Remploy - Work and Pensions Committee Contents

Examination of Witnesses (Question 31-64)

Q31 Chair: Thanks very much for coming along this morning. I think you have been sitting through all the last evidence session. Perhaps I can start where the last evidence session finished off. Mr Davies said he thought that it was Remploy's management plan to get rid of the factory network. Is it?

Ian Russell: Firstly, thank you for inviting us to talk with your Committee this morning. We appreciate that opportunity. The Remploy board, which I chair, has a plan, and that is the modernisation plan. That is what we are tasked with delivering. As you will have seen from the evidence, there are really two key objectives in that, both of which have been discussed in the first part of your session this morning. One is to quadruple the number of disabled and disadvantaged people that we support into work over the next five years, and we are on track for doing that. We have now trebled the number of disabled people that we support into work over the last three years. The second key objective of the plan is to remain within the Government's and the Department's financial target, the grant-in-aid that we receive, of £555 million over a five­year period. These are the two objectives that we have.

On placing people into mainstream work, that is going very well, as I have mentioned; we have trebled the number of people that we are supporting on that side. But on the financial side, we are not in line with our budget; we are running over that £555 million currently by about £14 million. If we continue on our current path, we will be looking at an overspend of some £40 million. I think, Chair, that the answer to your question is the company and the board's plan is the modernisation plan. That is what we are tasked with delivering, and making sure we hit all the targets that are set for us within it.

Q32 Chair: That does not really answer the question, because within your target and your modernisation plan, if you are to hit your financial targets, you will have to withdraw from the factory services, because that is the drain on your finances. That is why there is a gap between what the Government has said that you can spend and what you are actually spending. Am I right in saying that actually that is the factory network—it is not the Interwork programme that is causing that discrepancy in your funding?

Ian Russell: You are correct, Chair, that the overspend, currently and projected, on the budget, is caused by the factory side of the business, and there is one reason for that: the level of sales that was projected in the modernisation plan is not being achieved. Although we are reducing costs by more than was planned, nevertheless the losses within the factories have not come down in the way in which the plan envisaged. That is why we have moved on to the voluntary redundancy programme, which has been the source of some discussion already this morning.

Actually, the other really important consequence of that lack of sales, that lack of work in the factories, is that on an average day 50% of our factory employees have no work. Since our mission, Remploy's mission, is to transform the lives of disabled people through employment, we think it is fairer to offer our factory­based employees the opportunity to move into mainstream work. Last year, on an unaudited basis, we supported some 20,000 disabled and disadvantaged people into work. We think it is fairer to offer our 3,000 factory employees that opportunity, rather than progressing with a situation where 50% of our employees, on an average day, have no work.

Chair: One of my colleagues will ask you questions about why your sales are so low.

Q33 Kate Green: How would you respond to the point that was made a few moments ago by Kathleen Walker Shaw—that management never really wanted to put its energies into making the factory side successful, because it is just too hard?

Ian Russell: All the facts, as opposed to the historic rumours, show that that is just not true. What Ms Shaw described in the 1990s and the early part of the 2000s was a situation where a lot of people, including the GMB, did a terrific job at getting legislation passed that would enable public-sector organisations to place contracts with employers more than 50% of whose workforce were disabled. I think that is a very laudable 1990s-early 2000s achievement, but the fact is, when the modernisation plan was being written, the management at the time—this is 2007—proposed an increase in the level of public sector sales through the factories of 50%. It was management's plan to increase factory sales into the public sector by 50%, based on the opportunity created by that new legislation.

Between the publishing of our consultation paper on the modernisation plan in May 2007 and its final approval by the Secretary of State later in 2007, the trade unions, the Government and local stakeholders had all persuaded us that, rather than a 50% increase, a 130% increase in public sector sales was achievable because of the support that we would receive. You heard from our trade union colleagues earlier, and how Phil Davies described his support for that increased target of 130%. Despite an increase in the number of salesmen that we have, the increase in the quality of the sales force, the improvement in the systems around the sales force, the fact is that that increase in sales has proved to be unachievable, and that is what has caused half of our factory workforce, every day, to have no work.

Q34 Stephen Lloyd: Following on from that, you obviously heard that the previous speakers were very unhappy with what they would define, I think charitably, as inadequate procurement processes, both in the legislative terms in Brussels and also the lack of real focused procurement officers from Remploy within the UK. They were quite blunt—conspiracy to fail, sales not being achieved. You heard; you were here. How would you respond to that?

Ian Russell: Again, one has to look at the facts. The company, with the Government and the Department's support, has increased its sales force by 20% since modernisation, so we have 20% more salespeople on the ground than we did three years ago.

Q35 Stephen Lloyd: How many more procurement officers do you have? There is a very specific difference. There are business development, sales and also procurement officers. They are completely different, so I am assuming you have invested in procurement officers as well. That is crucial.

Ian Russell: Mr Lloyd, I think the reference to procurement officers was within the organisations that we are looking to sell to. We have salesmen selling to procurement officers, but you make a very good point, because one of the things we did was that, in addition to boosting the number of salespeople by 20%, we significantly raised the quality. We appointed a very senior head of public sector sales with experience of procurement officers, and we appointed to our board a non-executive director who himself was a procurement officer. We have done a lot of work to try to get to grips with this area but, despite the unions' help, despite the Government's help and, frankly, despite the previous Prime Minister's help—everybody has been on board for the last three years, since modernisation, to drive up the level of public sector sales—they have remained flat. We are selling roughly the same amount today to the public sector that we were selling three years ago.

Q36 Stephen Lloyd: Why? You are the Chairman; you are the Chief Executive. I have worked in both the public and private sectors; I went down this road numerous times before I got into politics. What, in your opinion, are the main reasons why that has failed? You say that is the right investment. I would have a non­exec with a procurement background; I would have a head of business development who understood public sector procurement. Why did you not get a result, in your judgment?

Tim Matthews: When we talked, as we have extensively, with the main Government procurement officers who are clearly the access routes into major contracts, it is fairly clear that, in two or three areas of our skills where we have major manufacturing capacity, we have had major successes. Now, whether we would have had those irrespective of all the support and whether we would have won them on strictly commercial grounds is hypothetical, but in areas like our specialist textiles business, like the area of schools furniture, we have made very significant strides both with education authorities and increasingly with private contractors, who are running the BSF[1] programmes.

In one of the new areas of business, the recycling of IT equipment, where we work with both private providers and large public sector agencies on their refresh programmes, we have seen in those areas where we can add major value—and where there are significant multi­million contracts to be had—that we have won some very significant work and delivered a very high­quality service. We provided for the Home Office a full re­kitting of their protective suits two years ago. They put us forward for a quality and service award on the back of that.

The fact is, if you look outside those quite specialist areas, Government does not buy a huge amount of goods and services that are manufactured in Remploy factories. We have done a lot of work, as the Chairman said, through our sales teams, and we have done a lot of work with local authorities and with other public-sector agencies, but they tend to be quite small contracts outside those three big areas. We have seen across those areas that the procurement has been fairly flat. It is not that we have not bid for work or we have not chased work. We do not bid for work that we do not think we can deliver.

Q37 Stephen Lloyd: I am very interested in what you are saying, but in a sense it could be argued that you are building or supplying products that the market does not require. In pure business terms, obviously what one would do is either go bust or change the product. Now, clearly it is a different issue for Remploy for our disabled employees. The supportive framework there is important, so the going bust is not an option, though I have to say you are heading in that direction. What are the reasons why you do not change your product? That is what businesses do. That is the marketplace.

Tim Matthews: We have done. The example I cited of the recycling of IT equipment was a major shift of emphasis. Those businesses, the capabilities and the business development, take a little time to build up. I think what we have seen over the last three years since I have been in Remploy is our markets have actually been stronger and better to develop with a number of our private sector clients. If you look at our top­10 clients by value of contract, they are all private sector clients now. We have in effect shifted to where we can satisfy the market, but that, apart from those three main areas of work, has not been in the public sector.

Ian Russell: If I could add to Mr Lloyd's private sector example of what a successful management team would do, they would look to change the business model in that situation, which we have done. That is one of the reasons why, under our Chief Executive's leadership, we have looked at the possibility of more social enterprise and locally-based factories, so trying to get back to a smaller, more local business model.

We have had some success with that. The fact is that, sitting here today, our local enterprises and our social enterprises still are only 40% full of work, so there is still not a huge quantity of revenue and business to be achieved, even under that more local stripped­down model with fewer overhead costs. There is still not a lot of work out there to satisfy the number of employees that we have. Bearing in mind that our mission in life is to transform lives through employment—that is what we do—that is the key that we have to try to find.

Q38 Kate Green: I very specifically want to come in on that point. We were told earlier this morning by one of our witnesses that there was, inevitably, an element of lower productivity associated with the employment of profoundly disabled people. How do you take account of that in your business model?

Tim Matthews: It is certainly the case—and this does not just apply in Remploy, clearly—that disabled people in different environments require different degrees of support, some of which, less than is often assumed, can add additional costs either to the process or to the level of supervision. What we have to do in talking with customers and clients about work is we clearly have to make commercial decisions about how we price, how we put forward the quality of our services, and we have to take into account any additional on-costs that come with that. That is one of the reasons why there is a cost of supporting disabled people in employment. The question that we are wrestling with is: what is a reasonable level, given the degree of support that people need?

Q39 Kate Green: You are making that decision from a commercial perspective.

Tim Matthews: I have not met a client buying services from us yet who would not say, "We want the best quality products that you can give at a price that is competitive in the market." Customers do not deal with us as charities and we do not wish to be dealt with as charities. Clearly, we have to price in a way that balances the need and desire to maximise the work and the quality of the work that we can get into the factories, but not to the point where we are just bidding for work at any price.

Q40 Kate Green: So it is very important to get that business mix right.

Tim Matthews: Yes.

Q41 Chair: Can I ask how many of the expanded sales team have a disability?

Tim Matthews: I am not sure I can answer that one.

Q42 Chair: How many of your management team have a disability?

Tim Matthews: Overall, outside of the factory workforce, which would clearly skew the numbers, about 25% of our staff and managers have a disability.

Q43 Chair: Going down the business model route of the social enterprise is one of the routes that we might be exploring in Aberdeen, where Cornerstone already has a corner of a factory, and I understand the Aberdeen factory has lots of work at the moment. In that sense, your sales team has been successful. If you are going to go down that route, that is going to be a much smaller, more discrete, more autonomous unit and, if you are to continue to employ disabled people, we need disabled people with management experience, otherwise management is going to be run by non­disabled people, which will skew the whole raison d'être that you have of providing jobs for disabled people.

Is it not the case that, as a company, you have actually thought of disabled people at the lower end of the labour market, rather than thinking that disabled people could be in management roles as well, so you were looking at the full range? Is there something about disabled people who perhaps would be capable of the higher­level jobs that they do not want to be anywhere near a company like Remploy, because of its history?

Tim Matthews: Well, that has certainly not been my experience. In our Employment Services business, we necessarily spend a huge amount of time talking with employers, both public and private sector, about the business benefits to them as well as any wider social benefits of employing disabled people throughout their organisation, from top to bottom. We cannot credibly do that unless we have a very clear policy and achievement ourselves of being a model employer of disabled people, and that is why I said we currently have something of the order of 25% of our staff who are disabled, which I think would be way ahead of any comparable professional services company.

Having said that, I think we recognise we have some considerable way to go, certainly in terms of giving disabled people the opportunities and encouragement to move right to the top of the organisation. Last year, as part of that, we put in place a management development programme specifically aimed at some of our higher-potential disabled junior and middle managers to give them accelerated opportunities to rise through the management. I accept we do have some way to go, but it is something we are passionate about as a business. We have to be passionate about it and committed to it if we are to be credible in the market in which we operate.

Q44 Chair: That is true whether it is the factory side of things or the Interwork side of things.

Tim Matthews: Absolutely.

Q45 Chair: Can I ask how you think you have handled the voluntary redundancy side? Do you accept the reason why the unions and the workforce are very suspicious about what will happen, and that maybe helps to explain the leaflet that Harriett Baldwin read out from? It is that the unions feel that promises were made the last time that a redundancy package was offered and support was promised, and that support did not materialise; the jobs did not materialise. What people thought they would get, having left the factory, did not materialise. Many individuals suffered as a result, and that is not a good legacy. Therefore, because those promises were not kept at that time, any promises about the voluntary redundancy scheme and what will happen to people are unlikely to be kept this time. Do you accept the criticism that that is where that suspicion comes from?

Tim Matthews: I accept that is probably where that criticism comes from. Going back to a point made earlier, I think if you examine the facts of what happened and the identified issues that have arisen since 2007­08, that does not bear out those claims. Remploy at the time made commitments to staff who opted, and, as last time, people had a choice between whether they took a voluntary severance or a voluntary early retirement package, or they had the choice of staying with Remploy under Remploy terms and conditions, with ongoing support to find them work.

We have to accept that those disabled people have both the right and ability to make choices about their lives as well as non­disabled people do, and for those who opted to leave Remploy, we put in place a package of ongoing employment support. Nobody could force somebody once they had left the company to stay in touch, but where they opted to take that choice about 200 of those staff stayed in touch, and we continued to provide whatever support they looked for. We equally made it clear, both to all those people who decided to leave and through the trade unions, that where people were in any position of personal difficulty—whether it was financial, family or whatever—they should not hesitate to contact us if they felt that we were somebody they wished to contact. Again, there was no compulsion on anybody to contact us.

The survey information was referred to earlier—a number of surveys have been conducted. I have to say that one of the key features of those surveys is the very low response rate. One can read a number of things into that, but what you cannot do, I think, is draw any hard and fast conclusions about both the number of people who are in work and whether any of those people have previously been in work, then were not in work and have subsequently been in work. They were a very small survey sample, and one snapshot at one point in time.

Q46 Chair: You said that you have kept in touch with about 200 from the 2008 redundancies. Have you tracked their progress and what has happened to them? Have you got a detailed analysis of how many got into work or not? If your emphasis is on the employment support and not the factories, and you want to sell yourselves as an employment services company successful at getting people with disabilities into work, then surely the group who were ex­employees of Remploy should be your shining examples of how good you are at taking people with disabilities, who may have been in supported or even sheltered employment for quite some time, and getting them into open employment or supported employment with a mainstream employer. Do you have those kinds of figures?

Tim Matthews: The group of people we have the best quality of data on are those who, in effect, moved out of Remploy's employment but stayed on our terms and conditions(Ts and Cs), because we continued to pay them.

Q47 Stephen Lloyd: Sorry, I do not understand that—moved out of your employment but stayed in Ts and Cs and you still paid them?

Tim Matthews: They were people who came out of factories that closed in modernisation, but elected to stay. Part of the offer at the time was you could either take voluntary redundancy or voluntary early retirement, or you could stay as a Remploy employee not engaged in a factory. As part of our Employment Services business, we would then work with you to find employment for you.

Q48 Chair: The accusation at the time was that you were paying people to stay at home.

Tim Matthews: The position now is that over 85% of those people are in paid employment. Where we have a cohort that we can track, we have demonstrated that those people have the skills and the adaptability to move.

Q49 Stephen Lloyd: Is that option equally going to be available for the current round of voluntary redundancies that are up for discussion—the option for remaining under Remploy T and Cs and then Remploy working with them to get them paid employment?

Tim Matthews: I was not there at the time, but the reason why that option was available was that a number of factories were closing. If you were coming out of a closing factory, it was deemed to be appropriate to have an alternative option to voluntary severance. Under the current voluntary severance programme, there is no proposition, there is no plan to close any of the factories. Anybody who is not opting to leave will remain working in their current factory.

Chair: We have some questions on Employment Services.

Q50 Brandon Lewis: Just to pick up on an issue I had earlier, is the expansion of Employment Services the main aim, and where does that sit now, in light of the results of the Work Programme, in your failure to pick up any of those contracts?

Ian Russell: If I could answer that. I think it would be inaccurate to describe it as the main aim because, as we said earlier, under the company's modernisation plan we have two aims. We have the aim of increasing the number of disabled people whom we support into mainstream work, which is what you are referring to, but we also have the aim of remaining within the Department and the Government's budget for Remploy of £555 million over five years. On the Employment Services side, if we deliver the modernisation plan—and we are three years into it, and we are on track, in line, with the plan—through our Employment Services—what used to be Interwork, Chair—we will have supported 71,000 disabled people into mainstream work. During that time, currently, we have 3,000 disabled people in our factories.

If your question is about whether Remploy today, as a result of modernisation, is supporting more disabled people into work as opposed to in our factories, the answer is yes, by a factor of 20. It is 71,000 compared with 3,000. That clearly is a very big improvement, a big change, in the number of disabled people whom we are supporting, but that does not make our factory employees any less important. There is the importance both of hitting the financial targets, but also as I mentioned just briefly earlier, the fact that one in two of our factory employees, as the Committee sits here today, has no work.

We do not think it is morally right to bring somebody into a Remploy factory in the morning, allow them to play cards, watch the television and do some training—but there is only a certain amount of training you can do—and go home in the evening. We are about transforming lives through employment, not transforming lives through unemployment. We think both parts of the business are important, but 71,000 disabled people over five years through our Employment Services is a very, very important part of the business.

Q51 Stephen Lloyd: You have your 2,000 disabled employees in factories, and 50% of the time they are out of work. I was in business for years before being in politics—a lot of people on the panel have; you obviously both have. Clearly public sector procurement is a bit flat at the minute and I think your answers demonstrate that you have taken some steps over the last few years to deal with it. But it is a bit flat, and the private sector seems to have a bit of movement. What is the silver bullet or the magic wand to increase output or throughput for the people within the factories, if there is one, in your opinion?

Ian Russell: I do not think there is one. I took over as Chairman of Remploy just before the modernisation plan was published, so I have been with the company for three or four years in its 70­year history—a relatively short time. Even in that short time, it does seem to me that every conceivable effort—not just by Remploy, but by the trade unions, by officials, by Government, by local stakeholders—has been made to try to maximise the amount of work in the factories. Yet, as we sit here today, there is less work in the factories than there was three or four years ago.

Why is that the case? I think the Chief Executive has mentioned some of it. International competition: if you are running a manufacturing business in the UK today, which is what our factories are, the presence of competition from Eastern Europe, from China and from Asia generally is a very important part of it. Whole industries have moved offshore. If I take an example from our automotive business in Coventry and in Birmingham in particular, I think the workers and the management team there have done a fantastic job at getting business from Jaguar Land Rover. There is barely a board meeting that we have now where we are not approving a new contract for Jaguar Land Rover, but all it is doing is replacing work that has been lost by other manufacturers that have gone overseas.

I do not think there is a silver bullet. That is why there are two parts to the modernisation plan that the previous Government set out—the mainstream employment part with 71,000 over five years; and the factories with 2,000 or 3,000 employees in them as well. Both parts are important. There is no doubt that the growth is on the mainstream side, because there are more offices, shops and administrative positions than there are factory positions in the UK.

Q52 Kate Green: Mr Russell, you have no plan that I have heard to make the factories viable—whether, as you say, despite every conceivable effort or, as the unions say, because of a lack of effort or skill on the sales side. You have factories that are not currently delivering to the modernisation plan's financial objectives. You have planned to make a number of people redundant, and that process is in train. You will leave, therefore, factories even more unstaffed and with empty space and unused equipment. I cannot see what your long­term plan is for Remploy Enterprises.

Ian Russell: The long­term plan is the modernisation plan.

Q53 Kate Green: No, Mr Russell, that is not a plan; that is an objective in terms of the financial achievements you need to come up to. What I do not understand is what you are going to do with your factories to achieve those objectives.

Ian Russell: In the modernisation plan, the plan for the factories is very clear. I am sorry to keep coming back to it, but it is the company's plan; that is what we are working to. The plan for the factories is very simple. It is to financially remain within the budget, within the £555 million, and to make sure that the factories offer employment, offer work. That is what we are here to do: transform lives through employment. How do we do that? It is not by cutting costs. We do not provide work by cutting costs; we provide work by winning contracts, whether public sector or private sector.

To answer Mr Lloyd's question, I do not think there is a silver bullet towards that. We have increased the sales force by 20%; we have increased the recruitment quality that we are bringing on board of our sales force very significantly. We have appointed more senior sales managers than the company has ever had before. We have introduced a sales IT system that makes it very efficient for our salespeople to do their job. We have provided them with rewards, with incentives. I think, compared with what I see in other places by way of a sales force, we have done as much as we can. The plan is to keep pressing on that, because that is where success lies.

Q54 Kate Green: I understand that. If you keep pressing, and you still cannot meet the financial objectives, what are your options?

Ian Russell: The options are very clear. I mentioned in an opening answer that we are currently about £14 million above the budget, at variance to the budget if you like, on the factory side. The Department has given us a within­five­year waiver to allow us to do that. We are now trying to restore the position to get back to the original £555 million target. We are doing that in part by offering voluntary redundancy to our factory workforce. We are also reducing other costs. Over the five­year period, we will have taken about £64 million out of what you might describe as our overhead cost base, and that is about £5 million more than the modernisation plan. To come back to your question, in addition to pressing for sales, we are also pushing down harder on our overhead costs and other costs—harder than was in the modernisation plan, to make up for the shortfall in sales. That is what we will continue to do over the next two years in an effort to try to deliver that side of the modernisation plan.

Q55 Kate Green: Will there then have to be, as it were, a stock­take in two years' time as to how successful you have been?

Ian Russell: I would imagine the Government, the Department and the board, towards the end of the five­year period, would want to, as any organisation would, say, "Well, we're coming to the end of the current planning period. Let's look and see what happens beyond that." To be very clear, the board of Remploy, which I chair, is tasked with organising the company as effectively as possible to deliver the modernisation plan. That is our job.

Q56 Chair: The fact is that you did not become a prime contractor for the Work Programme—that the successful bit, in your eyes, of the business is the Interwork bit, but you are not a prime contractor. How is that going to affect your viability on that side of the equation?

Tim Matthews: It is important to be clear: we will have a substantial role under the Work Programme. It was disappointing not to be appointed as a prime contractor. You will know from all the investigation you have done that the role of the prime contractor is to arrange, manage and deliver through a supply chain. We are a nominated subcontractor. That is not a word I would use as a pejorative term. We are a part of the supply chain nominated by five of the winning contractors and, although those discussions are still ongoing—they are not closed—it is fairly clear that we will have a very substantial delivery role as an organisation, under the Work Programme, with a number of those successful primes and a number of other primes, which are also now beginning to look in earnest at their subcontracts.

Equally, we are the largest provider of the Work Choice programme in this country. One of the targets we were set in the modernisation plan was to grow Work Step, as it was then—now Work Choice—business with commercially competed contracts for Employment Services. There again we are way ahead of our target, both in terms of the financial return but also, more importantly, the numbers of people we are placing into employment. Yes, the Work Programme was a disappointment; clearly we would have liked to have been in a prime contracting role, but we have a very secure future in that business, both as a subcontractor but continuing to be the largest provider of employment services for disabled people in this country.

Chair: In the five minutes we have remaining, I am going to go to Karen and we have questions about bonuses.

Q57 Karen Bradley: Thank you, Chair. A very simple question: how do you justify awarding bonuses of, I think, £1.3 million, while announcing the voluntary redundancy programme?

Ian Russell: If I may, through the Chair, I think there are a couple of points of reference that the Committee may not have been fully informed of: the figure of £1.5 million that you refer to covers between 300 and 400 people. This covers the sales force that we have just talked about; it covers the sales managers; it covers the managers of our Employment Services branches; it covers our factory managers. It is a broad group of people. The company, as you would expect, has a remuneration committee of the board, which comprises entirely non­executive directors.

Q58 Karen Bradley: Any workers?

Ian Russell: We have a deputy general secretary of a union on the board.

Q59 Karen Bradley: On the remuneration committee?

Ian Russell: And on the remuneration committee. I was just trying to think whether he is on the remuneration committee.

Tim Matthews: He is.

Ian Russell: Yes, that is right. We have a remuneration committee of non­executive directors including the trade union representative. On an annual basis they set targets for that 300 to 400 management population. Those are audited at the end of the financial year to compare the target with the result. The target is agreed with the Department before the start of the year. The audited results are reviewed by the Department at the end of the year. Although those performance targets might have resulted in bonuses of a certain level, for the executive directors for last year and this year, those bonuses will now be capped under the public sector—the Department's guidelines, Treasury guidelines. For the previous two years, both the Chief Executive and a number of other directors voluntarily waived part of their bonuses, so there is a sort of capping structure in place in addition to that very quantified and audited process that the remuneration committee of non­executive directors puts in place.

Q60 Karen Bradley: Can we just clarify the numbers? The figures we were given were £1.3 million to 288 managers. You are saying that it is more people than that—between 300 and 400.

Ian Russell: I think the figure is £1.5 million, and I think the number of people is higher than you were given. We may be talking about different years. Perhaps I could, through the Chair if it is allowed, give you the information afterwards.

Q61 Stephen Lloyd: If you check that and get the exact detail to the Chair, that would be useful. We are running out of time. Can I bring one issue in, if that is okay? There has been a little discussion around what the DWP or you would say is the subsidised cost per disabled factory worker, so to speak—anywhere between £18,000 and £22,000. The previous witnesses were quite categorical that that was unfair, because it was including frontloading a whole range of other costs and really it was much lower than that. I had a little bit of discussion with them saying that naturally Remploy would have to include the capital cost, because you do for factory workers. None the less, I did take on board their point that they still felt you frontloaded it a great deal and it is nowhere near that sort of figure. Could you tell me whether their evidence has some strong credence, or do you stick to what the DWP basically says—about £22,000 per disabled factory worker?

Tim Matthews: The calculation is a simple and auditable calculation. It is the ratio between the number of supported people we have in the factories and the annual operating loss of the factory businesses. Now that operating loss is an audited figure, which has appropriate allocation of overhead into it as well as direct costs. It is a very simple calculation; it is not one that is subject to manipulation. You can argue about whether it is the right ratio, but that is the ratio that was established in the modernisation plan.

Q62 Stephen Lloyd: It is the loss divided by the number of—

Tim Matthews: Supported workers.

Stephen Lloyd: Okay, fine, I understand.

Ian Russell: Briefly through the Chair, the way to arrive at a lower figure, which may well be what our trade union colleagues have done, is to exclude the sum of the central costs. Now, the reason why that would be wrong is we have just had the discussion about the importance of getting sales into the company. A lot of the sales costs are held in the centre, so if you want to arrive at a lower loss per factory, excluding the sales force is a very good way of doing it. However, I am not sure that it is right.

Q63 Karen Bradley: So it is the figure that we have been given here of a £63 million loss for the 54 factories, and that is where you get the £22,000. It is just a very simple division.

Ian Russell: Correct.

Q64 Karen Bradley: This is purely factories' costs with an element of central costs in there.

Ian Russell: Yes.

Chair: I think I am about to lose my colleagues, because the House is now sitting. I shall draw this session to a close. Thank you very much. My thanks to the first set of witnesses and thanks very much to you for coming along this morning.

I suspect that this may be something that we will be keeping a close eye on. We will not be writing a formal report on this particular session; it was more an airing of the ideas. Obviously, we already have all the evidence, and obviously with the Work Programme, which we are interested in particularly, we will be looking at the effects on individual workers with regard to it or individual benefits claimants.

Remploy may be part of that discussion as well, about how we deal with the issue of how disabled people not only get into work but are sustained in work. That is something we will be revisiting, and I suspect that Remploy might be part of that much wider inquiry. Thank you for this morning.

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