[Relevant documents: Third Report from the Education and Skills Committee, Session 2001–02, on Individual Learning Accounts, HC 561-I, and the Government response thereto, HC 987; and Department for Education and Skills and Office for Standards in Education: Annual Report, 2002, Cm 5402.]

Motion made, and Question proposed,

That further resources, not exceeding £12,839,695,000, be authorised for use during the year ending on 31st March 2003, and that a further sum, not exceeding £13,409,689,000, be granted to Her Majesty out of the Consolidated Fund for the year ending on 31st March 2003 for expenditure by the Department for Education and Skills.—[Angela Smith.]

4:58 pm
Photo of Mr Barry Sheerman

Mr Barry Sheerman (Huddersfield, Labour/Co-operative)

It gives me great pleasure to introduce the debate on the third report of the Select Committee on Education and Skills entitled "Individual Learning Accounts". This is an important day, because it is the day on which the House approves the moneys to deliver education programmes and policies. We also have the opportunity to debate individual learning accounts, which were an innovative and exciting new project to deliver lifelong learning and training opportunities for those who had never had them and to change the culture of training and education in this country. Ironically, however, because the programme bent too far towards a lighter touch and towards not taking too bureaucratic an approach, it ran into severe difficulties. Only last October, my right hon. Friend the Secretary of State for Education and Skills announced that the programme would be halted for the time being.

The Select Committee report was published on 1 May and it was an attempt to do what Select Committees can do best. It tried to analyse what went wrong, point out and underline the strengths of the programme and—in a creative dialogue with the Department for Education and Skills—give pointers to how it could reintroduce a new programme that would not run into the difficulties that the first one faced.

I believe that there is a renaissance of the Select Committee system and I am delighted to be part of it. I was pleased to hear part of the debate on London Underground and to participate in this important debate on individual learning accounts. However, it is a great pity that both debates have been severely truncated by the long statement arranged by Government business managers. Those of us who are interested in education do not have many opportunities to debate it, and it is deplorable that the debate in Westminster Hall on the Science and Technology Committee report on the research assessment exercise is being held on the same day.

Many hon. Members want to speak so I shall rattle through my remarks. The members of the Select Committee worked hard on the report. We knew that we would have to produce a report as soon as the Secretary of State made her comments in October. The Department for Education and Skills wants teachers to have a baseline assessment and performance review. When we formed the new Committee, we decided that what was good enough for teachers was good enough for Ministers. We introduced the same system and interviewed all six Ministers so that we could make a proper evaluation of how they intend to deliver their policies and so on.

Ironically, we started with the Secretary of State, who was a few minutes late because she had been conferring with senior people in the Treasury about pulling the plug on the ILA programme. It is also ironic that by the time we completed our fast-track investigation into ILAs, on which the debate is based, two of the Ministers on whom we originally did baseline assessments and performance reviews had moved on after 11 and a half months in the Department. Indeed, the Minister who gave most of the evidence has moved back to the Treasury, in a sense from whence he came, and a new Minister has the job of responding.

I want to draw the House's attention to the amount of work that members of a Select Committee put in to ensuring that we have a thorough investigation. We take, listen to and sift through evidence, both oral and written, before producing a report. It is the role of a Select Committee not just to lambast but to scrutinise the Government. We should come up with new ideas and innovations, perhaps by thinking outside the box, that the Department might find useful.

I believe that our report is even-handed. It says that the programme went severely wrong, but it also commends it for being good and innovative. The programme allowed some interesting work to take place. It opened the door to skills and learning to people who had not had that opportunity for most of their lives and who had not accessed learning for a long time. We tried to strike a proper balance, which is what a Select Committee should do.

I want to emphasise two things. The Government did a thorough job in their recent comments on our report. They largely took it on board in a positive spirit. As Chairman of the Committee I appreciate that. However, I was also greatly disappointed, as I told the permanent secretary when he came before the Committee for his annual visit and interrogation only yesterday morning. There is such a thing in the House as a bush telegraph. We heard that an announcement on individual learning accounts mark 2 would be made very soon, before the summer recess. Unfortunately, we have now heard that that will not happen because of the ministerial changes, and that was confirmed by the permanent secretary. People who are waiting to have a crack at gaining new skills through the ILA will not get that opportunity for several months. It is almost a year since the Secretary of State came before the Committee and announced that the programme would be pulled in favour of individual learning accounts mark 2. It seemed to us as we took evidence that the approach by civil servants and Ministers was too leisurely. They said that it would take a long time to get ILAs right. I said that in a commercial organisation the lights would burn all night for many nights until a new programme was introduced.

Photo of Mr Andrew Turner

Mr Andrew Turner (Isle of Wight, Conservative)

The Chairman of the Select Committee refers to commercial organisations. Does he agree that it is not only the potential learners who suffer from the delay in introducing a new scheme, but also the many—and in particular, the small—learning providers?

Photo of Mr Barry Sheerman

Mr Barry Sheerman (Huddersfield, Labour/Co-operative)

I was about to come to that, and the hon. Gentleman is right.

In terms of being even-handed—and the report was unanimous—we went to the heart of the lessons that must be learned. The closing speeches in the last debate seem appropriate to our discussion, which also involves the relationship between a Department and a private sector partner. There are many forms of such partnerships and it is important to have the right one. The more we explored the relationship between the Department for Education and Skills and Capita in relation to individual learning accounts, the more we thought that that relationship was not right, and that there was something wrong with the contract. It seemed to us that here was a relationship with a major, well-known FTSE 100 company, with great experience in delivering services of this type. We looked beyond whatever went wrong with the wording of the contract. Sometimes we became rather irritated about commercial confidentiality; I am not sure that commercial confidentiality in these contracts was as important as was claimed. We said in our report that there should be a bit more transparency on what the deal was. Why should not the public know? It is their money. Why should we not have more knowledge?

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Mr David Chaytor (Bury North, Labour)

I am extremely glad that my hon. Friend has made that point, because it strikes me that whereas in the past few weeks we have been able to read in the financial pages of the major newspapers full details of the accounts of Enron, and more recently WorldCom, in minute detail, we cannot find out how much the Department has paid, out of public funding, to Capita, or what penalties have been incurred as a result of the failure to deliver the skills training.

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Mr Barry Sheerman (Huddersfield, Labour/Co-operative)

My hon. Friend makes a fair point, which needs no reply from me.

I was saying that, yes, we do criticise the Department for probably getting the relationship with Capita wrong. I thought that it was refreshing that the Department came back and said that we had been right—that in renegotiation of that contract it would hope to get, if Capita—

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Mr Jonathan R Shaw (Chatham and Aylesford, Labour)

Does my hon. Friend agree that one of the reasons why the relationship was not right may have been the pressure on time, as reported in the special internal audit review? That review says that the time pressures contributed to the problems experienced by the programme and that the Department was under severe pressure to deliver, leading to problems in setting up the contract with Capita?

Photo of Mr Barry Sheerman

Mr Barry Sheerman (Huddersfield, Labour/Co-operative)

There is a strong element of truth in that too; I believe that there were time pressures. However, we should also take into account the fact that the commitment to set up individual learning accounts was made in the Labour party's May 1997 election manifesto. The ILA experience developed over a very long time, and it is the responsibility in one sense of the Government and the Department that, when they decided that they had to get the programme up and running, they were under great pressure of time.

To finish my criticism of Capita, it seemed to me that the contract was not right for that major company. It seemed to the Committee that if one has a private sector partner, it should take a fair share of the risk, and it should be very clear that the private sector partner is taking a fair share of that risk; that should have been in the agreement.

Capita has great experience and knowledge across the piece and has entered into many contracts with the public sector—including, I admit, with the House of Commons and the Select Committees, because it handled some of our recruitment—and with various Government Departments, including the Department for Education and Skills. The company claims grandly that its delivery goes beyond the terms of the written agreement and beyond the written word. We were therefore surprised that Capita was not able to flag up at an early stage the problems that might occur in this type of programme, devised and constructed as it was, or to give early warning when things started to go wrong.

Some people were blowing whistles. Some were pointing out that the programme would be prone to abuse; they tended to be the little people—the small companies that were the training providers. They gave a lot of evidence to our Committee to the effect that they were worried about the laxness of the structure, and very soon after about the way in which it was operating. We have tried to ensure that our criticism of Capita is fair, and I believe that we all agreed that there were severe shortcomings on Capita's part. We also criticised the Government for not getting the contract right in the first place, but we wanted to go beyond that and say that there were lessons here for all Government Departments. We do hope that this knowledge will not remain in the Department for Education and Skills silo. Everyone should read about problems that can arise in relationships with the private sector.

My colleagues on both sides of the House know that I am not the sort of person who is averse to private sector partnerships. In fact, I believe that they are a very creative way to deliver policy and I have no qualms about that; but they must be right. They must be businesslike, and the people in the various Departments must know what they are doing when they are signing up. I believe that a reading of our recommendations will do all Departments good if they are about to embark on a relationship and a contract with a private sector partner, however complex. This contract was not rocket science; it was quite simple, and if it could go so wrong, it is no wonder that it is so difficult to get right very sophisticated contracts such as that discussed in the Chamber earlier. That is what our colleagues on the Transport Committee have argued as well. Let us use the experience creatively and learn the lessons.

We have criticised the Department, but we support the general principle of the light touch. There should not be so much bureaucracy that it prevents people having access to the programme and kills excitement and innovation. We said strongly that the criticism of events surrounding individual learning accounts should not force any Government Department, especially the Department for Education and Skills, to cease being innovative and flexible and exercising a lighter touch. Departments can still do that and take the precautions suggested by the Committee.

Our message to the Department is strong and clear: do not be deterred from being innovative and trying to avoid a vast bureaucracy every time a programme is introduced, but bear in mind the fact that there are people out there eager to learn and to get the skills for this century, who want to be more productive in their employment. They are waiting for the programme to come back, and it has been a long time a-coming. There are also, as Mr. Turner suggested, many small providers who have been hurt by the experience.

Without being too negative, I end on a note of warning. It is good to see my hon. Friend John Healey, who is now the Economic Secretary to the Treasury, with us. We got good value from him as a Minister in the Department for Education and Skills, in terms of his willingness to come back to the Committee time and again and to supply a great deal of information. We were very grateful for that.

I understand that the National Audit Office has almost completed its investigation. The ombudsman is also looking into the matter. We never argued that everybody who had been hurt by the cancellation of ILAs should receive compensation, but if the Government are to be true to their word, they should be honourable. They said that they would pull the plug on the programme on 7 December, but they pulled it three weeks early, on 23 November, and people were hurt by that process. We said clearly in our report that if the Government are honourable, the people hurt by that three-week change of mind, whatever the reason, should be compensated if they can prove—yes, if they can prove—that they were harmed financially by the change of date.

The Government replied that they could not give compensation across the piece. Of course they cannot. We do not expect the Government to give compensation for training that was geared up for but never delivered, but they can give compensation for a three-week period to providers who were geared up and able to supply the training, which was no longer paid for.

I shall not prolong my remarks, as I know that many other hon. Members wish to speak. I hope that people will read the report as an exemplar of a good Select Committee report and as reflecting the right relationship between a Department and a Select Committee. We achieved a balance between scrutinising a good programme that went wrong, and making sure that we drew the general lessons from the mistakes that occurred. That is what the House is about.

If there is to be a renaissance of interest in our debating Chamber and in what Parliament does, and if the Select Committees play their cards right and we do the job well, we can be at the heart of the regeneration of the life of Parliament. I know that all my fellow members of the Committee worked extremely hard on the report on a cross-party basis and are proud of it—and they have every right to be so. I am very proud to be their Chairman and I commend the report to the House.

5:20 pm
Photo of Mr Paul Holmes

Mr Paul Holmes (Chesterfield, Liberal Democrat)

As a member of the Select Committee on Education and Skills, I am pleased that the importance of the report has been recognised by our debating it on the Floor of the House. The permanent secretary at the DFES said only yesterday that the report was very accurate and very good. The Government's recently published response accepts a good many, although by no means all, of its findings and recommendations.

The report is an important illustration of the key role that Select Committees can play in scrutinising the Executive, even though they do not as yet have enough independence or resources to do the job properly. It is also worth noting that the former Minister for adult skills, now the Economic Secretary, and his departmental officials were, as Mr. Sheerman said, in the main refreshingly open and forthright in giving evidence to the Committee about what had gone wrong with the planning and delivery of the ILA scheme. It has to be said that that approach could be commended to other Departments, some of which are less willing to admit to their mistakes.

In principle, ILAs are an excellent scheme with wide support throughout the House and the country. Many reputable and capable training providers use them to deliver high-quality training to a very large number of learners. It is therefore all the more regrettable that the report had to be a damning account of what went wrong with their design and delivery at even the most basic levels.

First, the DFES devised a scheme that had absolutely no safeguards for the legitimacy or quality of those who were registered as training providers. It provided a cowboys' charter for the unscrupulous to rip off the taxpayer and the learner alike. All that people had to do was fill in one side of A4 with their name and address and details of the bank account to which taxpayers' money could be sent. That was it; there were no quality controls whatever and no prior registration or inspection system to ensure that a company was legitimate, or that it could deliver quality training with qualified trainers or provide quality distance learning materials. The scheme was a licence for the unscrupulous to print money.

DFES officials told us that they were trying to be innovative and to avoid bureaucracy to attract non-traditional learners and new learning providers. They certainly did that; by throwing the baby out with the bathwater, they created a scheme that soared past its 1 million user target in record time, but also exceeded its £201 million budget by 50 per cent. We will probably never know how much of that £300 million was lost to fraud and scams. The question also remains whether the main reason for the scheme's sudden closure was massive budget overrun, massive fraudulent abuse or a combination of both.

Secondly, Capita—a company that was supposedly expert in such work—failed to warn the DFES of the glaring scope for abuse in the scheme. It went on to run a scheme that was widely criticised by legitimate and experienced training providers because of its poor complaints system, a call centre that often could not cope with the volume of work and computer software systems with inadequate security built in. Capita, which was paid more than £50 million for the contract, boasts in its annual reports of its experience in handling Government and local government projects, including housing benefit schemes with complex systems designed to try to prevent fraudulent claims.

Not once, however, did Capita warn the Government that, although it could implement the scheme as the Government had devised it, there was no quality control on purported training providers, which left it wide open to abuse. Worse still, Capita went on to devise software that assumed that training providers were all genuine and which had inadequate safeguards. Mr. Simon Pilling of Capita told the Committee that

"an authorised learning provider with their authorised user ID and password could go on the system and draw out information from the system."

Mr. Paddy Doyle of Capita admitted to the Committee that it was "a very open scheme".

How far the fraudulent abuse went is unclear. York Consulting was given 1,500 account holders' numbers by Capita, which said that they belonged to people who had used their accounts. When York Consulting contacted those people, however, 27 per cent. of them said that they had not used them. That shows one of two things—staggering incompetence on the part of Capita, whose records were so inaccurate, or a level of fraud that if repeated across all users would amount to up to £65 million or more lost to the fraudulent plundering of accounts.

The Committee's evidence was damning on all those issues, but the Department's own internal investigations, which were published yesterday in response to the Committee's report, make equally damning reading. The special internal audit review said:

"The target to achieve one million ILAs by March 2002, meant that the ILA Team were under severe time pressure to establish a . . . contract with Capita . . . The time pressures contributed to the problems experienced by the programme . . . and were further exacerbated by the fact that some other key areas of ILA development and operation did not demonstrate consistently good practice. These included: . . . No business model was developed to help identify strengths and weaknesses in the policy options available as the programme was developed . . . No decision log was set up to record and track decisions made . . . Although a great deal of management information appears to have been collected by Capita, it was not provided to the Department in a sufficiently helpful format to indicate possible abuse of the system . . . or to provide the information for Ministers to decide upon action needed . . . Departmental guidance to learning providers did not clearly specify the requirements and expectations of the programme."

Cap Gemini Ernst & Young was asked to carry out a security report on the Department's and Capita's operation of the scheme. It says:

"The contract made no clear mandates or stipulations regarding the assessment of the security requirement or the ongoing security management."

It continues:

"No requirement was specified with regard to the determination of the security requirement, nor were existing Government guidelines regarding Security Risk Analysis followed."

It goes on:

"No structured mechanisms and procedures were established to identify promptly trends and patterns of access and usage of the system that might have indicated misuse."

It observes:

"No procedures were established to ensure that the requirements of the Security Policy were being adhered to."

It further comments:

"No procedures or plans were established for ongoing testing of the system".

It concludes:

"No procedures were established for the archiving of relevant log files for retrospective analysis."

So the reports go on—damning list after damning list of things that were not done by the Department or by Capita.

Thirdly, the Government mishandled the closure of the scheme. When the level of fraud and abuse eventually became evident, the scheme's sudden closure led to financial loss by legitimate training companies.

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Mr Andrew Turner (Isle of Wight, Conservative)

Before the hon. Gentleman moves on to the closure of the scheme, which was clearly a problem, he may be surprised to hear that in response to the Committee's recommendation—No. 30—that there should not be an automatic assumption that Capita should be the provider to take forward any new ILA scheme, the Government said:

"We are continuing to work closely with Capita"—

to wind down the scheme. I understand that, of course, but they go on to say:

"A successor scheme will be a major test for Capita".

That suggests that it has already been decided that those who failed last time will get a second chance, which the small private providers that have gone bankrupt will not get.

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Mr Paul Holmes (Chesterfield, Liberal Democrat)

I entirely agree with the hon. Gentleman about the effect on small providers and about the fact that the Government are ignoring the Committee's recommendation that Capita should not go on to run the second scheme. I shall return to that later.

As a result of the sudden closure of the scheme, legitimate training providers lost jobs and money, and some went bankrupt. Some companies are pursuing claims for compensation by various means and have complained to the ombudsman. A particularly legitimate claim for payment can be made by companies and further education colleges that continued to complete and deliver courses that learners had begun before the sudden closure of the scheme last November despite the fact that the DFES would not honour the ILA payments for those legitimate bodies to provide that training. On 30 November, seven days after the plug was pulled on the scheme, the Association of Colleges surveyed its members. Of the 105 colleges that replied, 84 expected to lose more than £1.25 million between them, because they were continuing to provide training to honour commitments that they had made to students, but the DFES would not provide the money for that training. Surely we can rely on further education colleges to provide the documentation to show that they have legitimate students, who receive legitimate training, and that the Government should therefore pay.

The Government wrote to all training providers—more than 9,000—and learners, to tell them that they had until 7 December until the scheme closed. They warned learners not to panic, and emphasised the date. However, they closed the scheme, with no notice, late in the afternoon of 23 November. Critical Skills, an excellent training company in my constituency, consequently lost out. It completes its accounts at the end of each month and therefore intended to send the paperwork to the Government at the end of November. That would have left it a clear week until the announced Government deadline. It could supply documentation, which I have seen and has been sent to the Government, to show that it provided legitimate training to more than 190 trainees. Yet the Government will not pay for it.

Many small training firms throughout Britain are in the same position. However, I understand that the Derbyshire learning and skills council stepped in to support the legitimate training that not only Critical Skills but other companies in Derbyshire provided but for which the Department for Education and Skills would not honour its commitment to pay. If Derbyshire learning and skills council can do that, why cannot the Government?

What happens next? There are many unanswered questions and I hope that the Minister can enlighten us about some when he replies to the debate. I shall begin with some well-worn questions. How many charges for fraud have the police made? How many convictions have been secured to date? Has anyone been charged over the famous disk of fraudulently obtained ILA numbers that led to the scheme's sudden closure on 23 November? Has any file been passed to the Crown Prosecution Service about the infamous disk?

When will the replacement scheme be introduced? Small training providers throughout the country await the start of a new scheme, but many are going under or bankrupt while they wait. How will the new scheme work? Will it be confined purely to information and communications training? Will it aim only at those below level 2?

Who will run the new scheme? That brings us back to the comments of Mr. Turner. The Select Committee recommended that it should not be Capita; its record in administering the ILA scheme was appalling and thoroughly documented by the Department's inquiry and the Select Committee report. However, do the Government remain bound by their previous ILA contract to work with Capita, despite its shortcomings? I look forward to the Minister's answers.

5:32 pm
Photo of Mr Jeff Ennis

Mr Jeff Ennis (Barnsley East and Mexborough, Labour)

I am grateful for the opportunity to participate in an important debate on the report of the Select Committee on Education and Skills on individual learning accounts. I associate myself with the remarks of the Committee Chairman, my hon. Friend Mr. Sheerman, and Paul Holmes.

I am one of the 11 Select Committee members, who all fully support the objectives that ILAs set out to achieve when they were introduced. They were designed to open up the learning market and to place as few restrictions as possible on what people chose to learn.

The objectives included attracting new learners and providers and the programme was therefore designed to be simple and flexible for both categories, with the minimum of form filling. The ILAs fulfilled the objectives by attracting more than 2.5 million people to become account holders, and almost 9,000 training providers signed up to train through the scheme.

The concept of ILAs is especially important in constituencies such as mine, which has some of the greatest deprivation in the country. We have the lowest GDP per capita—62 per cent. of the European average—of any United Kingdom constituency. No wonder south Yorkshire is one of the three objective 1 areas in the country. We have low staying-on rates at schools, and low academic achievement. Both are a direct consequence of the heavy mining and engineering industries in constituencies such as Barnsley, East and Mexborough. We also have many adults with numeracy and literacy problems. The provision of some type of ILA scheme as part of an effective lifelong learning strategy is integral to the successful regeneration of former coal mining areas such as South Yorkshire, so it is vital that we get a successor scheme off the ground as soon as it is practicably possible to do so.

The report highlights in great detail serious failings by the Department for Education and Skills in preparing and running the old ILA scheme. It also severely criticises Capita, the Department's private sector contractor, for various shortcomings in its delivery of the scheme. Time is short, so I do not intend to go into great detail about how all this happened: it is all in the report. Instead of focusing on the flaws and weaknesses of the old ILA scheme, it is more important for us to focus on what needs to be incorporated into the successor scheme, and it goes without saying that that scheme needs to be introduced as soon as it is practical to do so.

One of the key lessons to be learned is that quality assurance must be a prerequisite for the successor ILA. After taking many statements in evidence from witnesses, the Select Committee recommended that the Learning and Skills Council should take the lead on accreditation, implementing a fast-track registration process for providers with a proven track record of delivering quality training.

With hindsight, it seems a pity that the Learning and Skills Council's involvement in accreditation was not incorporated into the original ILA scheme, because there is no doubt that, as far as the National Institute of Adult Continuing Education is concerned, there was little or no evidence of abuse of ILAs when they were first piloted by the old training and enterprise councils. I accept, however, that the 47 local learning and skills councils are still bedding in—having followed on from the TECs—and the Department will still need to be vigilant to ensure that each of them performs effectively.

One difficult issue in the report that will require significant attention has already been flagged up: the so-called dead weight factor. I know that my hon. Friend the Member for Huddersfield, the Chairman of the Select Committee, hates that expression, so I apologise to him immediately for using it. We are talking about the number of people who would have done their training irrespective of qualifying for an ILA. A figure of some 44 per cent. is widely quoted in the report.

I am not certain how accurate that figure is, however. Given that 57 per cent. of the working-age population in England are educated only to level 2, and that 24 per cent. of adults experience difficulty with either literacy or numeracy skills, that figure appears exceptionally high. This is the client group that the new ILA should specifically target, particularly as it is people such as these who are the least likely to be offered training in the work place, and the least likely to pursue learning opportunities at home or in their local community.

Given this background, I believe that the recommendation in paragraph 73 in the report is crucial, and should form the basis for the successor scheme. Because I consider it very important, I should like to read it out for the benefit of the House. It states:

"We recommend that any successor scheme to the ILA should be focused on adults whose highest level of qualification is at level 2 or below and that particular efforts should be made to promote the scheme through employers, trade unions, community groups, approved training providers, schools and colleges."

I am delighted that the Government's response to that recommendation has been to include it in the remedial measures section of their response document, which states:

"We recommend that the successes of trusted intermediaries, such as trade union learning representatives, should be taken fully into account in designing an ILA successor scheme".

Indeed, the Government's response highlights the fact that ILA community group projects attracted people who had never heard of ILAs. Two thirds of the people who came to ILAs through the ILA community group route had never heard of them before. They also encouraged more participation by ethnic minority groups—14 per cent., as opposed to 5 per cent. nationally.

ILA community group projects also attracted a larger percentage of people with no qualifications—22 per cent., compared with 16 per cent. nationally—and 73 per cent. of people said they would not have been able to fund their learning without ILAs. Only 50 per cent. said the same about other types of provision.

Evaluation of accounts opened through the union learning fund showed that 79 per cent. related to the groups least likely to participate in learning. A project in Leicester and Lincolnshire, using small firms to promote ILA take-up, was also very successful. Such initiatives are crucial. They must become more widespread if we are to target the successor ILA more successfully to appropriate client groups and non-traditional learners.

As the hon. Member for Chesterfield pointed out, the Government are still at variance with the Select Committee on the important and difficult issue of compensation for learning providers. Paragraph 127 of the Committee's report recommends

"that the Department should at least re-imburse those bona fide learning providers who can demonstrate that they have been financially disadvantaged by the accelerated date of closure".

The Department brought forward the date by two or three weeks—I know this—after taking police advice.

The Select Committee fully appreciates the reasons why the decision was taken—the police advice aspect—and knows that, in the legal sense, the Government do not have to compensate the learning providers who have been affected. I believe, however—and I think the Committee believes—that in a moral context they should reconsider the decision.

It should be recognised that the ILA scheme was successful not just in attracting new learners, but in attracting new learning providers. Many provided courses that were out of the ordinary, some of which were both innovative and imaginative. We need to ensure that the new innovative training providers are encouraged to participate in the new ILA scheme. Some have had their fingers badly burned, while some have gone out of business.

I believe that all training providers would see it as an act of good faith if the Government changed their mind. The Select Committee is talking about compensation only for bona fide providers who can prove genuine financial hardship.

The Government have made clear their firm intention to introduce a new ILA programme, possibly in the autumn. Many Select Committee members may think that that is not soon enough, as the Chairman suggested. But we must all learn the lessons of the collapse of the original scheme. It takes time to get things right, but we must get them right this time. We must build on the many strengths of the original scheme for the benefit of all potential learners in our communities. We must again make the ILA a Government flagship that is an integral part of an effective lifelong learning strategy for the country. 5.43 pm

Photo of Mr Richard Bacon

Mr Richard Bacon (South Norfolk, Conservative)

It is a pleasure to follow Jeff Ennis. I agreed with just about everything he said.

I congratulate Mr. Sheerman and his colleagues on a sensationally good report, produced at amazing speed. I am not a member of the Select Committee on Education and Skills, although as a member of the Public Accounts Committee I sat in on some of its hearings, which I considered to be a model for the way in which other Select Committees should do their work.

The report contains much that is worth mentioning, but I do not want to take up too much of the House's time. Let me just quote a couple of quick headlines. According to page 14,

"It should have been possible to design a scheme to encourage new providers that was not wide open to fraud or abuse by unscrupulous people posing as learning providers, but the lack of quality assurance made it almost inevitable that it would be abused."

The most extraordinary thing perhaps is that there were timely warnings. Perhaps most famously, Mr. James O'Brien of Pitman Training Group gave a warning on 20 September 2000. In criticising the lack of detail in a letter to the Secretary of State, he said:

"As a responsible training provider we were worried that this lack of detail left the scheme open to abuse, which would not be helpful to either the initiative itself, or the majority of the training sector."

The report makes it clear that it was not clear who was responsible. Paragraph 154 says:

"It is not clear who was responsible for delivering the specific outcomes of the ILA project. There does appear to have been some confusion of responsibilities."

Paragraph 169 states that the objectives were not clear:

"We are not convinced that the Government had adequately clarified the precise educational and social objectives of the ILA scheme . . . With a target fixed in terms of the number of accounts . . . it was clear that the delivery mechanism had become confused with the educational objective."

I refer briefly to the role of Capita, as other hon. Members have done. The report says on page 16:

"Surprisingly, the potential expertise of Capita in designing systems to be fraud-resistant was neither called upon, nor offered."

Later, paragraph 97 states:

"We find it hard to credit that Capita, a major player in winning contracts for work contracted out to the private sector, should not have pointed out that, without a quality threshold for providers, the ILA was a disaster waiting to happen."

Capita is a major player in a variety of aspects to do with public administration. It provides advice and services to over 120 local authorities. It collects £1 billion in council tax and business rates. It administrates the teacher superannuation scheme, which has 1.2 million teachers and 400,000 teacher pensioners. It seems that there may be a role for the National Audit Office, in addition to the report to which Mr. Sheerman referred, in doing a study specifically on Capita and its relationship with the public sector, both at local and central Government levels.

As a member of the PAC, I am particularly concerned about the management, or rather the lack of management, of financial resources. I say in passing that the former Minister with responsibility for adult skills, who is now Economic Secretary to the Treasury, has been helpful to me personally and I am sure to other hon. Members in keeping me informed of progress, although there has not been as much as one would have liked. One of the most shocking things that I heard was in the evidence presented on 28 November last year, which is not in the report, but which I have a transcript of from the internet. Jonathan Shaw was probing the then Minister and not getting very far. The Chairman intervened and said:

"Minister, what you are being asked by"

the hon. Member for Chatham and Aylesford is

"surely there must have been an estimate of how much this would cost year on year, an estimate. He is just asking what sort of level of overshoot is there . . . What are the ballpark figures you are knocking around the Department on this?"

The then Minister replied:

"At the moment because of the uncertain number of individual learning account discount payments we are going to have to pay we simply cannot give you a sense, even a ballpark I regret to say, of what the possible overspends are going to be."

So there was no control of cash whatever. There was no control of information technology.

The Audit Commission report of February 1998 entitled, "Ghost in the Machine" says on the front page:

"The overall position shows little improvement . . . Frauds or cases of IT abuse often occur because of the absence of basic controls, with one-half of all detected frauds found by accident. Senior management still appears to lack a commitment to improving IT security and cracking down on abuse."

Why did no one in the Department for Education and Skills take notice of that?

In relation to basic project management and financial control, again, a very good report was published by the Cabinet Office in August 1994. On page 60, at paragraph 4.42, it says;

"A project plan is agreed to identify who does what and ensure different contributions are brought together effectively. It will set strict timetables, identify interim deliverables . . . establish clear performance measures . . . There will also be tight financial control throughout, with expenditure closely monitored."

That was eight years ago. Those are not new ideas; they are obvious, common-sense ideas, which many people who work hard to pay the tax that the Government sometimes waste would be able to come up with without too much difficulty. It is not surprising, therefore, that page 11 of the report reached the following conclusion:

"We regard the failure of the Department for Education and Skills to learn from mistakes made in the past by its predecessors and other Government Departments to be one of the most disturbing aspects of the ILA experience."

I conclude by referring to the hugely important role of the accounting officer. If permanent secretaries of Departments, who are accounting officers, are not happy with the steps that Ministers propose to take, specific provision is made within British Government to enable them to flag up that fact. A document published by the Treasury in 2001, entitled "The Responsibilities of an Accounting Officer", establishes that, if a course of action is being followed that a permanent secretary is unhappy with, he can require the Minister to issue a ministerial direction, if the Minister chooses to override the advice given. Paragraph 15 of the document states:

"If the Minister in charge of the department is contemplating a course of action involving a transaction which as Accounting Officer you consider would infringe the requirements of propriety or regularity . . . you should set out in writing your objection to the proposal, the reasons for your objection and your duty to notify the Comptroller and Auditor General . . . If the Minister decides nonetheless to proceed, you should seek a written instruction to take the action in question. Having received such an instruction, you must comply . . . but should then inform the Treasury"

and the National Audit Office. If that has been done,

"the PAC can be expected to recognise that the Accounting Officer bears no personal responsibility for the transaction."

For a project with at best confused policy objectives, and which was not properly planned or implemented, one might have thought that a very good case existed for seeking direction. I tabled a parliamentary question, asking what directions had been given since 1997. The answer was that 14 were given: one by the Department of Trade and Industry, one by the Northern Ireland Court Service, one by the former Department for Transport, Local Government and the Regions, three by the Export Credits Guarantee Department, three by the Ministry of Defence, and—to no one's surprise—five by the former Department of Social Security. However, from the Department for Education and Skills there was a deafening silence. The scheme ended up sticking a fire hose out of a window and spraying taxpayers' money over anyone who happened to walk by.

All hon. Members will agree that the saddest thing is that this was such a good and noble idea. During the 1988 Democratic national convention, Jesse Jackson said:

"I was born in the slum, but the slum was not born in me. And it wasn't born in you, and you can make it."

That should have been the message of this programme, but what kind of message is sent by its absence for nearly a year? The message is, "I was born in the slum, but I'll remain in the slum and I cannot make it because the people who should know better—the people who are paid to know better—cannot put in place basic project management, basic information technology security and basic financial controls." That is the sad saga.

I hope that the Minister will talk about when the new scheme will be introduced to help the people who need it most. I agree that it should be directed towards low achievers, in accordance with paragraph 73. We need some specifics. The Minister needs to tell us not only when the new scheme will be introduced, but how much money has been spent in total, and how much of that was fraud. He also needs to tell us about compensation for providers. People who trusted the Government and took them at their word have gone bankrupt, and have had to sell their houses. It is not enough for Ministers simply to say, "I'm sorry, but it's not our responsibility." There is evidence on the record from departmental civil servants that the attempt was made to create a market and expand the number of providers. That places a moral responsibility on the Department to help providers who got into trouble.

The Minister should also say sorry, and if he does all of the things that I asked him to do, he will earn the respect of the House. [Interruption.] He looks as if he is about to intervene. He leaned forward with great eagerness, and I shall listen to his reply with equal eagerness.

5:54 pm
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Mrs Valerie Davey (Bristol West, Labour)

As a member of the Education and Skills Committee, I am pleased to contribute to the debate and I hope that it will mark some progress. Let us remember that much was achieved by the ILA scheme. Thousands of people benefited from it and they look to continue to benefit in the future. The Committee's report and the response from the Department will, I trust, take us a step forward. I hope that the debate is also a step towards the launch of the new scheme and that the Minister will be able to tell us when that might be.

I shall comment briefly on the Government's response to our report. That response can be summarised in two words—contrition and commitment. It was clearly recognised early on that we need to strengthen the quality checks on the learning providers and to tighten security. The Committee recognised that the balancing of wider access for learners with less bureaucracy and a wide range of new training providers was always going to involve an element of risk.

It was in part the failure to evaluate the risk that was the fault and that has led us to the current problem. The Government's response states:

"We are . . . reviewing our risk assessment strategy to ensure that the risks of fraud are fully considered across all of the Department's activities."

That is reassuring in one way, but those words follow a long list of groups that have sought to evaluate risk and try to prevent fraud, in the Department for Education and Skills and in other Departments. Those groups include the fraud response liaison group, which is chaired by officials from the Department for Education and Skills and involves officials from many other Departments. It was set up in 1997 and has met quarterly. The Treasury-led special investigation group was set up last year. The better governance and counter fraud group is chaired by a member of the Chartered Institute of Public Finance and Accountancy and it disseminates best practice on risk management, especially relating to fraud. All those groups are operating, and now we expect a departmental internal audit unit that will work closely with the development for the successor scheme, to ensure that the lessons learned from the ILA programme are addressed.

Given all those different groups, my concern is to ensure joined-up thinking not only for the Department for Education and Skills, but more widely across Government. We must ensure the learning of lessons between Departments. I am pleased to follow Mr. Bacon who clearly recognises the importance of that work. I trust that the Opposition have some constructive suggestions and will not only describe the faults of the past. It is their job as well as ours to ensure that lessons are learned and the outcome is positive.

The element of contrition in the response makes it clear that registration for learning providers will be strengthened. The complaints procedure will be more effective and random checks will be made on providers. Those who abuse the scheme will lose their registration. Quality assurance will be more rigorous and financial controls will be stronger. That is great and it is all necessary. However, like other hon. Members, I am disappointed that the Department still seems to have sufficient confidence in the work of Capita to continue to work with it.

From the Government's response to the Education and Skills Committee, it is clear that Capita's ILA centre allowed access by registered learning providers to information that they were not authorised to receive. We need stronger security measures. The faults in the complaints system were clear. However, despite its faults, the Government and Capita took action in response to complaints, and the response lists the events that took place.

Thirdly, on risk management, the report states that the Department should have had a clearer agreement with Capita about the risks, their significance and how they should have been managed. The faults with the Capita programme were recognised, but the Government say that they are continuing to work with Capita in winding down the ILA programme. That is understandable, as has been remarked, but in their response the Government say that they and Capita gained a great deal of experience from running ILAs. We must ensure that that good experience is used in the future.

Finally, the Government state:

"We have agreed, in principle, to work with Capita in developing arrangements for a successor scheme . . . subject to satisfactory progress."

The ILA scheme was about innovation, and it was designed to draw new people into further education. It was about quality for the future. The report expresses clear doubts, which I share, about whether the Government should automatically continue their work with Capita, given past experience. However, the Government appear to disagree with that assessment. I hope that the Under-Secretary of State for Education and Skills, my hon. Friend Mr. Lewis, will reassure the House that there has been greater scrutiny of Capita's work, and that alternative companies have been considered.

However, there are positive elements in the Select Committee report, which the Government have accepted and which will lead to an enhanced scheme in the future. One of those elements—the use of trusted intermediaries and the monitoring of group provision—was mentioned earlier, but I wish to revisit it.

For me, one of the most poignant moments in the exercise occurred when we met some members of the Union of Shop Distributive and Allied Workers who worked for a large company in the north of England. On a visit to Parliament to lobby hon. Members' they told us about what ILAs meant to them. The USDAW education officer said that the company employed between 800 and 900 people but that, before the ILA scheme was introduced, she had struggled to get as many as two or three into adult education classes at a local college.

The trade union officer said that the employer granted the use of company space for ILA participants. The scheme caused it to work together with the local education authority, a local college, and 300 employees entering further education for the first time. She told us about a man in his 40s with a severe sight impairment who had never expected to do anything other than cleaning in that company. The ILA scheme meant measures were taken to help him with his defective sight, with the result that he was able to take a computer course. The man had already applied for a more senior post in the company.

That is what ILAs do, and the effect has been replicated in work place centres up and down the country. The example that I have given shows what intermediaries such as the trade unions and others can achieve. I am delighted that the Government are looking to that good practice for the future.

I am delighted too that the Government have recognised that ILAs need to be taken forward with support from the learning and skills councils. My hon. Friend the Member for Wakefield and Mexborough—

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Mrs Valerie Davey (Bristol West, Labour)

I apologise to my hon. Friend. However, I am afraid that I have now lost the thread of my argument.

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Mrs Valerie Davey (Bristol West, Labour)

That would help me—it is very gracious of the hon. Gentleman.

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Mr Boris Johnson (Henley, Conservative)

The hon. Lady has given examples of the ways in which the Government could show contrition over this sorry affair. Does she also feel that they might show their contrition by compensating those very many learning providers who entered into commercial arrangements on the expectation that the scheme would keep going, then found it violently terminated, found themselves out of pocket and are now facing the loss of their homes and other severe financial embarrassments as a result? Does she not believe that the Government's contrition should extend to compensation for the ILA providers which have been done down by this collapse?

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Mrs Valerie Davey (Bristol West, Labour)

The Committee has made its view quite clear. If evidence can be supplied that people suffered in the gap of three weeks before the scheme actually came to an end, the Committee agreed that the Government should give their situation further consideration, and I agree with that position.

The future role of the learning and skills councils is important. Their understanding of quality trainers and the way in which they can ensure that they are fast-tracked into any new scheme is an important element. That also applies to further education colleges and new providers who come forward, provided that their track record and past quality of work can be clearly demonstrated.

I wish the Department well in taking on the breadth of experience that it has at its disposal. I trust that there will be, in the short term, a statement on the relaunch of the scheme and that it goes ahead with all the blessings of this House and the hard work of many in the country who also want to see it succeed.

6:07 pm
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Mr Hugo Swire (East Devon, Conservative)

I am most grateful to have the opportunity to speak in this debate. I am not a member of the Select Committee, but I congratulate Mr. Sheerman on an excellent report. I also congratulate my hon. Friend Mr. Bacon on an extremely good speech; I agreed with almost everything that he said.

I corresponded on a number of occasions with the Minister's predecessor about an ILA provider in my constituency, the Open College for Distance Learning, which was forced into receivership on 23 March this year. The company owed more than £120,000, and although much of that was owed to the Inland Revenue, a significant amount was owed to local companies—office suppliers, accountants, local newspapers which had taken the advertising, the landlord of their office premises, and so forth. Ironically, the company was—and still is—owed approximately £140,000 from ILA schemes in England and Wales, if they had been operated properly. Incidentally, I am not sure why Education and Learning Wales, which always maintained that there was no fraud in Wales, closed its scheme, but no doubt the Minister will enlighten us.

The Open College for Distance Learning had 786 students who were enrolled before the schemes were scrapped. Of those, 100 had had their ILA accounts raided by the fraudsters, and the remaining 686 never received their membership numbers before the deadline was brought forward to 23 November because Capita was too slow. In other words, a perfectly good company has been brought to its knees through no fault of its own because of a combination of fraud and incompetence. Who is taking responsibility? After this afternoon's speeches, I am no wiser. Where does the buck stop? What plans, if any, does the Minister have to resolve this case, of which his Department has knowledge, in a way that will allow the Open College for Distance Learning to be brought out of receivership and to pay off its creditors?

East Devon—particularly Exmouth, in which the company operated—is not an area with a lot of big businesses, and the company was becoming a significant local player. Formed in April 2001, it achieved a gross turnover of £782,422 in its first financial year. In April 2001, it enrolled 166 people, and that figure increased every month until October, when the scheme was shut down without warning. The founders told me that they first heard about the closure on the 5 o'clock news.

The founders of the college, Mr. Simon Hall and Mr. Andrew Demetre, ran a good company. They employed qualified, experienced tutors and kept accurate records of their students' progress and achievements. They did that not least because they expected to be audited and inspected by the ILA scheme operators.

Who is the winner from this fiasco? It is not the local creditors or, indeed, the Inland Revenue—we have already established that. It is not the 93 people made redundant by the company, many of whom are struggling to find employment six months later. It is not the taxpayer—the company received more than £500,000 of taxpayers' money. It is not the 3,000 people who lost their money.

Almost 119,000 people registered for individual learning accounts in the south-west. The great majority of those who registered at the Open College for Distance Learning were aged between 25 and 35—just too old to have been taught IT skills in depth at school.

In a written reply, the former Under-Secretary for Education and Skills, now the Economic Secretary to the Treasury, stated:

"We are developing future plans for a successor ILA-style scheme which build on the successful elements of the ILA programme."—[Hansard, 17 December 2001; Vol. 377, c. 57W.]

As my hon. Friend Mr. Turner pointed out, that repeated promise has had a negative effect on genuine providers; people are waiting to register in the expectation that, at any moment, their training will be provided free.

Companies still struggling to operate in the sector continue to lose. As we have heard this afternoon, there is still no successor, so we have ended up with the worst of all worlds.

I understand that ILAs were originally a Liberal Democrat brain-wave, but a Labour Government implemented them and must take responsibility for the fiasco. There has been an almost unique combination of incompetence and inaction in which everyone is the loser.

The Select Committee's excellent report repeated the points made at paragraph 127 again in paragraph 25 of its conclusions and recommendations. I, too, believe that the Government should be proactive in offering compensation to the companies and people who entered into arrangements in good faith. I urge the Government to address that matter. As we all know, ILA is dead, so before continuity ILA is born—before the Government embark on a new scheme—the Minister, the Government and all those responsible should give some hope to the people who have lost their livelihood and their companies. There is not much to hope for in the Government's reply to date.

6:13 pm
Photo of Mr Jonathan R Shaw

Mr Jonathan R Shaw (Chatham and Aylesford, Labour)

I am grateful for the opportunity to make a contribution to the debate. I begin by referring to the former Under-Secretary of State for Education and Skills, now the Economic Secretary to the Treasury, my hon. Friend John Healey. Perhaps, last June, when my hon. Friend received the call from Downing street summoning him to see the Prime Minister, he did not know that ILAs were reaching boiling point. I do not know whether the Prime Minister said, "Look John, we've got the ILAs, they're a good idea and they are popular, but we think they might go belly up and you'll be in the firing line". My hon. Friend has left the Chamber, so we shall probably never know.

I pay tribute to my hon. Friend, however. He continually came to the Committee, providing us with all the detail that we wanted. He went beyond what one might reasonably expect of a Minister and a Department in the provision of the information that we needed to complete our inquiry. Now that he is at the Treasury, I am sure that he is forging a good relationship with the Under-Secretary of State for Education and Skills, my hon. Friend Mr. Lewis—I am pleased to see him on the Front Bench.

I am sure that when the new ILA scheme is introduced, my hon. Friend the Economic Secretary will ensure that there are no overspends, as occurred in the past. However, he did a good job, and it should be recognised that it was not an easy thing to confront as a new Minister, which is to his credit.

We need a new ILA, and we look forward to hearing from the Minister about when that is likely to happen. My hon. Friend Valerie Davey gave an excellent example in referring to the trade unions. The Select Committee on Education and Skills has been provided with example after example of people who were not learning and who had the opportunity to learn. The system opened up the market for people to be entrepreneurial and to provide a new way to learn to meet the demands of modern living.

Regrettably, the safeguards were inadequate, as we all know. That is why we are in the current position, and it is why the Select Committee needed to undertake the inquiry. I pay tribute to its Chairman, my hon. Friend Mr. Sheerman, who steered us through this fast-track inquiry. [Interruption.] Does my hon. Friend want to intervene?

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Mr Jonathan R Shaw (Chatham and Aylesford, Labour)

There were early warnings. Not just the Department for Education and Skills, but all Departments have to take account of the reports that are written. Mr. Bacon referred to a plethora of reports. He made a very good speech. He has clearly done a great deal of research on the many reports that have flagged up the dangers. If reports are written for Ministers and senior civil servants but no one looks at them, we will find ourselves in a similar position again.

The warnings in the report need to be heeded not only in the Department for Education and Skills, but right across the Government. Information technology provides us with enormous opportunities to learn, but it also provides enormous opportunities for crooks. As the pace of technological change increases, we have to keep account of the likelihood of fraud. One of the Department's own civil servants, Mr. Hall from the Learning and Skills Council, told the Select Committee that he had warned the Department as early as June 2000 that the safeguards in the proposed system were inadequate.

The Government responded by saying in paragraph 10 on page 11 that they did not want an over-bureaucratic system with lots of red tape. Of course such an approach is right, but simply saying that is not good enough. The infrastructure was in place, with the Learning and Skills Council and other agencies, to give accreditation. Too often, we heard about scams involving CDs and cold calling, and the complaints system was inadequate not just for ILA holders. If someone knocks at the door and says, "This is a CD to learn to type and the Government are paying for it", the person who answers might say, "Well, I've never heard of ILAs, but that's very nice. I'll sign up. Thank you very much." Why would anyone complain if they did not know?

There was no proper complaints system for the good providers who were angry about being ripped off by cowboys, as Paul Holmes said, but they were infuriated when neither Capita nor the Government listened to them. That shows the quality of the complaints system.

There was also fraud, and we have heard how people could gain access to accounts. When Mr. Turner questioned Paddy Doyle, Capita's group board director, about one of his constituents whose account had clearly been opened fraudulently—she had not signed any piece of paper to say that she wanted to open an account—Mr. Doyle said:

"We know that has happened and we know that there are instances of that happening. It is how it happened and there are actually different ways that it could have happened and that is what I cannot answer. I am not disputing the fact that it is has happened."

One thing that we can certainly conclude from that is that it happened.

Inadequate safeguards were in place. That has been borne out by the Cap Gemini Ernst & Young report and by the internal audit. There are lessons not just for the Department for Education and Skills but for all Departments. As a consequence, the Government and Capita have had a tendency to blame one another. That is perhaps a manifestation of a problem—when one is in a bind, one starts to look around for people to blame. Both the Government and Capita are at fault, as has been acknowledged.

As for the future, the Government are committed to learning—not just through the individual learning account system but through a whole range of different opportunities for people who have not accessed learning before and who can now take advantage of the many different schemes available. The ILA concept is a good one, but appropriate accreditation is needed. We need to use the infrastructure that is available, and, most importantly, we need to reward those who target groups who have not traditionally accessed learning. The ILA has had some success in targeting those groups, but the majority of people who were taking advantage of individual learning accounts had accessed learning before. That needs to be a priority. In response to the report, I hope that, when we see the new scheme, adequate measures will be in place to encourage learning providers to target that group.

It has been a pleasure to take part in the inquiry. I hope that we have made an important contribution.

6:22 pm
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Mr John Baron (Billericay, Conservative)

I am grateful to be called to speak in this important debate. It is a pleasure to follow the thoughtful contribution of Jonathan Shaw. I concur with others in paying tribute to Mr. Sheerman for his incisive, professional and objective chairmanship of the Committee that led directly to this report.

As a member of the Education and Skills Committee, I welcome this opportunity to address a particularly important aspect of the affair on which other Members have touched—the failure of the Government to compensate learning providers for the accelerated closure of the scheme and the implications thereof. As a Committee, we deliberated long and hard on this issue. We reached the following conclusion:

"We recommend that the Department should at least reimburse those bona fide learning providers who can demonstrate that they have been financially disadvantaged by the accelerated date of closure of the scheme."

We felt that it is was wrong for a Government simply to turn their back on the large number of learning providers who had invested in good faith in a Government-inspired programme but who now faced financial loss, and, in some cases, ruin, as a result of mistakes made by the Government. It is wrong for a number of reasons.

First, an agreement existed between the Government and learning providers that, in my view, introduced reciprocal obligations between its signatories. Meanwhile, it is wrong because it is unfair. The Government and Capita can move on with minimal adverse effects—the then Minister even admitted that Capita was still in the running for major new contracts. The little people in this affair, however—the learning providers and the individual learning account holders—have suffered through no fault of their own. If there is any doubt about whose fault this debacle was, it may be worth briefly highlighting the twists and turns, especially towards the end of this unfortunate affair.

On 24 October, the Secretary of State for Education and Skills announced the suspension of the £200 million ILA programme from 7 December 2001. She said that the programme

"has exceeded the government's expectations in encouraging very large numbers of people . . . and has quickly expanded beyond its capacity."

However, on 23 November, another press release suddenly announced the immediate closure of ILAs two weeks earlier than planned. No notice was given. Training providers were neither consulted nor warned.

Even now we do not know whether the decision was taken because of fraud or because the scheme was so popular and over budget that the Government pulled the plug. However, as the report clearly states, the Select Committee is sure that Capita and the Department for Education and Skills were equally to blame for the fiasco.

The little people have suffered. For example, Roger Tuckett of Henley Community Online estimated that the closure of the ILA scheme would result in 2,000 to 5,000 job losses. Mr. James O'Brien of Pitman Training Group plc and the Association of Computer Trainers told the Committee that up to 5,000 people could be squeezed out from IT training centres. He stressed that the most important thing was that

"the government had set a legitimate expectation for individuals to be able to access that learning up until the 7th December and they should honour that commitment."

The National Extension College was

"dismayed at the lack of notice over the ending of the scheme".

In addition, as Paul Holmes has already pointed out, a survey of 84 colleges found that they expected to suffer a loss of income amounting to more than £1.2 million as a result of the early closure of the scheme. The loss of that money will be deeply felt by the colleges in question,

There are many more examples of losses being incurred by learning providers. However, despite all the evidence, the Government refuse to compensate learning providers. The Government's argument is that there was no contract between the Department and learning providers, and hence that they are not obliged to compensate the providers. They are splitting legal hairs so that they can run away from their obligations. There may have been no contract, but there certainly was an agreement between the Department and learning providers, and that agreement introduced reciprocal obligations between the signatories.

The Government should honour their obligations to individuals and to organisations, particularly as they unexpectedly accelerated the closure of the scheme. Many learning providers who entered the agreement in good faith must now wonder whether they can afford again to take the Government at their word. As the Committee report put it:

"Many of the smaller and more innovative providers may be unwilling to risk entry into a second ILA scheme without a contractual arrangement with the Department."

Mrs. Sammy Betson of Ipswich ITeC summed the problem up very well. She told the Committee that her cash flow had taken a serious knock and added:

"The question of whether or not we would participate in a future scheme is whether we have a spoon long enough."

The Government's unwillingness to compensate learning providers for the early closure of the scheme in the two weeks in question is wrong for a number of reasons. It is wrong because there was an agreement that involved obligations on all the parties concerned. It is wrong because the decision is unfair. The Government and Capita can move on, but many small learning providers, who face financial loss and in some cases ruin, cannot. It is also wrong because learning providers will think twice before participating in any successor scheme. The parliamentary ombudsman is investigating several individual complaints and we await the findings with interest.

It is great shame that this good initiative has been so badly handled by the Government. What makes it worse is that they refuse to honour their obligations by compensating those learning providers who have suffered financial loss as a result of the accelerated closure of the scheme. It is a very high-handed approach, and some would suggest even an arrogant one. The Government must not underestimate the importance of trust in these matters. At present, very many learning providers, who will be essential to the success of any successor scheme, believe that they cannot trust the Government. I therefore ask the Government, even at this late stage, to reconsider their position and to honour their commitment to learning providers.

6:30 pm
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Mr David Chaytor (Bury North, Labour)

I want to focus on the Government's response to the Committee report which was published a few days ago. Other hon. Members dealt effectively with the criticisms contained in the original Committee report.

A couple of points of detail have not been raised. First, paragraph 24 of the Government's response contains an error. It is entitled "Remedial measures". It seems that there has been a transcription error because of a mistake in the title of the corresponding paragraph in the Committee report which no one spotted. The title should be "Intermediaries".

Secondly, there is an ambiguity in the Government's response. On the one hand, the response was good. It dealt point by point with the recommendations and conclusions of the original report, in contrast to some previous responses to our reports which were, to be kind, generalised. On the other, however, although the response was detailed and specific it did not deal with the full horrors of the situation.

Paragraph 5 of the response refers to the cap on the 80 per cent. discount. What is not made clear is that the cap was introduced several weeks after the launch of the original scheme. Paragraph 18 of the response—I do not recall discussing this in Committee—tells us that the cap of £200 on the 80 per cent. discount was introduced within seven weeks of the scheme's launch because the unlimited amounts of money available had been exploited and £22 million had been paid out in course fees that cost more than £200.

The total overspend on the scheme is estimated to be about £60 million on an original budget of £200 million, an overspend of just under 30 per cent. We now discover, however, that more than 30 per cent. of that overspend was incurred within seven weeks of the launch of the original scheme. That is significant new information which we did not have during the Committee's deliberations and it draws our attention to the importance of tighter budget monitoring in the Department. The permanent secretary hinted at that when he came before the Committee yesterday, although the focus was on the need to get a grip on the Department's underspend. The lesson is that financial monitoring needs to consider possible overspends as well.

In concentrating on three issues, I hope that I do not cover old ground, but instead give pointers for the future. The first is the scheme's objectives. One fundamental reason why the scheme got into difficulties was that the original objectives were not only confused but contradictory. There was a desire to open up the market and bring new providers into it, for which a generous subsidy was provided, and a desire to extend opportunities for lifelong learning to the whole population. There was also a specific objective to help people who were unable to afford further training or education.

The number of people for whom cost is a barrier to continuing their education is comparatively small—it is a minority of the population. Yet by making the scheme universal, we offered a subsidy to the public at large. A more focused objective on those who are most reluctant or least able to continue their education beyond school age is the right approach.

I shall digress briefly. I do not find the Opposition's argument about the use of the subsidy terribly convincing. They criticise the Government by saying that the Department was spraying cash around like a hosepipe out of a window, criticise them for switching off the hosepipe and then criticise them for not switching it on again to compensate for the problems caused by the switching off. It is not altogether a logical—

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Mr David Chaytor (Bury North, Labour)

I am afraid that I will not give way because time is pressing.

The Opposition argument is not logical or convincing. However, I do think that the nature and eligibility of the subsidy are crucial. Therefore I was very pleased that my hon. Friend Jeff Ennis and Mr. Bacon both referred to recommendation 73 in the Committee's report, which suggests that a future scheme should be targeted explicitly at those adults whose existing level of qualification is level 2 or below. I am pleased that they supported that, not only because I was responsible for moving the amendment to the original draft of the Committee report, which is now in the Committee report, but because I consider that that is the most effective use of public money.

I also want to speak about the mechanism. The time may have come to say that the emperor has no clothes. That is not because we adopted the scheme rather uncritically from an original idea of the Liberal Democrats—there are lessons for all of us in that—but because the original pilot scheme, run by the training and enterprise councils, concluded explicitly that there was no demand for a savings account for learning.

There had been several discussions with financial institutions to explore the issue; the heart of the original concept of the ILA was a savings account for learning, not simply a subsidy. The experience was that there was no demand for it. The public did not see the purpose of it. Perhaps the mechanism was too complex; perhaps it was an idea whose time had not yet come, but I now suspect not. Even though the pilot schemes proved the lack of demand pretty conclusively, the Department went ahead with the concept of the account, although it became simply a means for giving a discount on courses.

Therefore, although the idea of the individual learning account is attractive—I am sure that there is the germ of a good idea there—we must ask whether it would not have been, and will not be in future, simply much better and more efficient to provide fee remission to eligible designated categories of students for designated categories of courses. I flag up that suggestion and hope that the Minister might consider it in his deliberations on the future scheme.

The third point that I want to raise concerns assumptions about stimulating the market. Having learned more about the ILA saga, I do not accuse the Department of incompetence as some people have done, but I do say that it was remarkably naive in its understanding of the behaviour of the private sector in post-16 educational training operations.

Various scandals operated throughout the post-16 sector from 1993 onwards, and no doubt before to a lesser extent. They were well publicised abuses of the system, whereby huge amounts of public money—far greater than the amounts lost in the ILA affair—were expropriated by different means. After all that had happened, particularly between 1993 and 1997, it was naivety of the highest order to assume that providing a universal subsidy to bring new entrants into the market would not equally be open to abuse and exploitation and would not be effectively a blank cheque for some cowboy operators. Therefore, a rigorous accreditation system for providers must be at the heart of any new scheme.

In my concluding minute, I shall flag up other points that I would have liked to discuss at enormous length. The first concerns the assumption in the Government's response that for the new learner entering the scheme, it was like entering any other marketplace, and it was therefore his or her responsibility to make a judgment about the quality of the product on offer. That is unacceptable. The motto "caveat emptor" is not appropriate for people coming back into education. We should build into a new scheme better advice and guidance for new adult learners.

Secondly, the courses on offer, as well as the providers, should be more rigorously accredited. Thirdly, we should consider the introduction of staged payments. If the provider can collect his money simply by enroling the student, that is a blank cheque for the cowboy operator. Staged payments, which are accepted practice in public sector post-16 education, ought to be accepted practice in private sector post-16 education.

Finally, I raise the question, which emerges strikingly from the Government's response, of the number of consultants other than Capita who were employed by the Department at various stages in the development of the scheme. I have counted six who are referred to in the report. It would be interesting to know the cost of employing the consultants whose advice was sought and who were asked to evaluate various stages of the scheme. Perhaps I will table that some time as a written question.

I endorse what several of my colleagues and several Opposition Members said about the role of Capita and the assumption that Capita will carry on as before. [Interruption.] I am conscious of the time; this will be my final point. That sends a bad message to learning providers who feel that they have been cheated by the abrupt ending of the scheme. It seems that there is one rule for Capita and another rule for genuine learning providers. That is a problem which I hope that the Minister will address.

6:42 pm
Photo of Mr Alistair Burt

Mr Alistair Burt (North East Bedfordshire, Conservative)

This has been an excellent debate. I am sorry that there was not time to call all the members of the Education and Skills Committee who would have liked to speak.

I congratulate Mr. Sheerman on securing the debate and on the quality of the report. Through him, I thank all the members of the Committee, who performed such a valuable service.

As we heard, the report was hard-hitting, correctly describing an appalling fiasco of finger-in-the-wind targets, failure to heed advice, failed delivery and a walk away from the debris of lost businesses and jobs, as well as—worst of all—the hurt caused through the lost hope and aspirations of those expecting to benefit from the scheme. Despite the constructive tone of the debate, we cannot forget how dreadful the experience has been for some people. What I have just described is the kindest interpretation of the Government's activity. I will come in due course to their self-serving and ineffectual response.

I welcome the Minister to his new responsibilities, although he is not new to the Department and can therefore expect us to show him slightly less mercy on the issue than would be usual. It has not escaped our notice that all those previously connected with individual learning accounts have moved on, their lips sealed, their silence the price of their promotion—the original Secretary of State and his junior Minister who set up the scheme, and the last junior Minister, now the Economic Secretary to the Treasury, who I am delighted to see in his place, and who is obviously well thought of by me and others for his hard work in connection with the scheme. He found the fiasco going on under his feet and stoically lived with it, in a manner that I understand all too well. However, the proper scrutiny of Government failure cannot be diverted because of decisions made in the Government's personnel department.

I shall make three quick points. First, I make clear our support for the concept of what the Government were trying to do—the expansion of individual learning to those who need it. That is why the failure has been so acute, as a number of colleagues commented—the hon. Members for Chesterfield (Paul Holmes), for Barnsley, East and Mexborough (Jeff Ennis), who described his area, where such work would have been particularly welcome, and for Bristol, West (Valerie Davey), and most movingly, my hon. Friend Mr. Bacon, who spoke with passion and genuine anger, as he should, and produced a quote from Jesse Jackson of which we would all have been proud.

Secondly, we want to be positive. Of course, the report contains positive recommendations, but I shall not labour them because of time. Thirdly, this is a serious business and it is not my job to act as a ra-ra for a Government failure. I will not concentrate on the positive recommendations, although if we had more time, I would be pleased to do so. I am afraid that it is time to fix on the Government's response, as the excellence of the work of the Committee and of this debate has been ill served by a very poor response from them.

Let me explain why I feel so strongly about the response. The first page states:

"The original programme was successful and popular with both learners and learning providers. It was, therefore, with considerable regret that it had to be closed because of the serious flaws which we identified".

Hold on a minute—the serious flaws that the Government identified were those with which the scheme had been set up in the beginning. That is what caused the problem. The Government cannot claim to be the good guys who spotted what was going wrong and acted.

The response goes on to describe what the Government have done since that time. First, we are told that they have been "managing the closure effectively". Let them explain that to all the people we have heard about, who were messed up because of the problems of dates and ending the system. They include people such as Mrs. Barbara Walsh of the Longridge teaching centre, who says:

"We are unable to plan ahead because we have been given no hint of a timescale, nor anything else which would indicate that the Government is sympathetic towards the unfortunate situation in which they have placed us. We are just hoping that a successor to the scheme will be announced soon."

Those hopes were dashed by the publication of the response yesterday. If that is managing the closure effectively, it is not very good.

Secondly, the Government say that they have been

"establishing the full extent of misuse and fraud".

They have not, because that has not been done yet either. Thirdly, we are told that they have been

"developing the outline design for a successor scheme".

As we have heard, however, the successor scheme may be up and running about a year after the closure.

That is just the Government's introduction. A series of comments suggest to the general public and the casual reader that, with hindsight, and having picked up on problems through experience of the system, the Government acted to deal with them. That is not true. The reason why the Government failed and why we are in our current position is not hindsight, but their failure to heed the advice that they were given on a variety of occasions about what they were doing. That is why public confidence in the scheme—and, alas, the Department—is at a low ebb.

Let me take a couple of examples. Mr. Baron and for East Devon (Mr. Swire), who spoke from personal experience, all raised the issue of compensation and spoke about the damage done in the market. Let us remember that the Government created that market. In paragraph 1 of their response, the Government admit that part of the intention of the scheme was to "attract new providers". Accordingly, they set up the market, but they have not dealt with the consequences of its complete destruction.

Photo of Mr Andrew Turner

Mr Andrew Turner (Isle of Wight, Conservative)

That is an important point that I do not think independent providers understood. Where Governments make markets, they can also break them, and that is exactly what this Government have done.

Photo of Mr Alistair Burt

Mr Alistair Burt (North East Bedfordshire, Conservative)

My hon. Friend makes an extremely good point. This afternoon, I spoke to the Association of Computer Trainers, which tells me—this is significant in relation to Roger Tuckett's estimate of some months ago that 5,000 jobs might be lost—that some 15 per cent. of IT training provider specialists have closed down. Indeed, it reckons that about 5,000 jobs have been lost as a result. Some 75 per cent. of those providers have made people redundant or made serious cuts, and 95 per cent. of them have held back on plans for future investment. That all means that those people will be very unwilling to be considered for involvement in ILA2. That is the damage that has been done by lack of confidence.

Various points were made about Capita and its failings, and questions were asked about why it should get the new contract. There is a particular reason why it might do so. If hon. Members turn to sub-appendix A of the response, which is part of the Cap Gemini summary of what happened, they will see that paragraph 2 states:

"The contract between DfES and Capita . . . made no clear mandates or stipulations regarding the assessment of the security requirement or the ongoing security management. This also resulted in no ILA-specific security policies or procedures."

Capita will keep the contract—unless the Minister is about to tell me that the Government are putting it out to public tender, which I doubt—because what happened was the Government's fault. They did not give clear guidelines, so they cannot blame Capita for it.

It has been suggested that the scheme was closed because of overspending. Paragraph 20 of the Government's response deals with the problems that arose in relation to the Treasury. I challenge the Minister to respond to this point. There was overspending, but the delay has already saved the Government money because the scheme has not been running. If the Minister can say that the new scheme will start with a budget that is equivalent to the old one, we will all be most impressed. He has the opportunity to do so.

Sub-appendix B of the Government's response contains this wonderful phrase about the internal audit review:

"However, it has not been possible to identify when and how some decisions on the operation of the programme were arrived at".

How convenient. We are talking about the British civil service. When a Minister sneezes, the British civil service records which nostril they go to first. To discover now that it is possible that no one knows where and how some decisions were taken is a remarkably convenient error that suits the Government well.

The final failing of the Government's response is that it gives no indication of a new scheme. People around the country have been let down. Jobs have been lost, students who were looking forward to going back into education have been disappointed, and people are in despair that there has been no suggestion of a new scheme. The Government's response has been self-serving and disingenuous and has not done credit to the decent report that was produced. That is a matter for shame. It is not, of course, possible for the Minister to resign straight away, but I suggest that the best thing that he could do, bearing in mind the inadequacy of his Department's response and the degree of difficulty and despair that is out in the country, is to make his first word to the House, "Sorry." 6.52 pm

Photo of Mr Ivan Lewis

Mr Ivan Lewis (Parliamentary Under-Secretary, Department for Education and Skills; Bury South, Labour)

I suspect that this may be an historic moment for the House, in that three hon. Members born in Bury have spoken in succession. Perhaps not many other hon. Members would find it so.

I begin by paying tribute to the work of my hon. Friend Mr. Sheerman and his colleagues on the Select Committee on Education and Skills. I thank the members of the Committee for the fair and balanced way in which they approached their task. Undoubtedly, some differences remain between us, but we have accepted the vast majority of the Committee's findings and recommendations. I think that hon. Members will feel that the view expressed by my hon. Friend Valerie Davey about the contrition and commitment of our response is far more accurate than that of Alistair Burt.

I take this opportunity to pay tribute to the work of my former ministerial colleague, my hon. Friend the Economic Secretary to the Treasury. His decision, and that of the Secretary of State, to act decisively when the problems became clear, and his subsequent honesty and transparency, ensured the survival of the individual learning account concept. That point was well made by my hon. Friend Jonathan Shaw. I am sure that my hon. Friend the Economic Secretary will be remembered for his involvement in the scheme as the comprehensive spending review process reaches a conclusion.

My hon. Friend the Member for Huddersfield takes a close interest in ministerial turnover, so he will know that I have graduated from being the Minister with responsibility for young people and learning to the Minister with responsibility for adult learning and skills—or, as some people told me, the Minister for ILAs. In that context, and in view of the questions that he asked, I can reassure him that I have discussed ILAs with my predecessor. I can also reassure him and all hon. Members that my commitment, and that of the Secretary of State, to the successor scheme is as strong as ever. We intend to announce details of that new scheme, including a start date, in the autumn. The ILA programme was a bold and virtuous attempt to expand adult learning and open up opportunities to many people who had consigned learning to a dim and distant childhood memory. We should not forget that for many, it achieved its goals.

However, the Select Committee has appropriately focused on why and where the programme went wrong. The report's detailed analysis, conclusions and recommendations will greatly assist Ministers as we consider the nature of the successor scheme. In the words of the Select Committee, we must be prepared to

"learn lessons from the collapse of the first version of ILAs and to bring forward as soon as practicable a more robust version which is capable of expanding Adult Learning to the benefit of each adult learner and the nation as a whole".

Let me consider the contributions to the debate. Many hon. Members referred to Capita. It is important to emphasise that the Government have acknowledged that there are lessons to be learned from what happened to the ILA scheme. There are also important lessons for Capita. There is no done deal about the successor scheme and Capita's involvement; no decision has been made.

A series of criteria must be satisfied before we make any decisions about Capita's involvement in future. They include security, customer service, management capability, data handling, negotiating the overall financial settlement and appropriate revisions to the existing contract. We will have to be satisfied that Capita is best placed to ensure that the new scheme is the success that all hon. Members support.

Many hon. Members referred to compensation. The Government have no legal responsibility to compensate learning providers. [Hon. Members: "Moral responsibility."] There is a debate about moral responsibility and we have had to make a difficult judgment in difficult circumstances. Labour Members have genuinely agonised over that moral dilemma. However, I cannot take lectures from Conservative Members, who told us for 18 years to leave it to the market. Those who talked about business risk and business judgment are now shedding crocodile tears for learning providers who made business choices and took business risks. I understand the genuine anxiety for learning providers who are in difficulties, but I shall take no lectures from the party that continues to believe in laissez-faire economics.

Let me deal with the points that Paul Holmes made. Several investigations are under way, and some are with the police. To date, there have been 45 arrests, which have resulted in 10 people accepting cautions. Charges are being brought against 13 individuals, 12 of whom are waiting to appear in court. One person has been convicted.

On the successor scheme, I accept the points about trusted intermediaries and that trade unions and community groups have played an important part in ILAs. We want them to play an important part in the successor scheme. Many hon. Members talked about limited entry to a successor scheme. That is one of the points that we must consider to get the matter right. I do not apologise for coming to the House and not announcing details of a successor scheme. We will do that in the autumn, after we have considered all the important issues and got the framework right.

We will learn the difficult lessons of what went wrong with the ILA programme. However, I am proud of the Government's passionate commitment to the principle of lifelong learning, whether it is for the middle-aged father who is too ashamed to tell his children that he cannot read or write, for the mum who wants to return to work after years of bringing up a family, or for the low-paid, low-skilled worker who wants the chance to learn and open up new horizons. We owe each and every one of them the chance to learn. People of all backgrounds and ages having the opportunity to pursue their potential is the hallmark of a fair and decent society. It is also an essential element of our nation's capacity to compete effectively in the global marketplace.

It being Seven o'clock, Mr. Deputy Speaker proceeded to put forthwith the deferred Questions relating to Estimates which he was directed to put at that hour, pursuant to Standing Order No. 54(4) and (5) (Consideration of estimates) and Order [20 November 2000].