

Robert Devereux: As I understand it, there are two costs here. I am guessing that you mean the cost to the court system or do you mean to the individual?

Chair: The cost to the taxpayer.

Robert Devereux: The answer to that is no. We have not added that in to the calculation.

Q178 Chair: If you remember, this thing was originally set up to get people out of court. If one of the effects is to put more people back into court, there is a cost to the taxpayer.

Robert Devereux: There would be, but it is also the case that people who make an application to court pay £200.

Q179 Chair: There is still a court cost.

Robert Devereux: The question is whether or not the court is properly covering its costs, which is a question for my colleagues.

Q180 Chair: Except for us, it is across Government. I understand that you have a lot to do in DWP.

Robert Devereux: I just do not know whether £200 is the cost.

Q181 Chair: I assume that the Treasury will be interested in this.

Marius Gallaher: We are and we always look at the total cost to the Exchequer if we can.

Q182 Chair: So, in the new business plan that is being submitted to you-have you got it yet?

Marius Gallaher: I am not aware that we have.

Q183 Chair: But it is going. Can we be assured that the cost to the taxpayer, the overall cost to Government, will be considered?

Robert Devereux: It is a very reasonable request, yes.

Marius Gallaher: Yes.

Q184 Chair: The second thing is that you have thought about introducing fees. I accept that there is a policy view on that. I asked this question of Gingerbread. We have this fascinating behavioural insights team in Government. Did they give you any advice as to whether or not people’s behaviour would change? Did you take any advice from them?

Robert Devereux: I think that the behavioural insights team has four people in it, and they have been doing quite a lot of other work. I do not think that they have done this particular piece of work.

Q185 Chair: What a shame. I am trying to find out what the hell they are doing. I ask this question quite frequently of people. I am asking the NAO to do an investigation on it.

Robert Devereux: As it happens, I know about some of it. They have been working with HMRC. By simply changing the wording on the letters that are sent out, they are getting fundamentally different answers. If you say to someone, "Actually, you haven’t paid your tax-92% of people in your postcode have" you will get a better answer than if you just say, "You haven’t paid your tax." If you ask me, it is quite a remarkable science.

Q186 Chair: But you need them to help you.

Robert Devereux: If I may, it is not as if we have not thought about this. In the Green Paper, we set out quite clearly the evidence from our large-scale surveys about what people may or may not wish to choose to do. Please do not think that the only expertise in behavioural insights sits with these three in the Cabinet Office.

Q187 Chair: If it turns out that the introduction of this policy were to lead to an increase in child poverty, which is another of your responsibilities as accounting officer in the DWP, have you got plans in place to review it to make sure that that does not occur?

Robert Devereux: You have seen how much interest the Government are taking in issues to do with social justice and child poverty. The very reason why we were going down this course-

Q188 Chair: I understand why you are doing it. What I was asking you is that if the evidence comes back that this leads to an increase in child poverty, have you plans in place to review it?

Robert Devereux: Plans in place to review, fine.

Q189 Chair: You have no plans in place to replace?

Robert Devereux: I do not have a completely separate policy up my sleeve. It is hard enough to deliver the one that I have in front of me. Were it the case that it was manifestly not working-

Q190 Chair: If you are not getting the income in, if you do not get the £71 million that everyone apart from you is sceptical about, and it is coming in in the last year of the spending review, have you got plans in place for alternative cuts?

Noel Shanahan: If I do not get the £71 million in, it will also mean that I have not got a lot of the volume in, and therefore a lot of my cost base will be reduced in line with that.

Q191 Chair: That is possibly where the poverty comes in.

Robert Devereux: Possibly, but that actually-

Chair: That is why we need the evidence.

Robert Devereux: But that actually needs to be looked at after the fact.

Q192 Chair: May I ask you about the people with arrears, whom I am really interested in and you can write me a little note about? Will they be subject to a collection charge, when you are chasing those arrears?

Noel Shanahan: No, only historical arrears.

Q193 Chair: Okay, thank you for that.

If there is a non-resident parent and they fall behind, which they do, or there is a change in their circumstances, at what point are you going to trigger a charge? You have an arrangement and something happens that changes it, at what point are you going to trigger a charge?

Noel Shanahan: Well, that would be a discussion with the parent with care as well. So if the parent with care wanted to give their other partner an opportunity to continue paying-

Q194 Chair: At what point would you trigger a charge?

Noel Shanahan: When that parent with care has said, "I have had enough, this person hasn’t paid." As long as there has been a duration of at least a week between the payment being due and it not happening, we will then contact the non-resident parent and give them 14 days to prove that they did make the payment-sometimes that happens-or to say, "Okay, I’m not going to make it", in which case we would start to put in our normal collection process, which includes charges.

Q195 Chair: Thank you very much.

Mr Devereux, since we had our last hearing with you, on the Work programme, quite a lot has happened. I wondered whether you as a Department had had any allegations of fraud or malpractice against any of the other providers who have taken part in the Work programme, apart from A4e.

Robert Devereux: Not new ones that I am aware of.

Q196 Chair: Have you current ones?

Robert Devereux: I have not brought that information with me.

Q197 Chair: Can you let me know? I am interested in allegations of fraud or malpractice, whether investigated by the providers themselves, by the DWP or by the police, against your providers?

Robert Devereux: I am sorry, I was not prepared for that.

Chair: Since the hearing, I have personally-just me, and I don’t know if other people are in the same position because I have not shared this with the Committee-had close to 100 e-mails, phone calls or letters, from employees, former employees and clients of A4e. Some of them contain serious allegations of fraud, or they contain allegations of unacceptable, poor practice. Again, I wondered whether you had received similar correspondence, e-mails, phone calls or letters.

Robert Devereux: I have not, but I have not asked whether they have had them in my organisation.

Q198 Chair: Clearly, I am considering what to do with this stuff that I have received, but it is so overwhelming-I have never had all this before-and I just wondered at what point you would believe that there is systematic fraud.

Robert Devereux: As you probably know, we have agreed with A4e an independent examination of what-

Q199 Chair: They are paying for it-it’s theirs, they own it.

Robert Devereux: Would you rather I paid for it?

Q200 Chair: I would rather it was independent.

Robert Devereux: In what sense then, I am sorry?

Q201 Mr Bacon: What was the sense in which you meant it was independent?

Robert Devereux: It is being done by someone that is not A4e.

Chair: But it is being paid for by them.

Q202 Mr Bacon: Who chose this person who is not A4e?

Robert Devereux: Okay, I am going to have to write you a note on this, because I do not have it in front of me, but we are engaging with A4e to get an independent assessment-in the sense of getting an audit practice in, that sort of thing, which is independent.

Anyway, the point is that that is under way. Maybe you want another conversation with us about whether that particular audit might be a place for you. It depends on what you wish to do with-

Q203 Chair: You would be willing to talk about that.

Robert Devereux: Absolutely.

Q204 Chair: The final question is about the criminal investigations into A4e in Hull. Those investigations were proceeding in 2010, and the convictions happened in July 2011, I think. Emma Harrison was appointed by No. 10 in 2010. I presume that the Department was aware of those proceedings-did the Department tell No. 10?

Robert Devereux: I am sorry, but as I understand it there were no criminal proceedings at the point at which Emma Harrison was appointed by No. 10.

Q205 Chair: There were, and I can let you know, because this is from DWP itself, that DWP has investigated nine cases, five of which were found to have a case to answer and have been dealt with, while one is ongoing-we know about that. In five cases, money was paid back. The Hull case actually went to court in July 2011, but it was proceeding earlier-the police were investigating-and that was one in which someone was found guilty on eight counts of forgery. So that was all proceeding, the police were investigating and everyone knew about it in 2010, when Emma Harrison was appointed. Did you tell No. 10?

Robert Devereux: The Prime Minister has already answered these questions in PMQs, so why don’t I write you a letter-

Q206 Chair: The Prime Minister didn’t, he just said-I’ve got it somewhere-that there were no formal investigations into A4e. There were, because the police were at that time preparing a case to go before court.

Robert Devereux: Forgive me, I have come prepared to answer questions on CMEC, so may I write you a note on this?

Q207 Chair: The other thing that I want to know is: did your Ministers know?

Robert Devereux: Let me write you a note on it. You are asking me a lot of questions about a subject that I have not been prepared to talk about, my apologies.

Q208 Chair: I thought you would have known about it because it is quite important at this point in time.

Robert Devereux: You might have done, but it is reasonably difficult just to get the CMEC thing straight.

Chair: All right. Thank you very much.

Prepared 6th March 2012