Universal Credit

David Mowat Excerpts

Monday 7th July 2014 Commons Chamber

[Dame Anne Begg (Aberdeen South) (Lab)]

Universal credit is a major welfare reform. It will eventually replace tax credits and most existing working-age benefits, including out-of-work benefits and housing benefit. It is estimated that, by the time it is fully implemented, universal credit—or UC, as it has now become known—will be paid to 7.7 million households, and we hope that that will be the case.

During last week’s debate on work and pensions, I said that the problem with welfare reform was that it was devilishly complex, took a long time to implement, and always had unintended consequences. I think that all three of those things apply to universal credit. We can agree that its design should bring some advantages. It should improve the position of claimants when they move into work or take on more work, because their benefit will be reduced gradually on the basis of how much they earn, rather than suddenly being cut off if their working hours exceed a certain limit. It should remove many of the “cliff edges” that exist in the current system. Because it is both an in-work and an out-of-work benefit, it will remove the constant applying and reapplying for different benefits as someone moves in and out of work.

However, it is wrong to talk about UC’s “simplifying the benefits system”, because that is not possible to any significant extent. The benefits system is complex because people’s lives are complex, and are constantly changing. UC will be a more streamlined system, but it will not be a simple one. That is clear from the problems that have been encountered in efforts to implement it. The national roll-out of new UC claims was due to take place between October 2013 and April this year. Existing claimants of “legacy benefits”, including jobseeker’s allowance, employment and support allowance and housing benefit, would then be migrated to UC between April 2014 and the end of 2017. However, problems with IT systems meant that major changes to the implementation timetable were made in July 2013, and then again in December last year. That slowed down the process dramatically.

UC claims were introduced on a very small scale from April last year in a few jobcentres in Greater Manchester, which were initially called “pathfinders” but are now referred to by the Department for Work and Pensions as “live service sites”. In the event, national roll-out from last October amounted to the expansion of new UC claims to only a further six jobcentres around Britain, and it has recently been expanded again to a further nine sites in the north-west, bringing the total number of jobcentres where UC is available to 19, less than 3% of the jobcentre network—hardly a national roll-out.

New claims to UC are now not expected to be extended to the whole of Great Britain until 2016 and the bulk of existing claimants will not be moved on to UC until 2016-17. The process will not be completed until later than the original target date of 2017.

The Secretary of State brushes aside any criticism of the very small number of people who are on UC by arguing that the Government are

“taking a careful and controlled approach to achieve a safe and secure delivery.”—[Official Report, 30 June 2014; Vol. 583, c. 645.]

I think we would all agree that it is right to ensure that the system works properly before extending it, but, as the Work and Pensions Committee said, there is a difference between cautious progress and a snail’s pace.

The facts are clear. Since UC started in April last year fewer than 7,000 claims have been processed. By comparison, more than 1 million people claim just jobseeker’s allowance. In January this year alone, there were almost 250,000 new jobseeker’s allowance claims. That is how much churn there is in the system. Almost all the 7,000 UC claims are from people in the simplest circumstances: young, single, and usually recently unemployed. Last week, 15 months after UC began, claims from couples started to be accepted—but only in a handful of the live service sites. We have been told that claims from people with children will begin “later in the summer”. We all know what Parliament’s timetables are like and we wonder when “summer” actually is, so can the Minister give us an idea of what “summer” means in this context?

Achieving only that tiny number of claims to date illustrates the scale of the challenge still facing the Government in trying to replace existing working-age benefits and tax credits with UC by 2017, including migrating all the claimants of the relevant existing benefits over to it. Given the excruciatingly slow pace of roll-out to date, it is hard to see how the target date can be met.

To put this into context, the other new benefit which has had its implementation slowed down is the personal independence payment, although even PIP has more new claims in payment than UC. By March this year 83,900 PIP decisions had been made, which is far higher than for UC, and that involves a smaller cohort and has been done in a shorter time scale. In our report, we asked the DWP to set out its revised estimates of UC caseloads and costs for each year to 2017-18, to reassure Parliament and the public that there is a clear and detailed revised implementation plan. The Government’s response to our report did not include any of that information.

The problems with implementing UC arise largely from failure to get the IT right. Problems with Government IT systems have happened so frequently that they have almost become a cliché, but the UC IT challenge seems especially difficult to tackle and to be throwing up particular challenges. Some £40 million in IT expenditure had to be written off in 2012-13, and a further £90 million is being “written down” in five years instead of 15 because the useful life of the software is much shorter than anticipated. That may seem like an accounting detail, but it shows that the use of public money has not been cost-effective to date, and a great deal more public money is at stake in the UC programme.

The Government’s current approach to the IT problems is to continue to spend millions of pounds—between £37 million and £58 million—on the old IT system during 2014 to extend its functionality so that it can cope with a wider range of claimants in the live service sites. At the same time, extensive sums are being spent on developing IT for the long term. That has had various names and various incarnations: first it was called “the digital solution”, then “the end-state solution”, and the latest terminology seems to be the “enhanced digital service”. Unfortunately we on the Select Committee still do not know what that means. The Secretary of State’s explanation last Monday did not help us clear that up.

The National Audit Office has summed up very well the lack of information available on how the IT for UC will be taken forward. It said last December that the uncertainties include the following: how it will work; when it will be ready; how much it will cost; and who will do the work to develop and build it. We still do not have answers to any of these questions. It would be helpful if the Minister provided some answers to those key points in her response to the debate, because the Work and Pensions Committee has still not had an explanation.

We have asked Ministers for more information about the IT during three evidence sessions over the space of nine months. We repeated this request in our report, including asking the DWP to set out the costs of the IT development work, because the published information on IT costs does not take us beyond November 2014, but we received no answers in the Government response to our report. All it said was that UC will be delivered via

“a multi-channel service that makes greater use of modern technology to ensure the system is as effective, simple and transparent as possible.”

I still do not know what that means, and I do not know if anybody does.

The one thing we do know is that the new “enhanced digital service” will not be ready to test before the end of this year, and even then it will only be tested on 100 claimants to start with. We still have no indication of when it will be possible to test it on a bigger and more representative group of claimants. The challenge of getting from an IT system that is capable of processing 100 claims by the end of 2014 to one that can deal with frequently changing claims from more than 7 million households by 2017 is clearly an extreme one.

Our report recommended that, given the small number of people currently claiming UC, the Government should consider whether it would be a better use of taxpayers’ money to abandon further development of the existing system and focus solely on the end-state solution. The Government said in answer to a recent parliamentary question—although this was not set out in their response to our report—that the enhanced digital service will be integrated with the existing UC service where

“it is both practical and operationally sensible”.—[Official Report, 30 June 2014; Vol. 583, c. 434W.]

Again, I am not sure what that means, so perhaps the Minister can translate those vague phrases into something more meaningful and detailed when she responds.

[David Mowat (Warrington South) (Con)]

The Chairman of the Select Committee talks about the enhanced digital solution, which I think has the characteristics of a front-end which is then fed by a number of the legacy systems, which is why applications development work must be done on both of them. In terms of the technical architecture, I do not think that is altogether surprising, different or new.

[Dame Anne Begg]

I have to say that that is a better explanation than anything I have heard from any of the Ministers—although I am not sure I even understand that explanation—but the question of what this digital solution actually entails is concerning: is it a complete rewriting of the IT or is it, as the hon. Gentleman says, about bringing the legacy systems in and developing them? That was not the original impression we were given, however. Is there to be an original design or the use of the original IT—although, as we know, there is a failure to develop that or to adapt it to cover the different circumstances that people have?

The Committee was also concerned—we expressed this quite forcefully in our report—about the DWP’s lack of co-operation with our formal role in scrutinising UC. I am sure the House would agree that, as our report says, effective Select Committee scrutiny depends on the provision of accurate, timely and detailed information by Government Departments. The DWP has not always provided that to the Committee in the case of UC.

As well as publishing a highly critical report on UC last September, the National Audit Office was then involved in a long-running dispute with the DWP about how much it should write off for the wasted IT. Because of the accounting concerns, the NAO refused to sign off the DWP accounts for 2012-13 for six months, which delayed their publication from June to December. The Secretary of State was, not unreasonably, unwilling to appear before the Committee to give oral evidence about UC until the accounts were published, so our own scrutiny process was delayed and hampered.

The DWP has also been very reluctant to provide us with information about UC and the serious problems it has encountered with it. When the NAO reported on those problems in September last year, it came as news to us, because the Government had not told us about their own concerns about UC and the actions they had taken to address them during 2012 and early 2013, even though our Select Committee had held several oral evidence sessions during that time and published a substantial report. On two occasions the Government published details about major changes to the timetable for UC implementation only when forced to do so by the prospect of the Secretary of State having to appear before us to give oral evidence. Information was released at the session itself on one occasion, and two working days before on another—even then, very little detail was available. That, of course, gave the Committee no time to assess the implications of these announcements properly before we put our questions. We believe that it is unacceptable for the Government to provide information about major policy changes to Committees only when forced to do so by the imminent prospect of being held to account in a public evidence session.

The Committee does not, as the Secretary of State has suggested, want to run his Department—far from it—but we do expect to have access to the information we need to scrutinise it effectively. However, the Secretary of State told us in February:

“I do not have to tell the Committee everything that is happening in the Department until we have reached a conclusion about what is actually happening”.

That view was reiterated in the formal Government response to our concerns, which said that the DWP

“does not regard it as necessary to provide a running commentary on the day to day management of the many large and complex programmes currently underway”.

I will let hon. Members come to their own conclusions about what that implies in terms of respect for accountability, transparency and the formal scrutiny role of departmental Select Committees.

Our report also highlighted the problems the UC delays are causing for other key organisations, particularly local authorities. Local authorities currently administer housing benefit on the Government’s behalf but were expecting the introduction of UC to mean that new claims for housing benefit would end by April this year. The UC implementation delays mean that local authorities will now be administering housing benefit until at least 2016. It is very difficult for them to know how best to run and staff their housing benefit departments until the Government clarify what funding they will make available for that. We asked the DWP to clarify the funding that will be available in 2014-15 and 2015-16 to cover the additional costs to local authorities, but no details were provided in the Government’s response; they simply said that they would ensure that they were in a position to inform local authorities of their individual budget allocations

“in sufficient time before the start of the 2015/16 financial year”.

Local authorities will also have an important role in helping more vulnerable claimants cope with the transition to UC. Our 2012 report on UC examined the implications for vulnerable people in detail. Since then, the fundamental problems with implementing UC have, understandably, dominated public debate and the Committee’s attention. Ensuring that vulnerable people are not excluded from, or disadvantaged by, UC should remain a priority for the Government, and how vulnerable people will be supported through the transition remains a key concern for the Committee. The Government have acknowledged that vulnerable people will need support to adjust to UC. Lord Freud, the Minister with responsibility for welfare reform, told us that how support would be provided for vulnerable people was almost as important as UC itself. But it is still far from clear how that will work in practice, and a great deal still needs to be clarified about how that support will be provided and funded.

Working with the Local Government Association, the Government produced the first version of the local support services framework—LSSF—last year. That sets out how they expect support for vulnerable people to be provided, in partnership with local authorities, housing providers and the voluntary sector. However, there is little detail on how the LSSF will operate in practice and how it will be funded, even though an “update” was published at the end of last year. The Government said last December that the final version of the LSSF would be published in autumn 2014, but in their response to our report that date had changed to autumn 2015. We understand that the delays to UC implementation mean that the timetable for providing support to claimants will also need to change, but the organisations DWP expects to deliver this support—local authorities, housing providers and voluntary organisations —all need to know what they are expected to provide, so that they can plan and budget for these new responsibilities.

In all the debate about IT systems, costs and case loads, it concerns me that the central point of UC is being lost: it is meant to make the benefit system work better for millions of claimants, help them to move into jobs or work more hours, and make it less complicated for them to move on to and off benefit as their lives change. Until we have more clarity, transparency and detail from the Government about progress with the UC project, it is difficult for anyone, including my Committee, to make a proper assessment of whether UC will genuinely deliver the improvements for claimants that this costly and complex welfare reform was intended to deliver.

--- Later in debate ---

[Sheila Gilmore]

Again, there is the theory and then there is what happens in practice. If in all cases the information from Her Majesty’s Revenue and Customs works, it should be reasonably accurate, but when people have very variable earnings there will be considerable problems, particularly with monthly payments, because it will take a long time to adjust for somebody whose earnings vary a great deal. That will leave some people in considerable hardship.

[David Mowat]

To answer the intervention made by the hon. Member for Ealing North (Stephen Pound), the whole purpose of having the real-time information interface out of the HMRC systems, which was a prerequisite to universal credit, was to address precisely that point.

[Sheila Gilmore]

I thank the hon. Gentleman for that intervention, but obviously there are other complications for people with very variable earnings, and I am not confident that they will all be overcome.

Finally, on the IT that we are expected to believe will be in place at some point, last week the Secretary of State delivered absolutely no clarity when we debated this in the Chamber. When I intervened to ask him what the end-state solution was, he replied:

“It is universal credit completely delivering to everybody in the UK. That is the end-state solution—live, online and fully protected.”—[Official Report, 30 June 2014; Vol. 583, c. 645.]

Again, that is describing the end aspiration in a very generalised way, but it tells us absolutely nothing about whether it will work.

Any change of this sort requires a lot of thought and practice. One of the issues about which there remains considerable concern—we have not heard a great deal about this from DWP—is the direct payment of housing benefit to the claimant and then to the landlord. To be fair, DWP has been carrying out pilots for two years to see how that would work, and I think that they have now come to an end. I understand that an independent evaluation is now with the Department, although it has not yet been published—perhaps the Minister knows more about that than I do. However, the data from the organisations that have been piloting it are now in the public domain. They looked initially at some 6,700 people —in different small groups across the country—that it was tested on. At the end of the pilot, 4,700 were still on direct payments, but 1,993 of the original group had been returned to having payments made directly to their landlord. That is a considerable proportion of the total. That rings some alarm bells on how well it will work. The landlords involved in those pilots have said constantly that it worked only as a result of very intensive work that has been done precisely because they are pilots. There is considerable concern that that will not be scalable to the required extent. Although I certainly commend the Department for running those pilots, we need to hear what lessons have been learnt, whether any further changes to the plans are required and how these things will be made to work in the longer term.

There are many other aspects of universal credit that people have raised concerns about. In many ways we have almost forgotten about some of the downsides, such as second earners being less incentivised to work under universal credit rules, as drawn up by the Government—they could be changed—than they are under the current system, and there is the fact that some families with disabled children will receive less than they do at the moment. There was a lot of debate about those issues, and the fact that we are nowhere near including some of those people is probably why those concerns have gone off the boil, but we should not forget about them. Even if universal credit is properly implemented, it is not a case of all winners and no losers, because a significant number of people will still be worse off under universal credit.

The detailed rules for universal credit can be changed, and in some ways that is where the bookcase has its merits. Some of the concerns about the rate of tapering of income, which has been changed since the original proposals, and how we deal with school meals, child care and families with disabled children could all be addressed. I think that it is a pity that at this stage we are so far away from those people being included in the new system that we do not even need to look for the answers. Just over 6,000 people are on universal credit, and that is predominantly JSA with a few changes, so the simplest of cases and situations. That is not really a fantastic achievement. I am sorry if that is describing the glass as being half empty, but that is certainly how it appears to me.

[David Mowat (Warrington South) (Con)]

It is always a pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore). This is the second time in a week that we have had the opportunity to debate universal credit. I will focus my brief remarks on some of the comments made by Labour Members, which I think can be characterised thus: “We are doing our job. If only the Secretary of State would do his job, everything would be okay.”

I had thought that it was agreed that universal credit is a much-needed project. It is a project of national significance. I think that it is analogous to the Olympics, but in fact harder to deliver. Opposition Front Benchers might give that some thought when considering how to conduct themselves in this debate. The project might be harder to deliver than the Olympics, but it is as important to our country. I will comment on the progress and some of the issues around that, and also talk at some length about Labour’s four-point plan—it has now been published—to “save” the programme, and a rattling good yarn it is too. I will not repeat the remarks of my hon. Friend the Member for Newton Abbot (Anne Marie Morris), but the project is a national imperative. We are trying to make work pay, to streamline benefits and to mimic the whole process of transition to work.

Developing a set of IT applications to be used by 8 million users is quite difficult. Frankly, neither political party has shown a great deal of success in doing that over the past decade or so. If we accept that it is a hard thing to do, then perhaps Members might try to do a little more than they have today in getting behind the 1,000 or 2,000 people who are working on the programme —working weekends and doing the stuff that needs to be done to get this to happen.

Are there problems with this project? I do not know; I am not an expert on it. I hate to say this, but I do not even serve on the Select Committee. Perhaps I am here as an imposter. I have had some experience of IT. I have spent a large part of my life explaining to people why IT projects are late and why it is not my fault but somebody else’s—I got quite good at that by the end. During a quality assurance test on an IT project—in fact, we do not have IT projects any more; this is a business change project—one of the indicators of difficulties relates to the number of project managers. If the project manager has changed a lot, there will be reasons for that: it is a very clear flashing red light. This programme has been unlucky—I use that word advisedly—in that it has had a number of different project managers who have had to move on for different reasons. Of course, that creates issues about how things are done, as in this case.

I listened carefully to what the hon. Member for Edinburgh East said about roll-out. It was not clear that she thought that the Secretary of State was rolling it out wrongly; rather, she seemed concerned that he had not told her in advance, at the start, how he was going to do it. That is an entirely different matter, because sometimes things are changed for tactical reasons. When the Olympics are being delivered, things are sometimes done in a different order. That is not unreasonable and not necessarily wrong.

[Sheila Gilmore]

I hope that the hon. Gentleman would not want to misinterpret what I said. There is nothing wrong with changing one’s mind and trying to adjust as one goes along, but what has been wrong has been the complete confidence, with each turnaround, in everything being fine and in how we should not be worried any more. We have seen that on several occasions.

[David Mowat]

As I said, I have not been serving on the Select Committee and I have not heard about the confidence she mentions. My point is that decisions are made during the life cycle of a programme that effect changes, and if, every time that happens—

[Debbie Abrahams]

There was a two-week difference between the Department saying that everything was fine in a memo that we received and the NAO’s publication of its cataclysmic report condemning what the Department is doing. Is that the sort of time scale that the hon. Gentleman has in mind?

[David Mowat]

I do not know, because I was not aware of that. The hon. Lady’s intervention, like much of her speech, is along the lines of, “We’re doing our job; if only the Secretary of State would do his job and hurry up and get this delivered, everything would be all right.” My substantive point is that delivering this application is harder than delivering the Olympics, and it behoves all of us to get behind the 1,000 or 2,000 people who are trying to do it. That is not to say that individual mistakes have not been made. There have almost certainly been lots of mistakes; it would be odd if there had not been.

As to progress, the issue is not that things have not been done; it is what we do now and how we deal with it. I am going to be kind to the Opposition and talk about the Olympics rather than the national health service project that wrote off about £10 billion. The Olympics was a joint success—a success for our country—and yet its budget increased by a factor of four. When the right hon. Member for Dulwich and West Norwood (Dame Tessa Jowell) came to the House and announced that the budget was going up by a factor of four, Members on both sides of the House, broadly speaking, tried to understand why that had happened, accepted it, and knuckled down to get the project delivered. In the end, there was not a cigarette paper between the two parties in terms of the approach to that project of national significance—as this one is. The Secretary of State and his team are trying to do a very difficult thing in delivering this application, to be used by 10 million people, in parallel with existing systems which, every week, continue to be used by 10 million people. Of course mistakes have been made; as I say, it would be odd if they had not. The issue is whether, on the whole, it is being managed correctly and whether, structurally, we are doing the right thing.

I had thought that Labour supported the basic tenets of universal credit, but some of the comments by the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) about scope implied that she has severe reservations. She may be right; I am not an expert. It seems odd that Labour Members are raising issues such as scope at such a late stage of the programme. To some extent, they are the Opposition and perhaps it is reasonable that they oppose, but there is a difference between opposing and what I would call opportunistic carping—not only that, but opportunistic carping that is destructive, not constructive.

That brings me to Labour’s four-point plan, to which Mr Baldrick would have been delighted to give his name. Point 1 is to stop the programme and think about it for three months—not to review it, not to stop rolling it out, but to stop it completely. It is not totally clear to me what they would be stopping—development, implementation, the front end, the legacy systems and interface work, or perhaps all of it. It is not totally clear to me what they would do with the 1,000 people—to take a round number—who are currently doing all these tasks. They are saying, “No, let’s just stop it, with an immediate write-off of all that.”

Point 2 is to get the NAO to have a look at the programme. That is fair enough; one cannot argue with asking the NAO to look at something. Of course, it would have to use people with expertise in programmes of this type, of whom most of the good ones are in the civil service and working on this programme. Nevertheless, let us do it anyway.

The really interesting thing about the plan is points 3 and 4, which represent major, significant scope changes. If we make such changes to a programme right near the end, that is when everything goes wrong—when things have to be retested, budgets change, and all the rest of it. The great thing about these major scope changes is that, according to the four-point plan, they will be done at “no additional cost”. The two points propose to remove some of the onus on self-employed people and to continue to pay the primary carer.

On the train this morning, between Watford and Euston, I costed Labour’s four-point plan at £89,611,207.31. That costing—I am very happy to take an intervention on it—includes 11 new applications, 47 new screens, 190 database changes, 201 reports, a 40% test rerun, and 88 new interfaces. I may have spent only 11 minutes on the calculation to come up with that number, but that is 11 minutes more than Labour Members have spent on putting it into their plan and saying they can achieve it with “no additional cost”. I would be delighted if one of them wants to intervene on me—but intervention came there none.

[Sheila Gilmore]

rose—

[David Mowat]

Ah!

[Sheila Gilmore]

The hon. Gentleman should be clearer about why he thinks, for example, that making payment to the primary carer would have such huge costs, especially at a point when, it is fair to say, the systems are unlikely to have reached implementation for families with children.

[David Mowat]

The problem arises precisely because the systems are nearing completion. Costs in the life cycle of an IT project escalate the nearer to the end we get. To repeat a couple of the estimating parameters I used, Labour’s plan would require 11 new applications and 47 new screens. If the Labour party has its own estimate and it took it more than 11 minutes to put it together, I would be very happy to accept that it is right, but all it has done is write a sentence.

[Dame Anne Begg]

From the Select Committee’s point of view—not that of Labour Back Benchers—the problem is that we do not know any of those things. The hon. Gentleman has made assumptions, but we do not know whether the IT has developed sufficiently to take account of families with children or whether it would cost anything to make the payment to the primary carer instead. We do not know—that is our objection. We have not been told. We have not been kept in the loop.

[David Mowat]

The hon. Lady makes a reasonable intervention and I understand it, but if Labour Front Benchers, whose four-point plan this is, do not know the cost of their proposed scope increases—which is reasonable, because I do not know how much they would cost, either—we would expect them to say, “We don’t know the costs,” not, “These scope increases will be delivered within the same budget as the rest of the programme.” The point I am making is that that is irresponsible. It is not indicative of Front Benchers who take what has to happen to the programme seriously or who, 10 months from now, intend to be the Government of this country. The reality is that 10 years—two Parliaments—is too soon.

[Stephen Timms (East Ham) (Lab)]

The Work and Pensions Committee has done the House a service with its report, and the tributes to its Chair from both sides of the House are well deserved.

The hon. Member for Newton Abbot (Anne Marie Morris) is absolutely right to say that there is widespread agreement that universal credit is, in principle, a good idea, but I am afraid the universal credit project has had all the hallmarks of disaster right from the start, as a number of us pointed out at the time. Everybody hoped, as we were assured, that the lessons of previous failures had been learned, but unfortunately they had not.

It started to go wrong within just a few weeks of the general election. Ministers published a Green Paper entitled “21st Century Welfare”—I have my well-thumbed copy with me—which introduced the idea of universal credit. Paragraph 7 of chapter 5 stated:

“The IT changes that would be necessary to deliver a more integrated system would not constitute a major IT project”.

There was an utter failure, right at the outset, to grasp the scale of what the Government were about to embark on. How on earth the phrase “would not constitute a major IT project” came to be written in a Green Paper, I have absolutely no idea, but I am quite sure that no official in the Department would have been responsible for writing such a ludicrous claim. I am afraid that from that moment on, things have got progressively worse.

Will the Minister comment specifically on my intervention on my hon. Friend the Member for Hampstead and Kilburn (Glenda Jackson) about this afternoon’s announcement by the head of the civil service, Sir Bob Kerslake, in evidence to the Public Accounts Committee, that the Treasury has not yet approved the revised business case? A week ago today, the Minister said in response to a question from my hon. Friend the Member for Leeds West (Rachel Reeves), the shadow Secretary of State for Work and Pensions:

“The Chief Secretary to the Treasury has approved the UC Strategic Outline Business Case plans for the remainder of this Parliament (2014-15) as per the ministerial announcement (5 December 2013, Official Report, column 65WS)”.—[Official Report, 30 June 2014; Vol. 583, c. 434W.]

The Minister said that the Treasury had agreed the business case, but today the head of the civil service told the Public Accounts Committee that the Treasury has not agreed the business case. The Minister owes us an explanation of the discrepancy between her answer a week ago and what the head of the civil service has said today.

The project has suffered from three levels of failure: policy failure, delivery failure and governance failure. I will say a little about each of them. First, policy failure is perhaps the most serious one. As the hon. Member for Hornchurch and Upminster (Dame Angela Watkinson) has rightly pointed out, the point of universal credit was to make sure that people would be better off if their income increased because they got a job or did extra hours or for some other reason. However, the difficulty involved in achieving that apparently simple goal was never understood by Ministers, and the hard graft of delivering it has therefore never been done.

Last September’s National Audit Office report, which my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) has rightly described as cataclysmic, noted:

“Throughout the programme the Department has lacked a detailed view of how Universal Credit is meant to work.”

That has been the central failure: the Department simply has not worked out what the system is supposed to do.

More than three years after the implementation of universal credit started, we still do not know, as we have been reminded in this debate, which recipients of universal credit will be entitled to free school meals for their children. That is not a minor detail; it is a very serious problem for the aim of making sure that people are always better off if their income goes up. If the truth is that a household will suddenly lose their entitlement to free school meals if they reach a specific income threshold—that appears to be where we are heading—of, for example, £9,000 a year, their income will be a great deal less than it was before the small increase that triggered that change. The Citizens Advice briefing for today’s debate has an example of a lone parent who, if free school meals are decided on the basis of income threshold,

“will be worse off by taking on extra work however many hours she works”.

Solving that genuine policy difficulty is at the heart of what the Government are trying to do with universal credit. As my hon. Friend the Member for Edinburgh East (Sheila Gilmore) has reminded us, she and I served on the Welfare Reform Bill Committee. On 24 March 2011, the Secretary of State said:

“we have to resolve some of these issues like free school meals…You asked when. I believe that during the Committee stage we should be in a much stronger position to make it much clearer how we will do that.”––[Official Report, Welfare Reform Public Bill Committee, 24 March 2011; c. 154-55, Q299.]

The Committee stage ended on 24 May 2011, just over three years ago. When I asked the Schools Minister about the subject last Thursday, he said that an announcement would be made “shortly”. It appears that we are heading for some sort of income threshold. If that happens, it will create a huge new work disincentive in universal credit for a very large number of people that will be far worse than anything in the current system, for all its flaws.

The universal credit rescue committee—I am grateful to the hon. Member for Warrington South (David Mowat) for drawing attention to its work—submitted its report to the Labour party two weeks ago. It pointed out that the work incentives for second earners in a couple are a good deal worse in universal credit than they are in the current system. My hon. Friend the Member for Oldham East and Saddleworth underlined the importance of that point.

Leaving council tax support out of universal credit undermines simplicity, with many claimants facing two separate rates of benefit withdrawal when they move into work or their incomes increase.

The decision to pay universal credit to only one member of a couple, rather than reflecting the current system in which payment with respect for children is paid to the main carer—an arrangement with which you, Madam Deputy Speaker, are particularly familiar—raises significant risks for many women and their children.

Universal credit also creates an extraordinary new red tape burden for self-employed people and partners in small partnerships who want to claim universal credit. The Institute of Chartered Accountants in England and Wales says that about 60,000 partners in small partnerships will want to claim universal credit and that it will be virtually impossible for them to meet the proposed red tape challenge.

It is the policy failures that are the most serious, but it is the delivery failures that are the most spectacular. As the Minister for the Cabinet Office said in a television interview, implementation has been “lamentable”. I wrote to the Secretary of State on 16 November 2010 to point out that his timetable was unrealistic, and I wrote to him again on 18 April 2011. The Secretary of State wrote a perfectly friendly response on both occasions, but simply denied that he had a problem.

In November 2011, the Secretary of State announced that 1 million people would be claiming universal credit by April 2014; in fact, there were approximately 6,000. In May 2012, he announced that new applications for existing benefits and credits would be entirely phased out by April 2014; Ministers now say that that will not happen until 2016. Even assuming that everything goes well from here, which it will not, the project is at least two years late.

Late last year, it was finally admitted that the transition to universal credit will not be complete by 2017. Everybody has known that for months. The hon. Member for Amber Valley (Nigel Mills) was right to make some very thoughtful comments about that. However, while everybody knew about the problems, Ministers flatly denied them. The Secretary of State told the House on 5 September 2013:

“The plan is, and has always been, to deliver this programme within the four-year schedule to 2017…that is exactly what the plan is today. We will deliver this in time”.—[Official Report, 5 September 2013; Vol. 567, c. 472.]

That was complete fantasy. He was still doing it on 18 November, when he said that

“universal credit will roll out and deliver exactly as we said it would.”—[Official Report, 18 November 2013; Vol. 570, c. 947.]

Everybody knew that that was untrue. Why do Ministers not simply tell us the truth about what is going on? Some £40 million has been written off so far, with more undoubtedly to come.

I was worried about achieving one universal credit IT system in anything like the proposed time scale, but we are now in the extraordinary situation of building two different universal credit IT systems. How much more will that cost? The Select Committee asked that question—surely that is what Select Committees are supposed to ask about—but the Government response simply does not provide any answers. Surely we can at least be told how much extra it will cost us to have two IT systems instead of one.

Lessons also need to be learned from another group of serious failures—the governance failures in the project. To answer the question quite rightly asked by the hon. Member for Warrington South, five different officials have had responsibility for the project since it started. However, the central problem is that the project has been managed primarily with a view to minimising embarrassment for the Secretary of State. That is essentially what decisions have been about. Problems, when obvious, have simply been denied; information that would have shed light on what was going on has been buried; and the people who have asked difficult questions have been fobbed off. Members of the public have made freedom of information requests to see the risk register, the milestone schedule and the project assessment review, but applications have of course been refused, and when the Information Tribunal found in favour of those members of the public, the Department simply appealed again.

Ministers are absolutely determined that nobody should know what is really happening. With this project, there is an obsession with hiding things; of pretending that all is well when it obviously is not; and, as the National Audit Office has pointed out, of only admitting to good news. That is not a culture that will deliver a successful project, and it certainly has not delivered success in this case. My hon. Friend the Member for Hampstead and Kilburn referred to a “bunker mentality”, and there absolutely is such a mentality.

Obsessive secrecy has no doubt spared the blushes of the Secretary of State, at least for a time, but it has hindered progress on the project. It has meant that it has taken longer than it should have done to recognise problems and to deal with them, and a large amount of money has been wasted. If, two years ago, the Secretary of State had put up his hands, and recognised that he and his advisers had got it wrong and that the project would take longer than they first said, much of the subsequent waste and delay could have been avoided. Instead, they just kept on denying that there were any problems, so the problems kept on getting worse—and the project is not finished yet.

The project is at least two years late, and it will have wasted much more than the £130 million already acknowledged. It is essential, as the universal credit rescue committee has argued, that the project is now paused. Central policy decisions still have not been made—Ministers cannot spend hundreds of millions of pounds on an IT system if they do not know what it is supposed to do—and Ministers have not made such decisions. As has rightly been said by the rescue committee, taking advice from the former chief information officer of Rolls-Royce, who served on it with distinction, we need a plan that is published, is audited by the National Audit Office and contains milestones with dates, so that everybody knows how the project is going. Why pretend that it going well when it clearly is not?

[David Mowat]

The point I made was that the review could be done in parallel with continuing the programme. Let us say that 1,000 people are working on the programme at the moment. What will the right hon. Gentleman do with those 1,000 people during that three-month review?

[Stephen Timms]

As I have said, the idea for the pause is based on the recommendation of Jonathan Mitchell, the retired chief information officer of Rolls-Royce, who has managed extremely large IT projects in that company—possibly even larger than those for which the hon. Gentleman had responsibility. He has said that when a project is as out of control as this one clearly is, it is essential to stop, to make policy decisions and to draw up a plan before simply shovelling in hundreds of millions pounds more.

[David Mowat]

Will the right hon. Gentleman give way?

[Stephen Timms]

I will not, because I should conclude.

Outstanding policy issues need to be decided, the work incentive design flaws need to be fixed and a hard-headed view needs to be taken about whether this project can be rescued within an acceptable time and cost. Opposition Members hope the answer to such a question will be yes, but we cannot assume that it will be. The question needs to be asked frankly and answered honestly. It should not be left until the election; it should be done now.

DWP: Performance

David Mowat Excerpts

Monday 30th June 2014 Commons Chamber

[Mr Duncan Smith]

I was referring to PIP and the fact that the terminally ill will not have to wait longer than 10 days to be seen. I think that the hon. Lady is referring to WCA. They will go straight to the support group. [Interruption.] Well, I have given an undertaking that they should not have to wait more than 10 days to be dealt with.

[David Mowat (Warrington South) (Con)]

My right hon. Friend mentioned the shadow Secretary of State’s four-point rescue plan. Part 1 is a three-month delay, which would lead to a write-off. Parts 3 and 4 include scope increases, which at this phase in the programme would be bound to cause further write-offs. That is precisely why Labour lost £20 billion in the previous Parliament.

[Mr Duncan Smith]

I am grateful to my hon. Friend, who is right about that, and I will come to that point in a minute. That is what happens in the development process. Universal credit is rolling out against the time scale I set last year, as I will demonstrate.

Oral Answers to Questions

David Mowat Excerpts

Monday 23rd June 2014 Commons Chamber

[Steve Webb]

No, on the contrary, the people we are excluding from auto-enrolment are those for whom we think the default should be not to save in a pension, because they will get a state pension typically of £7,500. If they are earning £6,000 now, should the Government take money out of their pay packet, when they are earning £6,000, to top up a pension of £7,500? That does not make any sense.

[David Mowat (Warrington South) (Con)]

The Pensions Minister has made some welcome changes to the way in which smaller pots will be managed, with aggregation, pensions following workers and so forth. If that works well, will there be scope in the future to review this limit?

Oral Answers to Questions

David Mowat Excerpts

Monday 31st March 2014 Commons Chamber

The Secretary of State was asked—

[David Mowat (Warrington South) (Con)]

2. What assessment he has made of the Office of Fair Trading’s recent recommendations on the creation of independent governance committees in defined contribution pension schemes.

[The Minister of State, Department for Work and Pensions (Steve Webb)]

The Government announced last week that pension providers will have to implement new independent governance committees to oversee workplace pension schemes. This is part of the Government’s package of measures to ensure that workplace pension schemes are well run and deliver value for money.

[David Mowat]

I thank the Minister for that answer, and I congratulate him again on his brilliant announcement last week of a 0.7% cap, which is 50% of the cap that the Opposition imposed on stakeholder pensions. But the OFT report identified other governance issues with smaller pensions where trustees and fund managers come from the same organisations, and it suggested that these independent governance committees be set up quickly. Will he confirm that that will happen before auto-enrolment goes much further?

[Steve Webb]

I am grateful to my hon. Friend for his support for our robust action on pension scheme charges. On governance, we recognise that there is potential for conflict of interest in some master trusts. Therefore, in last week’s Command Paper, which I am sure he will have studied, we proposed that master trusts should be subject to the same independence requirements as independent governance committees. We are now consulting on that proposal.

Oral Answers to Questions

David Mowat Excerpts

Monday 24th February 2014 Commons Chamber

[Steve Webb]

My hon. Friend will know that our auto-enrolment programme, which we are in the middle of rolling out, has been highly successful, with nine out of 10 people choosing to stay in that programme. The Australian version is compulsory; we have chosen not to do that in this country. The fact that most people are choosing voluntarily to stay in pensions saving is a judgment that we have made the right choice. I should add that the Australians have said that they wish that they had introduced from the beginning the pot-follows-member system that we are introducing.

[David Mowat (Warrington South) (Con)]

The pensions Minister is consulting on a charges cap. For the avoidance of doubt, will he confirm to the House that he still plans to introduce the cap during the lifetime of this Parliament?

[Steve Webb]

I refer my hon. Friend to the written statement that we issued today, which confirms precisely that we will shortly bring forth our announcement, and that we will see through our agenda during the course of this Parliament.

Universal Credit

David Mowat Excerpts

Tuesday 10th December 2013 Commons Chamber

[Mr Duncan Smith]

We have the confidence of the Treasury.

[David Mowat (Warrington South) (Con)]

Such programmes are highly complex, involving many hundreds, if not thousands, of man-years of work—probably more complex than delivering the Olympics. Given that the Opposition apparently support the programme’s objectives, does the Secretary of State understand why they have spent the past three quarters of an hour undermining the project team?

[Mr Duncan Smith]

My hon. Friend again raises the point that the Opposition talk a lot about supporting universal credit but they voted against it. They have nothing to say about welfare reform. That is the problem. Up till now, they have failed on welfare reform. They are known as the welfare party because they have opposed everything that we have brought in. We will save more than £40 billion over this Parliament. They have opposed everything, which would cost them an extra £40 billion if they were to get into power.

Oral Answers to Questions

David Mowat Excerpts

Monday 18th November 2013 Commons Chamber

[Esther McVey]

Obviously the Opposition like to rewrite history. The 40% increase in youth unemployment that we saw over their years in office was shocking, particularly given that it was during a boom period. We are dealing with the issue most practically. The Youth Contract has been, is and will be a huge success, with wage contracts increasing from a slow start of 1,000 a month to 4,000-plus a month.

[David Mowat (Warrington South) (Con)]

7. What costs will be included in his proposed cap on pension charges.

[The Minister of State, Department for Work and Pensions (Steve Webb)]

As my hon. Friend knows, we are consulting on whether there should be cap on charges in workplace pensions and, if so, what costs it should cover. Without pre-empting the consultation, he can be assured that our presumption would be in favour of a broad definition of charges for those purposes.

[David Mowat]

I thank the pensions Minister for that answer and congratulate him on his consultation on introducing a cap that is 50% of the level of the cap for stakeholder pensions introduced when the Opposition were in government. That is a step forward. A further step forward across the whole industry would be to have better comparability and transparency of charges generally. We have acted to do that for energy companies by simplifying charge structures. Will we consider doing that for pensions?

[Steve Webb]

I thank my hon. Friend for being the only Member who managed to get a pensions question on today’s Order Paper. [Interruption.] I will make the most of it. He is quite right that the Office of Fair Trading identified 18 different sorts of charges, which are often baffling and hidden. One of its recommendations was that the committees that oversee pensions should be given transparent information about charges, and that is a recommendation we will be looking to take forward.

Pensions Bill

David Mowat Excerpts

Tuesday 29th October 2013 Commons Chamber

We are therefore proposing a range of options on how far we can get with better disclosure and transparency, and on an absolute charge cap. I can tell the House that we will include in our consultation the option of a 0.75% charge cap on workplace pension schemes. That is a tougher charge cap than the Opposition have called for—they chose 1%. Their suggestion of a 1% cap was either based on an exhaustive investigation of the evidence and the data, or chosen because it was a nice round number. It was one or the other. The Government believe we should consider going further. We know that not enough people are saving for their retirement, and therefore that every penny they get into their pension has to turn into as much pension as possible. That is why we will consult on tough action on charges.

[David Mowat (Warrington South) (Con)]

I thank the Minister very much for the announcement that he will consider a 0.75% cap in the consultation. Will he ensure that, in the consultation, there is clarity about what the 0.75% includes? As he is aware, there are an awful lot of different interpretations of costs by different people. That is part of the problem.

[Steve Webb]

My hon. Friend is right. The consultation document discusses what should be included in the charge cap. My instinct is to prefer a comprehensive definition of charges. Clearly, we do not want to cap annual management charges and find out that the industry has cunningly managed to get its money back by some other route or a disguised charge. We therefore discuss what should be included.

My instinct is to go for a broad measure. There is an issue with transaction costs—we clearly want to know about them. Including transaction costs in the cap could lead to a slightly odd situation. Towards the end of the financial year, the fund and the trustees might believe that conducting a transaction is the right thing to do for the benefit of the pension fund. However, they might be unable to do that because the transaction costs would take them over the annual limit. We would be grateful for feedback on that and need to address those issues. One reason why we are having a consultation rather than laying down a definite answer is that we want insight on the fine detail, as my hon. Friend says. The basic principle is that we are looking at ensuring that 99p-plus of every £1 put into a pension goes into a pension. I am grateful for his comments.

I should add that there has been a suite of activity on charges. To remind the House, we announced a ban on consultancy charges earlier in the year. Government new schedule 1 and Government new clause 1 give us the power to put a set of powers to cap and regulate charges and quality all in one place. That includes automatic enrolment schemes, qualifying schemes and closed schemes. Lots of people have lots of money tied up in closed schemes. Without those measures, we would not necessarily have the powers we need to regulate the charges they pay. In some ways, the charges that people in closed schemes are paying—they are often old, high-charge schemes—are worrying, because people are often not engaged with their pension saving in a closed pension scheme.

Prompted by the OFT and working with the ABI, we are looking at legacy schemes—schemes introduced before 2001. The average charges in legacy schemes are 26% higher than charges in schemes sold after 2001. This is a full-frontal assault on pension scheme charges. We have banned consultancy charges; we are taking powers in the Bill to go further for auto-enrolment schemes; and we are looking at legacy schemes, charges and charge caps. We are taking effective action on issues that previous Governments have only dabbled with. That is why I urge my hon. Friends to support our new clause and our other proposals. They deliver, whereas the Opposition’s proposals mess about around the edges.

On governance and administration—in the context of new clauses 9, 10, 11 and 12, and amendments 54 and 55—quality in pension saving is not only about charges. How well schemes are governed and administered is important. Interesting issues are raised by the Opposition’s proposals—obviously, they are flawed, but I acknowledge that they raise important issues. New clause 9 would impose a trust-based structure for all pension schemes, with independent trustees across the board. But interestingly, the Office of Fair Trading’s project leader on the workplace pensions report that has just been published was recently quoted as saying that although trusts feel like an intuitively better way of looking after people’s pensions, that

“is largely dependent on the quality of the trustees.”

Given the many pension schemes we have at the moment, including many defined-benefit schemes, a requirement for every scheme to have a particular sort of trustee could be a real challenge, especially for smaller DB schemes.

Some of the Opposition’s suggestions may not be in the interests of members of schemes. I think the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East was at the recent conference of the National Association of Pension Funds, where he would have heard Fiona Reynolds, the chief of the Australian Institute of Superannuation Trustees—our friends the Australians again—commenting on his suggestion. She said:

“Looking at the Australian system, we conducted a lot of research into whether there should be more independent trustees but in actual fact we found there was a greater alignment of interest within trust based schemes, and these schemes outperformed other schemes where independent directors were present.”

In other words, these are interesting ideas, but they have been tried elsewhere and they are not a panacea or golden bullet.

--- Later in debate ---

[Steve Webb]

Just to be clear, new clause 7 makes a specific suggestion regarding a private sector employer going to the wall. The promise was never, “You’ll get absolutely everything, even if your firm goes bankrupt”; it was that the terms of the pension would be as good as in the public sector. Clearly, in this case people are working for a private sector firm and could, if they wish, transfer their pension rights to somewhere else. They chose to keep them with the sponsoring employer.

Bear in mind that the money to pay for any shortfall in those pensions will come from the general taxpayer. Somebody is paying for that shortfall and many general taxpayers have no pension provision at all. If a private company knows that the pension fund is completely insured by the Government, that may influence its behaviour in a way we would not want. If feels unfair to say, “If your private employer used to be nationalised not only do you still have access to a very good pension scheme, but it is absolutely protected, whereas if you worked for any other private firm you are not protected.” I can understand why the hon. Member for Hayes and Harlington, given his trade union links, supports the railway workers—that is fair enough—but it seems like special pleading for that industry and I think there are many others who might make the same argument.

[David Mowat]

I am sorry to take my hon. Friend back to annuities, but I have been reflecting on his remarks. I agree with the need for us to be more creative in that interface as annuities are taken out, and he is right to say that the annuity broker is overly prescriptive. However, it is also true, as I think he said, that there are market abuses in the annuity system. Is there any more we can do in the consultation to look at the transition from pension fund to annuity and ensure that, for example, the Association of British Insurers code of conduct is more rigorously applied than it has been? It has not been very successful up till now.

[Steve Webb]

Although the ABI code, for example, no longer requires the providers to send the application form with the wake-up letter, I gather the early evidence is that it has not substantially changed the proportion of people who shop around and then move to a new provider. I agree with my hon. Friend that there is a big agenda on decumulation—I apologise again for the word. It is not just about annuities. The new clause is too narrow and too prescriptive, but I assure my hon. Friend that we do not regard decumulation as a job done—on the contrary.

--- Later in debate ---

[Gregg McClymont]

I thank the Minister for that thoughtful intervention. I am coming on to the issue of the charge cap and the rate at which it will be set, so I shall take up the point when I discuss our amendment (a) to new clause 1. He refers to small pots, but that takes us into territory we have previously discussed about getting aggregators to take them on. Why does he believe that only small pots that are stranded should automatically be transferred? My view is that all stranded pots should be liable for automatic transfer. I am grateful for his intervention, because it reminds me of something I intended to say. The Government’s position on the pot follows member system appears to be supported only by the Government, the Minister and the ABI. First, the only pots liable for automatic transfer will be those for less than £10,000, and secondly no pots that are stranded before the date on which the legislation takes effect will count as stranded pots. [Interruption.] The Minister shakes his head. I will give way to him if I am wrong on that point. He does not want to intervene, so I shall continue on the basis that what I am saying is correct.

This is an important issue, because I am building a case that the Minister does not realise how substantial the problems in the private pensions market are. He continues to think it can be treated like better-functioning or well-functioning dynamic markets. Actually, the market is more like the one in energy. I say that because when, under the Minister’s leadership, the Department for Work and Pensions looked at how to consolidate pots, it gave as a reason against aggregators the fact that they would disrupt the current market structure.

The Minister talks about new clause 1 and the need to take very strong action. Implicit but also explicit in what he says is that there are really serious problems with this market. If that was not explicit in what he said today, it was certainly explicit in his “Les Misérables” ditty at the NAPF. He knows about these problems, and he knows that we need significant change. We are going to be in a position, however, whereby all currently stranded pots will continue to be stranded. The Minister is shaking his head again. Does he want to tell me that I am wrong? I am happy to accept it if I am wrong, but on the basis of our Committee debates, I do not think that I am. Am I wrong? The Minister will not stand up to say so, so I shall assume that I am not and that he wants to keep the currently stranded pots still stranded and will not take action to deal with the problem. He also sets a £10,000 limit. Why? The answer is that he continues to be unprepared to stand up to the vested interests in the pensions market.

The Minister said several times that the ABI is doing this, and the ABI is doing that. That is welcome; we like to see the industry engaged. However, a time must come—and it is now—when the Government must get on and make the changes necessary to reform the pensions system. I put that on the record, and if he wishes to correct me, he can. As I say, currently stranded pots will not be encompassed by clause 29 and schedule 16, and no pot above £10,000 will be considered to be a pot eligible for automatic transfer. I think that says something significant—that he does not understand the necessity for significant change in this market.

It is not just me referring to private pensions as a failed industry. As I said, the group of 40 Tory MPs in the most marginal constituencies have done so too. They do so because they understand that if 10 million people are to be automatically enrolled into the new workplace pensions, every scheme must provide value for money. The Minister needs to take the necessary action and accept that.

[David Mowat]

I have just come back into the Chamber, but since the hon. Gentleman mentions the 40 Tory Members, I want to put on record the fact that as one of those 40, I was extremely happy to hear what the Minister said about the consultation, the 0.75% cap and his cognisance of the issues surrounding it. I shall therefore support the Government in any Divisions on these new clauses and amendments. [Interruption.]

[Gregg McClymont]

My letter has not had the desired effect. I thought that Madam Deputy Speaker called me “Greg Mulholland” there. I was processing that, rather than being shocked at the fact that the Treasury Parliamentary Private Secretary is going to vote with the Government. Believe it or not, that did not come as much of a surprise to me.

--- Later in debate ---

[Gregg McClymont]

My hon. Friend makes a very good point. The logic of moving to a system in which every scheme has independent trustees flows from the fact that in the pensions market as it stands the consumer who is a member of a scheme without trustees cannot have their voice heard. What happens then? The interests of shareholders over-dominate. In a market that functions effectively, of course, the consumer can shop around, compare prices and if they buy something that they do not like they can even buy something else. None of that is true of the pensions market and that is why, in our view and given the options available, reaching a situation in which every scheme has trustees is the best way to try to ensure proper representation of saver interests. My hon. Friend is absolutely right.

[David Mowat]

I am listening to the hon. Gentleman’s argument, and it seems to me that all his points should be input into the consultation the Minister announced earlier. The Minister made it quite clear that one issue that would be consulted on was a cap of 0.75%, and that among the issues to be resolved was what factors would be included—for example, total expense ratios, annual management charges or any other kind of charge. Those are all legitimate topics for consultation. I welcome the discussion, as it is surely the right thing.

[Gregg McClymont]

I do not disagree with any of that, apart from the fact that the chance to take the necessary steps has today been laid in front of the Government and the Minister. We must concede that auto-enrolment is already well under way, but at what stage will we see the action that is necessary? We will be in 2017 before we know it, when everyone will be auto-enrolled, and if the Minister has continued to consult rather than act we will be no further forward. The Minister has taken action on consultancy charges—he can do it—and I give him credit for that. He is undertaking a significant reform of the state pension, which we will discuss later, and he has many things to deal with, but the Government must act faster on these issues.

Oral Answers to Questions

David Mowat Excerpts

Monday 14th October 2013 Commons Chamber

[Esther McVey]

This is something we have to do. I have answered this before: how many people we have to look at who are on waiting lists, how many are in overcrowded housing, and how the bill doubled under Labour. The hon. Gentleman is quite right—we have to get the stock right: the fact that there are three-bedroom houses and why in the last three years they have not been modified into one and two-bedroom houses. Those questions have to be asked. That is what we have to do: get the stock right and support people as best we can.

[David Mowat (Warrington South) (Con)]

The pensions Minister mentioned earlier that the Office of Fair Trading report highlighted some of the abusive practices in the private pensions industry, such as active member discount and charges of up to 3% on many schemes. I welcome his consultation, but does he agree that it will be important to put a cap in place before auto-enrolment is rolled out at volume?

[Steve Webb]

My hon. Friend raises the crucial issue that, while the largest firms have been able to negotiate very good charging levels, we cannot be certain that the smaller firms will even be offered them or, indeed, that employers will necessarily be interested in charging levels when it is the employees, rather than the employers, who pay them. Our consultation will touch on that issue and on that of active member discounts.

Pensions Bill

David Mowat Excerpts

Monday 17th June 2013 Commons Chamber

[Dame Anne Begg]

I welcome the reduction in means-testing, but the hon. Gentleman should be aware that there are two different types of pension credit. There is the savings credit, which the Bill is abolishing completely; that means that someone with savings but no other income might be worse off than someone who has no savings. The savings credit tended to be more complicated, and people found it difficult to judge whether or not they qualified for it. The people eligible for savings credit were generally those who had a little saved or were a bit above the minimum, but those people tended to believe that they did not qualify for anything because they had never qualified for anything before. The take-up among those who qualified for just the minimum income guarantee part of pension credit, on the other hand, was well over 90%. I do not want the hon. Gentleman to be confused over the fact that large numbers of people were not claiming what they were entitled to in pension credit. Very often, the savings credit might have qualified people for only about 50p a week, so they thought that it was not worth going through the bureaucracy. I know this from conversations I have had with my constituents.

The hon. Member for Amber Valley (Nigel Mills) mentioned that the Work and Pensions Committee undertook pre-legislative scrutiny, but we scrutinised only part 1 of the Bill. That was our remit. I shall say no more about the fact that the start date was accelerated, as I recall laying into the Minister for that when we last debated the issue on the Floor of the House. We took no evidence on the later parts of the Bill, the most controversial of which is probably the issue of raising the pension age. The many briefings I have received from various organisations have focused their criticisms mainly on that issue.

The impression has been created that, if there is to be a review every five years, the pension age will increase every five years, which has frightened quite a number of people, as it seems to underpin a never-ending increase in the pension age. That is why my hon. Friend the Member for Amber Valley—I call him my hon. Friend because he sits on our Select Committee—was wondering, given his present age, how old he will be before he receives any kind of state pension. I know how he might feel. I have said here before that as someone born in 1955, I have been hit by all the increases. I was of the generation of women who, under the Pensions Act 1995, would not receive a state pension until 65. I had accepted that and was planning for that, but the Government then introduced an acceleration up to 66 for 2020, so I can well understand why some women feel that they never seem able to reach their state pension age because the Government are continually moving the goalposts. That thinking may well be behind some of the anxieties expressed in many of the briefings I have received on the pension age provisions.

Other issues concerning not just the state pension but the pensions landscape are not covered in the Bill, even though the Select Committee produced reports on them. The hon. Member for Amber Valley mentioned that we published a report on the governance of pension schemes, in which we recommended that the Government should consider making a single regulator responsible for pensions. He has also set out some of the Select Committee’s concerns about the present regulatory framework, particularly regarding the gaps or confusion about exactly which body is responsible for which parts of the regulations.

Ultimately, pensions must be well regulated, because we have to rebuild trust in them so that people know that if they invest in a pension they will get a good income from it and not be ripped off by a pension company. They want to know that the charges they pay for their pensions are fair, that there are no hidden charges and that nothing pertaining to their pension has not been properly explained to them. It is really important for people to have that faith in the pensions industry and for the pensions industry to step up to the plate and ensure that it offers very good, well-regulated products that are not overly expensive.

We also produced a report about the lifting of restrictions on the National Employment Savings Trust. If the Government are to make sense of auto-enrolment and if indeed they are to get rid of what was the state second-tier pension in SERPS, or S2P, it is crucial that a state-backed second-tier pension is available, and that default option should always be NEST. In saying which restrictions should be lifted, we said only that the transfers in and out and the cap should be lifted; we did not say that the restriction on NEST always to have a public service duty should be lifted, as we thought that was absolutely right. There has to be a default scheme that cannot turn anyone away. If NEST is to undertake that important work, it will be unfair if some of the restrictions have not been lifted. I hope that, as the Bill goes through its stages here and in the other place, the Government will come up with some proposals to change the present restrictions that are hampering NEST’s ability to do business.

The Government have accepted some other elements of the Select Committee’s report. The implementation date is now in the Bill and it has also been specified that the minimum qualifying years should be no more than 10 years. It was the hon. Member for Amber Valley again who argued for exactly that, and we were happy to accept it as one of our recommendations.

During today’s debate, it has become clear that a good communications strategy is crucial. There is no doubt that when the single-tier pension was first mooted, everyone thought that those who were born on the day before the relevant date would receive £107 a week, while those who were born the day after would receive £144. I think that people still have that impression, and that it is still felt that the new system will be more generous to everyone. Well, it will be more generous to some—the self-employed will probably do slightly better out of it—but those who have assumed that all their second tier of pension will be covered by the state earnings-related pension scheme or by the state second pension may be worse off in the long term.

It is incumbent on the Government to try to deal with some of those misunderstandings. I assume that they have sent a letter to every woman who is within 10 years of pension age, because I received such a letter, but the letter that I received was very vague, and—as has already been pointed out today—not everyone knows how many years of credit they have in their state pension, because not everyone understands what work qualifies for credit and what work does not.

It is crucial for us to warn people who are close to retirement that they must have made national insurance contributions for 35 years rather than 30. Some have already retired under the misapprehension that they have contributed the full amount. It must be made clear to them that they can buy back national insurance years, they must be told how they can do that, and it must be ensured that they do not buy back years that will give them no extra income.

[David Mowat (Warrington South) (Con)]

I have been reflecting on what the hon. Lady said about the National Employment Savings Trust. It is clear that NEST is directionally right and that a passive, low-cost investment vehicle is needed, but there are a great many restrictions that will prevent it from competing fairly with the existing industry in the marketplace. Did the Select Committee give any thought to what could be done about some of those restrictions?

[Dame Anne Begg]

We did indeed. We did not consider it during our pre-legislative scrutiny, because the issue is not covered by the Bill—there is some regret about that—but we did consider it in our governance report. We also published a separate report recommending the lifting of the cap on NEST and the removal of restrictions on transfers in and out of it. If the Government’s “pot follows member” proposal—which is in the Bill—is to work, the restriction on transfers must go, because otherwise anyone who has or is about to have savings in NEST will not be able to be followed by their pension pot when they move from one employer to another.

[David Mowat]

The “pot follows member” proposal interests me as well. Did the Select Committee give any thought to the use of NEST as a vehicle for aggregation? That strikes me as a natural way of going down a different route.

[Dame Anne Begg]

We did indeed. In fact, that was the favoured option of many of our witnesses. The Government did not listen, and opted for “pot follows member”, but we, and a number of witnesses, thought that NEST would be ideal as the source of an aggregated fund.

The communications strategy must also make it clear that savings credit will end when the single-tier pension is introduced. However, one of the main issues dealt with by the Select Committee was the issue of women—for it is usually women who are affected—who currently depend on the pension contributions of a partner or husband and whose pensions are therefore based on derived rights, because that system will end. The Committee recommended that women within 10 years of pension age should continue to enjoy those rights, because in less than 10 years they would not have time to build up a contribution record that would enable them to receive any kind of state pension in their own right. That, we thought, was very unfair, given that all the household planning might depend on the assumption that the wife would receive 60% of the husband’s basic pension.

--- Later in debate ---

[David Mowat (Warrington South) (Con)]

Like many other Government Members, I strongly support the Bill. My hon. Friend the Member for Aberconwy (Guto Bebb) described it as bringing simplicity and fairness. He also described it as a “brave” Bill, although I assume that he did not mean that in the “Yes, Minister” sense. It will reduce complexity and regularise the treatment of women, but I want to talk about the way in which it will interact with the private sector pensions industry. I also want to build on some of the comments made by the hon. Member for Edinburgh East (Sheila Gilmore).

There is an elephant in the room when we talk about pensions provision in this country. The fact is that, even when the Bill has increased the basic state pension, that provision will not be enough for most people unless it is supplemented by the private pensions industry. Broadly speaking, pension provision in this country can be divided into thirds: one third of people are in public sector pensions, one third are in the private sector, and a third have no pension provision at all. For that middle third who are in the private sector, it is almost certain that their pension pot will not be large enough.

We have heard Members talking about the comparison between private and public sector pensions, and Parliament has debated public sector pensions endlessly. We have probably ended up in a good place in that regard. Someone cashing in an inflation-proofed pension of £15,000 a year—a self-invested personal pension, for example—at the age of 65, would have a pot of £400,000. For most people in the public sector, the value of their pension is likely to be higher than the value of their house.

The size of the median pot in the private sector is about £10,000. That is partly due to poor savings ratios. This matters, because our country has chosen to go with a pension system that is different from those in most of Europe, where there is higher basic state provision and no assumption that, by paying out tax relief, the private sector will somehow come through. The fact that the private sector has failed in this country represents a time bomb, and I shall analyse why that is the case. We need to look at that time bomb, even though there are some good things in the Bill.

One reason that people are not saving is that there is massive distrust of the industry. I have many colleagues in the private sector who would almost cut their arms off than invest in the pensions market. They would do anything to avoid doing that. They would buy houses to rent, for example. Perhaps that is a rational response to a market that has failed. I am a free marketeer. I sit on this side of the Chamber and I believe in markets. If they work, they get rid of supernormal profits and unfair advantages, and all that goes with that. However, they will not do that when there is an asymmetry of information in the market, and when that market has failed. I would contend that the market for private sector pensions falls into that category.

We have the highest pension charges in the world, according to Cass business school’s pensions institute. I know that we are coming out of a period of relatively low returns and that the numbers are therefore suspect, but someone could be spending 50% of their pension pot on charges, and 2.5% compounded over a few years does that to someone unless things are going up. There is absolutely no evidence of economies of scale in our larger funds, which is completely unlike the situation in the United States, where charges come down as the size of funds goes up.

We have too many pension funds. When I open the Financial Times, I see that there are more funds than there are equities, which is extraordinary. That is indicative of a market that has not had to consolidate because it has not been put under pressure by market forces. We also have exploitative techniques. I will not go into that in great detail, but the fact that active member discount has gone on for so long—there are now proposals to get rid of it—is extraordinary.

The way to make a market work better is to make it transparent. I have spoken with the Minister about the industry and I know that he is trying to make it move in that direction, and I respect that. The industry—I used to work in business, and in fact in the same business as the shadow Secretary of State—in my opinion is doing what we sometimes did: playing it long. It knows that it is making unacceptable profits and that that will have to change, because eventually this place will get around to fixing it. In such a situation, it plays it long. It is beginning to regularise charges and to talk about annual management charges, but of course that is different from total expense ratios. There are entrance fees, exit fees, churn fees and trailing commissions. I have a double maths A-level, an engineering degree and I am a chartered accountant, and I can just about understand this stuff. The idea that most people who are having to buy pensions could be educated to such a degree that they could make the market work is ridiculous. The market knows that and the result is a median pension pot of £10,000. It is a crisis, even with the welcome response that Government Front Benchers are putting forward tonight.

Auto-enrolment is clearly the right thing to do, but it makes it even more important to fix this issue, because we are now semi-making people invest their money in a market, and if the market is not working because we cannot be bothered to fix it, that is a moral issue. I talked earlier about NEST. I think that a low-cost passive tracker is exactly what is needed. I do not have a particular liking of state-based solutions, but I return to the fact that the market has failed. I understand that the Office of Fair Trading is conducting an inquiry into fund charges—the Minister nods his head—which I welcome. By my remarks I am not implying that we are doing nothing; I am implying that this remains an issue. The words I used—I would like them to be remembered—is that the industry is playing it long and that this is now a moral issue.

There is new stuff coming out, and I think that the Association of British Insurers has said that the charge is 0.54%, and that that is reasonable. It would be reasonable if it were not for the fact that so many people are being auto-enrolled into old funds that have much higher profit ratios. I really wonder what that 0.54% even means. Is it a total expense ratio or an annual management charge? How many of the other millions of charges that generally are not included are counted within that figure? The whole thing needs to be fixed.

What would I like the Government to do? Well, we should strengthen NEST. As I have said, I would prefer the private sector to come up with solutions to make the market work, but it has failed to do so and the time has come to act. Denmark has very low charges on pensionable assets, and it has achieved that through something very similar to NEST, and other countries are moving in that direction.

I have not yet talked about the portability of pensions. I read the Select Committee report on the issue. I am surprised that we have gone for the solution of having the pension follow the employee into their next job. I have not done the analysis, and the issue requires a lot of that, but that does not feel to me to be the optimum solution for the employee.

I do not often agree with the TUC, but I believe that its representatives have said that, based on their analysis, an aggregator would appear to have been a better solution. If we have done what we have done because of the survey cited in the Select Committee report and other sources, that is not a good reason. If we ask 100 people, 98 of whom might understand the fundamentals, whether they would like to take their pension to the next job or to an aggregator, I really doubt that they would understand.

If the survey is the basis of the analysis that has been done, it is a cop-out. That said, if there is analysis out there that says that what has been chosen is the right way, so be it.

[Steve Webb]

indicated assent.

[David Mowat]

The Minister is nodding, so I will not push the point. However, we are in the new world of portfolio careers, where people change jobs eight, nine or 10 times, with entrance and exit charges every time. I find the point hard to see, but okay.

I have four suggestions for the Bill Committee; if any Whips are listening, I should say that I will not be a part of it. I think there is a case for a cap. The industry sometimes says that a cap would drive down innovation, but we do not need more innovation—we need solid, passive investments that we leave and let go for a long time.

I would like there to be more enforced simplicity. We should look at what the Department of Energy and Climate Change has done with electricity and gas charges. It has insisted that bands should be brought in so that there is comparability and consumers can say, “I’ll go with them” rather than being swamped in a myriad of complexity. Pensions are massively more material to the well-being of most people than utility bills, yet they are massively more complex. Perhaps we could consider standard charges and standard comparisons of the annuity market, so that when people choose an annuity they are much more able to make a reasoned decision. The Cooper reforms in Australia are an example of that, and I would like us to move down that route.

I have given annuity transfers a great deal of thought. I know that the market is saying that people will be sent letters to ensure that they have checked out the market before they go with their base supplier. Personally, I think there is a case for saying that the base supplier should not be allowed to provide an annuity. If we really want to force the market to work, we should do something such as that. If we are going to leave the matter with the base supplier or the organisation that the person has saved with, we could ensure that they register so that we know that people have properly considered the option of going elsewhere.

Finally, I turn to tax relief. I said at the start that our pension system has a structure different from that of a lot of countries in Europe. We have smaller basic provision; we then give a lot of tax relief and hope that the private market will take care of the situation. We spend about £30 billion a year on tax relief.

[Mr Byrne]

It is £44 billion.

[David Mowat]

I am told that the figure is £44 billion: a lot of money. It behoves us—it behoved the last Government, as well—to ensure that that money is spent effectively in a targeted way. My concern is that that money is part of the reason why the charge rates in our market are higher than in other countries and that effectively, our tax relief, whether £30 billion or £44 billion, is going into property prices in Kensington and Chelsea and not into people’s annuities and pension value.

Before I sit down, I want to reiterate that auto-enrolment, which I have been going on about for the past couple of years, has made it even more important for us to fix the situation. The industry cannot be left to play it long and hope that we take a long time to do something about the abuses.