House of Commons - Public Accounts Committee

Question and Answer Session

WEDNESDAY 2 APRIL 2003

__________

Members present:

Mr Edward Leigh, in the Chair
Mr Richard Bacon
Mr Ian Davidson
Geraint Davies
Mr Frank Field
Mr George Howarth
Mr David Rendel
Jon Trickett
Mr Alan Williams

__________

SIR JOHN BOURN KCB, Comptroller and Auditor General, and MR JEREMY LONSDALE, Director, National Audit Office, further examined.

MR BRIAN GLICKSMAN, Treasury Officer of Accounts, HM Treasury, further examined.

SIR RICHARD MOTTRAM KCB, Permanent Secretary, Department for Work and Pensions, and MS RACHEL LOMAX, former Permanent Secretary at the Department for Work and Pensions, examined.

Chairman

1. Good afternoon. Welcome to the Committee of Public Accounts. This afternoon we are looking at improving service quality: action in response to the Inherited SERPS problem. We are delighted to be joined by Sir Richard Mottram from the Department for Work and Pensions and Mrs Rachel Lomax, who was Permanent Secretary at the time the key decisions were taken, so we are particularly grateful that she has been able join us this afternoon. Perhaps I could start with you, Sir Richard, and refer you to paragraphs 2.9 and 2.12 to 2.14, pages 10 to 13, particularly paragraph 2.9. You will see there that in March 2001 the Government acknowledged the urgency of writing to more than five million people who would be most affected by the regulations. Why did the mail-shot not start until a year later?

   (Sir Richard Mottram) The mail-shots did start in February and March 2001. What I think we are talking about, Chairman, is in the diagram on page 11 what it shows is that it was a progressive roll-out of information to all the key people affected between February 2001 and July 2002. We can explain very clearly what governed the timing of each of those measures.

2. Would you like to do so?

   (Sir Richard Mottram) Yes, the first priority was to write to those people whom we believed were most concerned about the possibility that they would lose the 100% entitlement to SERPS and that was people already over state pension age, of which they were 10 million, roughly speaking, and the 1.1 million people who were potentially affected because they would become pensioners, they would reach the state pension age before the new approach came into effect on 6 October 2002. They were the first priority and they were written to. The initial mail-shot to the people in category A on page 11 produced quite an interesting result in that we wrote to tell them they were not affected and nearly 600,000 of them came back and contacted the Department through various means. So when we came to think about how best to deal with the people in category C, that is the people expected to reach state pension age between October 2002 and October 2010, the Department were quite clear that they would need very carefully to handle the communications exercise with those people and, as the Report brings out, we piloted writing to them and then we completed a mail-shot to them between March and July 2002. The remainder of the people were contacted by ---

3. That is quite a long delay for those people then?

   (Sir Richard Mottram) It was not a delay, it took the amount of time it took.

4. They had to wait over a year.

   (Sir Richard Mottram) They were contacted on a phased basis following a pilot. The last time I was here, Chairman, I was quite rightly being chastised by the Committee for my Department having done something without a pilot. On this occasion we organised a pilot. In the light of the pilot this was progressively rolled out.

5. Ms Lomax, do you want to add anything to it, after all in March 2001 this was acknowledged by government as being a very urgent matter. Do you think all these letters went out as quickly as they might have done?

   (Ms Lomax) I think there was a balance between getting the message right, having the capacity to handle queries about people's individual circumstances, and getting the message out quickly. After mail-shot A went out we realised it was very important, not just as Sir Richard has said to pilot the letters so we were as clear as we possibly could be, but also to build in some extra back office capacity in the form of two call centres to handle queries and also to put ourselves in a position where we could give people individual SERPS forecasts so they knew what their individual position was. Getting that balance right is really what lay behind the length of time it took to get to mail-shot C. We did not want to give people information which would not be any use to them, which might confuse them, which might distress them, which might lead to an awful lot of calls to local offices which they would not be able to handle or to call centres which could be overwhelmed in the way that, sadly, some of our call centres had been in the recent past.

6. Can I ask you a follow-up question and ask you to look at page 16 and paragraph 2.28. You will recall that in our previous reports the Committee made clear the importance we attach to making compensation available where appropriate. Why did you decide in February 2001 not to refer to compensation in future communications?

   (Ms Lomax) I would draw a distinction between giving targeted information on the departmental procedures for claiming compensation for the very small number people we thought might be eligible in letters that we sent out straight after the Secretary of State's announcement in November and communications to advisers and the guidance we gave local office staff and the way we amended our own financial redress on maladministration handbook. We did all that so the information was there to enable us to give compensation to those people who really could show that they had been disadvantaged. Making a reference to compensation in the communications that we put out to millions of people, the huge majority of whom would not have been entitled to compensation, they really would not, and bitter experience showed in the DSS that if you gave a helpline or you mentioned compensation or suggested to people they ought to do something, actually they did. If you had good reason to suppose that most people would not be able to claim compensation, you were not just building in a lot of disappointment, you were putting enormous strain on a system which would detract from service to other customers so that was why basically the bulk communications did not refer to compensation. We carefully targeted communications to the individuals who had complained to us and mentioned compensation in those communications.

7. I think only 44 people have claimed compensation.

   (Ms Lomax) I do not think that is correct.

8. That was the figure I was given. How many was it?

   (Ms Lomax) The figures are still coming in. Sir Richard will have the figures because he is in charge now.

   (Sir Richard Mottram) So far we have received 617 claims, of which 379 have been cleared and led to a decision so you can compare those figures, Chairman, with those in paragraph 2.29 which show that significant numbers of claims are still coming in and we are addressing them as they come in.

9. We are talking about five million people here. It is still quite a low level of people claiming compensation. Do you accept that? Some people might say it is not surprising it is low because most people did not know they could claim.

   (Sir Richard Mottram) The reason why it is low, Chairman, is because the essence of the revised scheme which the Government introduced, which is described very clearly in this Report, took away the need for people essentially to claim compensation directly. That was the purpose of the change between the original scheme that was envisaged and the one that was then introduced so people did not now have to claim. In order to be treated more reasonably they did not have to assert they had in some way lost out. We put the whole thing on a completely different basis. As the Report brings out, in order to mount a successful claim you have to do it within the terms of the normal way in which we pay financial compensation on the basis agreed with the Ombudsman, which is dealt with in paragraph 2.30 in the Report. If you apply that test to our understanding of how people were affected, it is not, in our view, at all surprising that the number of claims is so low.

10. Let's talk about the Ombudsman for a second and look at page 13 and paragraphs 2.16 to 2.17. Why did you not get the SERPS pension estimate letter right? Why did you have to write again to half a million people?

    (Sir Richard Mottram) What happened here, Chairman, was we were seeking in one letter sent to five million people to deal with a number of different circumstances, and what is very clearly brought out in the Report is that the letter that was sent was carefully quality-proofed with just about everyone, the Social Security Advisory Committee, outside bodies, et cetera. It was very carefully drafted, it was drafted in plain English, we thought it was clear. One individual in particular raised doubts about it in one respect about the handling of contracting out. There were something like 400 calls from members of the public about this issue, a much smaller number seemed concerned about it.

11. Can I just stop you there. You say one member of the public; are you referring to Mr Michael Chance?

    (Sir Richard Mottram) I am, yes.

12. Of course he was backed up by the Ombudsman?

    (Sir Richard Mottram) I was coming on to say that, Chairman. He raised that with the Ombudsman, as he had every right to do. The Ombudsman did not find that he had a complaint in the sense that we had failed to redress the issues that he had raised but the Ombudsman suggested that the letter was potentially misleading. In those circumstances, after careful thought, we decided the right answer was, given the history of this subject, to write to the 500,000 or so people who fell within the contracted-out category. The point I am trying to get across is the original letter went through every process and was thought about by everyone. It may have been caught out because we were trying to communicate to people who fell into a number of different categories.

13. Let's look to the present now. You might look at pages 21 to 25. You are hoping that you are improving standards of procedures, you are trying to get a culture change in the Department and - and I am giving you an opportunity to say a word about that if you wish to - it seems, if you look at paragraphs 3.7 and 3.30, despite these improved standards of procedures some staff are still not following them. Is that a fair criticism?

    (Sir Richard Mottram) If I might just pick up on the introductory point you made, Chairman, what the Report brings out very clearly is that as a result of this experience, and for other reasons as well, the whole organisation of the Department fundamentally changed and that seems to me to be the key issue that we have to focus on, so the organisation and the processes of the Department were fundamentally changed in the light of this experience and for other reasons to give it a) a much more customer-focused approach and b) to ensure that the people making the policy and all that is associated with that and the people delivering it on the ground are joined up in a seamless way, and this is brought out on page 20. We have also, as the Report shows, fundamentally changed the processes within the Pensions Group, actually within the Department as a whole. As you say, when you then look in each individual case at the rate of progress on each of those process changes you discover that of course, just as one would expect, there is still some way to go. So as the Report brings out entirely fairly of course, we have made a whole set of changes in a number of areas. There is more we can do and we absolutely accept there is more we can do but it is within the context of an organisation which is now fundamentally different.

14. Can I ask you one last question and either of you can answer this if you want to. We are talking about quite a serious situation here, are we not? This is a law passed by Parliament as long ago as 1986. Both your predecessors failed to inform the public at the time. When this matter became an acute political issue there was still a delay in informing the public. Is this not a contempt of Parliament and a contempt of people who have a right to be kept informed, particularly about something as sensitive as their pension rights?

    (Ms Lomax) Can I answer that, Chairman. The first time I came to give evidence on this was in February 2000 and the first thing I did was I apologised on behalf of the Department. It was inexcusable and we did apologise. It was a disgraceful episode and that is why we put so much effort - and we really did - into trying to put it right. We had two projects and a major reorganisation that Sir Richard talked about, an enormous amount of effort in the Department, because we did recognise not just the money at the end of the day that has had to be spent in redress through the transitional arrangements but also the distress that was caused to individuals.

    Chairman: Thank you very much for that. Mr Field?

    Mr Field

15. Sir Richard, when you came to the Department would it have been unreasonable for you to have thought this was all dusted down and the whole procedure would be operating properly?

    (Sir Richard Mottram) Well, I think it was dusted down in the sense that when I came to the Department and I talked to people about how the Department was now organised and so on, I felt that substantial progress had been made. In my experience there is no organisation where everything is dusted down perfectly. If there were I would not have a job.

16. Maybe we should probe this business about what is dusted down and what is not. The importance to you, would it not be, I put this as a question, was that you came to a Department with a promise that people were going to get statements regularly about their pension entitlement, therefore if this episode shows the Department is not working very well there could be some big questions raised about whether the Government is going to be able to deliver on that promise?

    (Sir Richard Mottram) On the promise to provide people with pension statements?

17. Yes.

    (Sir Richard Mottram) There are certainly issues around where we are on delivering a new version of that project but it is our intention that we will provide people with pension statements, yes.

18. I was taking up what the Chairman said about whether the Department has had a cultural change. Here we have got these huge departments like old nationalised industries that have a ration book system where everybody is just expected to accept what the department says, and these big departments find it very difficult to give a different sort of service and particularly one that is tailored to people's needs. Therefore if on this project after a mega disgrace over not telling people and costing taxpayers an arm and a leg in the revised proposals over SERPS entitlement, if the Department cannot get this right it might suggest that there could be difficulties in delivering the pension statements.

    (Sir Richard Mottram) What the Report says is in paragraph 5, this is the NAO's judgment: "Overall, the project to inform the public about the changes set out in the Regulations achieved its objectives, was managed well, and was in accordance with the Department's prevailing risk-management framework." That judgment seems to me to be a statement that is essentially one that, okay, for the reasons - and Rachel has already dealt with this before the Committee more than once - our predecessors mishandled the issue of Inherited SERPS. This project, according to the NAO, has been well handled. If we take your broader question, which is a very fair question, how far have we thus far managed to change the organisation, its culture, its processes and the way in which it delivers, my view would be that we have fundamentally changed the organisation and that has sent out a very important signal. Enormous amounts of work have been done to change the culture both of the Department as a whole and of its component parts. As the Report describes, all of our processes have been changed, we have introduced a whole series of best practice approaches to project management which those in the centre of government think are probably the best within central government and so on. We can give you a list of things where we have made very substantial changes which suggest that a problem of this kind would not arise again within the Department. Is that an answer to your question?

19. It is an answer. Let me probe it a little further. I want to leave aside for a moment those pensioners living abroad. The Department expresses some difficulty in communicating with them although those who do not get upratings communicate rather well with MPs. If we leave those aside, the objective was to tell all those affected, was it not, about the changes before the regulations came into effect?

    (Sir Richard Mottram) Yes.

20. Which was 6 October last year?

    (Sir Richard Mottram) Yes.

21. Were all pensioners, apart from those living abroad, communicated with before then?

    (Sir Richard Mottram) As the Report brings out, we sought to write to all those in categories A, B and C in the figure on page 11. For those who were of working age who would reach the state pension age after 2010, we sought to inform them through advertising. We can talk about how we dealt with people overseas, although I know you did not ask about that. Did we communicate with everyone? The problems we would have in giving you a guarantee that we had communicated with everyone, as you are very well aware and as the Report touches on, there are serious issues over our knowledge of the up-to-date addresses of some of these people. We cannot be confident that everyone we wrote to we got through to. In fact, we know that a substantial minority of these people we would not be able to write to, therefore the advertising was targeted through a number of different media to get the message across. We do not have a lot of evidence that people are saying, "We have not heard of this issue, we are unaware of it."

22. If they had not heard of it they would not be telling you, would they, by definition?

    (Sir Richard Mottram) They could be telling us because they could be writing in and saying we know in 2003 and we have only just found out about this. Do you see what I mean? I cannot prove it.

23. You cannot prove a negative.

    (Sir Richard Mottram) No.

24. But you are saying that all those to whom you thought you should write you have written to except those you did not have proper addresses for?

    (Sir Richard Mottram) Except those who even when we had taken every measure we could think of to try and track down their current address, we are not confident we succeeded in doing that. For those we aimed advertising at them. "Aimed" sounds rather horrible but we advertised in the hope they would get our message.

25. For those who were drawing benefits or who were paying contributions you would have had addresses?

    (Sir Richard Mottram) For those who were drawing benefits we would have good addresses. For those who are paying National Insurance contributions but had never received a benefit from the state, they have no requirement to notify us of their address and I think there are some interesting issues about the accuracy of the addresses that we have for those. These are all very familiar to you, I know. For those people, what we did, I think this is described in the Report, is we tried to take the records we had and then we data matched the names against other records which had addresses. However, I am not going to say to you that we achieved 100% targeting of those people who have never received benefits from the state and who are below retirement age.

26. But the National Insurance system is, in fact, our security basis for claiming benefits. Now we are learning today that quite a lot of people we have not got the right addresses for.

    (Sir Richard Mottram) If they came to us for benefits, as we discussed at a previous meeting, we would really focus on where they purported to live and indeed where they did live. We did all the data matching we could and then we concluded that there was a proportion of people in category C who probably we had not got their up-to-date address. That is why we did advertising.

27. Of category A ---

    (Sir Richard Mottram) Category A should have been alright because they are people we are paying benefit to.

28. Indeed, but these are the ones who initially received a letter which you then had to modify?

    (Sir Richard Mottram) No.

29. Which was the group to which you sent the sample letter that then told you that people could not understand the letter you were sending?

    (Ms Lomax) Category C.

    (Sir Richard Mottram) People to whom we sent a letter and then to whom we subsequently sent a clarificatory letter; are those the people you have in mind?

30. Yes.

    (Sir Richard Mottram) They are a subset of category C on page 11. They were the people whom we sent, as Rachel touched on earlier. It was decided for the people in category C that we would not only inform them, which we did, we wrote to them and informed them that they were going to be affected, but also we offered them a broad-ranging estimate of the implications and then for a subset of those people we subsequently decided, those who were contracted out or had been contracted out, to write them a clarificatory further letter offering them a tailored forecast that would avoid any risk of confusion. Does that make sense?

31. No. To which group did you write first?

    (Sir Richard Mottram) Group A.

32. There were no problems with that letter?

    (Sir Richard Mottram) Not that I know of.

    (Ms Lomax) The very first people we wrote to were the 20,000 people who had complained to the Department they had been misled. We sent them a letter the day after the Secretary of State made his announcement to the House, 30 November. We had written to them in August 2000. We wrote to them straight after the statement. Those were the people, 20,000 of them, who had been in touch with us because they had been worried and felt they had been misled. The category A people were all existing pensioners who got a letter in February and March basically saying everything is alright.

    (Sir Richard Mottram) What is interesting about those people, which may be part of the conversation we are having, Chairman - and I touched on this earlier - what happened then was that although their position was completely straightforward ( and we offered those people the chance to correct their address if by any chance it was wrong) we got back 590,000 responses. It was those responses that triggered a thought in our mind that this was quite a difficult communications exercise to conduct. It was not a problem with the letter. It was when they got the letter, because they got a letter from the state about their pension, a large number of them responded. They were baffled, Rachel says. That certainly did trigger a very careful process that I tried to touch on earlier, thinking about what would be the impact when we wrote to category B and particularly when we wrote to category C because it was category C that had the most complicated message because they were affected by the sliding scale, so to speak.

    Mr Field: Chairman, my time is up. One last comment, if I may make it, it is a first for me because I have never been in a Committee reading a Report and questioning witnesses where I understand less at the end of my session than I did when I began. That might be a success on your side; it is a failure on mine.

    Chairman: Thank you, Mr Field. Jon Trickett?

    Jon Trickett

33. I want to try to focus on the current situation, which depends, I think, on the capacity of the Department to communicate with its staff and then for the staff to communicate effectively with the public. If we can start with the Department's communication with the staff, previously the Committee has looked at the implementation of the intranet which is the primary means of communication for the Department. Where are you now in relation to the roll-out of that?

    (Sir Richard Mottram) What we have is we have desk-tops broadly as a result of two programmes. One programme that was an old Employment Service programme and that bit of government is now part of us and a rather unhappily mistitled Early Office Infrastructure which was a roll out across the DSS. Everybody in the Department has access to the intranet. That does not mean necessarily that every member of staff has a computer on their desk-top, some people given the nature of their work would not require one so they would share one, but everybody in the Department has access to the intranet through a desk-top computer.

34. Everybody who advises the public or interacts with the public has a desk-top?

    (Sir Richard Mottram) Or access to one.

35. A desk-top on their desk?

    (Sir Richard Mottram) They would, generally.

36. But not necessarily 100%?

    (Sir Richard Mottram) 100% of the people who do communicate do have one but I just have not double checked.

37. In terms of paragraph 3.9, which talks about the system being completed by March of this year, in other words two days ago, has that now been done?

    (Sir Richard Mottram) "Bringing all of the Department's intranet information under the control of the content management system ..."? Yes.

38. That is finished?

    (Sir Richard Mottram) Yes, it has been done. But as the paragraph goes on to describe, there is more work being done.

39. I can see that. I want to ask you about that. When I read that paragraph the first thing is that the hardware is present now and I was asking questions about that. The thing is, though, that the software and the way in which the information is handed out to the staff is being rolled out on a phased basis over a period of time. Am I right to understand it that way?

    (Sir Richard Mottram) Yes, although it is not simply that we have got a hardware; we have got the hardware and lots of software rolled out to the staff. The issue is we have not yet achieved 100% of let's say all benefit guides being available on the intranet, so there is some information to staff that is not yet available on the intranet in electronic form and the reason for that is that some of it is being rewritten. The aim is that that will be achieved by 2005.

40. Recommendations 4 and 5 of the Committee of Public Account's Report, which is referred to on the previous page, says the Committee were astonished to hear that you were relying on paper bulletins and weekly briefings, but the fact is you still are. All these years later you still do not have electronic communication with all your staff, do you?

    (Sir Richard Mottram) I just said we do we have electronic communication with all our staff.

41. The information which is required for them to give appropriate advice to the public.

    (Sir Richard Mottram) We have thousands and thousands of pages of information for use by our staff in relation to the public available to them on the intranet. For example, 169 benefit guides are currently on the intranet.

42. Whatever you say does not escape the fact that you have just told me, and therefore the Committee, that not all the information is currently available via the intranet to all the staff who give advice to the public. Is that correct?

    (Sir Richard Mottram) Not 100%, no.

43. So you have still got some way to go. Can you tell us when that will be completed?

    (Sir Richard Mottram) 2005.

44. It is going to be a further two years?

    (Sir Richard Mottram) Until we get 100% coverage.

45. What percentage of coverage do you have now then?

    (Sir Richard Mottram) I would have to work that out.

46. Perhaps you can give us a note rather than look at it now. If we were astonished in 1999-2000 this was happening, we must be increasingly astonished, and I cannot imagine what the hyperbole we might use beyond astonishment, that it is going to take a further two years.

    (Sir Richard Mottram) We might look at this in a slightly different way. This Department has rolled out 100 something thousand desk-tops and supporting software in the biggest change programme in Europe and this has all been achieved since 2000. We are in a situation where we can absolutely communicate with our staff using the intranet. 90% of the guidance that currently exists is published on the intranet. To do that from a standing start in 2000 ---

47. So 90% of the information is available to 100% of the staff?

    (Sir Richard Mottram) 90%% of the information is available electronically to 100% of the staff. 10% of the information is available to 100% of staff non-electronically.

48. It would be interesting to know what kind of information is not available to that 10% but not now because I want to move on to some other questions. In terms of communicating with the public, you can do it by telephone, by letter or by leaflet. In fact, the Internal Assurance Service in paragraph 30 said that the Department's letter-writing was poor.

    (Sir Richard Mottram) Yes.

49. Has it improved?

    (Sir Richard Mottram) It has improved but I would certainly believe it could improve still further.

50. What are the internal assurance people telling you about letter-writing in the Department which was poor last year?

    (Sir Richard Mottram) I am not sure they have looked at it recently. I think they are about to do another study which will report this year. A lot of effort has been put into improving it.

51. Would you tell the Committee in writing when you expect to receive that further report?

    (Sir Richard Mottram) I think it is the autumn but I will, yes.

52. In term of leaflets, over half the leaflets available were inaccurate, were they not, paragraph 3.18?

    (Sir Richard Mottram) This was in eight local Benefits Agency offices.

53. The information was out the date?

    (Sir Richard Mottram) Yes.

54. Then you stop bothering to check because presumably the results were too embarrassing. Paragraph 3.18 last phrase, the checks were continued so you looked at eight, found half the leaflets were out of date and then you decided to discontinue checking?

    (Sir Richard Mottram) The position we are in is that we have put in place a completely different system for the dissemination, the ordering, the control of leaflets compared with the situation that was found in the Department's Internal Assurance Service report some time ago. The Benefits Agency has not existed for more than a year.

    (Ms Lomax) Pension Service.

    (Sir Richard Mottram) This is what we are discussing, the Benefits Agency, so I think we can assume that the whole system has been changed and the system that is in use is designed to ensure that leaflets in our local offices - and I can also describe what is happening in the Post Office - are up-to-date and that staff are informed regularly using the intranet about the importance of keeping them up-to-date. It is impossible to order a leaflet if you are a member of our staff without receiving a message about keeping them up-to-date.

55. I will not ask you why you discontinued doing the checks because I have not got time. I have asked about leaflets, I have asked about letters, I just want to ask you about telephone contact now. Paragraph 3.29 seems to say in the last sentence that you do not have telephone systems yet in place in the pensions centres in order to support the telephone communication to which you aspire. Is that still the case?

    (Sir Richard Mottram) No, because we have now rectified that.

56. So figure 7, which did not represent the current practice when this was Report was written, in the Pension Service now applies? Figure 7 is saying what you aspire to achieve but the telephone system did not work properly at the time. Is it now accurate?

    (Sir Richard Mottram) I will double check this just to make sure we are doing the thing that is described here.

57. Perhaps a note. My conclusion to all this, if you do not mind me being blunt, and you might correct my false impression maybe, is that communication with staff is not yet complete because the intranet is not fully working, the telephone system was inadequate when this Report was written, that the leaflets were out of date and you discontinued checking them and that the letter-writing was poor. What troubles me is, unless you can give me some assurance, that maybe some other less significant errors might be being reproduced to this very day, since the whole of this mistake in the first place depended on inadequate communication, did it not?

    (Sir Richard Mottram) That is not a summing up of the conversation we have had.

58. No, I did not think you would think it was.

    (Sir Richard Mottram) It is not a summing up of the conversation we have had; it is not a summing up of the NAO Report. This issue arose out of a failure to communicate for all sorts of reasons that have been discussed by this Committee on a number of occasions. As this Report describes, we have taken a whole series of steps to ensure that a mistake of that kind could not happen again.

    Jon Trickett: I am afraid I am out of time.

    Chairman: Thank you very much. George Howarth?

    Mr Howarth

59. If I could refer to page 20, figure 4, which has two organograms on it.

    (Sir Richard Mottram) It does, yes.

60. I wonder if I could ask, first of all Ms Lomax, the first one refers to the main activities of the Department of Social Security prior to June 2002. Presumably you have seen this and agreed that was the case?

    (Sir Richard Mottram) No she has not, I agreed this Report. I will answer the question, shall I?

61. Fine, okay. Could you take us through the meaning of that first organogram.

    (Sir Richard Mottram) What the first organogram is describing is that bit at the very top headed Department of Social Security essentially, as the little footnote describes, describes the headquarters' functions of the Department of Social Security. The Department of Social Security then has a number of agencies and in the case of the Benefits Agency, which was one of its two agencies, it had social security offices and out of those social security offices members of the public would have been able to deal with those social security offices and with bits of the Department in Newcastle on their pension. The second point I would make is that there was a fairly - in the ghastly jargon - contractual relationship/transactional relationship between the headquarters and the agencies, and I think that one of the things that perhaps came out of the Committee's previous inquiries was that there was a failure to pass information between headquarters and the line and to make sure that the people in the offices were joined up to the people in headquarters. Does that help for that bit?

62. It does.

    (Sir Richard Mottram) I will come on to explain the bit below.

63. I was intending to go to that in a moment. What I am trying to work out is what is the relevance of that to this particular problem?

    (Sir Richard Mottram) I think that the purpose of putting the diagram in was to bring out that there is now a much closer relationship ---

64. I realise that. Let me put it a different way. What was the line between the top of that and the bottom of that chart that explained what was going on vis-à-vis SERPS and this particular problem?

    (Sir Richard Mottram) Only in general terms there were issues about communication between decisions that were being taken at a high level like the SERPS decision and their effective communication on the ground.

    (Ms Lomax) The Benefits Agency was a one-size-fits-all agency. It dealt with everything - working age people, child benefit, pensions, and all the rest of it. Social security offices deal with absolutely everything. The trouble was there really was not that much expertise, for example, on pensions issues necessarily in local offices and it is a very convoluted management chain down from headquarters through the Benefits Agency down through social security offices. You did not really have that clear line of sight from the people who made policy on pensions issues through to the people who delivered the pension benefit.

65. So is it safe then to conclude that part of the problem at that particular time and part of the thing that contributed to this problem was that the communication within the Department was not good enough to deal with it?

    (Sir Richard Mottram) Yes, it is safe to conclude that.

    (Ms Lomax) And the management oversight was not good enough either. It was not just a question of paper bulletins, there were too many people. The senior management people did not really have that clear line of sight right through to delivery either. A lot of things were happening at a lot lower level.

66. Can I just pursue that point Ms Lomax was making. Are you saying that the management systems were not good enough?

    (Ms Lomax) Yes.

67. Or are you saying the managers themselves were not good enough?

    (Ms Lomax) No, it was the management systems. I think I said this when I came to this Committee back in 2000.

68. I was not on it at the time.

    (Ms Lomax) I have given evidence on this several times. The thing I said over and over again was that it was not about individuals, it was about defective systems and poor organisation and that is what we put a big effort into putting right.

69. Sir Richard, could you explain to us then this somewhat slightly differently configured diagram, how the faults that were inherent in that system have been resolved. I think you used the phrase a few moments ago that it was now "joined up in a seamless way". Perhaps you could explain to us how.

    (Sir Richard Mottram) Basically if we go to the second half of the diagram there is within my Department, reporting obviously to me and joined up with the other groups that are across this page, a group called the Pensions Group and that has within it people who think about the needs of pensioners as customers and strategies towards pensioners and they are marked here as policy. We call them a client group, calling them policy was designed to clarify what they did. Then there is the Pension Service and, as Rachel said, the difference between the Pension Service and the Benefits Agency is the Pension Service is solely devoted to pensions. The interaction between the policy people and the Pension Service is much greater on a day-to-day basis so, for example, just as a small tangible example of this, the Chief Executive of the Pension Service has now moved her office so she operates virtually alongside in the same building as the Managing Director for Pensions and Disability, Paul Gray. So there is a much stronger sense they are a group of people some of whom are in headquarters, although we do not particularly use that term, and all the people who are delivering, and they have a single customer focus which is to do with pensioners and their needs. That is a very different organisation to the one that is shown above it.

70. Thank you. Can I now turn to page 3, Paragraph 10, conclusions and recommendations, and it says at the beginning that the Department has made considerable progress, et cetera, et cetera, although the extent is varied in different parts of the Department and it goes on to list what the key developments are. I do not know whether it might be appropriate for somebody from the Comptroller and Auditor General's office to answer this but what were those variations, that is the first part of the question and, secondly, what has been done to address those variations? This obviously was written before this streamlining you just described had taken place.

    (Sir Richard Mottram) It was not written before the streamlining had taken place.

71. As I understand it, it describes the Department of Work and Pensions after April 2002 covering the main activities.

    (Sir Richard Mottram) I cannot answer for that.

72. You signed it off as being an accurate sentence. Perhaps someone from the Comptroller and Auditor General's team could tell us what that means.

    (Mr Lonsdale) The first sentence of paragraph 10 ... "although the extent has varied ..." I think that refers to a number of parts of the Department. The point is that different parts of the new organisation - Pension Service, Jobcentre Plus, CSA - have implemented elements of the reforms that Sir Richard has talked about at a varying pace. I think, for example, paragraph 3.29 talks about the fact that the Pension Service is also planning to introduce checks on telephone contact, it is those kinds of example.

    (Sir Richard Mottram) It mentions it in a number of places and the distinction is drawn between the Pension Service which has done this. A good example would be the project we have done on information management, the Accuracy of Information Project, which has been pioneered really by the Pension Service and there is more work being done on the working age side. Bits of the Department in different areas of this agenda are at slightly different stages.

    Mr Howarth: I would like to pursue that further but perhaps at some point one of my colleagues might get an answer to the point on 3.29 which has already been raised.

    The Committee suspended from 4.20 pm to 4.42 pm for a division in the House

    Mr Rendel

73. I understood Ms Lomax to say in answer to an earlier question that a decision had been taken not to go on telling people about the possibility of compensation beyond when you had written to the first batch of letters you sent. You decided in later letters to people about this issue not to tell them that the potential for compensation might be available to them if they were to claim it, and your reason for doing so, you told us, was that there was a danger if you did tell everybody about the potential for compensation you would be overwhelmed with claims and you were worried about the effect this would have on your ability to solve the problem. Is it reasonable to say that people should not be given information just in case they use it?

    (Ms Lomax) The Secretary of State made it very clear from the beginning that he thought only a very small number of people were going to be eligible for compensation over and above the transition protection scheme which replaced the protected rights scheme. If we had been able to make a compensation scheme work on a large scale it would have been the protected rights scheme and we would have gone ahead with it. We could not, we abandoned it, so it was always clear from November 2000 onwards that what we were looking at was using the Department's normal procedures for redress for maladministration to catch the very small number of people who were not properly covered by the new arrangements which were announced in November 2000. The normal procedures for letting people know about that scheme apply, they are there today. You can find out about the coverage of Inherited SERPS in the financial redress for maladministration, log on to the DWP web site and look at the great tomes of financial redress for maladministration and the paragraphs in there. You are sign-posted in that handbook to the complaints books which is available and advisers know perfectly well what the normal schemes are so people can find their way to it. What we did not do was put letters out to millions of people or advertisements designed to be seen by millions of people with reference to departmental compensation which we thought would only be applicable to a very small number of people.

74. Does that not mean that the small number of people who potentially are eligible for compensation mostly will not claim it?

    (Ms Lomax) 800 have already claimed.

75. What is your estimate of the number of people who might be eligible?

    (Ms Lomax) If we had known the answer to that --- 20,000 people wrote in and complained that they thought they might have been misdirected, 2,000 out of the pensioner population. 70% of those people were pensioners, 95% were within ten years of retirement or they were pensioners. Those were the very people whom the transitional protection scheme that was announced in November 2000 covered. Pensioners were able to pass on 100% of Inherited SERPS, so of those 70% that had written in, the expectation was that the new scheme that had been announced would meet their problem.

    (Sir Richard Mottram) Can I add a point which I think is in the Report which is that we put aside as a contingency £8 million within the framework that Rachel was just describing. So far we have paid out around £850,000. We are still getting claims in, we are still addressing those claims. Whether we will ever get up to £8 million I do not know but we are not ---

76. You have to pay out ten times what you have already paid out to reach your expected expenditure.

    (Ms Lomax) We would, although the number of people claiming has picked up in the last three or four months so I do not know. It was a small number of people that we expected would have valid claims.

77. Of the 20,000 you obviously know that some of them have potential claims. Have you surveyed any of them who have not written in to you to ask them why they have not?

    (Sir Richard Mottram) Not that I am aware off.

78. Would that not be a sensible thing to do? Given that you have not paid anything like the compensation you originally expected, given that you have only on one occasion written to tell people they are likely to be eligible for compensation and you think a number of those people are likely to be eligible for compensation, and you do not know why they have not written in, would it not be sensible to survey some who have not written in to see why not?

    (Sir Richard Mottram) We do not think that many of the 20,000 are likely to have a valid claim. We can certainly look at it.

79. You can find that out by doing a survey. If you did a survey and they wrote back and told you they did not think they did have a valid claim or explained why they did not have a valid claim, you would soon find out if there were any. You would also find out the number who probably did have a valid claim who would write in and tell you they had not written previously because they had not read the letter properly or had not realised that they were eligible and could claim compensation. That would give you some handle on how much of the extra £7 million which you have not yet paid out in compensation that you originally expected to pay out is due to people who are eligible for compensation.

    (Sir Richard Mottram) The £8 million was a contingent provision as opposed to a forecast but I am happy to take this away and look at it.

80. The next point I want to move onto is the question of overseas people. Why is the address data on those who are living overseas so much less reliable?

    (Sir Richard Mottram) Because they have even less contact with our system than other people until they trip over it. Their entitlement to benefits is less and they are really only going to come across our system in defined circumstances in relation to pensions.

81. It may be simply they have moved address more frequently since they were last in contact with you or more likely to have?

    (Sir Richard Mottram) Yes, perhaps.

82. And your reason for not writing to at least the latest known address of all those people was you thought it was not cost effective to do so, you thought it more cost effective to advertise in magazines and so on?

    (Sir Richard Mottram) Yes.

83. Not cost effective presumably in terms of the number of people who would see the relevant information with one method or the other?

    (Sir Richard Mottram) Not cost effective in the sense it would be very difficult to get a substantial hit rate through correspondence without spending a lot of money, and even then it was rather doubtful it would work, so what we opted for was a communications mechanism that we thought was most likely to reach the greatest number of people for a reasonable cost.

84. So that was, so to speak, the gain. The benefit out of the two methods you were comparing with one another were simply in terms of the number of people who you would be able to get the information to.

    (Sir Richard Mottram) Yes, cost effectiveness.

85. Did you consider the cost that you would eventually have to incur trying to find out where these people lived? Would it not have been worthwhile thinking about the possibility, by contacting these people, getting a certain amount of information back about what their new addresses were anyway, information which you would eventually probably have to find out?

    (Sir Richard Mottram) I do not know whether that was looked at.

86. If you do not know, I would be interested to know if you can tell me that afterwards because it seems to me that is a clear potential benefit.

    (Sir Richard Mottram) I am so sorry to interrupt. It is, as long as if you think you have established their address you think they will stay there or they will then become faithful recorders of their new address with you.

87. Certainly it would give you some useful information.

    (Sir Richard Mottram) It would update the information you had.

88. Even if they did not tell you later every time they moved, at least it would give you a more recent address for them which might be more useful.

    (Sir Richard Mottram) One of the things which I do not know, which I will double check also, one of the things we have been using are websites which we know are well used by people living overseas. I will look at what message we are trying to give them about addresses, for example.

89. Certainly I would like to know, if I may, whether you did consider the potential benefit of updating your addresses as part of the equation.

    (Sir Richard Mottram) Yes, of course.

90. The next one I want to get on to, if I may, is for how many of your clients do you hold email addresses?

    (Sir Richard Mottram) How many of our clients do we hold email addresses for? I do not know, I will have to tell you.

91. Do you know if you have got any? Do you ever contact people by email?

    (Sir Richard Mottram) We do, yes, we do contact some people by email. You can correspond with the Department by email so we would hold addresses for that, yes. You can now make claims to a limited extent by email which I would like to expand very substantially.

92. It seems to me one of the ways you are most likely to keep in contact is through email. Those who are familiar with the system probably change their email address rather less frequently than they change their physical address.

    (Sir Richard Mottram) Absolutely.

93. You have had this problem in the past, the problem came up when we were discussing the fact you do not have adequate addresses for a lot of your clients. It seems to me it would be an excellent idea to contact them perhaps and every time you do contact them ask them if they are prepared to give you an email address and then use that and store it.

    (Sir Richard Mottram) Yes because one of the issues, if I may say, which obviously does arise which is not directly out of this report but is an under current is the way in which we have no clear way of really communicating to people, as I see it, how important and valuable it is that we have an address for them on a consistent basis. I think that is an issue which arises out of this.

94. You will be asking for email addresses?

    (Sir Richard Mottram) I will look at the feasibility of what you have suggested.

95. Finally, can I ask if you have any plans to go back to those who you think might have been eligible originally for compensation but you have not written to again to remind them that they could be eligible?

    (Sir Richard Mottram) We have no such plans.

96. For example, any of the 20,000 at least?

    (Sir Richard Mottram) No.

    Mr Davidson

97. I wonder if I can follow up some of the points in 2.29 about compensation. Could you just clarify for me what the rules are for compensation?

    (Sir Richard Mottram) The rules are that you have to establish that you have suffered a financial disadvantage as a result of not knowing your position.

98. Of not knowing. I am trying to remember from previous occasions, was there not an issue of misdirection?

    (Ms Lomax) Yes.

    (Sir Richard Mottram) Yes.

99. Right. I think we had established on a previous occasion that it was going to be quite difficult for people who had been advised by telephone to establish that they had been misdirected. If I remember correctly you agreed that anyone who asserted that they had been misdirected by telephone would be accepted?

    (Sir Richard Mottram) I do not know whether we did. I think we would need some evidence.

100. Okay.

     (Sir Richard Mottram) The evidence could be "Yes, I spoke to so and so on and they told me this" and if it was believed, yes.

101. There is always a difficulty about afterwards producing some evidence that you spoke to somebody in the Department on the phone?

     (Sir Richard Mottram) Yes, there is such a difficulty.

102. I am seeking to clarify ----

     (Sir Richard Mottram) On the other hand, obviously there is an issue about the use of public money.

103. Absolutely. I do remember that. I remember that was a dilemma for us on a previous year in the Committee.

     (Sir Richard Mottram) Exactly.

104. I just want to clarify to what extent claims as to misdirection had been founded on misdirection having been made over the telephone and for which there was no evidence.

     (Sir Richard Mottram) I would have to look at that. I have a breakdown of claims but not to that level of detail.

105. I am a bit concerned - and some of my colleagues are - about the possibility that there are a lot of people that would have been eligible for compensation had they been able to get their way through the system and in fact they gave up because they were not informed properly. We have heard some evidence already of that. You cannot help me at all on that then really, can you, in terms of evidence that there are people who would be eligible who have not been reached adequately by the system or whose requests for compensation have been turned down because they were unable sufficiently to prove it and their claim was founded on an assertion of a telephone conversation?

     (Sir Richard Mottram) What I can do - but I do not have the detail with me here - I know how many claims have not been agreed to so certainly I can look at the basis on which the claims which have not been agreed to have been turned down and identify the subset within there which is those who say that they were misdirected through a telephone conversation. All I would say is that we do not believe there is some great untapped group of people out of there who have been fundamentally disadvantaged in the terms that we are required to compensate people financially for, as opposed to - as Rachel said earlier - what would have been the case if we had proceeded with the previous scheme that the Government envisaged. We think the change of scheme put the whole issue of compensation on to a different basis really.

106. The question of making the allocation of eight million was just a wild stab in the dark?

     (Sir Richard Mottram) No, it was a contingent provision. "How many people might be able to establish such a claim?" Answer "We make provision for £8 million worth". It is not a limit. If people can establish a case we will pay it.

107. I am not clear how you reached that eight million figure and why it is so many fewer seem to have made claims? If you are saying to me "Well, eight million was based on a number of suppositions, all of which have been proven to be wrong", I can understand that but you are not saying that.

     (Sir Richard Mottram) No, what I am saying is thus far we have paid out about £850,000. Claims are still coming in. They are all treated on their merits. There is no time limit as the report says, we might end up paying out eight million.

108. Right. Okay. I always have a difficulty in my constituency, I am sure many of my colleagues are the same, in helping people access the system. There tend to be two categories of people who can get through the system. The first is those who are higher social class, who are better educated, who have the perseverance and the ability to see their way through it.

     (Sir Richard Mottram) Yes.

109. The others tend to be the rascals who know how to manoeuvre their way around almost any scheme whatsoever that anybody devises.

     (Sir Richard Mottram) Yes.

110. Everybody else in the middle just gives up or does not understand it. That is my concern. I am wondering whether or not you have done any work at all to ascertain where the successful claims have come from. Are they all "Disgusted of Tunbridge Wells" or is there a small group in Cheltenham that has managed to access them?

     (Sir Richard Mottram) I will give you a geographical distribution of the successful claims. I do not have it with me.

111. I was wondering whether or not you thought there was anything that might have told you anything about which groups were or were not claiming. I am disappointed that you have not done any work on that.

     (Sir Richard Mottram) I am sure my people have. I have not personally done that, no. Personally, I have not done that. I can give you data. There is quite a wide spread in the claims. The lowest amount we paid out was £34, the highest was £12,000. Whether that was Tunbridge Wells or wherever, I have no idea. The point I want to come back to is I very much take the point you are trying to raise about people's knowledge of the system. I think that was a much bigger concern in relation to the previous version of what we were doing which heavily would have rested on "did you know how to make that system work for you". This is quite a narrow group of people who have taken a decision or not taken a decision which has actually financially disadvantaged them in the context of a scheme where the impact of the change has been spread out over a much longer period. Certainly I can give you the facts as I have them in relation to the question that you are asking.

112. And your interpretation of them?

     (Sir Richard Mottram) Of course, yes.

     Geraint Davies

113. Can we refer back to page 11 and figure 2. I think you mentioned, Sir Richard, that you sent out at least 10.1 million letters.

     (Sir Richard Mottram) Yes.

114. You got 590,000 back.

     (Sir Richard Mottram) Yes.

115. You interpreted the 590,000 letters as people being baffled - that was the word you used. I just want to press you on this. Do you feel the letter sent out in category A was in some sense confusing?

     (Sir Richard Mottram) No. The point I was trying to make was we found it quite interesting because it bore on the discussion we began to have, I think, with the Chairman about the pace at which we rolled all of this out. We thought the easiest category to write to were the first category because the message then was "you have to do absolutely nothing, you are not affected by this". I think it is not necessarily that surprising that 590,000 of them actually wrote back. The point I am making is, therefore, we were then sensitised. This is quite a complicated message because even when it is good news, "you are not affected by this change" ---

116. You do not lose 50%?

     (Sir Richard Mottram) Exactly. People were still thinking "I have got this message from the state, perhaps they are expecting something of me". That just concentrated minds. I do not think the letter was confusing.

117. You sent a letter to ten million people.

     (Sir Richard Mottram) Saying "It does not matter, you are not affected".

118. Why did you send them that letter?

     (Sir Richard Mottram) Because they were very probably worried because they knew there was this big issue out there which was if the Government had not changed its policy they would have lost up to half of it.

119. It could not have been a very clear letter because 5% of them chose to write back to you.

     (Sir Richard Mottram) I think it was a perfectly clear letter.

120. You wrote to them saying "There is no need to worry" and then 5% wrote back saying "I am worried".

     (Sir Richard Mottram) They wrote back in various ways.

121. Why should they write back when the letter in the first place was redundant because there was no change in the status and it was a waste of public money in the first place?

     (Sir Richard Mottram) Because I think people respond to these things when it is about their pension. These were people already over state pension age. Some of this was clarification.

122. I am a bit short on time. Category B, you have 1.1 million there, these people are eligible, are they not? These are the people losing 50%?

     (Sir Richard Mottram) No, they are losing nothing.

123. So there were another 5.1 million you sent letters to saying "Do not worry, there is no change"?

     (Sir Richard Mottram) Yes.

124. You could argue a complete waste of public money?

     (Sir Richard Mottram) No, because these were people who were quite close to this issue and potentially quite concerned about their position.

125. Lastly, we have category C who are the people who we might have to give money to who you wrote to in March to July 2002, a year later than the first lot, who were perhaps eligible for money?

     (Sir Richard Mottram) No, no, no, it is nothing to do with eligibility for money really.

126. Are these people not losing half their pension rights?

     (Sir Richard Mottram) No, progressively between 2002 and 2010, it rolls out in two yearly slots so that by the end of that process you are down to 50%. I am only querying because the use of the money implies something like compensation.

127. The categories are A and B do not lose anything, who spent a lot of money saving all this time, you spent a year sending a letter they did not have to have. Eventually we go to C which is more complicated because there is a sliding scale. That is why by chance Mr Chance queried it and the Ombudsman found in his favour that this third letter, which was not "do not worry there is no change" and in this other letter Mr Chance said "This is not clear" so you sent out another 530,000 letters, that is correct, is it not? Those are the people who can claim that money, I have that right, have I not?

     (Ms Lomax) No.

128. They cannot?

     (Sir Richard Mottram) When you say claim that money, they could claim compensation?

129. No, they are losing out from the change?

     (Ms Lomax) No.

     (Sir Richard Mottram) Yes, their inherited SERPS is affected by at what date ---

130. By the 1986 decision?

     (Sir Richard Mottram) No, by the progressive implementation of the 1986 decision but not on the same basis as the 1986 basis.

131. Ms Lomax, you want to clarify what Sir Richard is saying?

     (Sir Richard Mottram) I do not think she does actually because what I have said is absolutely clear.

     (Ms Lomax) No, I do not.

     (Sir Richard Mottram) Perhaps I will repeat what I have just said.

     (Ms Lomax) I do not want to disagree.

132. He has done a grand job. Sterling performance. Moving forward then you said, Sir Richard, that people would be eligible for compensation if they suffered a disadvantage from not knowing their position?

     (Sir Richard Mottram) Yes, if they could show they had suffered financially.

133. I understand. Is it not the case that if you are one of these people in category C you are getting on a bit? The Government is encouraging people to make early provision for their pension. If I was somebody in category C it would be obvious that not knowing I would have the inheritance halved ----

     (Sir Richard Mottram) You would not have it halved.

134. --- on a sliding scale, including any change to my economic well being, for my pension from this change since 1986, I would suffer from that? I did not know about it, I could not have accounted for it in a previous investment decision because it has changed since then. Is there not a good reason that all these people could put a case that they have suffered a disadvantage from not knowing their position?

     (Sir Richard Mottram) It depends how they would propose to have responded to knowing, would it not?

135. They did not know. They were banking on having this right to half inheritance and that would be tapered away, they were suddenly told, and then we said "Here we are, this is what is happening to you" and you are saying if they suffered the disadvantage of not knowing the position they should be compensated. I am asserting that obviously they would have suffered a disadvantage.

     (Sir Richard Mottram) Hold on. Sorry, not hold on. The people in this category include people who have many, many years in which to make arrangements, if they wish, to cover for the fact that their inherited SERPS is going to be lower than they might previously have thought it would be.

136. What was the youngest age of this group when you told them in July 2002 or the oldest when they received the letter?

     (Sir Richard Mottram) I think they will be 55, if they are men.

137. Okay. 55 and the Government would have thought you should have made provision for your future. Many people would be made unemployed or wanting to take retirement and suddenly they are told "Well, actually you can only now have half your SERPS".

     (Sir Richard Mottram) No, they were not told they could only have half their SERPS, they were told that progressively between 2002 and 2010 the amount of the SERPS that your widow - let us take it if it is a man - could inherit from you will not be 100%, it will be 90/80/70/60/50.

138. All I am saying is these people did not know at the age of 55 that they would have this sliding scale problem.

     (Sir Richard Mottram) Yes.

139. If you look at 2.29 which gives the number of claims, I know you have updated that in this particular hearing but there it says there were 250 claims and 116 of them we paid out £500,000 to or something like that. Right?

     (Sir Richard Mottram) Yes.

140. It suggests a 46% success rate and an average pay out of £4,310. What I am suggesting is if people knew what they were doing and were to go along the logic of what I am saying then we could have much higher numbers of people making successful claims and the downside liability for the country is, in fact, billions of pounds. You could argue their right is to receive that money.

     (Sir Richard Mottram) I think we are in danger here of having a conversation which is posited on what is essentially a description of the previous scheme which was "We are going to chop off SERPS and if you can show you have been disadvantaged you can claim". What the Government has done at an NPV of £12 billion, with the support of this Government as I understand it, is to put in place a set of processes which give people much more time to order their affairs to take account of this decision. The Government has paid out £12 billion worth - a lot of compensation - to individuals but of time bought so that individuals can put their affairs into order. They did that as a preference to an alternative which would have been to say "Go ahead, but if you can show you were thinking about this and you have been wrong footed ...". Do you see the point?

141. They are spending £12 billion anyway you are saying?

     (Sir Richard Mottram) I am saying the cost to the Government of phasing in the change to inherited SERPS is an NPV of £12 billion. The effect of that is dramatically to reduce the number of people who are directly affected by this change because people have time to make alternative arrangements.

142. If all those people had 100% ---

     (Sir Richard Mottram) If they had 100% expectation ---

143. No, no, if they all had 100% money, I thought that was the £12 billion. How much would it cost us if we said to all those people "Actually, we made an error, we are going to pay you all 100%"? How much would it have cost?

     (Sir Richard Mottram) £18 billion I think. Over £20 billion.

144. You will not accept - finally - that this category C has suffered a disadvantage from not knowing their position even though they would have had more money had they known it?

     (Sir Richard Mottram) The cost of not implementing the 1986 decision of Parliament would have been £20 billion over the period to 2050. With the agreement of this Committee, amongst others, this phased approach has been taken and that has cost £12 billion. In that context we believe that this problem has been dealt with in a way which means that we do not focus on lots of individuals having an expectation of compensation.

     Mr Bacon

145. Sir Richard, may I start by thanking you for your answers to my earlier question the last time we met concerning the cost of these 135,000 PCs. The answer you gave me said that 100,000 and 120 desktops and laptops have been installed so far. I take it the numbers that I have got relate to those 100,000 rather than the total 135,000?

     (Sir Richard Mottram) They do I believe, yes.

146. Can I ask you, first, because it says in the note "These figures do not include installation costs".

     (Sir Richard Mottram) Yes.

147. If you are able in due course to let me have a note of the installation costs. There is also the remaining cost of the early office infrastructure. I think it will be fully installed by June, is that right?

     (Sir Richard Mottram) Probably not. No, probably not.

148. "Phase 2 of the EIO programme which began in January 2003 will be completed by 30 June 2004", I beg your pardon.

     (Sir Richard Mottram) Yes. It is the London systems which are coming behind.

149. Presumably you have an estimate of what that cost will be over the next 16 months?

     (Sir Richard Mottram) We do, we have an estimate for the costs over a ten year period which is substantially higher, of course.

150. If you could let me have a note that would be helpful.

     (Sir Richard Mottram) There is an issue over these costs, Chairman, that some of them are commercially confidential. Can I send them on the basis that they are?

     Chairman

151. Of course.

     (Sir Richard Mottram) Yes, I will do that.

     Mr Bacon

152. I would like to ask you about the pilot letter. In paragraph 2.1 it says that you actually piloted it with 1,000 customers, not to mention the outside bodies you refer to, the Social Security Advisory Committee and so on. The best people to pilot it with were not outside bodies but people, as in customers, and it says you did indeed do that with 1,000 customers.

     (Sir Richard Mottram) Yes.

153. Given that was the case, how do you account for the fact that it did not work in the way intended?

     (Sir Richard Mottram) What we are saying is that this letter did work in the way in which it was intended. For example, I think 87% of the people who were questioned about the quality of this letter found it either very clear, fairly clear or easy to understand, and these are quite high numbers, I think, if you ask people what do they think about something. Most people who received this letter were comfortable with it, they believed it to be a satisfactory basis for giving them the information that they needed to have which was fundamentally about inherited SERPS. Mr Chance raised a very good question about the handling of the contracting out element in the letter. This had always been recognised as an issue in the Department, it did not come from nowhere, we were not amazed that he raised it. It was an issue about the balance and advantage between keeping the thing simple and focused on inherited SERPS and getting into a very complicated story about contracting out.

154. Nonetheless 13% of five million is a lot of people.

     (Sir Richard Mottram) Not many of those were dissatisfied about the contracting out element as far as we know.

155. Do you think it is wrong to try and include so much in one letter?

     (Sir Richard Mottram) No.

156. It was good you did a pilot. The last time we discussed pilots it was that you had not done them on Housing Benefit.

     (Sir Richard Mottram) It was indeed.

157. You wished you had done so.

     (Sir Richard Mottram) I did indeed.

158. With hindsight you wish you had done a pilot. Here you have done a pilot and it did not go according to plan.

     (Sir Richard Mottram) I am still glad I did the pilot.

159. I am sure you are. On page 26 it refers to a pilot on mystery shopping to be completed before the end of 2002-03. Since we are pretty much at the end of the financial year 2002-03, is this pilot now done and dusted?

     (Sir Richard Mottram) The pilot on mystery shopping?

160. This is paragraph 3.31 on page 26. "Mystery shopping in Jobcentre Plus".

     (Sir Richard Mottram) Jobcentre Plus already does do this.

161. "...The Pension Service are planning a pilot before the end of 2002-03".

     (Sir Richard Mottram) We will have the evaluation within the next two weeks.

162. Is it possible you could send it to us?

     (Sir Richard Mottram) It is indeed.

163. Monitoring on performance of pilots is obviously a current theme here.

     (Sir Richard Mottram) Yes, we will.

164. It will be helpful to have a note on it. Can I ask you about the processes inside the Department which led there to be a recognition that letters were not working properly or not adequate. It says in the report - this is on page 24, the page before, on the left 3.19 - "Ministers became concerned about the standard of letters and, towards the end of 1999, established a project to make significant improvements". Then at the bottom of the paragraph it says "The impact of these changes will take some time to work through the Department, and the quality of letters remains variable". That is over four years after ministers expressed concern about it.

     (Sir Richard Mottram) Yes.

165. Why is it taking so long to secure these improvements?

     (Sir Richard Mottram) I do not know - Rachel probably knows - what led ministers to query the quality of the letters but there are two broad sorts of letters in a way. This is a wild generalisation. There are those which are standard letters, many of which I think from this Department, as the report brings out, were over-bureaucratic and unclear. Many were hard coded into our legacy computer systems and were not very satisfactory. Then there are letters which are responses to individuals. You can do the processing stuff, and the report describes that. You can encourage the staff to improve their performance in relation to individual letter writing. I would certainly say from the letters that come to me, for example, to send to people that there is more work to be done in people understanding what makes a clear letter and what makes clear communications. I think that is what we are saying. We are working on the process. It is a question of staff quality and staff training and staff education.

166. Can you turn to page 27, paragraph 3.34 and, indeed, the following two paragraphs as well. It talks about the Internal Assurance Service of the Department.

     (Sir Richard Mottram) Yes.

167. ".. many Pension Service offices were making only minimal use of the data. In particular middle managers were not using it to identify staff weaknesses and organise remedial training". The following paragraph, 3.35, talks about the Child Support Agency and "... an internal report expressed concerns about the way complaints were handled ..." there. The following paragraph, 3.36, talks about Jobcentre Plus.

     (Sir Richard Mottram) Yes.

168. It says that while the "...Former Benefits Agency offices still use a computerised system, but those that were part of the Employment Service have only a manual recording system. The Agency are, therefore, unable to produce easily management information on the number and types of complaints across the whole organisation".

     (Sir Richard Mottram) Yes.

169. Why is so little progress being made in improving complaints monitoring and handling? What more is going to be done?

     (Sir Richard Mottram) In the case of each of the component agencies since the report has been prepared we have been making progress on the better collation of information and how it is reported up to headquarters and the categories, for instance, of complaint that are being reported and analysed on the use by managers of that information and putting right some of these weaknesses. So, for example, we are introducing a much better approach in Jobcentre Plus by this August. All of these various weaknesses we are systematically tackling.

170. You refer to encouraging staff and staff quality and staff training.

     (Sir Richard Mottram) Yes, I was not being rude about the staff.

171. No. In answer to earlier questions you have referred to a completely different approach and completely different systems and record the desktop interaction the biggest change programme in Europe.

     (Sir Richard Mottram) Yes.

172. Is it fair to say you are already trying to achieve fundamental change across the Department to get people thinking differently about the way they do their jobs.

     (Sir Richard Mottram) Yes.

173. Can you say something about that?

     (Sir Richard Mottram) If you take the way in which the front line services are being delivered, we have different ways now of relating to customers. The Pension Service, for example, is offering people - we touched on this before - either a telephone based service or a local service in which we have invested significantly more. If you go into your local Jobcentre there is now a much stronger focus on you as the customer and making sure your needs are being met speedily and so on. All of that part of our processes is progressively being changed. All of the ways in which people relate directly to the physical environment in which you meet staff and so on, all of that is being transformed.

174. Are you familiar with the Arab phrase the fish stinks from the head?

     (Sir Richard Mottram) I am, yes.

175. You cannot do your job as accounting officer, can you - something I raised with Ms Lomax when she came before us and it is something I raised with you last time - you are unable to account to Parliament for the way you spend public money as accounting officer and you are asking all these people to make these fundamental changes in the way they serve customers and yet you cannot do your job and neither Ms Lomax nor you, last time you appeared before us, was able to tell me that the Department even has a target date for when it will publish a set of accounts which are not qualified because of fraud. How do you expect all of these people to do their jobs when you are not able to do yours and you have no target date for doing so?

     (Sir Richard Mottram) Because what we are talking about here is one aspect of the accounts of my department where absolutely there are ----

176. It is utterly fundamental. What is your total, the control total, it is over £100 billion, is it not?

     (Sir Richard Mottram) The annually managed expenditure is over £100 billion.

177. The UK GDP is about a trillion, so you are a tenth of the economy.

     (Sir Richard Mottram) Probably.

178. You account for a tenth of the economy ----

     (Sir Richard Mottram) They are transferred payments, but still.

179. Nonetheless it would appear in and out of your bank accounts is one-tenth of the economy and yet you cannot account to Parliament for what you do with the public expenditure that is involved.

     (Sir Richard Mottram) I do account to Parliament very precisely for the amounts of AME that I am spending, the amounts of DEL, the resources my department consumes under its departmental expenditure.

180. You do not account adequately because if you did you would not have qualified accounts.

     (Sir Richard Mottram) I account adequately except in one respect. I may have two qualifications. The Comptroller and Auditor General qualifies my accounts fundamentally because of an issue to do with fraud and error. He does not qualify them because I cannot satisfy him about other aspects of the way in which I am handling public money.

     Chairman: We will have to leave it there or we will get into another discussion.

     Mr Williams

181. There is literally nothing left, it has all been picked over time and again. Would it be naive statistics to say the fact that 30% of possible claimants have not been contactable means that you are saving about £3.5 billion out of the £12 billion that you have earmarked?

     (Sir Richard Mottram) No, because the £12 billion that we have referred to is the net present value of what we know is going to be the bill to government of rolling out the inherited SERPS change over a much longer period of time. There is no way we can save that money, that is money that we are committed to.

182. What about the people, the 30% still represents costs you have not incurred, do they not?

     (Sir Richard Mottram) Which are the 30%?

183. The 30% you have not been able to trace. 70% you were able to trace and 30% you were unable to trace.

     (Sir Richard Mottram) Are you speaking about the people we have mailed directly and the problem we had in contacting the rest of them?

184. Yes.

     (Sir Richard Mottram) This is an issue about are they informed about the consequences for them of this change. Our argument would be that by a combination of writing to them or advertisements of various kinds in many different channels, or in the case of overseas people using the Internet, we have communicated this change to them. The impact of communicating the change is not a public expenditure impact.

185. On the problem of traceability for you, in this case I assume the problem is you lose contact with people before they become pensioners and not after because once they have taken their pension you have a point of contact even if it is only a payment point. Is that so?

     (Sir Richard Mottram) Yes. People who do not draw a benefit will tend only to focus on us at the point where they think they have an expectation about their pension. If we do not contact them they are likely to contact us. The Pension Service's business model - ghastly jargon - the way in which the Pension Service now markets itself and the way in which we are putting out information, particularly about things like Pension Credit for example, are absolutely designed to get to people we have not previously contacted.

186. Okay. An increasing proportion of people are moving and retiring overseas. Does that present you with a special problem if they are going after they have retired or is it people overseas and retiring while they are over there and you have had no contact with them?

     (Sir Richard Mottram) I think both categories present a potential problem to us because some of our benefits you can only draw if you are in the country, so it is very complicated. Also they have the complexity that uprating is affected by which jurisdiction you are living in.

187. The problem here is one of transference of information, the issue that Ian Davidson raised about financial disadvantage and someone having to prove that they have been given inaccurate information. Is anything being done to address this? It must happen so often. I can see that it is a bureaucratic nightmare. For the department to try and do something about it would be extremely expensive in terms of constant remainders and yet at the same time to individuals who lose out it is of major significance, is it not?

     (Sir Richard Mottram) I think if we are thinking about issues around social inclusion, it is really relatively implausible that many people were disadvantaged in those financial terms through this process. I suspect there are not that many socially excluded people who have a compensation claim in relation to this issue. I think the much more important issue for us in relation to pensions and social exclusion is how effectively we can communicate Pension Credit and entitlement to Minimum Income Guarantee, things we have touched on in this Committee before. I think that would be our priority. They would be the people I would be most concerned about, socially excluded people who do not realise that they are entitled, for example, to Pension Credit. That is the area where if you look at the department's expenditure, therefore, on pensions information, the areas that we are pushing are to do with social exclusion and Pension Credit, on which we are about to roll out a massive campaign over the next 18 months, and then for the population more broadly, the need for them to provide for the long-term for their retirement. The issue of compensation in relation to this group of people in that context is quite marginal.

188. When you tried to contact people overseas, you indicated that you did not send letters because you did not have addresses.

     (Sir Richard Mottram) We must have addresses for some of them.

189. For some of them, yes. Did the advertisements that were run produce detectable benefits in the number of responses or were they largely ineffective?

     (Sir Richard Mottram) The people that we have addresses for are people that we are paying pensions to.

190. Yes.

     (Sir Richard Mottram) The question is how far the people who fall into categories C and D, on that famous chart that we referred to earlier, how far those people living overseas know. Actually it is category E on that chart, people living overseas. The pensioners will be okay because we can contact them, it is the others. We have some evaluation of the effort that we have used on the Internet and so on and it is quite encouraging but I would not pretend to argue that I am confident that everybody necessarily knows about these changes.

191. Could you give us a note?

     (Sir Richard Mottram) Yes, we could.

     Chairman: Just one last question from Mr Frank Field.

     Mr Field

192. Sir Richard, when I made my final comments I did not mean to be rude to you and if it sounded rude, I apologise. What I was trying to do was to get you and the department to look forward. Your appearances before us have shown that you have tried to get a grip on this department and that is most welcome. If we can go back to the questions Alan Williams has just asked thinking about how the department behaves in the future. The reason why it was in this instance that one communicated with the customers was that governments of all parties want people to be more responsible for themselves and particularly for their retirement income, so it is quite important that we can communicate with them.

     (Sir Richard Mottram) Absolutely.

193. The data for group C of your letter recipients was something like a quarter of that part of the working population that you do not have up-to-date records of where they live, or if you have records they are inaccurate. The department is embarking on, because the government wishes it to, telling people what their state entitlement is going to be. The reason for that is that it is going to be so miserable the government thinks it will frighten people into making other provisions. If, in fact, your records that you inherited ---- All the questions have been put to you but they ought to have been put to Ms Lomax.

     (Sir Richard Mottram) I am accountable.

194. You were not accountable at the time.

     (Sir Richard Mottram) I am accountable for what happened.

195. If something like a quarter of your records on the working population are non-existent or inaccurate, how are you going to go about making sure that people get to the right address that pension statement saying "We are putting the fear of God into you, you had better start saving and doing all sorts of other things"? What moves are you making to try and get an up-to-date register of your customers?

     (Sir Richard Mottram) Obviously we have what is on the National Insurance database, using those terms very loosely, and then in so far as we are not confident that those are up-to-date addresses we data match them against other sources. That was what we did in relation to this group.

196. When you have done that, Sir Richard, you have not got a quarter?

     (Sir Richard Mottram) No, I think we had not still got a quarter. I think what this says is we started off in circumstances where we did not have a quarter.

197. I am on to group C.

     (Sir Richard Mottram) How many do we think we ended up with? The answer is we made progress but we did not get to 100%. What I think this story shows, if I may say so, Chairman, my understanding is when we were first contemplating how we would deal with what is group C, because of these issues about we did not know their address, it was most implausible that this exercise itself would have been contemplated. The Department delivered this exercise. That process, I think, has drawn attention to what is quite an interesting issue, the Government has not traditionally required us to keep it in touch with where we are moving. Is is part of being a free Englishman, you do not have to keep telling the state where you are. I do not think this will work for the future so I think we do have to think more.

     Mr Field: I would be grateful if we could have a note which looks at the moves the Department has made since this exercise to try and build up the correct record of the people who pay the taxes for which they will then, at some stage, wish to draw benefits. If they think those benefits are inadequate they might know then they should be making other provisions. It is taking the discussion forward rather than trying to defend the stewardship before you arrived at the Department.

     Chairman

198. Would you like to do a note?

     (Sir Richard Mottram) I would, Chairman, and perhaps I should have said, obviously, another source of data would be the Revenue.

     Mr Field

199. The employers.

     (Sir Richard Mottram) And employers. Certainly I will do a note. There is the Revenue, which I should have mentioned. In the case of pensions forecasts, one of my colleagues has reminded me that of course one of the ways in which we are seeking to do that is by a partnership with employers and employers should know where their employees live.

200. If employers of the firms had a database as inadequate as this, this Committee would be making all sorts of recommendations, would it not?

     (Sir Richard Mottram) I do not think I can go down that route. I will provide the advice, Chairman.

     Mr Rendel

201. We were talking earlier about the possibility of doing a survey of those who have written in previously, some of them had not claimed compensation. It struck me afterwards when we were discussing this further that there may be a number of other people who did not write in originally. They were not contacted by you among the 20,000 who are due compensation and maybe have been misled to some extent by the letters you have been sending them since into thinking the new scheme was instead of any compensation that they might have been given. I wonder if that is a serious possibility? It seems to me if I was a normal member of the public and I received a letter which said "We have decided that because we made a mistake which might have misled you, we are now going to introduce this new scheme instead and that will make up for the fact we made a mistake in the past" or that will give people the idea they were not due compensation, whether there is perhaps a case for at least surveying a number of those to see if that was the impression they got, that this new scheme was in place of any possible compensation and that is why so far I believe only 44 of those people have come back to you with claims, those who were contacted after March 2002.

     (Sir Richard Mottram) I can look at this, Chairman. I think it is quite difficult to establish some of these things without people thinking we are jogging their elbow to claim for something that they have not been disadvantaged by. People are always going to face the problem once Parliament has enacted ----

202. If they had not been disadvantaged they would not have been due the compensation. You were looking for people who had been disadvantaged. I suggest there must be quite a number who really have been disadvantaged or have not realised that they are eligible for compensation because they think that the new scheme is instead of that.

     (Sir Richard Mottram) Obviously we have said nothing overt that would imply that. In fact, we have said nothing that would imply that actually.

     Mr Field: Quite the opposite actually.

     Chairman

203. I think that is the end of your questions. Thank you very much, Sir Richard. Thank you very much, Ms Lomax, for coming to tell us about this problem. We were dealing with quite a narrow period of time, mainly that period after March 2001, and we are grateful for the explanations and no doubt will wish to make comments in the report. May I thank Ms Lomax particularly for coming this afternoon, we are very grateful to you for providing insight that we might otherwise not have got. May I wish you well in your new position as Deputy Governor of the Bank of England. The good news is that you will not have to appear before this Committee again.

     (Ms Lomax) If I have to come as the Permanent Secretary of the Department of Transport perhaps I will have to come as the Deputy Governor of the Bank of England. You reserve the right to pursue to the grave, do you not?

204. The bad news is that we have got the Bank of England in our eventual sights for the NAO.

(Sir Richard Mottram) Not before time I believe.

Chairman: Thank you very much.