Post Office “tries to sabotage” mediation scheme it set up after IT complaints?

By Tony Collins

BBC R4’s Today programme broadcast interviews yesterday with campaigning Conservative MP James Arbuthnot (who is standing down at the next election) and Mark Davies, Communications Director at the Post Office.

At issue is whether the Post Office wants genuinely to establish the facts after complaints by more than 150 subpostmasters that they have been unfairly treated – in some cases jailed, made bankrupt or forced to remortgage their homes – because the PO’s Horizon IT system wrongly showed cash shortfalls.

The Post Office contends that there’s no evidence the systems were faulty in the cases in question.  But, as I am quoted in today’s Financial Times as saying,

“It’s going to be very hard to detect what went wrong. The Post Office is behaving as if its system was virtually infallible when, in fact, no system is, especially when there are many different network interactions involved.”

Last year the Post Office set up a mediation scheme, in part to respond to 144 MPs who’ve had representations from former subpostmasters about the Horizon system.

But the MPs announced yesterday that they have lost faith in the mediation scheme.

Arbuthnot, who leads the group, said in a press release, “The [mediation] scheme was set up to help our constituents seek redress and to maintain the Post Office’s good reputation. It is doing neither.

“It has ended up mired in legal wrangling, with the Post Office objecting to most of the cases even going into the mediation that the scheme was designed to provide.  I can no longer give it my support. I shall now be pursuing justice for SubPostmasters in other ways.”

Andrew Bridgen MP said:

“MPs have been working with the Post Office for two years now in the belief that they would work towards a solution to this issue. It would appear that this belief is increasingly looking misplaced.”

Mike Wood MP said:

“Either the Post Office is awash with criminals who open Sub Post Offices for personal gain or something has gone terribly wrong. MPs are inclined to believe the latter and we are all shocked that the Post Office seems not to want to get to the bottom of all this.”

Kevan Jones MP who will lead the Parliamentary campaign for justice for subpostmasters when Arbuthnot stands down at the election, said: “My constituent has lost everything – his livelihood, his house, his good name, and he is not the only person who faced ruin.”

Huw Irranca-Davies MP said: “The mediation process has failed even those sub-postmasters who were originally included. But there are also many who fell outside the scheme, and have had no chance to be heard. They all deserve fair play, they all deserve justice, so the fight goes on.”

The big unanswered question is whether the Post Office is deliberately hampering mediation because the scheme, as it turns out, is not going in its favour.

The Post Office hired forensic accounts Second Sight to investigate the Horizon system. It found that the system was not fit for purpose in some branches. The Post Office has said the leak of that Second Sight report was “regrettable” and it has not released it.

Yesterday on the Today programme (approx 0735) Arbuthnot told presenter John Humphrys:

“At considerable public expense the Post Office set up a medication scheme but sadly they are now trying to sabotage that very mediation scheme they set up. They are doing it in secret. It’s an extraordinary story.

“They are trying to bar from mediation 90% of subpostmasters for whom it was set up. They are arguing that those like Jo Hamilton, who pleaded guilty to false accounting, shouldn’t have the mediation scheme available to them, despite having agreed expressly with MPs that those who had pleaded guilty to false accounting should have it available to them. They are doing it in secret, and they are doing it at a stage when there is no legal representation available to these subpostmasters…  I am afraid I have no confidence that the Post Office is trying to clear it up.

Humphrys:  What they say is that they  pay for people to get independent advice; they have advertised for people to come forward with their stories; they have investigated the cases; they have done everything that could be reasonably requested of them.

Arbuthnot: “They talk about this legal advice but then they try to prevent the subpostmasters from going into the mediation scheme at a stage of the process when the subpostmaster is not represented.

“You won’t get any of the [Post Office’s] legal advisers coming onto this programme because the Post Office has bound them to secrecy.  You won’t get Second Sight, the independent investigators, coming onto this programme, because the PO has bound them to secrecy.”

Humphrys:  They have a relationship  with their clients and therefore they are inevitably bound to secrecy?

Arbuthnot: “Yes. There was a concern at the beginning of this that Second Sight, the independent forensic accountants whom the Post Office chose and are paying for, did have a relationship with the Post Office. That worried MPs about whether they would have the independence required, but they have had.

“Now that they have shown that independence the Post Office is doing its utmost to pooh-pooh the recommendations that Second Sight  is putting forward. It is trying to override those recommendations, possibly because of that very independence.

Humphrys:  The investigation isn’t over. That may change.

Arbuthnot: “That is my hope.  But since this investigation and mediation scheme which is in the hands largely of the Post Office is paid for by the Post Office, for myself I have lost faith in the Post Office’s determination to see this through to a proper end.”

Humphrys turned to Mark Davies, the Post Office’s Director of Communications. It is a very serious charge: that you sabotaged this scheme?

Davies: “It is an extremely serious charge John, and clearly we reject it outright. It is very regrettable, some of the things Mr Arbuthnot has said.”

What did he say that was wrong?

“To go back to the original setting up of this inquiry, we the Post Office take our responsibilities extremely seriously.”

What did he say that was wrong?

“If I could just finish the point. It is really, really important to set this out. The Horizon system that Mr Arbuthnot refers to is used  every single day by about 80,000 people. In the course of the last decade half a million people have used that system, without any problems, face to face with customers,  across the 11,500 branches in the Post Office network.

“That said, a very small number of people came to us  through their MP with some questions, some issues. They said they had problems with the system. That amounts to 0.03% of those people who have dealt with the Horizon system.”

It’s still 150 people …Each individual with their own life being ruined. Now what was it that Mr Arbuthnot said  about your handling of this scheme that is wrong?

“What is wrong is that the scheme, first and foremost, hasn’t finished yet, John.  Two and half years ago we set up a review into the Horizon system. That review has found no evidence at all of any systemic problems with the Horizon system.”

That was your own review?

“It was with independent forensic accountants John. We set up the complaints mediation scheme for those 150 people who came forward. Look – we advertised for people to come forward.  We went to our people across the Post Office network and said, if you feel you have been treated unfairly please come and talk to us about that. If we weren’t taking this seriously we would not have done that.

But you heard the story of Jo Hamilton there. She has tried to do everything that she could … and she has got nowhere.

“You’ll forgive me John for not getting into an individual case.”

I understand that but nonetheless she is representative of many like her and they are in desperate trouble now. They have a case don’t they?

“I am really sorry if people have faced lifetime difficulties – lifestyle problems – as a result of their having been working in Post Office branches. It does not necessarily follow though that the Post Office is responsible for the issues people have had. I think our commitment to seeking to look at every single case is underlined …

But you have barred 90% of them?

“No. That’s not true. I don’t accept that figure at all.”

What is the figure?

“If the working group, which is chaired independently by a former High Court judge, is bound by confidentiality, the Post Office is bound -

So you can’t tell me how many have been barred? It might be 90%?

“I’m afraid I can’t John because the working group was set up with confidentiality in mind. We are bound by that.”

I am not asking you for the names of the people. I am asking you for the number of people who have been barred [from the mediation scheme].

And I cannot go into the details of …

So we’re entitled to accept what Mr Arbuthnot said which is that it is 90%?

“I don’t accept that at all. It is not 90%.”

Without being able to give me a figure, with the best will in the world, it is impossible for us to do anything other than accept the figure Mr Arbuthnot’s gives.

“We are being placed in an intolerable position at the Post Office because we are bound by a confidentiality agreement which was agreed with all parties including the Justice for Subpostmasters Alliance.

“We are in an extremely difficult position. It’s not the case that 90% have been rejected. We are actually looking at every single case, on a case by case basis. We are absolutely committed to doing that… in some cases there is evidence whereby we have looked at what’s happened and we have held our hands up and said in some cases we could have done some things differently and we have reached agreement with some people. In other cases we have not reached that conclusion because we have to take it extremely seriously.

“We are a large retail organisation. We conduct audits in our branches, across 11,500 branches, every single day. Where there are cases of losses in those branches,  then clearly we have a duty to look at those, and you’d expect  us to do that on behalf of customers, on behalf of taxpayers.”

A very quick word Mr Arbuthnot?

Arbuthnot: “Mark Davies says it is a tiny proportion of transactions in the Post Office and yet one single miscarriage of justice ought to galvanise the nation. I have more than 140 MPs, some of them with more than one case. This is not a small problem.”

Davies: “If evidence emerges where there is evidence that a case should be looked at through the legal processes, absolutely the Post Office has a legal duty to take that forward and we will do so.”

Pleaded Guilty

Jo Hamilton, Arbuthnot’s constituent, used to run a sub-post office from her village shop in South Warnborough, Hampshire. She pleaded guilty to false accounting following a discrepancy of £2,000 in December 2003.

She told the BBC: “I rang the helpdesk and they told me to do various things and I did that and the amount I was down doubled.  I asked to speak to a supervisor.  Whatever we did, it would not go back to minus £2,000. The upshot  was they asked me to pay the money into the Post Office which I didn’t have.  Then they decided to take my wages to pay it back. …at the time they told me I was the only person who had had problems with Horizon. I did think I was the only person in the world who had had problems with it.  I hadn’t taken any money but I didn’t know what the hell was  going on…

“I had to remortgage the house and repay the money. Originally, I was charged with stealing. They said if I repaid and pleaded guilty to 14 counts of false accounting, they would drop the theft, so the decision was made – I’d be less likely to go to prison for false accounting than theft.

Universal Credit: some highlights of today’s NAO report

By Tony Collins

Excerpts from today’s National Audit Office report “Universal Credit: progress update”

Not complete by 2020 

“Not all legacy benefit claimants will have moved to Universal Credit by the end of 2019.”

 Assumptions are changing massively

“Universal Credit impacts depend on policy assumptions. For example, there was a £30 billion movement between 2011 and 2012 in the Department’s estimate of benefit spending, which went from a £19.7 billion cost to a £10.8 billion saving. The Department changed its methodology over this time but the size of this movement was largely due to changes in benefit entitlement and conditionality.”

Spending on existing UC systems questionable?

“HM Treasury has expressed concerns about the value for money of further investment in live service systems.”

What if the digital system fails?

“ Following the Major Projects Authority’s review, HM Treasury requested, in April 2014, the Department provide it with contingency plans should the digital service be delayed or fail. The Department is due to update HM Treasury at the end of November 2014 on its progress in developing such plans.”

The small print

You can claim Universal Credit if you:

- fall into one of the accepted groups

- do not own or part own your home;

- have a bank or building society account;

- do not live in temporary accommodation;

- are not pregnant or given birth within the last 15 weeks;

- are not a carer;

- are not self-employed;

- are unemployed or have household earnings of less than £330 per month if over 25 or £270 if under 25;

- are not challenging or awaiting a decision on Jobseekers Allowance, Housing Benefit, Employment and Support Allowance, Income Support or tax credits;

- are not staying away from your main home;

- are not responsible for a child or young person who is: adopted, fostered, being looked after, registered blind or have a disability benefit.

UC security

“In June 2012, CESG [the IT security arm of GCHQ) found that security had not been properly considered from the start. The [UC] systems were developed by multiple suppliers without an overarching plan for how it would work as a whole.

“A Red Team review concluded that the programme lacked appropriate detail around the security measures it needed because of: ineffective links between design and security teams; invalid assumptions being made by technical teams about what was acceptable to the business; a lack of balance between usability and security; poor understanding of dependencies between components; and little consideration of the technical implications of business design activities. The Department was unable to address these concerns prior to the reset in February 2013.”

A good approach to agile

“Since the reset (in 2013), the Department has concentrated its use of agile on developing digital service using a co-located, mixed-skill team. In June 2014, consultants commissioned by the programme board reported that a good agile approach is in place, and that a strong agile culture and organisation has been found inside the digital service.

“The consultants also found that a focus on long-term planning and effective communication of progress is required to drive scale and delivery, and that adjustments to the team structure will be required to ensure scalability…

“To remain on track, the Department will have 18 months to increase functionality to create a fully integrated service eventually capable of handling up to 10 million claimants. It will use an agile approach to do this. The Department plans to trial new systems in spring 2015, when it intends to start testing efficiencies and delivery against policy intent. It then plans to test increased capacity from November 2015.”

Not so agile

“…The Department will continue to use traditional approaches for buying and maintaining systems supplied commercially, such as existing Department‑wide systems and cloud hosting…”

Inaccurate payments

In April 2014, a software update [from a major supplier] created new problems for [UC] calculations and inaccuracy increased again. Between April and June 2014, over 10% of payments made to claimants were incorrect. This damaged staff and stakeholder confidence in the system and the Department had to reintroduce 100% manual checking of payments in June 2014 …

“… At present the Department is undertaking 100% checking of all payments before they go out.”

Better leadership

Confidence in the leadership team has improved despite continuing difficulties and the heavy demands on the programme director through 2014 caused by the limited availability of the senior responsible owner. A follow-up survey found a large increase in the number of staff expressing confidence in the actions of senior leadership (from 30% in 2013 to 75% in 2014) and an increase in the number of staff who feel that senior management encourages challenge and welcomes their suggestions (from 30% in 2013 to 70% in 2014).

Do major suppliers have too much control of DWP IT?

“The Department’s management of suppliers has been tested by the problems that emerged following an IT update in April 2014 designed to enhance live service. A supplier made significant changes in addition to the work that had been commissioned by the Department. It did not fully inform the Department of this, therefore the update was not adequately tested before it went live.

“The release caused an increase in payment errors described in Part Three. The supplier agreed to rectify the coding at its own expense. This delayed the next release by 2 weeks because of constraints on departmental and supplier resources, and the need to implement further controls recommended in a review commissioned by the Department after the April release.

“In November 2014, the Department’s internal audit reported that the programme has built technical capability to challenge, monitor and review supplier performance, including challenge of the management information provided.”

Manual interventions

“As planned, many processes in live service and digital service areas currently remain dependent on manual interventions.”

Universal Credit: progress update

Universal Credit full business case “a long way from Treasury approval”

Universal Credit full business case “a long way from Treasury approval”

By Tony Collins

Yesterday in Parliament Iain Duncan Smith gave a statement on Universal Credit – then MPs asked him questions.  Conservative MP Nigel Mills asked IDS a straightforward question:

“Can the secretary of state confirm that the Treasury has now signed off the whole business case and laid to rest that fear that they were not going to do that?”

IDS gave a clear reply: “That is exactly what was being asked before the summer break and the answer is they have …”

But the UC programme has not received Treasury approval for the full business case, nor even the outline business case. Today’s National Audit Office report “Universal Credit: progress update” says that the UC programme received approval in September 2014 for the “strategic outline business case” only.

An NAO official says this is a “long way from Treasury approval” of the full business case.

Until the full business case is approved, UC has no formal funding beyond the current spending review. Meanwhile the Treasury has been funding UC in “small increments” according to the NAO.

The Department of Work and Pensions is due to produce the outline business case next summer, before the next government’s spending review.

The “outline” business case is supposed to set out how the programme is affordable and will be successfully delivered. It summarises the results so far and sets out the case for proceeding to a formal procurement phase.

The “full” business case documents the contractual arrangements,
confirms funding and affordability and sets out the detailed management
arrangements and plans for successful delivery and post evaluation.

The absence of approval for the outline or full business case underlines the uncertainties still in the UC programme. Indeed the latest NAO report says it’s too early to tell whether UC will prove value for money.

But the DWP has reduced risks by extending the roll-out. The programme is now not expected to be completed before 2020. The original completion date was 2017.

The DWP has a twin-track approach to the UC IT programme. It is paying its existing main IT suppliers to support the introduction of UC – the so-called “live” service – while an agile team develops a fully-automated “digital” service that is designed to do all that the “live” service cannot do without manual intervention.

The agile system has yet to be tested – but it has cost only about £8m compared with more than £90m spent on the “live service”.

Porkies?

Labour MP Glenda Jackson, who is a member of the Work and Pensions committee, suggested to IDS yesterday that his promises to MPs on Universal Credit’s roll-out have all been broken and that he has told the House of Commons “porky pies”.

IDS replied that his intention is to ensure that UC is rolled out in a safe and secure way.

Comment:

You’d never know from IDS’s replies to MPs yesterday that the Universal Credit programme doesn’t yet have either outline business case approval or full business case approval.

In other words, the Treasury has yet to be convinced the UC programme is feasible or affordable. It is paying for the programme in increments.

IDS told MPs the programme has business case approval. He did not make it  clear that the programme has the early-stage strategic outline business case approval.

His comments reinforce the need for the National Audit Office to scrutinise the Universal Credit programme. Left to the Department for Work and Pensions, the facts about the programme’s progress, problems and challenges would probably not emerge, not in the House of Commons at least.

Some MPs have said for years that Parliament is the last place to look for the truth.

IDS also said yesterday that the original deadline for completion of UC by 2017 was “artificial” – though he has quoted the 2017 date to MPs on several occasions.

Will UC succeed?

UC as an IT-based programme is not doing too badly, to judge from today’s NAO report.

Indeed it seems that the Department for Work and Pensions, when under intense scrutiny, can start to get things right.

Though existing systems from major suppliers look increasingly unlikely to be able to handle the predicted volumes without a large and expensive amount of manual intervention, the agile digital system, though delayed by 6 months, looks promising, at a fraction of the cost of the conventional “live” system.

Scrutiny

The NAO is scrutinising the programme. The DWP’s own auditors seem to be doing a good job. The Cabinet Office’s Major Projects Authority is making useful recommendations. And the programme has an independently-chaired board. [The NAO says the programme board has been hampered by limited information and suggests this is because the DWP gives the board “good news” statements rather than facts.]

All this scrutiny is powering the programme in the right direction, though the uncertainties remain massive. As Campaign4Change predicted, the programme will not be complete before 2020. But who cares, if it works well in the end and losses are minimised?

DWP officials are learning lessons – and UC could end up as a template for big government IT-enabled programmes  The twin-track approach of using existing suppliers to deliver support for major business changes that yield problems and lessons  that then feed into an entirely new agile-based system is not a cheap way to develop government IT –  but it may work.

What DWP officials have yet to learn is how to be open and truthful to Parliament, the media – and even its own programme board.

Universal Credit: progress update

Some highlights of today’s NAO report

NAO warns over costs of further Universal Credit digital delay

Universal Credit: watchdog warns of costs of further delays

Government may have to write off more than £200m invested in IT on Universal Credit

Some of the strengths and weaknesses in GovIT – Phil Pavitt

By Tony Collins

Phil Pavitt was CIO at HM Revenue & Customs. He left two years ago and arrived at Specsavers via Aviva where he was global director of IT transformation.

At HMRC he was a main board member, responsible for all technology across the estate, delivering the change agenda, and managing a total annual IT budget of more than £1bn.

Now he has given an interview to Government Computing in which he talks about his role at Specsavers but also some of the challenges faced by those who are responsible for IT in central government.

He:

-  applauds the Government Digital Service’s (GDS) role in increasing digital traction, but believes the putting down of CIOs has been unnecessary and counter-productive.

- laments a lack of attention to legacy systems. “Name me the departments that have revolutionised themselves and their legacy engines. There’s not many to name. But the front end looks really really good. But who is going to change that legacy because one day that disconnect will be huge? They [GDS] are playing into the hands of the big SIs [systems integrators] who will turn out and say, ‘You’ll have to swap it out, and only we can do it.

“So I think there’s an interesting fundamental dichotomy that will eventually appear where the front of government will look really good and rightly so, and the back of government increasingly becomes expensive, archaic and out of date. And that’s going to be a problem.”

Pavitt also talks about the challenges faced by SMEs when trying to do business with departments, and the role of big suppliers, the so-called systems integrators.

Phil Pavitt’s interview in Government Computing.

After hundreds of millions spent on criminal justice IT …

By Tony Collins

From UKAuthority.com …

England’s most senior judge, the Lord Chief Justice, has voiced frustration at the state of government IT systems - in particular its continued reliance on obsolete Microsoft operating systems.

At his annual press conference, Lord Thomas of Cwmgiedd urged the government to exempt IT investment from any new spending cuts.

“If that [investment] is not to go ahead for any reason at all, then in my view the justice system would face a severe crisis,’ he said. ‘We have not been able to use modern technology, for example… in doing a judgment, I am doing it on Word 2003 with the XP operating system which Microsoft is supporting by special arrangement.”

He described the state of courtroom IT as I “wholly antiquated”.

The special arrangement mentioned by Thomas was the £5.5m deal signed with Microsoft earlier this year to provide 12 months support and security updates to Windows XP, Office 2003 and Exchange 2003 after the software giant ended support for XP in April.

Under the Ministry of Justice’s IT transformation programme, courts in England and Wales are due to go paperless by the end of 2016.

Top judge grumbles about “wholly antiquated” IT

Universal Credit project costs reach £36,222 per claimant (excluding the claim)

By Tony Collins

Iain Duncan Smith has told MPs that the costs of the Universal Credit project are £652m to March 2014 – which is about £36,222 per successful claimant.

The figure includes the money paid to the DWP’s Universal Credit IT suppliers which was £303m by the end of 2012/13.  An updated figure will be published in a UC report by the National Audit Office due to be published near the end of this month.

The costs of Universal Credit per successful claimant are disproportionately high for an IT-enabled programme that has been running for more than three years because numbers on the system are small.

If the UC programme were complete, at a forecast cost of £1.8bn, and the predicted 7.7 million people were receiving the benefit, the scheme’s delivery costs per claimant would be only about £234.

As at October 2014 17,850 people were on the Universal Credit caseload.  IDS told the Work and Pensions Committee on 5 November, in a hearing that lasted more than 2 hours,  that the costs of UC were £652m by March 2014.

That works out at about £36, 222 per successful UC claimant.

Total delivery costs for the programme are expected to be £1.8bn, down from an original prediction of £2.4bn, IDS told the committee.

IDS and the DWP hope many more successful claimants will be added to the systems next year when Universal Credit is rolled out to all jobcentres and local authorities across the country. But the scheme is subject to growing uncertainties, as the DWP’s permanent secretary Robert Devereux and IDS made clear to the committee.

DWP drops firm end date for UC

When an MP put it to IDS that he no longer has a concrete end date for when  7.7 million people will be on UC, he paused. Then he said the plan was for UC to be complete “by the end of 2018″. He gave no commitment and did not deny that there is no concrete end date.

“Er yes, yeah,” replied IDS. “We do envisage UC being complete by the end of 2018. That’s our plan.”  He said that UC would handle singles, couples, then families. In the meantime the DWP is developing an “end-state digital process” that will deliver benefits for claimants and the departments.

“The roll-out gives us phenomenal understanding of what we need to do to make sure the digital service ultimately comes in and completes that process properly. There is a de-risking of the process.”

UC may never be fully automated

Another uncertainty for UC is its ability to handle an estimated 1.6 million changes per month to people’s claims.

Changes in circumstances are handled manually at present.

Robert Devereux, permanent secretary at the DWP, told the committee that the UC systems are, for some claimants,  part manual, part automated. Devereux said:

“The peculiar nooks and crannies with individual circumstances  – we have deliberately not tried to code every permutation as we go along. We are trying to make sure it can be safely delivered within costs in a sensible fashion.

“It would not be sensible to code every possible permutation back at the start while you are still learning.  There are different elements of the system, some of which will be [digital] all the way through, some which are not.”

The committee chair Dame Anne Begg questioned whether UC will ever work effectively if manual processing is applied to some of the 7.7 million claimants. She received no clear answer.

Comment

It’s a good thing that the DWP is going slowly and cautiously but a spend of £652m to March 2014 per UC recipient does not seem cautious at all. If the project is being run on agile principles of fail early and fail cheaply, can this sum be justified?

On a more positive note IDS has stopped quoting a firm end date for UC. At first the DWP was saying UC would be completed by the end of 2017, then IDS said the programme would be “essentially complete” by the end of 2017.  Now he is saying it may be complete by the end of 2018 but is giving no commitment. His caution is probably because the NAO’s update on UC later this month will suggest that the programme is unlikely to be delivered in any certain time period. Nobody can say with authority or credibility when UC’s implementation will be complete.

It’s also a good thing that the DWP is conceding that UC can never be fully automated. It doesn’t make sense spending disproportionate sums on automating calculations that can be done more cheaply by hand.  But if the exceptions prove the rule UC could prove much more expensive to implement than planned.

UC is a good idea in theory but the next government needs to do a full review of its financial and practical feasibility, which the present government is unlikely to do.

Universal Credit could be complete by 2018 – Government Computing

Universal Credit and its IT – an inside track?

By Tony Collins

An excellent BBC Radio 4 “Inside Welfare Reform” Analysis broadcast yesterday evening gave an insider’s view of the IT-based Universal Credit programme from its beginnings to today.

It depicted Iain Duncan Smith as a courageous reformer who’s kept faith with important welfare changes that all parties support. If they work, the reforms will benefit taxpayers and claimants. The broadcast concludes with an apparent endorsement of IDS’s very slow introduction of UC.

“When real lives and real money are at stake, being cautious is not the worst mistake you can make.”

So says the BBC R4 “Analysis” guest presenter Jonathan Portes who worked on welfare spending at the Treasury in the 1980s and became Chief Economist at the Department for Work and Pensions in 2002. He left the DWP in 2011 and is now director at the National Institute of Economic and Social Research.

The BBC broadcast left me with the impression that UC would today be perceived as meeting expectations if DWP officials and ministers had, in the early days:

- been open and honest about the complexities of IT-related and business change

- outlined the potential problems of implementing UC as set out in internal reports and the minutes of programme team meetings

- explained the likelihood of the UC programme taking more time and money than initially envisaged

- urged the need for extreme caution

- made a decision at the outset to protect – at all costs – those most in genuine need of disability benefits

- not sold UC to a sceptical Treasury on the basis it would save billions in disability claims  – for today thousands of disability claimants are in genuine need of state help, some of whom are desperately sick, and are not receiving money because of delays.

Instead UC is perceived as a disaster, as set out in Channel 4’s Dispatches documentary last night.

A £500m write-off on IT?

Other noteworthy parts of the BBC R4 Analysis broadcast:

- The Department for Work and Pensions gave selective responses to the BBC’s questions. Portes: “We did ask the Department for Work and Pensions for an interview for this programme but neither Iain Duncan  Smith nor any minister was available. We sent a detailed list of questions and have had answers to some.”

- Margaret Hodge, chairman of the Public Accounts Committee, gave her view that the next government will have to write off £500m on IT investment on Universal Credit – about £360m more than the Department for Work and Pensions has stated publicly.

Hodge told the BBC: “We are now on our fourth or official in charge of the project and the project has only been going four or five years. Anyone who knows about project management will tell you that consistency of leadership is vital. I don’t think there has been ownership of the project by a senior official within DWP.  I think they and ministers have only wanted to hear the good news. Management of the IT companies has been abysmal.

“I still believe, though I haven’t t got officials to admit to this, that after the general election we will probably be writing off in excess of half a billion  pounds on investment in IT that had failed to deliver… The investment in IT that they are presently saying they can re-use in other ways is not fit for purpose. The system simply cannot cope.”

The BBC asked the DWP for its comment on the scale of the write-offs. “No answer,” said Portes.

Parliament told the truth?

Stephen Brien, who has been dubbed the architect of Universal Credit, gave his first broadcast interview to Analysis. He worked with IDS at the Centre for Social Justice, a think tank set up by IDS in 2004. Brien saw IDS on a nearly daily basis.

Portes asked Brien when IDS first realised things were going off track. “The challenge became very stark in the summer of 2012,” said Brien.

Portes: What was your relationship with IDS?

“My office was across the corridor from his.  I would join him for all the senior meetings about the programme. I would keep him updated as a result of the other meetings I was addressing within the programme team. When it became materially obvious we had to change plans it was over that summer [2012].

Portes: But that was not the public line. In September 2012 this is what IDS said (in the House of Commons):

“We will deliver Universal Credit on time, as it is, on budget, right now.”

IDS appears to have given that assurance while being aware of the change to UC plans.

UC oversold to Treasury?

Portes: “The really big savings were supposed to come from disability benefit. And here trouble was brewing. The problem was the deal IDS had done with the Treasury. The Treasury never liked UC. It thought it was both risky and expensive. And the Treasury, faced with a huge budget deficit, wanted to save not spend.

“With pensions protected disability benefits were really the only place savings could be made.  The previous government had contracted ATOS to administer a new medical test – the Work Capability Assessment – to all 2.5 million people on Incapacity Benefit but only a few pilots had started.

“IDS and the Treasury agreed to press ahead.  Some claimants would be moved to new Employment and Support Allowance but the plan was that several hundred thousand would lose the benefit entirely – saving about £3bn a year.

“Disability living allowance which helps with the extra cost of disability would also be replaced with the new, saving another £2bn…

But …

“By now the new work capability assessment was supposed to have got more than 500,000 people off incapacity benefits. Instead they are stuck in limbo waiting for an assessment.

“By now the new Personal Independence Payment should have replaced disability living allowance saving billions of pounds more. Instead it too has been dogged by delay.

“Just a few days ago the Office for Budget Responsibility said delays in these benefits are costing taxpayers close to £5bn a year. This dwarfs any savings made elsewhere and leaves a potential black hole in the next government budget.”

How many people left stuck in the system?

The BBC asked the Department of Work and Pensions’ press office how many claimants, and for how long, they have been waiting for claims to be resolved. Portes: “They didn’t answer. But their own published statistics suggest it is at least half a million.

“One aim of the reforms was to cut incapacity benefit and the numbers had been on a long slow decline between 2003 and 2012 but now it is rising again. So much for the Treasury saving.”

Who is at fault?

Publicly IDS talks about a lack of professionalism among civil servants and that he has lost faith with their ability to manage the UC-related problems. Rumours in the corridors of Westminster are that behind the scenes IDS has attempted to blame his permanent secretary Robert Devereux.  On this point, again, the DWP refused the BBC’s request for a comment.

Gus O’Donnell, former head of the civil service, who appointed Devereux, told the BBC that tensions between IDS and Francis Maude at the Cabinet Office did not help. “Robert [Devereux] was in a very difficult position. He was in a world where Francis Maude was trying to deliver, efficiently, programmes for government and on the other hand IDS was seeing the centre as interfering and criticising whereas he knew best: it was his project; he was living it every day. There was a lot of tension there. Really what we need to do is get everyone sitting round a table trying to work out how we can deliver outcomes that matter.”

Was Devereux set up to fail?

O’Donnell: “With hindsight one can say this is a project that could not be delivered to time and cost.”

Were DWP officials to blame?

Stephen Brien said: “There was a real desire from the very beginning to get this done. I think there was a desire within DWP to demonstrate that it could again do big programmes. The DWP had not been involved in very large transformation programmes over the previous decade. There was a great enthusiasm to get back in the saddle,  a sense that it [UC] had to get underway and it had to be well entrenched through Parliament.

“These forces – each of them – contributed to a sense of ‘we have got to get this done and therefore we will get this done.’”

Too ambitious?

Richard Bacon, a member of the Public Accounts Committee, told the BBC: “If you know what it is you want to do and you understand what is required to get there, then what’s wrong with being ambitious?

“The trouble is that when you get into the detail you find you are bruising people, damaging people, people who genuinely will always need our help. Taxpayers, our constituents, expect us to implement things so that they work, rather than see project after project go wrong and money squandered.

“There may come a point where we say: ‘we have spent so much money on this and achieved so little, is the game worth the candle?’”

Thank you to Dave Orr for drawing my attention to the Dispatches documentary. 

Too easy for councils to make up savings for IT outsourcing?

By Tony Collins

Birmingham City Council, Barnet Council and Somerset County Council have in common outsourcing deals that are subject to effective, independent scrutiny.

That scrutiny comes from bloggers and a former council IT employee. Their unpaid commitment continues for years. They are energetic, tenacious, local citizens with strong social consciences who look closely at what their local officials and councillors say in public about the benefits of their outsourcing contracts.

What they have found out shows that official claims for savings from IT-based outsourcing deals are based on subjective interpretations of council-supplied information. Interpreted differently, the same facts and figures could show the success of the contract – or the opposite.

This is usually because the council-supplied information raises questions that it does not always answer.

In the published costs of the outsourcing deal what is not included? Charges and mark-ups for items the outsourcer buys from other suppliers? Are redundancy payments taken into account? Are the costs of consultants and agency staff taken into account? Are the costs included of hiring a company to handle work that would otherwise present the potential for a conflict of interest if handled by the outsourcer Capita – as has happened at Barnet?

And what assumptions have council and supplier made about profit sharing? Somerset County Council concedes it has had endless arguments with IBM over what should be included and excluded when calculating the profit sharing in their joint venture.

Some of the uncertainties in working out savings from a big IT-based outsourcing contract are set out in an  email from Somerset County Council to an investigative and campaigning former IT employee Dave Orr:

“Since internalising the service, we have revised our working arrangements within the procurement service as many of the reports and practices performed by SWO [Southwest One, owned by IBM] were not satisfactory.”

Orr elicited this admission by Somerset County Council on the extent to which savings figures can be the subject of  dispute:

“Over the years there were disputes on individual savings initiatives and therefore also on the overall total that qualified towards the threshold. That dispute escalated to the courts and was settled before a full hearing.

“Along the way, for 6 years, a running total was kept by both sides as to how much they thought savings were and these were reported to various committees of the Council (and indeed to other authorities’ committees too).

“The agreed savings (where there was no dispute) and the value of savings believed to be achievable by SCC were fed into the Council’s budget process and reduced the overall need for budget pressures within services. Again, this is as per guidance in SERCOP and was reported to Scrutiny and Full Council meetings as councillors regularly asked what was happening with regard to savings realised.”

A murky pond

Those who support an outsourcing deal can fish facts and figures from a pond of numbers that show huge savings, while critics of the deal can fish in the same pool and show that payments to outsourcers are excessive.

Establishing the truth about the success or otherwise of a complex outsourcing deal can be impossible – because the truth may be subject to variables and interpretations.

At least, though, the independent scrutineers bring into the open facts and figures that would otherwise be unnoticed. And they hold officials and councillors to account in a way that internal auditors – who answer to the council – don’t always do.

Birmingham

For the Birmingham Post, Professor David Bailey of the Aston Business School writes regularly on the cost to the city council of Service Birmingham, which is two-thirds owned by Capita, the rest by the council.

SB was set up in April 2006 “to support the council in changing the way it works, using information communications technology to pave the way”.

Bailey gives detailed arguments for his belief that the council is making excessive payments to Service Birmingham. He questions the council’s claims that terminating the contract would be uneconomic.  Too much information is withheld by the council under the guise of commercial confidentiality, he says.

His columns go some way to countering the secrecy; he gives Birmingham’s residents a chance to see figures the council would probably not want exposed in an easy-to-understand context.

One of his latest blog posts says that Birmingham City Council paid Service Birmingham £102m in 2013 – of which £23m went in dividend payments and £5m in taxes.

“So that’s £28m that went out of the council in 2013 that could have been avoided if Service Birmingham had been scrapped,” says Bailey.

Barnet

Mrs Angry [Theresa Musgrove] is a much-respected blogger who writes the “Broken Barnet” blog, in part about Capita’s outsourcing contracts with the London Borough of Barnet.

She calls the borough “Capitaville”. Under the banner of “One Barnet” Capita runs a range of services from IT to cemeteries (and has produced a produced a business document for the council on the “opportunities” from making funerals more efficient).

Her blog posts are humourous, passionate and full of informed comment. She attends some council meetings and asks awkward questions that are often obliquely answered, if at all. She shows what happens when the council’s attempts to be open meet reality.

Barnet Council is lucky enough to have several effective scrutineers of the Capita contracts including “Mr Reasonable” who wrote in September that Barnet paid Capita £59m in 2013/2014 – compared to £53m which he says the services cost before outsourcing.

Does Barnet know what it is doing? Not according to the bloggers who, as well as Mrs Angry and Mr Reasonable, include The Barnet Eye and Mr Mustard. The Barnet Alliance is also a useful campaigning website.

Somerset 

Like the bloggers at Barnet and David Bailey at Birmingham, Dave Orr is not put off by unsubstantiated, vague or impenetrable council claims on outsourcing savings. A former IT employee at Somerset County Council, Orr has followed closely the authority’s joint venture with IBM-owned Southwest One.

He has objected formally to the council’s 2013/14 accounts, with the result that Somerset’s  officers and its auditors Grant Thornton in essence have negotiated to persuade him to withdraw his objection.

Orr agreed to withdraw his 0bjection on condition that:

-   2013/14 procurement savings figures are publicly published

- future years’ procurement savings figures are publicly published

The council agreed to the changes.

Comment

When interpretations of the known facts are optimistic,  proclaimed savings from IT-based outsourcing deals can seem large. When interpreted coldly or sceptically, the same facts may suggest there are no savings at all.

The truth may be that the council has no real idea whether costs are lower or higher than before given that the costs at the point of outsourcing were complex and uncertain and subject to an interpretation of the facts.

As Somerset council suggests: some lower costs can be cancelled out by reducing an overspend elsewhere.

It seems that big council IT-based outsourcing deals are like GPS systems which have parts of the map missing and the “my location” designation is never very close to where it actually is – while the supplier and council officials who are enthusiasts of the deal can claim without fear of authoritative contradiction that the facts are 100% certain and the savings are guaranteed.

The Barnet and Birmingham bloggers, and Dave Orr, have forced councils to be more open than they would otherwise be but there is still too much secrecy, especially at Birmingham and Barnet.

Can council officials and councillors always self-justify their decision to outsource IT and other services in a major long-term contract? Yes – always.

Can the critics credibly show that the outsourced service costs more than claimed, or that the savings are less than the council could have made itself if it didn’t have to pay the supplier’s profits?

The critics usually produce more credible arguments than the unnecessarily complicated and sometimes obfuscatory arguments of the council’s outsourcing enthusiasts.

Update:

Such are the bizarre complexities around council outsourcing deals and the claimed potential savings that a new trend is emerging: councils claiming savings by bringing IT-based outsourced deals back in-house.

This happened at Somerset and now Liverpool Council, which is full of praise for BT , is nevertheless scrapping its “Liverpool Direct” joint venture with the company. The Council is taking ownership of Liverpool Direct from BT.

The move will save  £30m over three years, as reported by Computerworld UK.

A Liverpool Council report on the savings says:

“Following the transfer of ownership, it is anticipated that the integration
of services from Liverpool Direct Limited to Liverpool City Council will deliver budget savings over a 3 year period from 2014-2017 totalling £30m.

“This delivers the best value option for Liverpool City Council, reflecting an
internal service delivery model with no further investment requirement
from BT and hence no return needing to be paid to BT for such
investment.”

Achievements

Service Birmingham lists its achievements here.

Barnet says its Capita contracts “will save £165m”

Southwest One – delivering value

BT and Liverpool Council’s “Liverpool Direct” delivers “growth and success”.

Should Liverpool Council smile now it’s ending joint venture with BT?

Liverpool Council expects to save £30m by ending joint venture with BT

Big IT buying change at HMRC

Huge HMRC IT contract to be split up – a real break with tradition?

Francis Maude, the minister in charge of Whitehall reform, has, with his team, achieved some success in cutting IT-related costs, changing buying habits, and holding big suppliers to account for failures.

The perception is that many of the achievements have been around the periphery of high-cost government IT: the number of government websites has been cut but mega IT contracts remain in place, particularly at the DWP and HMRC.

That may now change.

According to Government Computing, HMRC has decided against issuing an invitation to tender for the replacement of its key Customs Handling of Import & Export Freight (CHIEF) system. The system, supplied by BT and run on Fujitsu hardware, has cost hundreds of millions of pounds.

An ITT was expected to be issued this summer but Government Computing understoods that HMRC has decided against the plan and will now adopt a more flexible approach. Even so it is still planning to deliver the CHIEF replacement in 2017.

An HMRC spokesperson said: “Following discussions with stakeholders and market providers, HMRC has decided not to launch an invitation to tender at this time.

“Instead, we plan to develop a CHIEF replacement using a mix of internal development, commercial off the shelf (COTS) packages and external suppliers, as required…”

CHIEF automates the rules and processes for moving goods in and out of the UK. It allows importers, exporters and forwarders to meet their customs obligations with minimum manual intervention.

The system helps collect £34bn a year, and controls the import and export of restricted goods. It helps to detect smuggling.

Capgemini runs CHIEF as part of the Aspire IT services contract for HMRC, which expires in 2017. HMRC plans to bring the Capgemini element of the CHIEF contract in-house to ensure an uninterrupted service until the replacement is delivered. The Treasury and Cabinet Office have agreed the approach.

HMRC consulted the market about CHIEF in late 2013. Its officials  say they decided to build the replacement system on an incremental, modular basis, with frequent testing to ensure its components all work, both on their own and as a whole.

CHIEF was originally built by BT in 1989 and runs on Fujitsu’s Super Nova platform using the VME operating system. Capgemini took over the management of CHIEF from BT in January 2010 as part of Aspire.

A replacement for CHIEF is necessary because it’s based on ageing technology and within the next seven to 10 years the EU will make legislative changes to international trade processes, notably the Union Customs Code (UCC), part of the modernisation of customs which will serve as the new framework regulation on the rules and procedures for customs throughout the EU. UCC cannot be accommodated within the existing CHIEF service.

It’s unclear what HMRC will do with the Aspire contract as a whole when it expires in 2017.

Comment

It would be much easier for HMRC to bring in a new supplier for CHIEF, or give a new contract to Capgemini. But that would put the customs side of HMRC in the hands of one main supplier again. By relying on internal development, commercial off the shelf packages and a range of external suppliers, HMRC will have control of its IT and the costs of change and innovation.

Well done to HMRC for complying with the Cabinet Office’s “presumption” that no IT contract will cost more than £100m.

The replacement of CHIEF may not go smoothly – but it’s unlikely to go as badly as the introduction of CHIEF, for which importers and exporters bore the scars for years.

HMRC adopts a mixed approach to CHIEF replacement

Real time information – the good and bad

By Tony Collins

Widespread publicity over the past week has drawn attention to inaccuracies in Real Time Information, HMRC’s system for handling PAYE submissions from employers every time they pay an employee rather that at the year-end. The Daily Telegraph broke the story with the headline

“Five million UK workers face uncertainty after tax bills wrongly calculated twice in HMRC blunder”

The BBC said tax  statement errors affect thousands of people.  Accountancy Live reported that tax experts were urging HMRC to review RTI to see if it’s fit for purpose. The FT reported HMRC as admitting that an “unknown number of inaccurate P800 statements and payment orders for the 2013/14 tax year had been sent to taxpayers since September 15″.

But HMRC says that RTI is a success for more than 98% of those employers who have to use it.

Tens of millions of PAYE employees are now on RTI – and if the system were a disaster HMRC and MPs would be deluged with complaints. That hasn’t happened.

Indeed the National Audit Office was complimentary in its audit of HMRC’s 2013/14 accounts of the ability of RTI to give employees the correct tax code when their jobs change – thereby reducing the levels of under and overpayments.

“Data quality has improved and HMRC’s own evaluation suggests that RTI is helping to change employer behaviour by encouraging them to tell HMRC of changes in employee circumstances earlier,” said the NAO.

RTI – the good and bad

The good news for HMRC and the government’s welfare reformers is that Universal Credit, which relies on RTI to calculate benefits, is running well behind its original schedule.

UC is rolling out to a small number of people – fewer than 12,000 by 14 August 2014 –  rather than the expected 184,000 by April 2014, according to the DWP’s revised December 2012 business case.  This means that inaccuracies in RTI will have little effect on UC for the foreseeable future.

The bad

If RTI cannot be relied on to provide accurate information on whether Universal Credit claimants are paying the right amount of tax, UC cannot be relied on to provide correct payments to claimants – which would undermine the welfare reform programme.

Another problem is that tax experts are weary of HMRC’s repeated blaming of employers for RTI’s problems. One of the reasons RTI contains inaccuracies is that HMRC uses employers’ changing internal “works” numbers as individual identifiers, as well as the National Insurance Number.

Employers change their payroll works numbers for a variety of reasons, say when an employee is promoted to management, when the company wants to distinguish various groups for the employer’s own purpose, or when an employee moves location.

The works number is for the internal use of the employer but is included in information submitted to HMRC. The number is “owned” by employers and is for them to use and administer as they see fit. It should have no relevance to HMRC.  But when the works number changes, it can trigger a false assumption in HMRC’s systems that the employee has two employments, with the same employer.  This would generate an incorrect tax code – and would be HMRC’s fault, not the employer’s.

Steve Wade, tax director at KPMG, puts it well.  He says of the latest publicity about RTI errors:

“These systems issues are causing so called ‘employer errors’, which is where the data supplied by the employer is not processed by HMRC systems as expected.

“Sometimes this can be due to bad data being supplied but equally it can be due to errors in HMRC systems which were not designed to deal with all the complexities of PAYE.

“The upshot for employers and employees is that they find that the PAYE tax and National Insurance Contributions that have been paid do not match those calculated by HMRC, despite their providing the information as requested.  As a result, they now face uncertainty over whether they have paid the right amount of tax.

“There needs to be some significant and urgent investment in the processing and back end software systems at HMRC which collect and process this data to generate the operational efficiencies envisaged when the whole RTI initiative was conceived.”

Wade told Accountancy Live: “At the moment, RTI just does not seem to be delivering information that is real. What we need is a thorough investigation of what has happened by a team which includes not just HMRC personnel but external specialists. Only that will give the necessary degree of confidence in the system that is vital for everyone who depends upon it.”

Natalie Miller, President of the Association of Taxation Technicians, says of RTI’s inaccuracies:

“This is an alarming revelation and further underscores the need for collaboration with external stakeholders, all of whom have a vested interest in the success of RTI.

“We have been drawing HMRC’s attention to the quirks and complexities of RTI in meetings and correspondence from its inception. We have also highlighted the significant burdens it places on employers and agents. What we are seeing now are real and serious practical problems for possibly many thousands of employees at a time when building confidence in the system is crucial.

“Some of those difficulties might have been avoided if HMRC had heeded advice from ATT and similar bodies at an early stage.

“In light of this latest revelation, we are calling for an urgent review of the RTI system to ensure that it is fit for purpose. This is essential because every employer and employee is entitled to know that PAYE is being dealt with properly. It is doubly important because the RTI system underpins the Universal Credit system that is being rolled out by the Department for Work and Pensions to replace certain state benefits.

“If, as HMRC’s reported comments suggest, the particular problem arose because employers had failed to send in final payment statements for the full 2013/2014 tax year, that suggests two things.

“Firstly, that the process is simply too complex for employers to understand. Secondly, that either HMRC know the information to be incomplete and are failing to address this before placing reliance on the information, or HMRC do not know the information is incomplete, which raises the equally worrying prospect that the system cannot identify when important information is missing.

“It is in nobody’s interest that RTI stumbles from problem to problem; that threatens its credibility. We all need a system that does what it says on the tin. At the moment, Real Time Information just does not seem to be delivering information that is real. What we need is a thorough investigation of what has happened by a team which includes not just HMRC personnel but external specialists.

“Only that will give the necessary degree of confidence in the system that is vital for everyone who depends upon it (employees, pensioners, employers, payroll bureaux, tax advisers, other parts of government and HMRC itself). The review’s remit should extend to other areas of RTI where systemic problems have been identified. The ATT and many other professional bodies stand ready to assist HMRC in that review.”

George Bull, senior tax partner at Baker Tilly, said that the RTI system had so far failed to demonstrate that it can put an end to the annual problem of incorrect tax demands and refunds. “It seems to me that in 2014, this is a pretty sorry state to be in.”

HMRC note to employers, professional bodies and business groups in full (published by Accountingweb)

“We are today emailing our stakeholders to explain that we are aware that a number of employees recently received a form 2013-14 P800 which was issued during our bulk 2013-14 End of Year reconciliation exercise.

“The 2013-14 P800 shows an incorrect overpayment or underpayment where the pay and tax shown on the P800 is incorrect and does not match that shown on their 2013-14 P60.

“The most common scenarios are where:

  • An incorrect overpayment is created as the 2013-14 reconciliation is based upon the Full Payment Submission (FPS) up to month 11 although the employment continued all year.
  • Where the year to date figures supplied are incorrect, for example where an employer reference changed in-year and the previous pay and tax is incorrectly included in the “year to date” (YTD) totals.
  • We have received an “Earlier Year Update” (EYU) and this is yet to be processed to the account.
  • There is a duplicate employment (often caused by differences in works numbers and other changes throughout the year)

“We are urgently investigating these cases and will look to resolve the matter in the next 6-8 weeks.

“We currently do not know the scale of the issue, but some large employers are involved, so several thousands of employees may be affected.

“Next Steps

“We are very sorry that some customers will receive an incorrect 2013-14 P800 tax calculation.

“We are urgently investigating these cases and will look to resolve the matter and issue a revised P800 to the employee in the next 6-8 weeks.

“Employers and their agents should not send any 2013-14 EYUs unless requested by us. We are aware that there are still some 2013-14 EYUs which we have yet to process to the relevant account.

“If an employee asks about a 2013-14 P800 which they think is incorrect, they should advise them:

  • Not to repay any underpayment shown on the P800
  • Not to cash any payable order they may have received
  • Employees will not be affected by the incorrect tax code as we will issue a revised P800 before Annual Coding.”

Comment

RTI is not a disaster but it’s clearly not in a fit state to support Universal Credit – another uncertainty for UC. When the National Audit Office reports on UC, as it is due to do in the next few weeks, it would be useful if it also reports on the state of RTI.

If it does so report, the NAO should not take at face value HMRC’s claims that the fault with RTI lies mainly with employers.

[The NAO will find that, even after the modernisation of PAYE processes, the systems still incorporate COP/CODA/BROCS software that dates back more than 30 years.]