Lord Mendelsohn
Main Page: Lord Mendelsohn (Labour - Life peer)Student Loans Company
Lord Mendelsohn Excerpts
Lord Mendelsohn
To ask Her Majesty's Government what is their assessment of the governance, operations and performance of the Student Loans Company.
Lord Mendelsohn (Lab)
My Lords, I am very grateful for the opportunity to debate the governance, operations and performance of the Student Loans Company. I am also very grateful to colleagues for taking part and to the Library for producing an excellent briefing note. I hope that the Minister will take this contribution in the spirit in which it is intended—as a gentle chiding and not as a call for full disclosure of every answer from the Dispatch Box. I also hope that he will accept that some other issues have been raised with me in relation to the Student Loans Company which are not for this debate. I will write to him separately on those.
I have always had a feeling that the Government—all Governments—have been great at announcing business but not always as good at delivery. Most often, political and other pressures have delayed the correct evaluation of what is and is not working, as well as the ability to be open and flexible enough to find a better solution. Inevitably that leads to cost and to some degree of failure to achieve as much as we should, but often it means very real detriment.
In my view, some of the losers from that have been the many great, talented and committed public servants and those brought into public service or contracted to be part of the effort. They are not given enough of something—be it attention, authority, funding, independence or scope for change—that could make a real difference, and those are the people who know what a real difference they could make and how they could reach their potential. I introduced this debate to highlight these issues in relation to the Student Loans Company, in a sense making it the example.
The Student Loans Company is a significant organisation, administering over £118 billion in loans to over 8 million students and graduates. It has a size and complexity akin to a retail bank, with a loan book that continues to grow significantly each year. This is a very complex business and the company and its staff do not have an easy job. In highlighting some of these issues, I do not wish to talk down the company or underplay the challenges or even the new threats that it faces—the Student Loans Company was subject to 1 million cyberattacks last year alone.
The SLC is not without achievements. It was, I believe, the first government agency to achieve Government Digital Service accreditation for two of its services. Indeed, I wish the new chief executive, Paula Sussex, every success in that role. However, around five years ago it was clear that not only did it have profound operational difficulties but it was not really fit for purpose for the future. McKinsey was brought in to make an evaluation and made clear its obvious weaknesses. There were fundamental problems in its governance model. The main issue was identified as the Government’s tight control of decision-making, which introduced delay and risks. Improvements were sought not just at the departmental level but at the levels of the steering board and the main board and in the strength of the main board to operate. I believe—perhaps the Minister will confirm this—that at that time it was even floated that an alternative governance model which would make it more independent could be considered. Has that ever been addressed following the evaluation?
McKinsey identified problems in the repayments strategy. The focus on reducing leakage meant that the SLC was not focusing on delivering an overall recovery plan; nor was it able fully to communicate with government on the true state of repayments, the economic life choices of graduates, how to deal effectively with the loan book, the true level of government expenditure and the level of national debt. It uncovered that the commissioning process—that is, how you deliver the Government’s policy announcements and adjustments—increased costs and caused delivery problems and complexity. The report also suggested that bringing the Student Loans Company earlier into the design policy could address many of those problems.
It also highlighted the need to transform the organisation’s morale and overall health, and the governance and commissioning processes were seen as a critical factor in that. It also highlighted other obvious weaknesses in the IT capabilities and noted significant gaps. In many ways, those related to a mismatch of the talent that could be recruited because of the company’s low compensation compared with that of the financial institutions with which, in size and significance, it was competing. The problems of morale, health and governance were also hurdles for candidates to overcome.
Beyond the review, many other familiar problems dogged the company. There was the reluctance of some parts of government to work fully with the SLC. For example, the fact that HMRC, despite receiving payroll data every month, would share that data only on an annual basis was not exactly encouraging and not entirely helpful. There was a lack of available funds to make some of the improvements properly and an allocation process that did not allow for long-term planning. There was a commitment to try to transform this with the appointment of a new chief executive, but unfortunately that change and some of the divisions and conflicts within the operations of government and the governance structure mean that we are not very far from where we were then. In fact, the evidence given by the chairman and chief executive to the Commons Education Select Committee showed that all these issues remained, with the exception of governance. However, the answer to governance was not the changes identified in the report.
It is a matter of public record that during this time the conflicts between the many layers of government—Ministers, officials, senior staff at the SLC and the new external appointments—meant that there were challenges around the fears that people had about the breadth of the transformation plan and how it was delivered, the process of the review and some of the suggested solutions. As with many issues familiar to this House, people will understand that some of these issues were smoothed over and the reviews and outcomes have not fully brought things to light.
Tensions broke out into the open and manifested themselves most seriously in the case of Steve Lamey, who was recruited to be the new chief executive of the Student Loans Company in June 2016 and dismissed in November 2017. He seemed well qualified with his background in industry; he had been with HMRC for eight years and had been involved in many transformation projects in IT, serving both the private and public sectors. One of the most eminent recruitment firms and an excellent selection panel selected him as the only eminently qualified candidate. This does not seem to have been a flaw but rather an illustration of the high bar they established.
In fact, Sir Paul Jenkins’ review noted that Mr Lamey’s annual appraisal while at the Student Loans Company had reported “an excellent first 10 months”, and that he had “re-energised the business” and demonstrated “sound and effective” leadership qualities. In the next two months, as the question of redundancies and implementing change took place, it all went wrong. I do not want to rake over every detail, and this Chamber is not the best place to do so, but this event and the subsequent discussions made me consider that something more was amiss.
My concern is not in any way to dismiss the claims made or their seriousness, nor to cast aspersions on those who were involved or who dealt with the adjudication. But I believe there are many clear flaws in the substance and manner of how all the issues were addressed. Fundamentally, it appears that, yet again, an outsider was outmanoeuvred in office and organisational politics, and that processes for questions that he should indeed have addressed did not seem to be handled proportionately or fairly. I wish there was some way in which what appears to have been an injustice to Steve Lamey could be rectified and the matter dealt with properly and independently. I hope so, but I do not expect so.
While this particular drama became the overall narrative, it meant that such fundamental issues, confirmed and expanded by McKinsey, and evident not only in its review but in other evaluations, have not been addressed with either the pace or commitment needed to get to the heart of the matter and empower the SLC to do the job it needs to do. Today, we have continuing problems of weakness in the retention of clerical staff and high sickness absence, as well as unsettling business practices which, unfortunately, continue to be unearthed.
It was no surprise that, in 2017, the National Audit Office judged that there was enough concern with the SLC to warrant an investigation into its oversight by the Department for Education. Its report highlighted a catalogue of shortcomings. In 2017, the DfE told the National Audit Office that it would be reviewing the governance, structure and operating model, with a first phase concluding by June 2018—and many other aspects to be included in the review. I would be grateful if the Minister could give some indication about that process—its different phases and timings, and its conclusions.
The Student Loans Company has not been able to get into a transformation process that deals adequately with its customers. This does not just cause difficulties in its operations, or with the challenges that we have. It shows a constant approach of underplaying some of the problems associated with the overall policy. I am not charging the Student Loans Company with this problem, but it manifests itself in the operation of loan sales and the accounting of loan numbers.
The Student Loans Company plays an important role in enabling the Government to package and sell their loans. We have had tremendous problems. We are selling loans at levels far below their value: £3.5 billion worth of loans for £1.7 billion, meaning a write-off of £1.8 billion. As the noble Lord, Lord Forsyth, has shown in the excellent report of the Economic Affairs Committee, we will underplay with the £12 billion sale a cost of £28.1 billion. The Government make the case that this might not be the value over time, but issue 1 of the prospectus for the Student Loans Company includes a calculation that demonstrates, in my view, that the Government’s argument is entirely flawed. Moreover, the fact that we will not be able to recover a likely 60% of student debt—and not appreciating that, for example, 60% of graduates take some form of career break—means that we are placing a huge bet on something that will not come off. The ONS has uncovered this and by the end of the year, we hope that we will see how things will change.
I hope this debate will give us a chance to chivvy the Government—to think about the importance of policy and delivery, understand the importance of reflection and challenge, and be open to being more open about how they are dealing with policy and how that might need to change. When Ministers are comfortable with being challenged, the system should not act to protect them from themselves. It will gain great credit, as companies and local authorities do, for being able to adapt when it gets things wrong, or goes wrong.
We should strive for excellence in our delivery of every policy and always be customer-focused, willing to have effective performance reviews and a degree of independence. This will allow our talented and able Civil Service to thrive. Finally, as we look forward to the Augar review, I hope that the Government might add a little to it, even at this late stage, to include a better assessment of how the policy could work and to design a delivery mechanism that the Student Loans Company could operate and which has the proper interests of its stated objectives in mind: namely, students, higher education and the strength of the UK.
Viscount Younger of Leckie
I think that I can answer the noble Lord’s first point by saying that it is a regular review, but I have no doubt that it will take account of the issues that have cropped up in recent years—I would be very surprised if that was not the case. If it is not the case, I shall certainly write to the noble Lord and clarify that.
The noble Lord, Lord Mendelsohn, spoke about governance shortfalls. As he will know, the SLC is a wholly government-owned company overseen by a board which currently consists of a non-executive chair, five non-executive directors, the chief executive, the deputy chief executive, the CFO and the company secretary. The board ensures that effective corporate governance arrangements are in place and provides assurance on risk management and internal control. There is a little more that I could say but, due to lack of time, I just want to make it clear that these structural arrangements are in place.
However, there is more to it than that, because the Government are confident that the SLC now has a leadership team in place that is equipped for the challenges ahead, under the able leadership of Paula Sussex, whom the noble Lord mentioned. Paula and her team, in conjunction with the DfE, have now begun to implement a wide-ranging, multi-year, multi-million-pound transformation programme. This will transform the way the SLC interacts with its customers, digitising processes and ensuring that the SLC communicates with its users in a way that is familiar to them—online, real-time and available 24/7.
Lord Mendelsohn
Just to clarify, is that the transformation programme that has operated for the last couple of years, the one that Steve Lamey was responsible for?
Viscount Younger of Leckie
I know that Steve Lamey has been involved in it, so the answer is yes, but it has been taken forward from the work that he has done.
The noble Baroness, Lady Garden, asked whether the new CEO had met Ministers, and I confirm that the Universities Minister met the CEO fairly recently in Glasgow.
I will move on to processes. The SLC is looking to remove inefficient manual processes that drive the small number of complaints it currently receives. The number of complaints is very small indeed: fewer than three complaints per 10,000 applicants and around one complaint per 10,000 loan repayers. Although the number of complaints is low, the SLC is seeking to reduce this further.
Time is running short and I have quite a lot more to say. We believe that the transformation programme has delivered real benefits already to the SLC’s workforce. The noble Lord, Lord Mendelsohn, mentioned pay. Recognising, as he did, the major constraining factor of recruitment and retention, which impacts on achieving even better performance from the SLC, 1,600 of the lowest-paid staff have just been awarded an in-year pay increase of up to 8%. I hope that that will address some of the recruitment problems and improve staff retention rates.
As I mentioned earlier, we are strengthening the SLC’s board through the appointment of non-executive directors with financial and public sector experience, which will also help. We will launch a fair and open campaign to recruit a new chair during the next few weeks, ensuring that the excellent work done by the incumbent, Chris Brodie, is continued when his final term of office ends in January 2020. I will write to the noble Lord, Lord Mendelsohn, about the loan book, giving him some details that I have. Bearing the late hour in mind, I will write to all three noble Lords who spoke to respond to any questions I have not answered. I thank the noble Lord, Lord Mendelsohn, once again, for securing this important debate and I hope he feels we have explored the subject. As I said earlier, there is more to do to be sure that the SLC is in very good shape and well prepared for the future.