Work and Pensions CommitteeResponses from the Department for Work and Pensions to Written Questions from the Committee on the DWP Annual Report and Accounts 2011–12

Fraud and Error

1. In his report on the accounts the Comptroller and Auditor General says, “if the benefits system is so complex that it drives high levels of fraud and error that the Department considers cannot be reduced without disproportionate cost and effort, then in my view the remedy lies in the Department seeking legislative change”. In what ways is the Universal Credit (UC) system being designed to ensure that it can assist rather than hinder the reduction of fraud and error rates?

There are three main ways in which the introduction of Universal Credit will reduce the rate of fraud and error:

the design of the UC rules and underlying processes, as they apply to all claimants;

the use of intelligence to differentiate processing between claimants; and

the increase in sanctions for non compliance and fraud.

On the overall design, UC will help all claimants by:

(a)removing the need to report changes to three authorities (DWP, HMRC and Local Government) as claimants move in and out of work, or otherwise change their circumstances; and

(b)making it easier, through online accounts, for claimants to manage their claim and ensure the information is held about them is up to date, and be prompted to check that information before each payment. This includes more regular reporting of earnings from self employment.

At the same time, UC will use intelligence to differentiate between claimants, based on risk assessments.

The keystone of the strategy is the Integrated Risk and Intelligence Service (IRIS). IRIS will consist of a central hub of data, incorporating data from sources across Government and beyond and with links to external data sources. IRIS will use advanced analytics to develop and run business rules to identify anomalies in claims and patterns of suspect behaviour.

The risk assessment provided from IRIS will determine what process UC follow to verify the claim or change of circumstances. This will both speed up awards for claimants where risks are low, and provide the mechanism in some cases to trigger expert investigation for potential fraud ahead of a claim being agreed.

In support of this, the Welfare Reform Act has provided for the formation of the Single Fraud Investigation Service, which will incorporate fraud expertise from across DWP, Local Authorities and HMRC into a single joined-up service, and safeguard the knowledge and understanding built up over many years across the three administrations.

Lastly, the Welfare Reform Act introduced a more severe set of penalties for claimants who abuse the system. This includes the ability to fine claimants for attempting to defraud the system, even if they failed to obtain any money through their fraud, and for being negligent in keeping the Department up to date on their changes of circumstances. These increased deterrents should help ensure that fraud levels are minimised in Universal Credit, as well as in the welfare system as a whole.

At the same time as all these steps to reduce fraud and error, the Department is taking steps to address the potential for new threats, not least from online attacks. This work is drawing on the best advice available, both from GCHQ and external bodies.

Work Programme

2. One of the original arguments for the Work Programme based model (as proposed in the 2007 Freud report) was that it could be funded from future benefits savings as people moved into work. What mechanism, if any, has been established or proposed to enable AME benefits savings to fund increased DEL spending on the Work Programme?

The 2010 Spending Review provided DWP with a ring fenced DEL provision for the costs of the Work Programme, consistent with a specified level of performance, and an agreement on how performance above that level would result in the provision of additional DEL, funded by the consequential additional savings in AME.

The written agreement, known as the AME:DEL Mechanism, which sets out both the principles and mechanism for funding increases in Work Programme costs through AME benefit savings generated by the Work Programme.

Time off benefit for each monthly cohort of Work Programme claimants is compared to an agreed “counterfactual” level and any estimated AME benefit savings over that baseline are available for the Department to drawdown and convert to DEL to cover the increased costs paid to Work Programme providers. The AME:DEL Mechanism also details how such savings will be transferred into the Department’s DEL and the reconciliation arrangements to ensure only the correct value of AME is converted into DEL and transferred to the Department.

Work Capability Assessments

3. The governance statement to the Accounts suggests that appeals arising from Work Capability Assessments pose a significant capacity issue for DWP and HMCTS. How much was spent on these appeals in 2011–12? How many appeals did this cover? How does this compare with expectations? Are DWP and HMCTS in a position to cope with the level of appeals being received? How are the additional costs being funded?

During 2011–12, Her Majesty’s Courts and Tribunals Service (HMCTS) received around 181,000 Employment and Support Allowance (ESA) and Incapacity Benefit reassessment (IB(R)) appeals. This includes all ESA and IB(R) cases, as it is not possible to distinguish between appeals following a DWP decision on a WCA and appeals made for other reasons.

This was around 70,000 fewer than the forecast at the beginning of 2011, in part due to backlogs in the DWP resulting in a reduced number of cases being sent to HMCTS. Although the number of appeals received by HMCTS was less than forecast, the number of ESA and IB(R) appeals disposed of in 2011–12 increased.

DWP paid £26.3 million to HMCTS in recognition of the additional work generated by the ESA and IB(R) cases. This was funded from within the Department’s Spending Review 2010 settlement.

In the current year, DWP expects a higher volume of appeals to go to HMCTS, as we aim to reduce the 2011–12 backlog and as WCA volumes themselves are forecast to increase.

DWP and HMCTS have been working together to manage the increased volume of appeals, with a range of initiatives introduced by both organisations. An Appeals Task Force (ATF) has been established, with representatives from DWP and HMCTS and Ministry of Justice. The purpose of the ATF is to drive process and policy changes, to enable more effective and efficient decision-making and appeals, without compromising access to justice. A Joint Performance Management Group (JPMG) has also been set up, which reports to the Task Force. The Group meets monthly to assess and plan the capacity within Atos, DWP and HMCTS for handling appeals.

As a result we believe we have robust plans in place to make additional capacity available to meet increased demand.


4. According to the DWP’s annual report (p 57) £78 million was spent in 2011–12 on Remploy “as a consequence of the announcement in March 2012 of the department’s intention to implement the recommendations of the Sayce Review”. Remploy say some 1,421 jobs and 27 factories are expected to go. The Committee would like to know:

The total costs in terms of redundancies and other costs in closing these factories.

The annual expected savings generated by these closures.

How these savings will be protected, as promised, to spend on employment for people with disabilities, and through which programmes this funding is to be channelled.

What help will be available to those made redundant from Remploy.

The total costs in terms of redundancies and other costs in closing these factories

In March 2012 the Minister announced the Sayce recommendations on Remploy would be implemented in two stages. In stage 1, the Government decided to cease funding the Remploy factories that make significant losses year after year. Remploy’s board considered this and proposed to close 36 sites that were unlikely to be able to achieve independent financial viability—this being subject to consultation with staff and unions.

Total expected costs for stage 1 are:

£ million

Redundancy costs


Estate closure costs


Contract liabilities


Remploy programme costs


DWP project costs


Proceeds from property disposals


Net Cost


In addition funding of £8 million has been allocated for a People Help and Support Package (PHSP) for disabled staff leaving Remploy factories across stage 1 and stage 2.

The costs above represent the expected cost of all the stage 1 factories closing. In an effort to protect employment, a commercial process was put in place allowing bidders to submit proposals to take on Remploy businesses. Following independent assessment of expressions of interest, bidders for nine of the 36 sites were moved to the next stage of the process. The remaining 27 sites moved to closure.

As a number of bids remain in the commercial process, it is hoped that some redundancies and the associated costs will be avoided.

In 2011–12 DWP provided Remploy with £50 million of funding for stage 1 closures, including the full amount for redundancy costs. The balance of stage 1 costs fall in the 2012–13 financial year.

The £78 million Remploy cost reported in the annual report includes £50 million of closure costs with the balance representing DWP’s guarantee of Remploy’s overdraft and pension fund liability. The latter items are not related to the factory closures.

The annual expected savings generated by these closures

Remploy factory businesses require funding of circa £60 million per year, an average annual subsidy per supported employee of £25,000. Removing Remploy factories from Government control will release this funding, after providing for the one-off costs of closure, to provide more effective support for disabled people in line with the recommendations of the Sayce review.

How these savings will be protected, as promised, to spend on employment for people with disabilities, and through which programmes this funding is to be channelled

A commitment has been made to protect expenditure on Specialist Disability Employment Programmes to the end of the current Spending Review period. Expenditure is expected to average £320 million per year over this period channelled as follows:


Access to Work


Remploy Ongoing (inc pension scheme)


Remploy Investment


Work Choice


Residential Training Colleges


SDEP Total


As the cost of supporting Remploy decreases so the provision for other programmes can increase within a consistent total. After allowing the one-off costs for Remploy, an extra £15 million of savings from the Remploy reform has been allocated to the Access to Work budget in 2014–15.

What help will be available to those made redundant from Remploy

We have put in place an £8 million support package, guaranteeing tailored support for every single disabled person affected as a result of the announcement on the future of Remploy for up to 18 months. The People Help and Support Package offers support to help each affected disabled individual to adjust to life outside of Government funded segregated sheltered employment and obtain alternative mainstream employment.

Each disabled Remploy employee facing redundancy from Remploy will be assigned the support of a DWP Personal Case Worker who will provide continued and personalised support to these individuals throughout the 18 month period following factory closure.

The Business Disability Forum (previously known as the Employers Forum on Disability) is working with their employer members to offer targeted opportunities to Remploy employees under the First Shot programme.

The PHSP is delivered through key partners and stakeholders including Remploy and external providers such as Disabled People’s User Led Organisations, employment programme providers, employers and training establishments.

For non-disabled Remploy employees, DWP mainstream provision is providing individual, on-going support including Rapid Response Service support.


5. At a time when DWP variously claims 11,000 fewer full time equivalent staff (ARA p 19), 12,289 average fewer whole time equivalent staff and 1,578 redundancies (p 130), can DWP explain the 4,855 “recruitment exceptions” (p 27), compared to only 449 the previous year. Has DWP recruited 4,855 new staff while reducing the work force and making people redundant. If so, why?

The Department remains committed to delivering underlying efficiency in its base costs. The 4,855 recruitment exceptions in 2011–12 were made to support delivery of new initiatives while maintaining operational capacity.

Although approval for these operations related exceptions to the recruitment freeze was given in 2011–12, resourcing activity was not finalised until after April 2012 and therefore did not impact the 2011–12 employee levels.

In 2011–12 recruitment for 4,000 permanent employees was approved in order to deliver the Government’s Youth Contract and to deal with increases in the Jobseeker’s Allowance workload.

The Department also gained approval to recruit 855 people to fill critical posts permanently and reinforce operational capacity with people on temporary and fixed term contracts. The recruitment freeze started in May 2010, and the Department’s employee turnover was running at between 5 and 6% in 2011–12. The Department needed to replace some of the capacity and capability it lost through turnover.

The majority of appointments were filled from internal redeployment and conversion of fixed term appointments to permanent posts. Of the 4,000 posts required for the Youth Contract and the increased Jobseeker’s Allowance workload, only 1,200 were filled through external recruitment. Priority was given to redeploying people who had been declared surplus and those who we knew were likely to be facing a surplus situation in the future. 2,700 posts were filled by people who already worked for the Department on a fixed term contract and by those who had been declared surplus or were likely to be declared surplus in the future.

Exits from the Department in 2011–12 resulted from the major transformation exercise the Department undertook that resulted in a single departmental operational business. The size of the Department’s corporate functions were significantly reduced and restructured to drive operational delivery and reform across the whole department. Exits from the corporate functions were mainly at Higher Executive Office grade and above, whereas the recruitment was mainly in the operational business at Executive Officer or Administrative Officer grade.

Jobcentre Plus

6. Is the absorption of Jobcentre Plus back into the core Department expected to lead to efficiency savings? If so, why, when DWP states that it has increased efficiency by 12%, including reducing its work force by nearly 11,000, has the cost of maintaining each existing claim for Jobseeker’s Allowance risen from £304 to £326? Can DWP explain how it hopes to reduce this unit cost?

The absorption of Jobcentre Plus back into the core Department is expected to lead to efficiency savings in corporate overhead costs as separate corporate functions (for example finance and HR) are not required to support an Agency, but have become absorbed within the Department’s existing corporate structures. The resulting efficiency savings will contribute to the Department’s overall Spending Review 2010 efficiency challenge, in particular that for corporate and head office functions.

Changing corporate structures has also had an impact on how corporate and overhead costs are apportioned within Activity Based Management (ABM) systems used within the Department. Until 2010–11 agency-level costs were sourced from ABM but corporate and overhead costs were provided from other systems. From 2011–12 ABM data has been used to apportion costs across the main relevant measures of Jobseeker’s Allowance (JSA) load, JSA claims and labour market interventions. Utilising ABM data has provided a deeper understanding of the way corporate and overhead costs relate to outputs; for example we can better apportion estates and IT costs between labour market interventions and benefit delivery activities. While this represents an improvement on methods used in earlier years it does make year-on-year comparisons of individual measures more difficult.

The JSA claims maintenance measure is the only unit cost measure that has increased within the suite of unit cost measures reported in the Annual Report and Accounts.

Overall Departmental productivity is the key headline efficiency measure ensuring consistent coverage across the breadth of the Department’s activities, and this increased by 12% in 2011–12. Compared to 2010–11, the Department delivered relatively more for less.

The Department aims to continue to increase its overall productivity at the same time as improving its service to the public. Activities to modernise service delivery and promote use of self-help channels are expected to contribute to unit cost reductions.

In line with the Government strategy on digitalisation and in readiness for Universal Credit, which will to a large extent be delivered digitally, the Department has been improving and promoting the online service for claiming JSA. Additionally, we have provided internet access for claimants in the majority of Jobcentres and run some localised pilots to see if more support for claimants can increase take-up. These pilots have since been successfully rolled out nationally and a further three trailblazers have been initiated. These trailblazers will assess the most effective approach to encouraging and supporting claimants to go online and identify good practice which can inform the UC delivery model.

As a result of all this activity the reported figure for those claiming JSA online has increased from 23% in May to 39% in September.

16 October 2012

Prepared 29th January 2013