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Education Maintenance Allowance

Volume 483: debated on Tuesday 25 November 2008

Thank you, Mrs. Winterton. You say that I have been successful in securing this debate, but I have been somewhat overtaken by events. I raised the issue of education maintenance allowances last Wednesday with the Prime Minister, and when I put in for the debate I intended to call for the company responsible for administering EMAs to be sacked because of its incompetence. However, the Learning and Skills Council, with the approval of the Minister for Schools and Learners, has done that job for me. Nevertheless, I want to take the time available to me to talk about the lessons that might be learned from this fiasco.

Central Departments increasingly turn to the private sector and third sector partners to deliver important state services. Last year, I think the amount involved was about £79 billion, so we are talking about big business. Sometimes—too often, I think—things go wrong. Only a few months ago, we learned that the American firm ETS Europe, which lost the standard assessment tests contract, was worth £156 million over five years. The contract for delivering EMAs amounted to £80 million, so we are talking about huge sums of public money.

The EMAs are means-tested allowances of up to £30 a week paid to 16 to 19-year-olds to encourage them to stay on in education. They are really an incentive for young people to stay at college and stay in education who might otherwise go out to work because their families are not particularly well off, so the thinking behind EMAs is laudable. It was a marvellous policy initiative but unfortunately it has not been delivered well. There have been huge delays in getting the money to the students and that has had a huge impact on those young people, who rely on the EMA to pay for transport, lunches and other things that young people buy.

I congratulate my hon. Friend for raising this important issue, which has hit my constituents as it has hit his. He may be interested to know the answer to my parliamentary question about the average time it took to complete EMA applications, which is particularly important for the client group that we are talking about. The chief executive of the Learning and Skills Council wrote that the problems with EMA processing were such that the LSC could not be

“precise about the average time taken to process an application.”—[Official Report, 22 October 2008; Vol. 481, c. 464W.]

Does that not show not only that things were bad but that the LSC did not even know how bad they were? Furthermore, does my hon. Friend agree that the situation points to the need for proper monitoring and management of the successor arrangements?

Indeed, and I shall come on to that very point. That is why last Wednesday, when I put my question to the Prime Minister, I described Liberata, the company involved, as dysfunctional. It was completely dysfunctional and I will deal with that point in more detail in a moment.

I was mentioning the difficulties facing young people because of the problems. In Blackburn, just down the road from my Pendle constituency, it was reported by the BBC and others that Blackburn college had to tide over students with £10 Tesco vouchers. The National Union of Students got in touch with me to say that EMAs were so important for some students that if they did not get them this year there was a real danger that they would drop out of college completely.

The delivery failure was of galactic dimensions—it really was. We know from the Minister, who helpfully put the exchange of correspondence between himself and the LSC in the Commons Library, that 111,000 students were waiting for payments on 8 October, but that at one stage the backlog of students waiting for payments was more than 200,000; that was the figure given by Mark Haysom, the chief executive of the LSC, when he wrote to the Minister. The figure is now down to about 12,000, which is good. We can all breathe a huge sigh of relief, and I hope that the remaining 12,000 or so applications can be processed without further delay.

I am afraid that when I respond I will have to correct that figure of 12,000, so the picture is not quite as rosy as my hon. Friend thinks. I just wanted to point that out immediately, but I will correct the figure properly when I respond.

That will not affect the line of my argument at all, but we will come back to that point later.

What went wrong with the introduction of the new contract? The contract for EMAs originally went to the outsourcing company Capita in September 2004. I think that it was a five-year contract and, by all accounts, it was delivered without problems by Capita. In July 2007, the contract was re-tendered and the new contract brought together and consolidated a variety of learner programmes. It was obviously anchored by the EMA, but it also included sixth form child care, the adult learning grant, the learner support fund and so on. Those programmes were all brought together and the contract was awarded to Liberata. The LSC had commissioned a feasibility study in June 2006, which showed compatibility between the programmes that I have just mentioned. At that stage, the LSC clearly thought that the new combined programme, if I can put it that way, was deliverable.

Then everything started going pear-shaped. The problems were spotted early on. In July 2007, Liberata was awarded the new contract but later in 2007 people realised that things were not working as they should. On 19 November, the chief executive of the LSC, Mark Haysom, told the Minister:

“There have been processing and other related problems with the delivery of the helpline, assessment and payment functions for EMA since Liberata won the contract to deliver this service in July 2007.”

From the word go, therefore, the commissioner—the LSC—knew that things might not be delivered.

So there we are. The contract has gone back to Capita. The transfer of functions will take place this Friday, I believe, and Liberata will lose the revenues that it would have received from the rest of the contract. I think that the amount is about £60 million; the original contract was between £75 million and £80 million. Astonishingly, however, that dysfunctional company will not face any penalties.

I may have got this wrong, but it seems to me from reading the correspondence on the issue that the LSC is paying Liberata £4 million to transfer

“the physical IT assets and applications software”

to the new company that will be delivering EMAs, which is Capita. Instead of getting money back from the company that let down hundreds of thousands of students, the public purse is forking out an additional £4 million to make the transition easier. My friend the Minister explained that to me last week, stating that Liberata had employed

“significant numbers of additional temporary staff to deal with the backlog in applications. In doing so they have incurred extraordinary additional costs and it has been judged inappropriate to impose further additional penalties.”

That is the Government’s position, but I completely disagree. Penalty clauses are in contracts for a purpose. When a company, whether private sector, third sector or otherwise, does not deliver what it has promised, there should be penalties.

The acting chief executive of Liberata when all that was happening, Richard Webster, said that he hoped the Learning and Skills Council would not impose a £3 million penalty. He said:

“The issue really for us is, do we want to put £3 million back into improving the service or put £3 million into paying a penalty? We would like to see it going back into the service”.

Since it is no longer delivering the service, I see no reason why it cannot pay a penalty.

Even when the meltdown was occurring, Richard Webster was still talking things up as though everything was still manageable and hunky dory. On 31 October, he mused on the delays and difficulties and said:

“It’s like getting a new iPhone. The first day you get it, it takes time to get familiar with it…staff familiarity is now where it needs to be.”

That was complete moonshine. Staff familiarity was not where it was supposed to be, and I shall spend a couple of moments describing the situation in my constituency. In Nelson, the biggest town, Liberata created 100 jobs to administer the EMA. On 17 September, the Lancashire Telegraph, the big regional daily, proclaimed on its front page, “Jobs Lift-Off”—I have it with me as a visual aid. Everyone was happy that all those jobs were coming to Pendle—100 call centre jobs in Nelson. On 18 September, the chief executive of the local authority, Stephen Barnes, was quoted as saying:

“This is a fantastic example of Pendle Council working to bring more jobs to Pendle. The partnership is all about jobs and it is great to see that it is working”.

I like and respect Stephen Barnes, but he was led up the garden path like everyone else. Liberata was already delivering back-office functions for the local authority, and he and others must have thought that it could transfer that apparent competence to delivering a different programme, the EMA.

One of Liberata’s directors, Rod Haig, said:

“We are training our new staff now and already they are doing well learning their new skills…Our aim is to make as many of the jobs permanent as we can.”

That was complete baloney. Some of my constituents were recruited by Liberata and sacked five weeks later. One had been employed in white-collar jobs all his life and told me that in those five weeks, he had had four hours of training. There was no management supervision or control at all, and if people chose to, they could phone up their granny and have personal conversations in work time. They could put in for time and a half working on Saturdays or double-time working on Sundays with no supervision whatever. Papers sent in by students were strewn across the place and not properly filed away. It was an absolute disgrace.

Many people were hoodwinked into thinking that the jobs would be permanent, but when I wrote to Webster, the acting chief executive, he told me on 3 November that the jobs were always intended to be temporary and short-term. He even went on to say that the jobs were not really Liberata’s and that the people were employed by the LSC. Perhaps the Minister would like to comment on that, as it is a very strange way of going about things.

I shall say a few words about the BBC “Newsnight” programme that was transmitted last week. It was an exposé of the company, in which it was made clear by whistleblowers—former senior executives of that dysfunctional company—that Liberata knew in October or November last year that it would not be able to meet the terms of the contract.

It is not just the EMA that has suffered because of the company. We learn that earlier this year, the Financial Services Authority fined Liberata £525,000, more than 10 per cent. of its profits, because it failed to send out documentation that it should have sent to life and pension policyholders. Such sloppiness characterises much of its operations. It runs back-office functions for about 20 local authorities, although I believe it has lost the contract from Sheffield, and no wonder.

What is to be done, as Lenin would say?

John Lennon.

What happened was the very antithesis of good government. As you know, Lady Winterton, I am a member of the Public Administration Committee. We have a meeting tomorrow and an inquiry on good governance on the way, one of a number that we are running in tandem. A paper has been prepared for the Committee by the National Audit Office, and it sets out a template that we can use in various situations to see how something measures up to good government.

We need to know who was responsible for the failure and bring appropriate individuals to account. There should be an inquiry, perhaps by the relevant Select Committee, the Select Committee on Children, Schools and Families. I know that the Minister has been in touch with our colleague who chairs it, my friend the Member for Huddersfield (Mr. Sheerman). What we cannot do, or allow the LSC or anyone else to do, is let people shelter behind regulations and procedures and say, “We followed the regulations. We followed the procedures”, without acknowledging the bigger picture that the entire system was in meltdown, which should not have happened. In a reply to the shadow Secretary of State for Children, Schools and Families, a letter from the chief executive of the LSC, whom I have mentioned too often this afternoon, stated:

“The LSC carried out the procurement process in accordance with the Public Contracts Regulations 2006 using competitive dialogue. This allowed the LSC to work closely with both bidders—”

Liberata and Capita—

“over a number of months ensuring there was an understanding of requirements and potential solutions on both sides.”—[Official Report, 16 October 2008; Vol. 480, c. 1494W.]

If that happened, if people were listening and there was competitive dialogue, how on earth did we end up in the situation that we are in?

I also want to hear from the Office of Government Commerce, which apparently waved the process through. There is a gateway review to test such things, and if everything is robust and fits together, the project is waved through. That happened in this case, so we need the OGC to explain itself.

I mentioned the paper produced by the NAO. Its foreword states:

“Well designed programmes have three important characteristics: simplicity; realistic timescales; and customer focus.”

I believe that the administration of the education maintenance allowance failed on all three counts and we need to know why.

I congratulate my hon. Friend the Member for Pendle (Mr. Prentice) on securing the debate. It is an important topic that has affected many learners up and down the country. As he said, the experience has been wholly unsatisfactory.

The Government are committed to giving every young person the best possible standard of education, to bring out their talents and give them the skills for a prosperous and satisfying career. To achieve that ambition, we are committed to removing all barriers that hold people back from success. That is why we introduced the education maintenance allowance in the first place—to ensure that financial constraints are not a barrier to learning—and it has had some success.

Evaluation of the initial EMA pilots showed that the scheme led to increases in participation of 3.8 per cent. for 16-year-olds and 4.1 per cent. for 17-year-olds. That is why I am so deeply disappointed with the recent delays in getting grants out to students, and I can well understand their frustrations and the frustrations of my hon. Friend the Member for Pendle and my right hon. Friend the Member for Oxford, East (Mr. Smith).

Throughout this period, our first priority has been learners and ensuring that systems are put in place to process payments as quickly as possible. Paying the remaining grants continues to be my top priority. Since the beginning of September, I have received daily delivery statistics from the LSC, based on information provided by its contractor, Liberata. Last week, I wrote to the Chairman of the Children, Schools and Families Committee, my hon. Friend the Member for Huddersfield (Mr. Sheerman), and laid a written ministerial statement outlining progress and next steps, based on the information provided to me by the LSC, which was in turn provided to it by Liberata.

However, during the LSC’s work to migrate the contract and systems, it found that the method used by Liberata to calculate work in progress was not sufficiently accurate. I was informed yesterday evening by the LSC that the recent figure for outstanding applications provided by the LSC and cited in my letter to my hon. Friend the Member for Huddersfield dated 19 November and repeated in my written ministerial statement to the House is not correct. I am grateful for the opportunity to correct that now. A physical count by Liberata recorded approximately 26,200 applications that are in the process of being finalised as of 21 November—not 12,016, as stated in my letter to my hon. Friend the Member for Huddersfield.

That is unacceptable, but we are continuing to make progress. I am advised that 6,000 applications are being processed per day, with a net reduction of 3,000 per day. We expect the backlog of applications to be all but cleared in the next three weeks. I have written to the Chairman of the Children, Schools and Families Committee today to clarify the position. I wish to put those revised figures on the record now.

I have also written to the chief executive of the LSC—much mentioned this afternoon—asking for a full explanation why its contract monitoring did not reveal the problem sooner, and seeking reassurance that the new contract management arrangements that it is putting in place will avoid such problems in the future. I have asked it to review other figures and processes, to ensure that the figures that it provides me with are robust and accurate.

In the light of that further inaccuracy, does the Minister not think it would be wise to revisit the question of penalties? How is it possible for a private sector company to give misleading information constantly to a Minister of the Crown?

As I said, I have written to the chief executive of the LSC, who is the other party to the contract with Liberata. He will advise me what action he intends to take in response to the problems, and I will inform the House accordingly.

Our focus, first and foremost, is on dealing with the current situation. Notwithstanding the progress of recent weeks, the LSC has taken the decision to terminate the contract with Liberata, and to engage Capita to undertake delivery. I fully back that decision. The transfer of the EMA helpline, processing and payment service from Liberata to Capita will take effect from Friday 28 November. Capita will bring in a new senior management team to oversee the staff and operations in Coventry, Manchester and Darlington. The transfer will place us in a stronger position to resolve the helpline and processing problems, which will not only alleviate the current problems, but will help to provide a better service to students and learning providers in the future.

The LSC will work closely with Capita and Liberata during the transition period, to ensure that the transfer of responsibilities is as smooth as possible. In the mean time, we are continuing to encourage colleges to use the discretionary support funds, provided by the LSC through their local authority, to help students who need extra support while the problems are resolved.

My hon. Friend the Member for Pendle raised the question whether Liberata faces a penalty for its failure to deliver. I repeat what was said in the written ministerial statement: the migration of the contract results in Liberata losing future revenues of more than £60 million over the remaining term of the contract. In addition, following the failure of its IT system, which is at the root of all the subsequent problems, Liberata rightly took the decision to employ significant numbers of additional staff, including in Pendle, to deal with the backlog of applications. In doing so, it incurred extraordinary additional costs.

The LSC has therefore not judged it necessary to enter into negotiations about the imposition of financial penalties. The permanent secretary, as the accounting officer, and the Treasury have confirmed that the deal that has been done is in the best interest of taxpayers. Perhaps, over time, my right hon. Friend the Member for Oxford, East and my hon. Friend the Member for Pendle will want to return to the matter.

The situation arose from the failure of IT systems developed by Liberata to process applications, which meant that applications had to be processed manually. Owing to a rise in applications in September, a backlog of applications built up. As a result, a huge number of calls were made to the helpline, which struggled to cope. In view of those circumstances, it became apparent that Liberata was unable to manage the problem sufficiently. As soon as that became apparent, we took action to put contingency plans in place to ensure that the outstanding applications were processed as quickly as possible.

The Children, Schools and Families Committee has already announced its intention to investigate the issue, and I welcome that decision. My Department and the LSC will be looking carefully at this case to learn lessons that can be applied to future outsourcing of contracts and contract management. As I said, I have asked the chief executive of the LSC to reassure me that the new contract management arrangements are robust.

I am unable to answer many of the specific concerns relating to working practices in Pendle. Temporary staff, such as those recruited in my hon. Friend’s constituency, were recruited to address the backlog of applications arising from the technical difficulties. It was always my understanding that those workers were temporary, and I am disturbed to learn that they might have understood otherwise. The use of temporary staff was a sensible short-term solution to speed up the processing of outstanding applications and payments, and has led to the progress that we have seen to date.

Liberata notified the LSC of its intention to dismiss temporary staff, including those based in Pendle, on 21 October. I discussed that with the chief executive of the LSC when we met two days later. Despite the efforts then made by the LSC, Liberata followed through on its intention to dismiss staff. Although it was ultimately a decision for Liberata, it was an extremely disappointing decision and was against the wishes of the LSC and my Department. On the question of staffing more widely, it will be for the new contractor to determine appropriate staffing levels in the long term.

Why would Richard Webster write to me to say that the staff working in Pendle were LSC staff, not Liberata staff?

Again, because I am not a party to the contract arrangements directly, it is difficult to give a precise answer to that question. It may be that at some point in the past few weeks, the LSC agreed with Liberata that, in order to get staff back and get the processing up to speed, it would underwrite or perhaps even employ some staff in Pendle, in order to ensure that that happened. I cannot say that with certainty, but it would be my best guess.

I would like to speak about the procurement process, but time is running out. No student should be prevented from learning because of financial barriers or other constraints. When systems and processes go wrong and another barrier is put up, we must act quickly and decisively to break it down. The decision to terminate the contract with Liberata was not taken lightly. I am confident that it was the right decision. We will now focus on getting the system, and students’ education, back on track, so that they are able to achieve all that they are capable of, safe in the knowledge of the financial security that they are entitled to.