UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1034

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Work and Pensions Committee

Remploy

Wednesday 11 May 2011

Phil Davies, Les Woodward, Kathleen Walker Shaw and Kevin Hepworth

IAN Russell CBE and Tim Matthews

Evidence heard in Public Questions 1 - 64

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Work and Pensions Committee

on Wednesday 11 May 2011

Members present:

Dame Anne Begg (Chair)

Harriett Baldwin

Karen Bradley

Kate Green

Mr Oliver Heald

Glenda Jackson

Brandon Lewis

Stephen Lloyd

________________

Examination of Witnesses

Witnesses: Phil Davies, National Secretary (Manufacturing Section), GMB, Les Woodward, Senior GMB Convenor, Remploy Swansea, Kathleen Walker Shaw, European Officer, GMB, and Kevin Hepworth, Regional Officer, Unite, gave evidence.

Chair : May I begin by welcoming you all here this morning? Before we get started, I have a declaration to make: I am a GMB member and I have received money from the GMB towards my election campaign. Kate?

Kate Green: Similarly, I am a member of the GMB and I am a member of Unite, and I have received money from the union as well.

Chair : We have to make that clear. The other thing, obviously, is that the union and Remploy have been and continue to be in an industrial dispute, perhaps not quite in any kind of formal way, and we are very conscious of that. That is not the role of this Committee this morning, because we are not here to adjudicate on any industrial dispute. That is a matter between management and the unions. But what we are concerned about is the future of Remploy as an organisation, and particularly the future of the factory arm of Remploy. Our questions will reflect that this morning. Oliver Heald has the first question.

Q1 Mr Heald: Good morning. Do you agree that history is working against the traditional model for Remploy, in that there is not enough work for the factories, and far more people with disabilities want to work in mainstream employment?

Phil Davies: If I can answer that, the situation in the UK economy is changing considerably. We recognise that as trade unions but, having said that, if you take for example a British furnituremanufacturing industry employing over 100,000 people, it is more difficult now to go out and get work. The whole situation has changed because of the imports that are coming into the country; it is more competitive.

One of the reasons why we have asked Kathleen to come along from our Brussels office is to talk about public procurement. I think that question hinges on where the work comes from, and whether Remploy has the organisation to go out and get that work. There was an absolute commitment in 2008 that public procurement would be one of the major planks of the new Remploy. If I could just ask Kathleen to briefly tell you about where we see the sales coming from to fill the factories.

Kathleen Walker Shaw: Thank you. Just to be clear-

Chair : I was just going to say that we have got quite a lot of questions on the whole procurement basis so, unless you want to make a very brief opening remark, we will explore that in more detail, because obviously it is a key issue.

Q2 Mr Heald: Really I am supposed to be dealing with a slightly different set of issues, which are about what disabled people can get out of the workplace these days, and whether Remploy is providing a full day of fulfilling work for the people who go there.

Phil Davies: The answer to that is very clear. We have surveyed, and I think we have provided the evidence of that, the disabled workers who lost their jobs in 2008. Quite clearly, lots of those people, a very high percentage, have said to us they made a mistake; they would rather be in Remploy. There is an argument in the disability movement about disabled people working together. There is nothing wrong, in our view, with disabled people working together, as long as that work is meaningful and as long as it is in the community and it becomes part of the community. There is still a need for some disabled people to need full support; people with severe learning difficulties and mental health problems maybe need more support than other people with disabilities.

Q3 Mr Heald: Do you think it would be fair to say that the unions are acting as a bit of a brake on change, because if you look at what is said by the disability organisations, what was said in 2007 was that far more people wanted to go into mainstream employment and that, even with these very strong targets that were put forward for more work, Remploy would be a smaller business focusing on employment services, getting people into work and then some factories, of course, continuing as promised. The union attitude just seems to be to attack the employment service the whole time, as though it is uneconomic and does not work-when for many people that is seen as the future-and then at the same time to try to keep the numbers up in factories that are just completely without work. Only half of the week is covered with work in some of these factories. Is that right?

Phil Davies: I think that might be the perception of some people, but the fact of the matter is that the trade unions recognise a need for change; we recognise a need that some people can go straight into open employment with very little support, but others cannot. On employment service, we recognise that the job that they do is very difficult. We are not saying it should be the factories or employment services; we are saying it should be both. One of the disappointing aspects of Remploy has been that they have not used the factories to their full capacities. We have factories now where there are 10, 15 or 20 people in them. They used to have 100 people. Now, what do you do with the rest of the factory?

Q4 Mr Heald: And there is not enough work for those in many cases. Do you agree? There is not enough work even for the 15 who remain, in many cases.

Phil Davies: There could be.

Mr Heald: There is not at the moment.

Phil Davies: That is another issue. It is what sorts of targets you set your salespeople and what type of salespeople you have.

Kevin Hepworth: Remploy’s sales are suffering, like everybody in the country. At the moment it is an abnormal situation. However, Remploy management, even as late as yesterday, told us they have salespeople who are totally underperforming; if they had had a free hand, they would have allowed them to go on the VR exercise. They are trying to recruit sales staff, and have been now for a significant period, and they are being blocked by the DWP in recruiting salespeople. Now, you cannot run a manufacturing business unless you have salespeople bringing the orders in-and good salespeople, at that. It does start to make you wonder whether there are not people in the background who want to see Remploy fail.

Q5 Mr Heald: You are saying that the quality of the sales force is just not there.

Kevin Hepworth: In some areas, and that is what the management told us, yesterday even. Some sales staff are achieving 25%, 30% targets, which is woefully inadequate but, as they cannot recruit and if they let them go they are not allowed to replace them, they are better off having a salesperson bringing in a very poor amount of work than somebody not bringing in anything. The DWP has also capped the sales staff’s legitimate bonuses on achieving sales targets, which has again disenfranchised those salespeople, because you have taken away the incentive to actually get out there and sell. Salespeople rely on hitting targets to achieve bonuses.

Q6 Mr Heald: This is to do with my colleagues’ areas of questioning. The point that I am really working on is whether a lot of the disabled people are getting a good day’s work in the factories that is fulfilling for them. My other point is: would a lot of the people who work there prefer to be in mainstream employment? In November 2007, Peter Hain did say that an increasing number of disabled people want to be supported to work for mainstream employers.

Les Woodward: Can I come in on that? My name is Les Woodward, and I am the national convenor and also a shop steward in a Swansea factory. Like every other factory, we see trainees coming in. A lot of the trainees that we have got in the Swansea factory would quite honestly give their right arms to have a job in the factory, and they are disabled people. Coming back to your point about whether the factories are relevant for the 21st century, that tells me that they are. What they get from coming into our factories is they learn skills; they see at the end of the day a product that they are rightly proud of, and a product that in many respects is a world beater. To me that ticks all the boxes of whether or not disabled people want to work in a Remploy factory.

Q7 Mr Heald: You can say definitely your resistance to disabled people moving into mainstream employment is not about maintaining union numbers or anything like that.

Les Woodward: We have not got any resistance to people wanting to move into mainstream employment.

Phil Davies: None at all.

Les Woodward: There is no resistance there. What we want is for Remploy factories to be there in the future to give future disabled people the chances that we have had to learn skills and to be economically active within the community.

Kathleen Walker Shaw: Could I just add to that very briefly to give you, in a sentence, what the whole GMB and joint union campaign has been about, in terms of the strong future that we wanted to see for Remploy? It is the whole principle of the right of disabled people to choose what form of employment. Everybody in this room has had the choice of what career path they take. People with disabilities are several rungs down the ladder of being able to make those choices of their own volition-follow their own aspirations and dreams.

The aspiration of some people is to work in open employment. For some of those people who want to do that, Remploy has often been a very valuable period of work experience, development and skills. We have to remember where Remploy came from. Remploy is not a commercial enterprise; it is fulfilling a social objective. We see Remploy and other supported employment factories as very vital-increasingly vital-because without supported employment you will not be able to offer the freedom of choice to disabled people. That is discriminatory.

Q8 Mr Heald: Just to put a slightly different point to you, if I may, just to see how you would respond, at one time it was Remploy or nothing. Now a lot of us glory in the fact that people with disabilities can go out and work in the open employment market. It would be a pity if we were holding them back.

Kathleen Walker Shaw: The two, as Phil says, are not mutually exclusive; they are part of a package of options. We have to accept the reality that, even with the workers that we have in Remploy and the workers that we have in open employment with disabilities, they are just the surface numbers. The amount of people with disabilities who are still not in the world of work is absolutely unacceptable, to be honest.

For those who are currently outside of the world of work, working in open employment, regrettably-because the culture has not changed with the modernisation of political policy development on disability down at the grassroots level-a lot of people with more severe disabilities are not going to walk into open employment jobs anyway, even if we have a more buoyant economy. In the current crisis, we are looking at 20.8% youth unemployment at the moment.

Q9 Stephen Lloyd: The Remploy issue has been going on for many, many years. Looking at it from a social model, would you accept that the majority of people in the disability lobby, although they appreciate and accept that Remploy, because of its historical reasons, should be supported and there is a need for it, actually are not very keen on Remploy and the factory model? What they are really keen on-which, to be fair to the previous Government, they invested a lot in with access to work-is to get more and more disabled people out into the mainstream workplace. That is the driver.

Are you suggesting that Remploy, as almost like a protective home aspect for disabled people, should still be around in 100 years? Are you hopeful that, as time goes on, more and more disabled people with the right support are able to get into mainstream work so that mainstream society can benefit? Do you think that is a good thing or are you hoping to see Remploy still employing loads of people in factories in 100 years’ time?

Kathleen Walker Shaw: The reality is that we have to accept that we cannot talk about people with disabilities as a group that we can identify. The range of disabilities, and the peaks and troughs of the severity of those disabilities, is an ongoing thing. You cannot, at any one day, categorise that. That is why the importance of choice is such a key feature of this argument. In our view, the reality is that a lot of people are going to need support in their employment to be actively involved in the world of work. The sad reality is that commercially open jobs do not allow for the mentoring, support and possibly the lack of productivity that sometimes comes when a person with disabilities is suffering.

Q10 Stephen Lloyd: Would you accept that that has changed a lot in the last 10 years? I paid tribute to the previous Government, and I mean it; I am not being sarky. I think they have made a lot of effort and a lot of progress with people with disabilities in supporting people with disabilities into work. My view is, personally-I am sure you guys disagree, but I know what I am talking about here-that the Coalition Government is actually following that train of thought even more with the Work Programme, and investing potentially thousands of pounds into the training group providers to get off their backsides and help support disabled people into work. In my view, and I would be interested in whether or not you agree, all of you, is that the direction of travel is for more and more disabled people, with their tremendous range of skills-as all people have a tremendous range of skills-getting the right level of support so that they can get into mainstream employment.

The older model, which was necessary x number of years ago, of Remploy and factories and bundling them all together, is inescapably going to be going in a downward trend, because progress is getting people with disabilities into mainstream employment. Would you say, "No, that is not true. We want to stick with the Remploy model and expand the factories for ever and ever"?

Phil Davies: It is halfway true. In 100 years’ time, we may still have disabled people who cannot get jobs because employers will not take them on. That is a fact of life.

Q11 Stephen Lloyd: You cannot guarantee that. That is a subjective statement. In 100 years’ time, there will be some employers who, because they are idiots, will not employ women. There will be some employers who, because they are fools, will not employ Welsh people. That is a ludicrously subjective statement, if you do not mind my saying so. Believe you me, I have worked closely in that area and I know it well. There is still a long way to go, and I will fight ferociously for the rights of disabled people as long as I am an MP. But the difference today, compared with 15 years ago-mostly under the legislation brought in by John Major and then powered firmly by the previous Labour Government, legislation that I support-in the number of disabled people finally getting into work, because employers’ doors were then being battered down, is in a completely different league from what it was 15 years ago. To say in 100 years’ time that there are still going to be some employers not employing disabled people-

Phil Davies: I had not finished what I was going to say. In 100 years’ time, it may well be a lot better, but there will still be employers who will not take on disabled people.

Stephen Lloyd: I agree. Do you take my point then-

Chair : Allow Mr Davies to answer the question that you have put, and then you can come back.

Phil Davies: I will be very brief, if I can just finish. The proof and the only survey, as far as we know, of disabled people leaving supported employment, was done by the GMB and Unite. That survey showed that the biggest part of those disabled people is still unemployed-not because they have not tried, I have to say, but because they have tried and been turned down. Now, you are completely right; it is changing, and it is far easier than it was 20 years ago, but there are a millionplus disabled people still not in employment. We are not going to wave a magic wand without giving the support mechanisms to those people to find work.

Now, why take away a place of excellence, which people can use as a halfway house? That is why I said there would be changes. It may well be that you come into a Remploy factory and you stay for a limited period, because some disabled people have never worked, and they are 40 or 30 years of age. They do not know what it is to have to get out of bed in the morning and have to turn up at a certain time. What we are saying quite clearly is of course there will be change. We hope that employers will employ more disabled people and there will be opportunities in the open market for disabled people.

The fact of life is that, while we sit here, there are tens of thousands of disabled people who are unemployed. Only 26% of those who lost a job last time, in 2008, are the ones who got jobs, and 5% of them said that their jobs were better paid. Some people have gone into employment and it has been worse employment. We do not believe that disabled people should be at the bottom of the employment structure and should get the worst jobs in the UK economy, because there is a hell of a lot of talent out there.

Q12 Stephen Lloyd: Who does? Are you proposing that, say, me, the Coalition Government or what have you, or the previous Labour Government, believe that the only jobs that should be available for disabled people are scraps? That is ludicrous. Yes, there will be people in 100 years, and I know this, who will not employ disabled people because they discriminate against disabled people. There will be people in 100 years who will not employ black people, women, men or whatever. The difference from where we are now compared with 20 years ago, the direction of travel, is profound. Without going into the whole detail of the Work Programme, I should say that the whole point behind it, which actually was beginning to be proposed by the previous Government x number of years ago, is that to get to help more and more disabled people into work-not from a patronising perspective, because a lot of them have exactly the same skills as everyone else-they are going to need more support to get them into work and to hold them there. If you are running a very small business, quite often you do not have the resources that a large public sector or a corporate has.

We know and I passionately believe that, if the right support is there for a lot of people with disabilities, those smaller businesses will see that they benefit. We are not saying, "Do away with Remploy"; we are not saying, "Close all the factories." I wholly understand that, for historical reasons, they need nurturing, taking care of and managing, but broadly managing down. If in 70 or 80 years’ time there is a factory where 30% of the people have a disability, but they are hired as they should be because they are tremendous workers and have a little bit of support to ensure that, if they are blind, they can actually manage in the same way as someone who is not blind, and they are there for the skills, then I know we will have made real progress. If in x number of years’ time, you have a factory that is still 100% disabled people, and it is the only way they will be employed, that would be a real backward step.

Chair : Do you have a question?

Stephen Lloyd: No.

Chair : I do not know whether anybody wants to respond to that.

Phil Davies: Well, we have gone from 9,000 to under 2,000 disabled people in the factories. That loss has been the loss not of union membership; that does not matter to the big unions in terms of numbers. That is not why we are here; we are here because we passionately believe that Remploy factories should play a role. No one can guarantee, and we have seen no figures from Government, any Government, how long the jobs are lasting that Employment Services and other providers find. There has been very, very little data. I can remember six years ago us meeting with the DWP and asking them to monitor a disabled person, right through their life in terms of job, and see if they met the supported employment requirements. That has never been done. I do not think anyone can put their hand on their heart and say that the jobs that some disabled people are finding are sustainable.

Q13 Harriett Baldwin: I have this GMB-Unite leaflet, which went out to all the workforce in the factory, which I imagine you recall. It is about the voluntary redundancy scheme, and it gives reasons to say no to the redundancy package. It says things like, "You will lose your dignity. You may lose your health. You may suffer from depression. You will lose your friends at work. If you take voluntary redundancy, you lose your integrity and humanity." I just wondered if you thought that that language is appropriate when communicating with a workforce that has some learning difficulties and mental health issues.

Phil Davies: We have strayed into the current situation now. The current situation was brought about because of a lack of consultation. There were decisions made, we still do not know when, about the voluntary redundancy. There was no plan by the company whatsoever, and there is still not.

Q14 Harriett Baldwin: Could you answer my question?

Phil Davies: Yes, I am going to come to that with reasons for it. There is no plan after the redundancy for what is going to happen, which is a very unusual situation. In fact, I have been a national officer for 23 years and never known a company not to have a plan after a redundancy. The facts of whether we like it or not, and in the pack that we provided-I take it that everybody has had the pack of evidence-were just two. We could have put 22 or 102 letters from people who have contacted us.

Q15 Harriett Baldwin: You are talking about the process that you are going through. I asked a very specific question about a leaflet that your union has given to a workforce, which you said earlier has issues around mental health and learning difficulties. I just wondered if you thought that that language was appropriate.

Phil Davies: We gave them what we believed would happen, and what has proved to have happened in 2008 when people left a factory and got no support. Now yesterday the company went a long way to saying what support the 800 people were going to get, but the fact of the matter was that 2,500 people disappeared out of Remploy with no support. What our people are saying is they have lost their friends; they have lost their communities; they have lost their jobs; their health has deteriorated. These are facts, whether we like it or not. Out of the 500 disabled people who are going to leave at the end of May, that is going to happen to some of them.

Q16 Harriett Baldwin: You think it is appropriate to say to someone with learning difficulties who is taking a voluntary redundancy package that, if you take this voluntary redundancy package, you lose your humanity. You think that is appropriate. You stand by that. That is all I wanted to ask.

Phil Davies: Well, let me answer you. I think it was appropriate for us to do what we did in all the circumstances. I think it was appropriate to tell people that, in Mansfield, two people with mental health problems, because they did not get any help from the company, lost their homes, and it was the trade unions that had to go in and go to social services. It was the trade unions that had to give them legal aid to right that. Yes, they did lose their houses; they did lose their humanity-absolutely people being on their own, left on their own, with no friends. The only hot meals that they used to get were at Remploy. There was no support whatsoever, other than shop stewards, like these guys sat behind me, running around because they knew that that person was on their own.

Yes, we had every right to say to people, "Think very carefully about accepting voluntary redundancy." One person rang me up 12 weeks after he got his £30,000odd and said, "I don’t know what I’ve done with it. It’s gone and now I am in debt. Can you do anything?" It was the trade unions that had to go to the social services, the trade unions that had to get a financial person to reschedule the debt. The problems that we have with some people when they leave the community inside the factory are tremendous, and we have done everything possible to say to people, "Think very carefully. If you are at an age where you are going to work for the next 10 or 15 years, think very carefully about giving that job up."

Q17 Brandon Lewis: Let me just ask Mr Davies something specifically on what he just said. Bearing in mind what that advert says, there seems to me-and correct me if I am wrong-that surely there is a difference between saying to somebody who is vulnerable, "This is what can happen; here is the information," exactly as you are saying-"This has happened to other people; think carefully"-and the language used in that kind of advert, which is effectively insulting somebody or telling them, "This is what you are making yourself," before they have even made a decision. That seems very much more like being scaremongering than informative.

Phil Davies: We tried, and we will not deny it, to persuade people to stay in Remploy, because we had seen the problems. We tried everything in our means to persuade them. Do not forget that we were faced with a situation when, the day they announced to the trade unions under the 90day consultation, they were writing to every single employee telling them about voluntary redundancy. If you want to look at the tactics of being called in one at a time in some factories, being persuaded that it was best for them to take voluntary redundancy, all sorts of promises being made to them last time, not adhered to and not kept, I think our tactics were fairly mild.

Kevin Hepworth: I think as well it is very fine and dandy saying, "You sent this leaflet to every member," etc. Our reps in the workplace are very experienced at supporting their fellow members. Although those circulars went out, there were factory meetings and people were spoken to. Those people who have got learning difficulties, those people who obviously have impairments of sight, etc, are all supported by the reps at the workplace. It is not just send a leaflet out and that was it; there was proper support; there were proper briefings given to those members to expand on the bullet points in the leaflet. Please, do not just think we just send it out and that is it. It was part of a proper supported campaign.

Les Woodward: Can I come in there? As shop stewards, we are at the sharp end of everything. I can remember back in 2008 when the factory closure programme was announced. There were colleagues of mine having to deal with people locking themselves in the toilet threatening to commit suicide because they thought their days of being a valued member of the community and being economically active were over. Coming back to that notice that went out, to be honest with you that was very mild compared with what we have had to deal with in the past with the way the company has acted and the repercussions of the way that notices have been brought out.

Chair : I need to move on. We have some questions on the relative costs of supported employment.

Q18 Karen Bradley: The National Audit Office review concluded that the average cost of providing employment by Remploy in a Remploy factory was between £18,000 and £20,000 per year. I understand that you dispute this figure, and I wonder if you could tell the Committee what you think the correct figure is and how you account for the difference.

Phil Davies: The figure was not so much disputed, but the reasons for the figure were disputed. I think it is higher now; I think it is around £26,000 per disabled worker. The reasons we disputed how they got to that figure were that you would expect that in that particular factory the people in it were costing £26,000 a year to employ, but they do not carry the costs of just the factory, of course. This is where we disputed it. There is central services, which is an entity outside the factory network. There are massive costs from consultants, £5 million or £6 million I believe. The company will give you the exact figure, no doubt, from 2008. All that goes in to alter the costs. It is not somebody walking into a factory making furniture and losing heaps of money; they have to sustain that outside body of management.

We have said that there were massive amounts of cost savings to be made. We are talking millions of pounds here-the use of consultants, the numbers of management. All these get tagged on in a formula on top of that factory’s actual sales and what it costs to produce it. If there is any mismanagement or too much management in the whole of Remploy, that gets passed on, so that is why that figure is so high. We dispute that, because a commercial company would never have the 30 or so people in HR that there are now. There will still be after this redundancy 11 HR people in the businesses, who have to be paid for. That cost comes on top, whether they do any work or whether they are busy working overtime because they have loads of work; that cost is still allocated to that factory. The bigger the management structures are, the more spending worries in nonproductive places, then the higher that cost is that is passed on. That is our argument.

Q19 Karen Bradley: What do you think the correct figure is?

Phil Davies: We think that the factories should be more autonomous. We are getting into a debate of where Remploy should go. There has been a trial with five factories where these costs are not being allocated, or most of the costs, to the factories. Yesterday we were told that, without those costs and without some of the other costs, the cost has come down to about £5,000 to £6,000. Straight away you can see they have done this exercise in five of the small factories. They are calling it social enterprise in the factories, where they actually go out into the community and get work from the community.

It is a similar basis to the GMB and Unite Workers’ Cooperative that was set up in York when the York factory was closed. Last May, we set up a workers’ cooperative, owned by disabled people for disabled people, on very, very few funds. This May we are starting to go forward. There are six people there; that is all. Some of these factories are going to be down to five or six people, Worksop for one. When I said earlier there needs to be a change, it is that sort of change. We need to get rid of the costs in Remploy, because it has become a place where there are some very highpaid jobs, and you can see the difference in the redundancy packages from the management structures, where a manager with a short notice will go out with £90,000odd and someone with 25 years’ service will go out with £30,000 on average. We have done the figures; we have put the figures into this pack for you to look at. These costs are what are drawing Remploy down. We want to see more autonomy in the factories.

Q20 Stephen Lloyd: Is not one of the challenges with the costs, which my colleague was talking about, that you have the capital infrastructure of Remploy that has built up over a number of years? I agree with you; I think it is clunky. I certainly agree with you that I much preferred the smaller focused social enterprise companies employing disabled people and going out to the community. I think that is a fantastic idea and I am very supportive of that. The problem we have with Remploy though goes back to my colleague’s quote of whatever it is-£20,000-and you saying there were lots of on-costs that bring it to that point. We do not dispute that.

The challenge is that, when you have a clunky, capitalintensive infrastructure that has built up over many years, whether you like it or not, and I am inclined to agree with you on some of the salaries that some of the senior management are paid-and believe you me I am going to be quizzing them about it later-the reality is it probably is about £18,000 to £22,000 per disabled person, because of the infrastructure that has built up over a number of years. You cannot dispute that, surely.

Kevin Hepworth: If you look at this round of redundancies, the pyramid, if you like, is becoming less of a pyramid and more of a straight cylinder, because there are significant numbers, over 700 disabled people, going out of Remploy on this round of redundancies; 99% of shop floor workers who applied have been allowed to go. Fewer than 50% of the management and staff who applied have been allowed to go, and the company has admitted that they are using upwards of £15 million of taxpayers’ money to fund this redundancy exercise. What it is doing is actually increasing the cost per supported employee by over £1,000. Where is the logic? Why are we using taxpayers’ money in this way? They are going backwards instead of forwards.

Q21 Karen Bradley: The only point I wanted to make, which was following on from Stephen’s point, was that, if you are looking at an organisation with between 4,000 and 5,000 employees, 11 HR staff in my experience of the private sector does not sound that much. That is just a fact of life nowadays. You need that big back office to manage that number of employees. If you had a private sector organisation with 4,000 employees and only 11 HR staff, they would be doing very, very well. I think the issue here is, yes, we want to quiz the management and we want to look at the backrooms and the back office costs but, when you are looking at a big organisation like this, there inevitably are going to be those costs.

Phil Davies: The cost of the back office-Saint Gobain, Solaglas, which I deal with, employs over 2,600 people, three HR.

Q22 Chair : Can I just ask about the issue of the viability of the factories? We know now the numbers involved in the voluntary redundancy. Although it is not in my own constituency, I know the Aberdeen factory well; there are 25 employees and 11 will be allowed to have voluntary redundancy, which leaves a factory of 14 in a building. This comes back to the back office costs as well. It is a building that used to employ 100. They have sub-let part of it, but not very much of it. My question is: now that we know what the final figures are going to be with the number of people left in the factories, what is your assessment of the viability of some of those factories? We know that management has said the factories will close, but what is your assessment of that?

Kevin Hepworth: We have got grave concerns for their long-term future. We either have to seriously find alternative premises for some of those smaller factories to house them in a more economic environment, or look at significant dividingoff of some of the larger buildings and finding alternative tenants then to take over part of those buildings. At the moment, the problem with that is there are, as we all know, because of the closures and redundancies that took place, lots and lots of empty spaces all over, with lots of landlords desperate to get tenants, who therefore will offer very small rents.

You either own the property, so at least you only have the rates to pay on it and you have the maintenance, or we feel that a lot of these factories are just being set up so, in two years’ time, they close. There is no doubt about it; our suspicions are and we understand that the board has made a decision to close Remploy. It would be interesting to find out from them whether that is true, because we are being told they have made that decision to close the factories completely.

Certainly my colleague Lyn Turner in Aberdeen rang me last night, and he is absolutely distraught about the future for the Aberdeen site in particular. He said they were starting to take it forward and this is just sending it backwards, and that is the biggest worry we have got. Worksop, which is a GMB site, is another prime case. It was doing well; they were actually talking about, we are told, asking one of the tenants who they sub-let part of the building to when they did not need the space, to leave. Not many weeks ago they were telling us that, and the next minute they announced redundancies and they are going to let five out of 12, is it, go. You will end up with a factory with about seven people in it. We are just concerned that some of this is just a recipe to encourage closures in a few years’ time.

Q23 Brandon Lewis: I would like to start to turn towards the modernisation plan itself, because part of Remploy’s plan-a huge part-is the expansion of the Employment Services business. Looking at the figures there, that does seem to be more cost-effective and, touching on what Stephen was saying earlier, is more likely to bring people into the more open workplace. Do you agree that that is more costeffective and that, if that was able to expand, that could be a better solution in the long term?

Phil Davies: We welcome any expansion of any part of Remploy, including Employment Services, that will lead to sustainable employment for disabled people. We welcome that. Employment Services has its problems. It has just recently not won a single contract in the Government’s Work Programme, not a single contract. They are having to TUPE over 200 of their workers, some of the best people that they have got, because the contracts have been won by other providers, and they are having to become a subcontractor and TUPE over in another direction about 50% of what employees are going to lose. So it is not all plain sailing there but, in answer to your question, of course we would encourage it. Why would we not encourage it? I said earlier that it does not need to be Employment Services only; it should be a combination, but I would like to see Employment Services using the factories more, because there is a need for this initial training of people.

Now, we are seeing a lot of trainees coming in and being heartbroken-we had an argument in Les’s factory-when we are going out after eight, nine, 12 weeks, because we are going nowhere and they have no job to go to. They have got that taste of employment in Remploy, working with other disabled people and learning skills, and then somebody says, "I’m really sorry. Your funding is up. On your way." These are young people, and they were not on their way to other jobs; they were on their way back to benefits. It does need to change. We want to see Employment Services playing an active role, of course we do, but we want to see core workforces in these factories that can be places of excellence. We do not accept it is impossible to bring the work in.

Coming back to the salespeople, we were told quite clearly on three occasions, "We would have loved to have accepted some of the salespeople as redundant who had volunteered, because they are not up to the job, but we cannot do that because we cannot replace them." These are nondisabled people. If they are only acting or performing at 30%, that is 30% better than nothing at all, because we cannot replace that man or woman. No commercial company would have to run the organisation under those sorts of circumstances, with the DWP saying you cannot replace people in key positions.

Les Woodward: The way we have seen it on the shop floor comes back to what Kevin said earlier. We see now, and we have seen it over the last 10 to 15 years, mushrooming of management. You have managers managing managers, who have managers to manage who manage other managers. The whole system needs a revamp. Coming back to your point, we said back before the last round of factory closures and voluntary redundancies that Remploy factories should be an integral part of any supported employment programme in the UK. They work hand in glove with Employment Services to provide the training, as Phil said, and also to provide support.

Coming back again, we are seeing a lot of young people-in their mid20s-coming in who have never done a day’s work in their lives. It is not their fault; it is because they have not got a chance. They have not had the chances in life. Coming into a Remploy factory where they are working with other disabled people gives them the support-not only the support of training, but the peer support as well of people saying, "Welcome to the world of work. Here we are."

Chair : I am going to have to move on, because we only have 10 minutes left and we still have all the questions on sales and procurement.

Q24 Stephen Lloyd: You mentioned about the last 10 to 15 years. I would like to bring you to the modernisation plan. I will just flag up that one of the things I do agree with you about is that one of the challenges of the last 10 years is that suddenly managers mushroomed in the public sector, but that is by the by. The DWP say that the sales and cost reduction targets set in 2008 proved unrealistic and unobtainable from the outset. Was the GMB consulted over the setting of these targets and did you think they were achievable at the time?

Phil Davies: Yes, we were consulted about the targets. We did feel they were difficult targets, but we felt that they could be achievable. There are billions of pounds’ worth of public procurement spend in the UK, and one of the reasons why we asked Kathleen along today was just to briefly tell you what the changes in the Directive were-which have never been exploited, we do not believe, by Remploy, to the full extent that they should have been. Those changes gave a very, very good opportunity for Remploy to do a lot better than what they have done. It has been very disappointing. Now when we talk about public procurement with the senior people in the management, we are not getting any response; we are not getting any enthusiasm from them. The first six to nine months, they were enthusiastic about it, but that seems to have disappeared completely within the company.

Kathleen Walker Shaw: If I could maybe just highlight that by example to give you the background to the legal change in the European Procurement Directives. They gave us a contract status, which allowed public authorities, to use an American term, to set aside, to reduce the pool in terms of a contract to only supported employment workplaces-but within that, any enterprise in Europe where at least 50% of the people working were disabled people. We started this debate with the European Commission when the priority suppliers scheme was taken away in 1994. The effect that had on the level of contracts going into Remploy and other supported employment workplaces, within 18 months of its withdrawal, was quite phenomenal. In the MOD, in terms of public contracts there, from 17 million down to 10 million; in textiles, it was even more dramatic, which was a fairly labourintensive part of Remploy factories at the time-18 million down to 3 million.

We worked from 1994 until 2004, when these Directives were agreed. Those of you who know European law know that anything to do with the internal market is an extremely difficult area in which to change law, because it is very commercially driven. We managed to get this reserved contract status in the body of European law in 2004, after a 10year struggle. I was the leading party at European level in terms of that lobbying, and I can tell you that anybody in this room would be forgiven for thinking that was actually the role of Remploy management, as the people, as the employers and senior managers. However, it was a union that had one officer in Brussels and one national secretary at national level, and our colleagues in the other unions who did not have a European facilitator, managed, with the co-operation of our supporters-and they were crossparty and crossMember State at European level-to change that legislation. We had no support or virtually no support or encouragement from Remploy, apart from one member of staff in Remploy, who has since left the company, who actually actively supported this.

I am not involved in the negotiating or the organising of Remploy, but as somebody who was a policy adviser on that issue and somebody who influenced that, I could only interpret that as a conspiracy to fail. If the public procurement reserved contract status was being allowed to be used, and Remploy had actively sought to use that legislation and maximise the scope of that to show their own commitment to it, we might be looking at a very different thing. Our colleague Mr Lewis was talking about expansion in Employment Services; the factory capacities would have also been increasing their productivity. It has been left to the trade union side to do that. Serious questions have to be asked. Surely the purpose of management of a business is to get contracts. If they are leaving to the trade unions the very huge mountain to climb to change European law to facilitate contracts going into supported employment, I think that gives us a very fundamental basis for wondering why we are where we are with Remploy.

We experienced the same problems when we were going through the UK implementation stages. Again, it was the GMB and our fellow unions that were driving trying to get positive guidance with the Government. We actually managed to encourage them to include the wording that each public authority should have at least one contract with supported employment at any one time. Sadly, that has not been achieved, and it is currently still in Government guidance that that should be the thing.

If we had every public authority just putting one contract into supported employment, our factory capacities and the business capacities would have been up, but we have seen no will from Remploy management to actually do that. In your packs, in appendix 17 and 18, you see two letters written back to Members of this House where Remploy showed no interest in going for a contract. We are not sure whether Remploy went in, but they certainly did not get on the shortlist of another contract in Stirling.

Stephen Lloyd: On those specific things, on the procurement side we will be putting those questions to the managers when they come afterwards. In fact, it is one of the things I have got flagged up, so I have taken some of your lines and I think they are important. I will challenge them on that.

Q25 Glenda Jackson: Following on from what you have said, there has been no attempt by the Remploy company to pursue contracts. You said that you believe that they had a commitment to fail. What is the benefit to them if the company does fail? Can you hazard a guess? Have you any idea? What is in it for them if it fails?

Kathleen Walker Shaw: In my assessment, and as I say I am not organised in negotiating the organisational aspects with Remploy-and I think in some ways that allows you to take a step back and just ask some of these very fundamental questions-there was an agenda within Remploy to try and undermine and, if not, get rid of the factorybased employment within Remploy, and concentrate on the Employment Services-related thing.

I think that was a mistake. It then restricts the ability to offer a variety of employment opportunities for people in diverse areas of skills development. That is my considered view: that they did not want manufacturingrelated and productivityrelated contracts; we saw a very halfhearted approach to that. It was the GMB and Unite that actually encouraged the Office of Government Commerce Buying Solutions, after several meetings, to actually open a national framework contract in 2010. Again, it was our input and political influencing that managed to get that contract, and similarly with the contract for the Welsh Assembly framework. Again, we were pushing water uphill to try to encourage Remploy to go for all of these things.

Q26 Glenda Jackson: Now you have got that water up the hill and the bucket in that sense is full, you are saying that they are still failing to pursue the potential of that. Is it your perception that it is because they simply, either then or now, want to be rid of the kind of manufacturing aspects of the company?

Phil Davies: I do not think there is any doubt whatsoever that the board of directors of Remploy want to get rid of the factory network. I have been round Remploy for 22 years and I am absolutely convinced-and I was more convinced yesterday than ever. Why is it that the DWP has put up £47 million into the pension fund, right away in one month, and that the company has set out to complete the deficit by 2014? The rumour is that the board strategy will be to close more of the factories in 2014.

Q27 Glenda Jackson: What is the benefit to them of that? That is what I am trying to pursue here. Is it just that they do not like factories, or is there some economic reason why they perceive that the company would be better, would be stronger, would be more capable in employing disabled people if the factories went?

Phil Davies: It would concentrate on its Employment Services arm. There is no doubt it is more difficult to run factories. The economic climate and the very fact that you have to go out and win these contracts-they are not going to be given to you; you have to win them-is more difficult. The people in the factories are there for long periods. It is just more difficult to do it. It will be cheaper, economically to the UK Government, if they did not have any factories. There is no doubt about that; whichever Government was in, it would be cheaper. All the signs are that in 2014 we will be either back here again or we will be in a campaign to stop the final closures. Who would have thought in 2008, after years of discussions with Government at the highest level, right up to Prime Minister level, that we would be sat here again with 700 redundancies, 500 of which are disabled people? What is the message coming from this redundancy that is clear? Some 507 or whatever it was applied for voluntary redundancy, and 99%, 501, were accepted. Nondisabled people were not accepted.

Q28 Glenda Jackson: Is the board of Remploy being driven by Government, regardless of the political nature of that Government? Is that what you are essentially saying-that this is coming from Government, whichever party happens to be in?

Phil Davies: It is coming from DWP; whether it is coming directly from Government, we are not sure, but certainly the officials in DWP are complicit in what is happening. You have to ask yourselves why. Every final pension scheme, every one, including the GMB’s and Unite’s, is in deficit because of the stockmarket and what is happening. There is not a finalsalary scheme that we know about that is not. Even the Pilkington one, which was the jewel in the crown, is in deficit. Everybody is planning a 15year recovery. Part of the agreement with Government is that, if Remploy is ever closed down, the pension scheme will be guaranteed. The recent move tells me for sure that there is a plan ahead, and the rumours on the shop floor, as Les is probably going to come in and tell you, is that they have already set the date.

Chair : If we are going to put these to management, we need to wrap up this session. Kate still has some questions.

Kate Green: I do not need to ask any questions.

Chair : Obviously, things are going on.

Les Woodward: Can I just make one quick point? When we had the negotiations on the consultations on the modernisation programme the last time around, in 2007 before the 29th factory closed, there was a very, very senior DWP civil servant who sat with us. Subsequently, we found out after the employment tribunal that this particular person was advocating the closure of all the Remploy factories at that particular time. To come back to your question of who is driving it, my personal opinion is it seems to me that the senior civil servants or the advisers of the DWP are the drivers behind it.

Q29 Glenda Jackson: They only advise; they do not make the decisions. What I was trying to actually pull out was whether the board of Remploy is as much a victim of Government decisions in this area as the workforce. They cannot make the decisions perhaps that they would like to make, because the Government-and I stress again the Government of whichever political persuasion, because this did not start last May-are actually pushing for the removal of the factories.

Les Woodward: The then board of directors vociferously argued against that particular course of action that was advocated by this senior civil servant. The board of directors very much make their own decisions.

Kathleen Walker Shaw: If I could maybe just clarify that in terms of just following on from the points I was making earlier, some of the political decisions or the thoughts and the views of Government officials and civil servants within the Department of Work and Pensions were partly probably because of a frustration about some of the figures that we have discussed here today, which are not impressive, in terms of the lack of productivity. I think where there might have been a pressure coming from Government or civil service, in terms of the direction of Remploy, it is a result of what they are seeing on paper about the lack of achievement. The problem there is out of a frustration with the failure to step up to the task by Remploy management.

When I was going through the work to try to get the public contracts law through, part of my work within that at the early stages was confecting the legal argument. I thought it would be very helpful to speak to a range of procurement officers across the country-firstly, who are familiar with working and contracting to supported employment, and secondly, for them to legally advise me on how this scheme would work if we did actually implement it. I am not going to publicly mention the various names, because it was said to me in confidence, but I have to say these were not isolated comments that came to us. Systematically, we had unanimous support from public procurement officers at various levels-governmental, regional government and local authority contractors-for what we were trying to do.

If I had £5 for every time I heard them say, "We support completely what you unions are trying to do, but we have to say that a lot of us in the procurement officer circles are sick to the back teeth of the complacency that we have to face from salespeople and management of Remploy, who seem to think that they have got a God-given right that they are going to get a contract. Their apathy and laziness that everything is just going to fall in their laps is so frustrating to us as procurement officers that often, although we completely support wanting to promote job opportunities for people with disabilities, we are tempted not to give that contract because of their complacency." We are in a selffulfilling prophecy there; whatever DWP has now decided for the future of Remploy lies very squarely, in my view, through management failures. How different could that have all been if we had the reserved contract status a lot earlier, and management had the will and vision to see that they could create jobs for the future of disabled people in this country?

Q30 Chair : Sorry, I will have to stop you, because we are now 15 minutes over time, so I am going to have to end the session there. I am really sorry, because you have lots more that you could have said, but we do have your written evidence and the pack that you have talked about. Can I just thank you very much for coming along this morning? Obviously, we are now about to put some of these points to the management. If you think there is anything that you did not get to say this morning, then please provide it to us in writing. Anything in writing has equal weight to anything you said in person. Thanks very much.

Phil Davies: Thank you for listening.

Examination of Witnesses

Witnesses: Ian Russell CBE, Chair, Remploy, Tim Matthews, Chief Executive, Remploy, gave evidence.

Q31 Chair : Thanks very much for coming along this morning. I think you have been sitting near through all the last evidence session. Perhaps can I 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 CBE: 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 and 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 CBE: 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 CBE: 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 CBE: 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 CBE: Mr Lloyd, I think the reference to procurement officers was within the organisations that were looking to sell. 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 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 CBE: 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 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, 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? 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 he 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, because we continued to pay them.

Q47 Stephen Lloyd: Sorry, I do not understand that-moved out of your employment but stayed in T 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 CBE: 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 CBE: 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 CBE: The longterm plan is the modernisation.

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 CBE: 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 CBE: 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 CBE: 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 nonWork 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 then 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 CBE: 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 CBE: We have a deputy general secretary of a union on the board.

Q59 Karen Bradley: On the remuneration committee?

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

Tim Matthews: He is.

Ian Russell CBE: 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 CBE: 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 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 CBE: 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 CBE: Correct.

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

Ian Russell CBE: 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.