THIRD REPORT

INTRODUCTION
 

2.  The overall aim of the Individual Learning Account, which came fully into effect only in September 2000, was to widen participation in learning and to help overcome financial barriers to learning faced by individuals. Mr John Healey MP, Parliamentary Under Secretary of State for Adult Skills at the Department for Education and Skills [DfES], told us that the concept and policy were very much inspired by the Chancellor of the Exchequer.[1] The ILA programme was universal; everyone aged 19 or over (subject to some nationality and residency conditions) had a right to an ILA. The individual could choose how to 'spend' their ILA on training (subject to some exceptions) which could amount to a Government subsidy of £200 for certain courses priced at £250. From the individual learner's point of view, it was a fairly simple proposition: if you signed up for an ILA, you could get up to £250 worth of computer training, for example, for only £50. In giving evidence to this Committee on 12 November 2001, Mr Bryan Sanderson, Chairman of the Learning and Skills Council, described the ILA as "conceptually very clever".[2]
 

3.  The Government set itself only one target, that of reaching one million ILAs by March 2002.[3] In fact, the opening of the millionth account was announced in May 2001.[4] By the time of the scheme's suspension in October 2001 there were 2.5 million accounts logged on to Capita's computer system. The DfES told us that "it was clear that the light­touch, non­bureaucratic nature of the programme designed to reach non­traditional learners was successful — 1.4 million learning episodes were booked — but regrettably, this also enabled a minority of unscrupulous learning providers to act against the ethos of the programme".[5] The actual level of fraud, misuse and abuse of the ILA scheme may never be established, partly because no common understanding of 'misuse and abuse' has been achieved. What we do know is that over its first two years, spending on the ILA was at least £60 million higher than the expected £200 million.[6]
 

4.  On 24 October 2001, Rt Hon. Estelle Morris MP, Secretary of State for Education and Skills, announced that the ILA programme in England would be suspended from 7 December 2001.[7] On 23 November 2001, the ILA programme was shut down immediately, two weeks earlier than had been announced on 24 October.[8] ILAs featured prominently in an Opposition Day debate on 6 November 2001,[9] and were debated in Westminster Hall on 11 December 2001,[10] as well as in oral and written questions. So much time was taken up by ILAs in our initial meeting with Mr John Healey MP on 28 November 2001 in our introductory 'baseline assessment' series of Ministerial evidence sessions[11] that he agreed to return on 16 January 2002 to discuss the remainder of his Ministerial portfolio.[12] What he told us on that second occasion prompted us to postpone our planned programme of meetings and to launch an immediate fast-track inquiry into ILAs with the following terms of reference:

to examine the lessons from the closure of the Individual Learning Account (ILA) scheme, for the future of the DfES's lifelong learning strategy in England, with particular reference to:

• management

• policy

• plans for replacing the ILA scheme.

5.  In our fast-track inquiry, we took evidence from DfES officials, representatives of computer training companies, the independent researchers York Consulting, trades union representatives, the National Institute for Adult Continuing Education, the Association of Colleges, the Association of Learning Providers, the Learning and Skills Council, Capita (on two occasions) and Mr John Healey MP, the Minister for Adult Skills at the DfES.[13] In addition we received a large number of written submissions, some of which are published in Volume II accompanying this Report.[14]  

Background
 

6.  The idea of individual learning accounts had been around for a number of years.[15] The last Conservative Government proposed a similar system in its Competitiveness White Paper published in May 1994.[16] It appears that the results of pilots and consultation persuaded the Conservative Government that ILAs were not a sensible way forward, as they proved administratively complex and ineffective in reaching those most in need of re­skilling. The 1996 Competitiveness White Paper said:

"Improving individual motivation and participation is at the heart of policy. However, the Government is not convinced that individual learning accounts, linked to employer tax relief or incentives, are likely to broaden participation. In practice, they would be over­complex and more likely to subsidise existing activity. Progress would be better made through the further promotion and take­up of Career Development Loans and the current tax relief for vocational training."[17]

7.  We are concerned that the reasons for the Conservative Government's decision not to proceed with an individual learning account may not have been given sufficient weight by the Department in setting up their version of an ILA after 1997.

8.   The Labour Party Manifesto for the 1997 General Election contained a commitment to introduce ILAs, to be funded initially from Training and Enterprise Council [TEC] reserves:

"We will invest public money for training in Individual Learning Accounts which individuals — for example women returning to the labour force — can then use to gain the skills they want. We will kick-start the programme for up to a million people, using the £150 million of TEC money which could be better used and which would provide a contribution of £150, alongside individuals making small investments of their own. Employers will be encouraged to make voluntary contributions to these funds."[18]

9.  In February 1998, the Learning Age Green Paper confirmed that the Government intended to introduce a national system of ILAs and provided details of how a series of pilot projects would operate:

"2.14 We will test different approaches to learning accounts in preparing for a national system. For this work to provide useful answers, we need to test real reactions to different forms of learning accounts. As part of this work, and to provide impetus to learning accounts, we propose to support up to one million learning accounts, funded by £150 million from TECs' resources. These will be based on two main approaches to learning accounts: the universal and the targeted.

• the universal approach will offer accounts to anyone at work wanting to learn. Everyone will have to invest a minimum amount of their own money in their account, either as a lump sum or in the form of a commitment to regular saving. The Government will then support that initial investment, up to a maximum public contribution of £150 for each account. It will be open to others - for example, employers - to contribute to a person's account in cash or in kind;
   

• the targeted approach will use a proportion of these one million accounts to support particular learning or skill needs; for example, people without qualifications and in low­skill jobs, areas of skills shortage, employees in small firms and those seeking to return to work."[19]

10.  Mr Derek Grover, Director of Adult Learning at the DfES, told us that the universal offer and the targeted element of the ILA were "the issues that we addressed in designing how to deliver against the Manifesto commitment".[20] Mr Grover recognised that "getting the balance between those two of course is one of the things that we tried to get right this time and would want to address in producing a new policy."[21]

11.  Presented with a manifesto commitment, and a single target of one million users, insufficient attention was given both to the reasons for the previous rejection of an ILA scheme and to ensuring that quantity was balanced by quality. While the development of targets for the achievement of policy objectives is to be commended, such targets should be based on outcomes not tied to specific delivery mechanisms.
 

The TEC pilots
 

12.  In June 1998, the Government announced £2 million for 12 pilot projects to carry out development work on the new accounts. Three other projects outside the 12 development areas started later and were run in parallel with support from the DfEE. The development projects ran between 1998 and 2000.[22] The DfEE published the results of an evaluation in August 1999 which concluded that the biggest achievement of the development projects had been to demonstrate that it was possible to access non­learners through the ILA product, although it found that the techniques required had been "time-consuming and resource-intensive".[23]

13.  From April 1999, TECs in England operated local arrangements and offered a limited number of accounts, a proportion of which were targeted at particular groups, such as people returning to the labour market and those with no or low qualifications. By the end of September 1999, 56,917 individual learning accounts had been opened by TECs in England, to which TECs had contributed £2,927,749.[24]

14.  Mr Peter Lauener, Director of the Learning and Standards Group at the DfES, told us that TECs were more likely to use their existing provider network.[25] Mr James O'Brien, of Pitman Training Group plc and the Association of Computer Trainers, told us that —

 "The TECs were doing a number of pilots which were successful because they understood who they were dealing with and were, therefore, able to make sure that the learning providers were known but equally would not prevent new providers coming in".[26]

15.  The implications of opening up the scheme to new providers not known to TECs was not thought through either in terms of the quality of learning on offer or the risk of fraud. As a significant change to the pilot scheme, this should have merited greater consideration.
 

Saving to learn - the original delivery model
 

16.  The DfES told us that the original delivery model, piloted in a variety of forms through Training and Enterprise Councils, envisaged the concept of a real, as opposed to a virtual, account where individuals could bank and save their own money in addition to any other contributions from, for example, Government, employers and trade unions.[27] Mr Derek Grover explained that the initial model the DfEE looked at was "one in which we were trying to develop something that looked much more like an account in the sense of a financial services instrument, so we began a very extensive series of discussions individually and collectively with a range of financial institutions to see if we could develop some sort of public/private partnership with one or more of them to deliver individual learning accounts".[28] After "really very extensive discussions with financial institutions, it became plain we were not going to be able to set up with them a model that enabled us to work jointly with them to offer individual learning accounts".[29] There were two reasons for this —

• market research showed that individuals were not particularly interested in saving for learning. They were quite prepared to borrow for learning and in some circumstances to pay for it, but saving for it as a proposition was not something that appealed very much so there did not seem to be a great deal of market for it.

• the financial institutions themselves were not especially interested in developing a product of this sort.[30]

17.  Faced with the rejection of a savings­based model (which had not been considered by the previous Government), the Department turned to models which had been considered and rejected. The reluctance of the private sector financial institutions to develop the ILA was significant.

18.  The National Institute for Adult Continuing Education [NIACE] doubted whether the banking metaphor at the heart of the ILA policy had anything to offer the hardest­to­reach learners, given that more than 2 million adults do not use any mainstream financial services at all.[31] Another estimate is that up to 7 million people in the UK have no current account at a bank.[32]

19.  The DfES decided to keep the concept of the individual, universally available, account but based on discounts for learning. It was felt that a new delivery mechanism was necessary in order to achieve the sort of cultural change in attitudes to training that was desired. In order to be sufficiently attractive for individuals to contribute to their learning, the mechanism had to be empowering, giving control and freedom of choice. Equally, the level of discount had to be sufficient to incentivise individuals to manage, plan and invest in their own learning throughout their lives, whilst ensuring they retained a personal stake through individual contributions.[33]

20.  Far from being a savings account, protected by the individual's lively sense of looking after their own money, the ILA now became in effect a kind of voucher.[34] This was the point where there should have been a fundamental re-think about the whole ILA project. Once the savings concept had been replaced by a straightforward offer of a Government-subsidised discount, the name "Individual Learning Account" ceased to be a strictly accurate description of the scheme.

The National Framework

21.  Building on the remit set out in the Labour Party Manifesto, there were extensive consultations in developing the ILA policy. The Department actively engaged learning providers and other key stakeholders and partners, for example, through the consultative document ILAs Making Them Succeed (July 1997); ILAs Development Guide (April 1998); and a Windsor consultation (24­25 June 1999). Following the Budget Statement in March 1999 and the development of the statutory framework through the Learning and Skills Act 2000, several seminars were held with learning providers and other partners in 2000.[35] KPMG advised the DfES throughout the development phase of the national framework.[36] We expect that the National Audit Office will examine closely the quality of the contribution made by KPMG and the adequacy of the Department's response to the advice it received.

22.  Mr Derek Grover of the DfES could not recall specific discussions with other Government Departments on the vulnerability to systematic fraud of the model chosen for delivery of ILAs.[37] The Audit Commission had warned in 1998 that "computer crime is on the increase and while key risks remain new dangers are emerging".[38] In his foreword to the 1998 Beating Fraud Green Paper, the Prime Minister had pointed out that "all kinds of fraud, from petty 'fiddles' through to criminal gangs setting out to defraud the system of hundreds of thousands of pounds, take money away from where it is needed most".[39] He pledged that the Government would work across boundaries - with all Government departments, and with local authorities and others - to share expertise and create a professional approach to anti-fraud work. We regard the failure of the Department for Education and Skills to learn from the mistakes made in the past by its predecessors and other Government Departments to be one of the most disturbing aspects of the ILA experience.

23.  Sections 104 to109 of the Learning and Skills Act 2000 granted the Secretary of State regulation­making powers to set up a framework for ILAs in England and provided equivalent powers to the National Assembly for Wales. The Individual Learning Accounts (England) Regulations 2000 (S.I., 2000, No. 2146) were laid before Parliament on 8 August 2000 and came into force on 1 September 2000. Parliamentary debate on these Regulations, laid during the summer recess under the 'negative' procedure, was not required.[40]

24.  To qualify for an account, individuals had to be aged 19 or over and ordinarily resident in the UK. Individuals had to register with a body approved by the Secretary of State. The Secretary of State had wide­ranging powers under the regulations to decide the amount of any grant paid in respect of an ILA holder, the level of discounts for courses and the types of education, apart from secondary or higher education, which might attract the grants.[41] In practice, many of these details were set out in documentation issued by the DfEE and included the following features:

• To open an ILA an individual had to contribute at least £25;

• The first million accounts opened, including those accounts opened through the TECs during the pilot stage, would receive a grant of £150 from the Government;

• Once one million accounts had been opened, holders of ILAs would be able to claim a 20 per cent discount on most courses up to a maximum of £100;

• Certain courses attracted an 80 per cent discount up to a maximum of £200 in any one year and these discounts were available in addition to the £150 grant to the first million account holders;

• Incentives were payable only against any part of the course fees paid for by the learner and not any part of the course fees paid for by a third party such as an employer;

• Certain kinds of learning were not eligible — mainly recreational and sporting activities where the outcome was in pursuit of leisure rather than learning, for example, skiing lessons.[42]

The 80 per cent discount and the end of vocational tax relief

25.  The Chancellor of the Exchequer announced in his 1999 Budget that "for all adults signing up to improve on their basic education -- including computer literacy -- there will be a discount of 80 per cent on course fees. And we will pay for this measure in tax-free learning by phasing out existing vocational tax relief which has been paying for non-vocational courses like diving and flying lessons."[43] The courses qualifying for the 80 per cent discount were limited to a narrow range of IT and Maths courses specified in the DfEE guidance, such as NVQ level 1 Using Information Technology, the European Computer Driving Licence and GCSE and Key Skills 2 Maths.[44]

26.  Vocational training tax relief [VTR] had been announced in the 1991 Budget and came into operation in April 1992. VTR was available on payments for activity which could count towards a National Vocational Qualification [NVQ] (up to and including level 5).[45] The relief did not depend upon succeeding in getting the qualification, and there was no need for claimants to be studying (or intending to study) for an NVQ, as long as the claimant was learning something which was capable of counting towards the NVQ. Basic rate relief operated on the 'at source' principle like MIRAS - Mortgage Interest Relief at Source - through the training provider who registered with the Inland Revenue and claimed reimbursement from them on the basis of claim forms collected from trainees, including non-taxpayers. Higher rate taxpayers claimed the basic relief like everyone else and then claimed the additional amount on their annual tax returns. Non­taxpayers could claim because the deduction was allowed at source. Mr Bert Clough of the Trades Union Congress described vocational tax relief as "a very blunt instrument".[46] The number of claims never rose above 300,000 in a year and the annual cost to the Exchequer of VTR at its peak was £60 million.[47]

27.  The Government continued explicitly to link the introduction of individual learning accounts to the withdrawal of vocational tax relief.[48] The Association of Computer Trainers stated that, in order to remain competitive, learning providers in both the private and public sector had to become involved in ILAs; to remain outside the scheme once VTR had been withdrawn was not a viable alternative: "a lot of the people who trained with us used ILAs as a means to fund their training whereas previously they would have used Vocational Training Relief".[49] The Association of Colleges argued in their September 2001 paper that past experience with vocational tax relief gave reason to doubt that the 20 per cent discount available for other types of training would be sufficiently powerful to make ILAs the route of choice for many learners.[50] The National Extension College pointed out that "with the end of ILAs there is now no form of government help with the costs of courses for learners outside the publicly funded education sector".[51]

28.  The Association of Computer Trainers advocated the return of vocational tax relief as "a simple, short-term expedient" until a replacement scheme for the ILA could be rolled out.[52] Although we understand why the return of Vocational Tax Relief might be seen as an attractive option, in our view the central priority is to roll out a reinvigorated version of the Individual Learning Account.

29.  The introduction of the 80 per cent discount was a crucial step in widening the attractiveness of the ILA to unscrupulous operators. For example, a customer would have to pay £50 up front and might receive training that was worth, say, £150, costing the provider £100 more than the £50 he received from the customer. The provider could claim £200 from the Government, in addition to the £50 from the customer. So the customer would have received training worth three times what he paid, and the provider could claim twice what it cost him to provide the training. There was no check or audit which would have uncovered such systematic abuse of the scheme. There was no check on the provider to give good value for money, and no incentive for the customer to complain.

30.  The different levels of subsidy gave rise to another possible abuse. York Consulting found that a small number of people listed on Capita's database as 80 per cent discount holders [for basic IT and numeracy skills] were doing ineligible courses such as feng shui, plumbing or accountancy.[53] Miss Jane Owens of York Consulting reported that "one provider to whom we spoke in the early survey said that, because there was confusion about which courses were eligible for ILA support, he tended to get people to fill in the form and send it off and wait to see what happened".[54] One of the concerns about the lack of security features in Capita's ILA Centre is the failure to pick up inappropriate use of the 80 per cent discount. The delivery model
 

31.  Under the universal national framework, some specific groups were targeted through marketing: women returners, younger workers with low skills or few qualifications, self­employed people and non­teaching school staff. ILAs were also a mechanism to encourage the development of wider choice and innovation in the delivery of training and to attract new providers, not just established providers known to TECs and the Further Education Funding Council. This in turn would support improvement in the training market as individuals and their funding would flow away from inefficient and ineffective providers and make room for new providers, particularly those operating in smaller niche markets and with new, non­traditional learners.[55]
 

32.  Because the objective was to bring in new learners and providers, the programme was designed to be simple and flexible for the learner and provider with the minimum of form-filling. The programme was designed to open up the learning market and to place as few restrictions as possible on what people could choose to learn; placing real purchasing power and consumer choice in the hands of learners for the first time. ILAs were not, however, intended to be a guarantee of quality of learning or learning providers as such Government endorsement might give an unfair market advantage to registered ILA providers.[56] Mr Derek Grover of the DfES told the Committee "There is an old saying - 'If you do what you always did, you get what you always got' - and we really wanted to get some different learners involved and some different providers".[57]
 

33.  A large number of providers signed up to deliver learning paid for by ILAs — 8,910 by the time the scheme was closed down.[58] We welcome the entry of new and innovative providers into the market for delivering lifelong learning. 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.
 

34.  The Association of Computer Trainers described the structure of the ILA scheme as "fundamentally flawed"[59] with shortcomings that were "preventable and avoidable".[60] Mr Stuart Ingleson of Preston College said that "the scheme was set out in such a way that it was a licence to print money".[61] He referred to "the sound of slightly hollow laughter"[62] at the decision of the Government to pull the plug on ILAs, because —

"the people who have worked in this sector since incorporation have been here twice before already. The FEFC administered a scheme called the Demand-Led Element Funding, which ... was almost identical in principle and concept to the Individual Learning Account. That was stopped when it exceeded any budget estimates that had been made for it. The FEFC had to engage in a very humbling retraction in mid-year - it left a lot of colleges in some difficulty and a lot of students promised activity that they were never able to pick up. We have had a similar experience in franchising ... we had similar issues around that and the numbers were at a very, very high level and there were budget considerations. The ILAs have been extremely successful. It is clear that you cannot live with a completely uncapped budget in terms of delivering a project of this size."[63]

35.  Our predecessor Committee described the Demand-Led Element [DLE] as "an important incentive for encouraging growth" in the FE college sector.[64] The DLE was an uncapped source of funding, additional to the main allocation to each college, which provided a spur to rapid growth for colleges. It was withdrawn at short notice during the financial year 1996-97, when the then Government decided that bids by colleges for DLE funding would lead to an unacceptable increase in expenditure.[65] According to Mr Guardino Rospigliosi, Principal of Richmond upon Thames College and then Plymouth College of FE, "the DfEE and its predecessors had a good record of planning and it was in this context that the Treasury felt there was not too much risk in offering an open­ended commitment to fund growth in excess of DfEE forecasts through the demand­led element formula".[66] The risk turned out to be too great for the Treasury to bear and the Government decided that all FE funding was to be claimed against the cash­limited section of the Departmental Estimate.[67] Although there are substantial differences between the DLE and the ILA, the Treasury and the Department had reason to be cautious about open-ended commitments to fund learning. As we commented above,[68] the failure of the DfES to learn from past experiences, such as franchising and demand-led funding, is a matter of concern.

Public/private partnership

36.  The demise of the Individual Learning Account provides an interesting case study in collaboration between the public and private sectors. The Government appointed Capita to run the Individual Learning Accounts Centre, following a full tendering exercise under EC rules. The contract, dated 2 June 2000, was valued at around £55m over a five-year period.[69] The Centre was required to provide services to individuals to enable them to open an ILA; to answer queries people had about accounts; and to provide annual statements to people about learning they had done using their account. It was also required to provide administrative support to learning providers who had learners with Individual Learning Accounts. The Centre was required to calculate the relevant discount so that the individual would only have to pay the balance. It would then contact the Department who would pay the remaining balance to the learning provider. Individuals were able to apply to become account holders and providers could register with the ILA Centre from June 2000.

37.  The Department retained responsibility for the policy framework and overall design of the ILA programme, including the eligibility conditions for individuals and the definition of eligible and ineligible learning for funding. Capita was responsible for translating the policy intentions set out in the contract into a robust and functional system and for the operation of the system and associated call centre facilities to deliver the ILA programme. Their interpretation of this policy was presented in the form of a Business Rules Handbook, which was agreed by both the Department and Capita.[70] The Department told us that they and Capita jointly reviewed the services provided against the detail set out in the contract using formal quarterly and annual review mechanisms and by way of an annual customer satisfaction survey, and that changes made to the service became part of the formal change control process.[71] The Department's evidence was rather complacent, given that the process failed to indicate at an early stage that the ILA scheme was running into problems. The change control process clearly did not work.
 

38.  The Individual Learning Account was not a Private Finance Initiative project, nor strictly a Public Private Partnership. Capita was hired to provide a service within the limits of the policy design and delivery model drawn up by the DfES. Despite the out-sourcing of service delivery, the risks in effect always remained with the Department. Surprisingly, the potential expertise of Capita in designing systems to be fraud-resistant was neither called upon, nor offered. The opportunity to use private sector expertise in policy design fell between the two stools of policy [retained in-house by civil servants] and delivery [narrowly defined by the contract as performing operations to a required standard].
 

39.  The contract was further developed to reflect the requirements of the ILA service and the needs of a new public/private partnership approach to delivery. In particular, the contract specified a series of service, performance and payment details. A multi­disciplinary team, consisting of DfES policy, finance and procurement staff, external consultants and commercial lawyers, conducted negotiations with Capita. Those negotiations, together with contract signing, were overseen by the ILA Project Board which included a range of policy officials and specialists (Finance, Internal Audit, Procurement). DfES Ministers were involved in key stages of the process and were kept informed of progress.[72] There is nothing in the evidence we have received to suggest that Ministers sought advice from other Government Departments, or even heeded warnings from within their own Department, on how to protect such a scheme from unscrupulous opportunists.
 

40.  In a written answer, Mr John Healey stated that the DfES "employed a team of four who were responsible for day-to-day performance monitoring, issue resolution, contract finance and budget management. These people, supported by specialists employed within the Department were also engaged in matters relating to the 7 December planned closure of the individual learning account programme. An assessment of the compliance of Capita Business Services in their provision of services at the individual learning account centre is integral to standard contract management arrangements."[73]

41.  Mr Derek Grover of the DfES told us that:

"It was not Capita's job to be expert on the quality training provision; that is not what they were asked to do in their contract. What they were asked to do was to run the system that brought together the providers' claim for funding in the individuals' account and their entitlements and to bring those two together. There was a system of provider registration but it was a very basic system; it simply required them to say who they were and give the contact name and the details that were required to do that processing work I have described. It was not a quality assurance system".[74]

42.  Mr Grover added: "Clearly we were alert to issues around IT security. That was very much built into the contract discussions with Capita. We took expert external advice on those issues".[75] By contrast, Mr Roger Tuckett of Henley Online described the level of computer security as "pitifully low".[76] The fact that a provider "could enter a single number and not even have to cross­relate it to the surname, for example, was crazy. The fact that the number was a numeric number rather than alphanumeric meant that there were ten options rather than 26 and so on".[77] Capita's ILA Centre gave any provider who joined the system unlimited access to individuals' accounts.
 

43.  Mr Paddy Doyle of Capita admitted that once providers had been admitted to the system "it was very open scheme" and that the numbers of accounts "were purely in the scheme as reference numbers".[78] Mr Simon Pilling of Capita explained that an authorised learning provider with their authorised user ID and password could go on the system and draw out information from the system.[79] An unscrupulous provider could trawl the database and submit claims for having trained any individual on the system whose account had not already been spent.
 

44.  Ms Caroline Lambie of Hairnet suggested simple steps to preserve the security of the database:

"people who typed in the wrong number three times should have been shut out of the system in the same way if you are trying to register with your online banker. People who were registering more than 1,000 students per week per centre should have been shut out of the system because there is no way any training centre could train that many people in a week. There are simple things that databases can do and it does not take an IT expert to understand that. I do not know who commissioned it or what consultancy they received on designing databases but certainly it was a very simple system".[80]

45.  Mr Paddy Doyle of Capita said: "looking back on it now, looking closely at the sequence of events, as we have done in our investigations, I believe we should have shouted louder and harder at that time about things that we were identifying".[81] He assured us that although "there was an element in the contract which was volume-based" there was no incentive for Capita to ignore fraud and abuse of the system.[82] Mr Simon Pilling of Capita told us that "the client, in this case the DfES, gets best value from organisations like us taking a risk on what the volumes will be, and that is what has happened".[83] Mr Doyle told us that Capita "share our part of the blame in that the scheme has gone wrong".[84]

46.  There is a tendency to exaggerate the confidentiality of the Government's commercial contracts. A large FTSE-100 company like Capita is bound by Stock Exchange rules on disclosure, for example, which might include announcements about the value of the major contracts and their effect on future earnings. Once the competitive tendering process is over, it may be questioned whose interests are being served by continuing secrecy. Mr Doyle described the ILA Service Provider Agreement as "an open book contract in terms of costs and profits and all those kinds of things".[85] We appreciate the willingness of the DfES to supply us with the Service Provider Agreement [except for the details of the actual prices in the structure] and other documentation relevant to the conduct of the ILA contract.

47.  The lack of prior scrutiny of the delivery model did nothing to improve the ILA scheme's chance of success. We recommend that in future the non-confidential clauses of any such major Service Provider Agreement should be laid before Parliament at least three weeks before coming into effect, in order to allow interested parties and this Select Committee to assess the practicality of the proposed delivery model.

The individual contribution
 

48.  A fundamental principle of the design of the ILA scheme was that individuals had to pay a contribution for their learning. This personal investment aspect of ILAs was not only intended to give learners greater control over their personal development but also to increase their personal stake so that they would make sensible and informed decisions about their choice of learning.[86] Mr Peter Lauener of the DfES told us that the requirement for the individual to make a contribution was an important element, although he accepted that having to make a contribution did not equate to satisfactory quality assurance on its own.[87] The DfES had in some cases secured the recovery of public money where the individual contribution had not been made.[88] Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers told us "we have certainly found that the more that an individual contributes to the scheme, the greater their ownership and the greater their desire actually to complete that course and complete that experience".[89] Mr Rodger said that York Consulting had found that about half of ILA users heard of the account through a supplier:

"The way in which it is meant to work is that an individual opens an account and is therefore empowered to purchase learning on an informed basis and he/she shops around. Clearly, some did that but it is also quite clear that others were perhaps introduced into a particular kind of learning by a supplier and in many cases did not realise that the account was part of that".[90]

49.  Mr Healey said that in a successor scheme the individual's control of the ILA should be emphasised more strongly "because if we are going to realise the policy ambition of this, then the individuals involved, taking out the accounts and then taking up the learning helped by the account, need to understand more clearly the sort of mechanism that they are using".[91]

50.  Mr Stuart Ingleson of Preston College commented that "in practice, I would say that this is actually not a demand­led scheme at all. It has been a provider­led scheme and it is only through the promotion of it that we have attracted many of the individuals that we have".[92]

51.  Commercial providers have made a significant contribution to widening knowledge about and access to ILAs, but naturally this contribution was based on the expectation of a direct financial return. If the individual learning account mechanism is to be better understood, users should be told more clearly - but still simply - that far from being tied to a single provider it is designed to enable choice between providers. We recommend that in the successor scheme to the ILA providers should be required to make clear to learners that the learners have a choice about how, when and with whom they use their ILA.

52.  In the period leading up to the roll-out of the ILA scheme in September 2000, more than 50,000 individual accounts were opened. Most of these (about 80 per cent) were generated by individuals who had requested an personalised application pack from Capita's ILA Centre. The ratio of personalised application packs mailed out from the ILA Centre to accounts opened was approximately 2 to 1.[93] In that quarter, the remaining 10,000 individual accounts were generated from the 481,000 non-personalised application packs distributed to registered learning providers, employers, and others. The next Quarterly Review, for December 2000 to February 2001, recorded that ILA membership was increasingly (60 per cent) obtained through the use of non-personalised forms.[94] The use of non-personalised forms indicates that the opening of the account was probably stimulated by the provider. In the following quarter, 988,539 accounts were opened and Capita reported that sub-contractors would be used to clear the backlog of non-personalised application forms and to insure that future influxes of applications on non-personalised forms were handled effectively.[95] Between June and August 2001 the trend continued, with 83 per cent of members joining through a non-personalised application form.[96] Non-personalised applications were no longer accepted after 25 September 2001.[97] One of the reasons for withdrawing the use on non-personalised application forms was doubt about whether the individuals in whose name the applications were being submitted really existed. According to Ms Denyse Metcalf of Capita —

"self-certification of membership - ie not to have proof of an individual's existence - was one of those amendments which was introduced in May 2000, so that it was no longer deemed necessary for people to provide additional documentation to prove they existed".[98]

53.  Mr Derek Grover of the DfES said that the practice of providers submitting block applications was "one of the areas it became apparent was a source of abuse and we did end that practice and make that unacceptable".[99] Until remedial measures were taken in the summer of 2001, Capita's ILA Centre could not prevent unscrupulous providers creating accounts for individuals whom they had not trained, or who did not even exist.

Accreditation of providers - learndirect
 

54.  Mr Paddy Doyle of Capita stated that the scrutiny of providers was outside Capita's remit.[100] In the original model envisaged in the Service Provider Agreement, it was proposed that registration of providers should be conditional on being already registered with learndirect.[101] As Mr Simon Pilling of Capita told us, "at the time the system was developed, we were working to a specification which said we were talking about accredited learning providers in relation to the learndirect system".[102] It was later recorded in the Business Rules that, in a change of function from ILA Centre to DfEE, accreditation of learning providers was the responsibility of the DfEE.[103] It had not proved possible for the information about learning providers on the learndirect database to be transferred directly on to Capita's ILA Centre database.[104] It is not clear to what extent work on building the learndirect database was carried forward or whether a target date was set for implementation. Neither is it clear what steps the DfEE took to give effect to its newly­acquired responsibility of accrediting learning providers. One of the key differences between in­house and out-sourced working is that any design change has explicit cost implications and rigorous change control mechanisms are needed. These are not apparent in this out-sourcing. The Business Rules recorded that interim arrangements would have to be made while work continued on building the learndirect database .[105]
 

55.  Using the brand name learndirect, the DfES's University for Industry [Ufi] provides a range of services including online courses which can be accessed at home, at work or at one of the learndirect learning centres and an impartial information advice service (which includes a telephone helpline and website holding a national database of learning opportunities).[106] There is also a national database, covering the full range of learning opportunities, operated by learndirect which lists more than half a million courses, including further education, higher education, private and learndirect provision. Any learning provider can be included on the database free of charge. Providers need simply to apply (via the website[107]) to have their courses included. From the evidence it is not clear whether the learndirect database, even if usable, would have fulfilled an accreditation function. It seems surprising to this Committee that Capita was not able to make a speedy assessment of the suitability of the learndirect database to provide assurance on the quality of providers and to advise the Department accordingly.  

56.  The unavailability of a list of accredited training providers undermined a key part of the ILA structure. Mr Paddy Doyle of Capita told us "at the very start when the system was being built, we believed that we were going to be hooking up to a database which was accredited. By the time the decision was made that that was not possible and it was not going to happen, the system was built".[108] Ms Denyse Metcalf of Capita underlined the point: "At no point was the registration by ourselves meant to represent a validation. It was a registration to provide learning under the scheme".[109] As Mr Peter Lauener of the DfES pointed out, "There is always a slight danger of confusing quality assurance arrangements with registration arrangements".[110] The DfES confused quality assurance with registration. It is this confusion which lies at the heart of the ILA debacle. Without a quality threshold or any systematic audit, there was nothing to stop unscrupulous opportunists signing up as providers on the ILA database.
 

57.  Without a quality threshold for providers to join the scheme it was left up to the individual account-holder to decide what course to take and whether it represented value for money. Ms Denyse Metcalf of Capita told the Committee —

"one of the lessons for me in this is that a number of people who were entering learning, which was very laudable, were people who had not had experience of learning and therefore with hindsight they were perhaps not the right people to make the judgement on the quality of the product".[111]

58.  Ms Caroline Lambie of Hairnet described the lack of vetting procedures for learning providers as "shocking".[112] Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers told us that he was "astounded that the lack of quality accreditation was so great".[113]
 

The £200 cap
 

59.  When the 80 per cent discount for a specific list of courses[114] was introduced there was no cap on the eligible course costs that could be claimed.[115] The DfES admitted that "Regrettably, some unscrupulous providers exploited this to charge inflated prices";[116] Mr James O'Brien alleged that "the scheme was abused from day one when it was in an uncapped period".[117] Ms Denyse Metcalf of Capita told us that —

"As early as October 2000 we were aware that some of the courses had not got a capped limit, so prices were rising, and we brought that to the attention of the Department, and they acted upon it and a ceiling was put upon course values".[118]

60.  On 20 October 2000, it was announced that in future the Government contribution for each training episode would be capped at £200. This move limited the amount that the Government might be charged for any single episode; but it left the scheme open to abuse by unscrupulous providers with the resources or imagination to multiply the number of false claims they were prepared to make.

61.  On 20 September 2000 Mr James O'Brien, the Managing Director of Pitman Training, wrote to Ministers to express concern that the programme was open to abuse, and also that the cap on each individual's ILA account had been set at too low a level.[119] Mr Healey has confirmed that this was "the earliest correspondence we have traced on the specific topic of potential misuse of the ILA scheme."[120] Another early example of foresight was drawn to our attention by Mr Geoff Hall of the Learning and Skills Council.[121] The minutes of the termly meeting between DfEE officials and the Further Education Funding Council [FEFC] held on 13 July 2000 record that the then Director General of Lifelong Learning at the DfEE "noted the concerns of FEFC members about the possibility that public funding routed through ILAs might not be subject to the usual rigorous quality arrangements, depending on the providers involved".[122] The Department apparently failed to heed the warning, given three months before the national roll-out of the ILA scheme, from its own experts on the Further Education Funding Council, of the risk to public funding if rigorous quality arrangements were not put in place.
 

The emerging picture - who used ILAs?
 

62.  Although the Association of Colleges said that anecdotal evidence suggested the availability of ILAs as a universal scheme, accessible to all and with only a limited attempt at targeting, had meant in practice that take up of ILAs had been strong among better qualified groups, with little penetration among those with poor levels of attainment or little recent history of learning,[123] Mr Stuart Ingleson of Preston College told us that he had "absolutely no doubt that [ILAs] brought us into contact with students who otherwise would not have been there".[124]
 

63.  York Consulting described their work as "a barometer or a dipstick research approach to look at some of the key activities, characteristics, perceptions and processes that were going on in terms of ILA operation. It was not designed as a thorough evaluation in the broadest sense".[125] Mr John Rodger of York Consulting told us that in relation to learning providers the York Consulting study was a very qualitative piece of research,[126] although the main survey of account holders did represent a significant sample.[127]
 

Statistics for the period up to 29 June 2001 [HC Deb 19 July 2001 vol 372 col 404-5W].
 

64.  The key findings of York Consulting's study, carried out between February and May 2001 and published in September 2001, included:

• "Demographics - a wide range of earners is represented amongst ILA holders in terms of, for example, employment status, social class and age group. ILAs were proving to be particularly attractive to women, with 59 per cent of the sample being female. Over half of the redeemers[128] were within the 31-50 age group, 43 per cent were in managerial, professional or associate professional occupations.

• Previous learning - the vast majority of redeemers (84 per cent) already possessed some form of qualification, with almost two-fifths (39 per cent) saying that they possessed a qualification equivalent to NVQ level 4 or above. Only 16 per cent of the redeemer sample stated that they had no qualifications at all. (This figure is slightly lower than that given within the Labour Force Survey 2000 which found that 16.5 per cent of the UK working age population had no qualifications.)

• Courses supported by ILAs - in general ILAs were supporting courses over a range of NVQ levels and via a wide range of delivery methods.

• Marketing - national and local marketing of Individual Learning Accounts did not have any significant impact upon the involvement of DfES target groups in ILAs. Most providers did not undertake any targeted marketing of ILAs and tended to advertise them to those individuals who enquire about training provision."[129]

65.  According to the Association of Colleges, further education colleges cited an extensive range of courses on which ILA account holders had enrolled. Although computing and information technology , including European Computer Driving Licence, Internet based training [IBT], Computer Literacy and Information Technology [CLAIT], internet technology, and computer-aided design [CAD], figured prominently many others were mentioned including administration, word processing, horticulture, garden design, floristry, languages, photography, building crafts, engineering, electrical installation, mathematics, open college network programmes, hairdressing, beauty, body massage, health studies, early years, management, teacher training and counselling.[130]
 

66.  In July 2001 the DfES asked York Consulting for rapid limited evidence to compare and contrast people who had opened their accounts early on in the national framework with people who had opened their accounts after 1 May 2001.[131] This small scale follow-up study was commissioned in August 2001. The field work, based on a follow-up telephone survey of 659 ILA holders, including 359 individuals previously contacted as part of the Spring 2001 survey, was carried out between 20 August and 10 September 2001. The Research Brief was due to be published in October 2001, but came out on 14 January 2002.[132] Mr Rodger described this delay as "quite normal".[133] The research showed that:

• 91 per cent of ILA learning met or exceeded expectations

• 85 per cent of ILA redeemers said the ILA had increased the training/learning options open to them

• more than half ILA redeemers (51 per cent) said they had little (27 per cent) or no (24 per cent) prior knowledge of the subject(s) they were studying with ILA support

• 22 per cent had not participated in any training/learning in 12 months preceding ILA use

• 16 per cent of ILA redeemers had no previous qualifications

• 54 per cent of redeemers said their ILA made them more interested in learning

• ILAs continued to attract more women than men (66 per cent of recent redeemers were female compared to 59 per cent of redeemers in the spring 2001 survey)

• in common with the previous survey the majority of recent redeemers (82 per cent) possessed some form of qualification prior to opening their ILA

• over half of recent redeemers (56 per cent) were employed ­ this is lower than in the previous survey (69 per cent)

• over half (54 per cent) of recent redeemers said that they would have been able to pay for their most recent ILA supported course without their ILA. This suggested a higher level of 'deadweight' than that of the earlier study, where it had been suggested that 44 per cent of redeemers could have paid for their course without an ILA.[134]

67.  The York Consulting researchers were puzzled that the data Capita gave them for the follow-up study proved to be unreliable.[135] Miss Jane Owens of York Consulting told us that the DfES had asked Capita to provide them with approximately 1,500 records of people who had opened and used their accounts, but when the telephone calls took place it was discovered that about 27 per cent of those called said that they had not used it.[136] Mr John Rodger of York Consulting said that "at the time we suggested that it may be due to some data issues in terms of information given by Capita, who managed the information system. Their initial reaction was that it was probably a data issue, or may be a recording issue in terms of the information that they received".[137] Under the Market Research Society code of practice, it was not possible for the DfES to chase up these individuals directly to inquire how it had come about that Capita thought their accounts had been used.[138] One possible interpretation of these facts is that the ILA Centre was incapable of providing the appropriate sample on request to the Department's contracted researchers. Another would be that by the summer of 2001 around one in four of those entered into the database as having completed training had had their discounts stolen by an unscrupulous provider before any training had taken place.
 

The emerging concerns - 'deadweight'
 

68.  Mr Chris Hughes, Chief Executive of the Learning and Skills Development Agency, told the Committee on 31 October 2001 that ILAs were enormously popular but "inevitably there was a deadweight factor, in that they were going to people who were already involved in the system".[139] The National Institute for Adult Continuing Education [NIACE] expressed the view that "that the near-universal offer was an expensive way to widen participation because of the amount of deadweight".[140] In a written answer, Mr John Healey stated that —

"With any universal offer deadweight will exist. Although not an exact calculation, an assessment of deadweight within the ILA programme can be based upon the evaluation evidence drawn from a series of hypothetical questions. Based on the sample selected the first stage evaluation showed that 44 per cent of account holders said that they would have been able to pay for their course without their ILA discount."[141]

69.  The cited figure of 44 per cent comes from the work carried out by York Consulting, who stated that there was conflicting evidence over how many ILA holders would have done the training anyway: "this level of potential deadweight is not surprising when you consider that ILAs are not means tested and are open to everyone over 19 years of age in England".[142] Mr Rodger of York Consulting said that "the amount of targeting that went on in terms of marketing was not significant ... That is one of the conclusions and recommendations that we drew, that if they wanted to get further into the new learner target group they would have to adopt a different approach to marketing and promoting the initiative".[143] Mrs Sammy Betson of Ipswich ITeC told us that she was in favour of universality —

"we were starting to get to the target areas, and by definition they have been out of the education and training system, and that is why we are trying to get at them, because they have been out of it. You cannot then expect them to be first through the door".[144]

70.  Mr Geoff Hall of the Learning and Skills Council said that there were "some fundamental issues" about targeting and that "one of the difficulties about the ILA scheme was coping with fee policy. In many cases, the reason that disadvantaged people do not show up in your figures is because they were getting 100 per cent fee remission."[145] Providers funded by Learning and Skills Councils are not permitted to charge course fees to adult clients (or their dependents) on means-tested benefits or to those on basic skills programmes.[146]
 

71.  Mr Alastair Thomson of the National Institute for Adult Continuing Education [NIACE] told us that he was "not convinced that it is the best use of public money to pay people to do what they would do anyway".[147] The Trades Union Congress expressed a slightly different concern, that ILAs should not be used for training which was job-related and which would otherwise have been paid for by the employer.[148] It is of course difficult to make a precise assessment of how much training paid for using ILAs would in fact have taken place without the stimulus of the ILA incentive.
 

72.  We note that 57 per cent of people of working age in England have no qualifications above level 2,[149] that 24 per cent of adults in England experience difficulty with either literacy or numeracy or both[150] and that these people are least likely to be offered training in the workplace or to actively pursue learning opportunities at home or in their communities.
 

73.  We recommend that any successor scheme to the ILA should be focussed 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.
 

The emerging concerns - over-spending
 

74.  Mr Derek Grover of the DfES confirmed that the ILA scheme "did take off a great deal faster than we had expected, far faster than the market research ... had suggested".[151] By September 2001 expenditure on the programme had reached some £180m and had doubled since May 2001, reflecting rapid programme expansion over the period, exceeding all expectations.[152] Ms Denyse Metcalf of Capita told us "we shared in the delight of the Department that it had been an extraordinarily successful scheme as it appeared at that point".[153]
 

75.  By 2 May 2001, the commitment to reach one million Individual Learning Accounts (964,000 in England) had been met, a year early, and an average of 3,000 accounts were being opened each day. At that time, more than half the people who had opened an ILA since January 2001 had not been in learning in the last three years. The DfES told us that ILAs were clearly achieving the aim to make learning more affordable and accessible and playing their part in encouraging people to take responsibility for their own learning and development. Expenditure on the programme had reached some £90m at this point and the majority of this was on payments to learning providers for the introductory £150 ILA incentive using recycled TEC resources.[154]
 

76.  The Department set aside a budget of £202.1 million over the two years 2000 ­ 01 and 2001 ­ 02.[155] This was based on achieving 1 million ILAs by April 2002. Spend up to 31 January 2002, following the high level of take up of ILAs, was £268.8 million.[156] The final overspend, which will not be known until later in 2002 ­ 03, will depend upon a number of factors, in particular: the full extent of claims outstanding for learning booked at 23 November 2001; the extent to which claims will be validated after investigation and analysis by officials; and the amount of money recouped from providers who have filed invalid claims for payment. The DfES assured us that the final overspend would be met from within the Department's existing budget and resources had been identified for the successor programme.[157]
 

*In evidence on 23 January, the total over-spend to date on ILAs was estimated at £ 62.9 million, with further payments of up to £13.5 million to follow as claims from November 2001 are processed (QQ.29-30). The estimate of the total overspend [as at the end of February 2002] was £66.9 million.
 

77.  On 28 November 2001, the Chairman of the Select Committee asked Mr Healey when he had the first meeting or any meeting with the Treasury to discuss the ILA. Mr Healey replied that he was "more content to prepare for the Committee a schedule of the points at which we consider we took particular decisions and in particular to identify the points at which any discussions or notifications were made to the Treasury in advance of that decision we announced on 24 October".[158]
 

78.  In his supplementary written evidence following the 28 November evidence session, Mr Healey wrote —

"When I gave evidence to the Committee on 28 November, I agreed to provide more information about the points at which decisions were taken regarding ILAs. As the Committee is aware, there were two critical decisions that we took. The first was the decision announced on 24 October that the ILA scheme would be withdrawn from 7 December; and the second was on 23 November when we decided that the scheme should be closed with immediate effect. In both cases, after considering all available information, the Secretary of State took the decisions and then informed the Prime Minister, the Chancellor of the Exchequer and Ministerial colleagues of her decision before the announcements were made public on 24 October and 23 November respectively."[159]

79.  The DfES told us that they took into consideration both the unexpected scale of the programme expansion and the sharp increase in the volume and nature of the complaints.[160] As Mr Hugh Pitman of the Association of Learning Providers put it, "the ILA programme has, to a large extent, been a victim of its own success".[161]
 

80.  Without access to the detailed notes of confidential discussions between Treasury and DFES officials, we cannot know how large a part the desire to rein in over-spending played in the demise of the ILA. This is not a satisfactory position and we have requested the Secretary of State to provide us with the relevant papers.  

The increasing number of complaints
 

81.  Mr Paddy Doyle of Capita described the growing evidence that things were going wrong as "a creeping thing that crept up on us over a number of months".[162] He told us that —

"In the first nine months, we were getting no evidence of learning providers misbehaving or not getting the right calibre of learning providers through, the volumes were right, the level of complaint was low. It looked sensible. Unfortunately in the spring or so of last year, some learning providers seemed to cotton onto the fact that there was some gain to be had and suddenly we started to see evidence coming through that you have already seen".[163]

82.  Mr John Healey told us that "what clearly happened over the summer was that we started to get evidence of complaints about the sort of activities and learning providers that were very much after a quick buck, very much after subverting the spirit and breaking the rules of the scheme, and they were the problem for us".[164]
 

83.  By the end of July 2001, some 3,000 complaints had been received and by the end of August 2001 this had risen to 4,300. By the end of September 2001, Capita had received 6,053 complaints (0.25 per cent of account holders). By the end of October 2001, complaints had reached nearly 8,500. These complaints covered a range of issues, including the ending of the £150 incentive, but a significant
 

Source: DfES memorandum Annex 1 Ev120.
 

proportion related to money being taken from individuals' ILA accounts without their knowledge and others concerned the operation of ILAs by learning providers which suggested possible abuse and mis­selling. In addition there were a number of allegations of potential fraud.[165] Over the summer, the Department received growing volumes of complaints from individuals and Trading Standards Officers about mis­selling, aggressive marketing, poor learning, poor value for money and alleged fraud.[166]

84.  York Consulting reported in September 2001 that high levels of satisfaction were evident amongst 'redeemers' and 'non-redeemers' both with the service provided by Capita's ILA Centre staff and the overall service provided by the Centre, although providers expressed higher levels of dissatisfaction - these were mainly in relation to, for example: slow website operation and delays in processing individuals' applications.[167]
 

85.  The Service Provider Agreement stated that Capita would provide a system "that can receive, monitor, report on and resolve complaints".[168] Ms Denyse Metcalf of Capita told us that all those complaints that appeared to have substance [ie, they were not sorted in terms of a discussion with the provider either confirming that they had made a mistake or the individual perhaps remembering that they had actually attended courses] were handed across to the Department and followed up on a day-to-day set-up.[169] In December 2000, the Quarterly Review for September to November 2000 recorded that a formal complaints and appeals procedure was in the process of being finalised.[170] Successive Quarterly Reviews reported that individuals had complained specifically about their allegedly unfair loss of incentive through a learning provider confirming a course attendance which the individual did not actually attend: 28 in the quarter from December 2000 to February 2001,[171] 87 in the quarter from March to May 2001.[172] During the following quarter, from June to August 2001, more than 2,600 complaints were received in the quarter which "often" related to a course confirmation that an individual did not attend or to non-compliance issues.[173]
 

86.  The Association of Computer Trainers described the performance of Capita in operating the ILA Centre as "woeful".[174] Ms Caroline Lambie of Hairnet reported that "if you phoned Capita you got people in the call centre who were just there to put information into the system, they were not there to deal with any complaints. There was no complaints mechanism at all".[175]
 

87.  There were two strands of weakness in the complaints mechanism. The complaints procedure did not allow providers to complain when the individuals they had trained had already had their account raided by another provider registered on the system. The requirement to count the complaints that Capita did receive from individuals and the practice of handing any complaints of substance over to the Department for investigation did not amount to a robust procedure either for resolving individual complaints or for detecting underlying problems in the design of the scheme. The handling of complaints was a crucial part of the contract and Capita failed to meet the terms of the contract. Both types of complaint mechanism, for the provider and for the learner, failed badly in the ILA scheme and any successor scheme will have to perform much better in recognising, handling, remedying and learning from complaints.
 

88.  Mr Keith Humphries of Dataplus Computer Services told us that they found calling the ILA centre to be "really irritating". According to Mr Humphries, "the call centre staff sounded young, impersonal although not impolite. It just seemed that they did not have a complete grasp of the job they were doing or perhaps just hadn't received adequate training".[176] Mr Martin Bayliss of TABS Limited told us that Capita only allowed the individual student to call the centre with any complaints, even though it was the learning provider who really lost out if they lost a prospective customer.[177] The Association of Computer Trainers said that throughout the fifteen month period of ILAs, application forms were lost, delayed, and all too often misread by the software used to scan in applications.[178] Mr Paddy Doyle of Capita admitted that because the take-up of the scheme was so much greater than expected, "we experienced some service issues and dipped below our service level agreement on occasions".[179] It seems likely that some early indications of fraud were too readily dismissed as 'computer error'.
 

89.  The quarterly service review for June to August 2001 was the first to register concern about the number of complaints about service providers: "an adverse aspect of the quarter has been the increasing number of learning providers who have come under suspicion of at worst fraud and at best negligence in not following the spirit of the Scheme's regulations and procedures. During the quarter Capita submitted proposals for the establishment of a Quality Standards and Prevention Unit to support DfES initiatives in this area".[180]
 

90.  Head-Line Communication told us that in general they felt poorly served by Capita's ILA Centre.[181] Mr Stuart Ingleson of Preston College told us that Capita had been "dreadful"; Mr David Gibson of the Association of Colleges said there had been "deep concerns".[182] Mr Ingleson told us that it was particularly difficult for the less experienced learner faced with "a very complex, to them, web­based administration system and a telephone help line that did not work".[183] In the circumstances, suggested Mr Ingleson, it was not surprising that they struggled and had difficulties with the administration. I do not know what the specification was that they were given, but I do know at that interface between learner and us and the system we had huge difficulties".[184] Mrs Sammy Betson of Ipswich ITeC told us that Capita were sometimes difficult for providers to get hold of and "once we came to the point where there were difficulties with people having had their ILAs used, then it became very difficult to get through to them".[185] Mrs Betson was refused any opportunity to talk to a supervisor or to customer services: "In fact, it was very difficult to get anywhere with their customer services line other than, 'thank you, we have made a note of it'."[186]
 

91.  Mr James Rees of Usdaw told us that what Usdaw picked up was that increasingly there seemed to be problems with Capita towards the summer period in 2001: "They were taking a long time to return information ... that then produced a lot of problems with the training set-up when the Capita agency had not responded. .. they were having a problem over the slowness with which things were getting processed".[187]
 

92.  York Consulting reported in September 2001 that providers expressed dissatisfaction in relation to, for example: slow website operation and delays in processing individuals' applications.[188] Mr Martin Bayliss of TABS Limited wrote that "the turnaround times from Capita were unacceptable".[189] Ms Barbara Walsh of Longridge Training Centre wrote that "the people we talked to seemed very young and had an impersonal call-centre approach to the job. ... Sometimes, we would be given an answer which seemed improbable so we would ring again and be given a totally different answer. The only thing to do in those circumstances was to ring once again and adopt the two-out-of-three answer".[190] Ms Iris Hill, an independent trainer working for Hairnet, wrote to tell us that "I rang the ILA centre to be told that there was nothing they could do ... There was no interest at all in hearing about potential fraud".[191] Mr Healey said that the DfES was "aware that the Capita system sometimes struggled in logging on, and transacting the business that learning providers wanted to do was sometimes difficult".[192]
 

93.  York Consulting's Research Brief stated that their Spring 2001 Report had made a number of recommendations including the need to create national marketing material, development of the ILA Centre website and improving the ILA application form.[193]
 

Misuse, abuse and fraud
 

94.  Mr Lauener of the DfES told us that "There is plenty of evidence that unscrupulous providers started to exploit the scheme in a major way from about the summer onwards".[194] He told us that "the cause of the more recent problems is the unauthorised access by unscrupulous providers to the system, those providers already having access in respect of any of their own learners that they had that they were working with and providers then going beyond that to get access using their user ID into other parts of the system".[195]
 

95.  As at 30 November 2001 5,732 complaints had been received from individuals about ILA incentives taken without their knowledge, out of over 2.6 million account holders.[196] Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers told us —

"training providers or organisations had access to the Capita database, once you were into that system if you were given a password to get in there as a training provider you could go and tap in anybody's number and come out with the money being drawn down into your area. If you go back to the summer when the first announcements were that one million accounts had been opened but two and a half million had been registered, that meant you had a 60 per cent chance of hitting a number that nobody else was going to use".[197]

96.  Mrs Sammy Betson of Ipswich ITeC told us that as a learning provider "it was very difficult to blow the whistle" when she came across evidence that an individual learner's account had been emptied without authorisation.[198] Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers told us that —

"on many occasions when learners went into a training provider, gave them their PIN number to access the system, the learning provider would then go on to the system and find that person's money had already disappeared. The problems that then came from that were that Capita would not allow the learning provider to try and interrogate that, the learner had to go and contact Capita themselves who would then tell them where the money had been withdrawn from. A lot of people could not be bothered to do that but those who did would then phone the companies, if they could get through to them, and find "I am very sorry, we must have mistyped the digits". That money was long gone. How many people did not bother following that up?".[199]

97.  Capita admitted that "in hindsight ... it should have been more robust in the manner in which it sought to persuade the Department to make changes to improve effectiveness."[200] 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. The culpability of Capita was matched by that of the Department, in particular for not demanding more robust anti­fraud mechanisms in their specification.
 

98.  Ms Vivienne Parry gave us examples of fraud and abuse dating back to March 2001, some of which she had publicised in the News of the World including bogus promises of City & Guilds Diplomas, the unlicensed use of Microsoft software and unqualified tutors.[201] Mr Healey recognised that the News of the World had "done a particularly good job in exposing some of the small number of providers who have been misusing the scheme over the last few months".[202] The Association of Computer Trainers dated the entry of 'street traders' into the ILA market back to February 2001.[203] Head-Line Communication told us that "bona fide trainers had to fight arrivistes whose only interest in training was its ability to earn them quick money for no effort".[204]
 

99.  Rumours abound of massive fraud involving up to 80,000 ILAs in a single case.[205] As Ms Emma Solomon said, "if you are going to defraud it you are not going to just take £200".[206] Other anecdotal evidence suggests that shoddy practice was widespread, for example, door-to-door 'selling' of ILAs to sign up applicants in return for a worthless CD.[207] Ms Denyse Metcalf of Capita said that unorthodox methods were not necessarily unsound: "one of the things I think was very successful in ILA 1 and I hope we do not lose, was that the market became imaginative and the market did actually capture new individuals who were not previously accustomed to being involved in education. It would be very sad if that went".[208]
 

100.  Not all of the misuse of ILA funds amounted to criminal activity. As Mr Geoff Hall of the Learning and Skills Council put it, "on top of possibly some, but I suggest very limited, fraud, there were a lot of scams apparently but also what I would call hacking in to the computer system".[209] Mr Stuart Ingleson of Preston College found "quite staggering" the lack of checks required in ILA providers compared to the stringent accountability applied to FE funding: for example, students only had to attend once for the ILA to be paid in full.[210] Mr Healey drew a distinction between misuse/abuse of the spirit and the rules of the scheme and outright fraud.[211] The Committee is concerned that, although there has been a multiplicity of rumour about scams and frauds, there is very little hard evidence of the extent and amount of fraud actually committed against the ILA scheme.
 

101.  It is a matter of concern that, while Ministers were clear that misuse and abuse had taken place, alongside fraud, they were unable to provide either an exhaustive list or a working definition of misuse and abuse. The Department needs to be clear about which activities are unacceptable.
 

Remedial measures
 

• The formation of a Compliance Steering Group;

• Requiring all ILA Providers to sign and return an ILA Learning Provider Agreement from 30 June 2001;

• Removing 700 Providers who did not sign the Learning Provider Agreement from the Register on 14 July 2001 (105 were subsequently reinstated after signing the agreement);

• Issuing a learner leaflet entitled Choosing Your Learning in August 2001;

• A compliance letter sent to all learning providers on 15 August 2001;

• Stopping third parties automatically receiving supplies of blank application forms;

• Increasing DfES and Capita resources on the investigation of complaints and cases for potential abuse;

• A complete re­draft of the Learning Provider Guidance (overtaken by the closure of the scheme);

• Setting up a joint DfES and Capita Compliance Unit, operational from 24 September 2001;

• From 28 September 2001, the Department suspended the registration of new providers and required that all ILA applications had to be made via the ILA Centre. Non­personalised applications were no longer accepted.[212]

103.  Ms Denyse Metcalf of Capita told us that a number of providers were taken off the register because they did not return the re-registration form which included a commitment to pay back any monies not paid correctly.[213] The June to August 2001 Quarterly Service Review shows that the total number of suspensions for not returning the form was 504 [414 private, 90 public].[214] The Quarterly Review stated that "another reason for suspension of learning providers has been the non-compliance of providers",[215] although the numbers permanently suspended appear to have been very few.[216]
 

104.  Mr Derek Grover of the DfES said that "there were cases where people would be suspended from the list of providers and, in effect, would set up in business again under another name".[217] Ms Denyse Metcalf of Capita said that —

"we did have discussions with the Department about the speed of re-registration. That was one of the reasons why in the late summer we stopped new registrations so that organisations under investigation could not simply open up somewhere else. That was one of the things we would want to tighten up much more. As you are well aware, it is easy for people to buy a company, set up some directors and effectively operate without any of the names from the first company appearing on the second company".[218]

105.  Mr Peter Lauener of the DfES said that there were many arrangements where third party selling of learning using the ILA as an incentive, perhaps from door to door, could be "an extremely bad thing, where there is no interest in the learning on the part of the third party or the provider" but only where it was "purely due to a desire to make money out of the scheme, so it is that which is bad rather than necessarily the third-party selling".[219] Trusted intermediaries such as trades union learning representatives also had a part to play in the promotion of ILAs, which the TUC argued provided a kind of quality guarantee.[220] Mr James Rees of Usdaw told us of how his union worked with closely with the employers —

"We tried to develop ways of working jointly with employers so that we could encourage staff to return to learning. Most Usdaw members come from the difficult groups that were talked about in the earlier evidence, those hard to reach groups. As a consequence, our learning reps had a difficult job of work sometimes in encouraging people to return to learning. They were also mostly people who were unlikely to get much in the way of development for their job­related training or learning. If someone drives a forklift truck, there is only a certain amount of job­related training they are going to get. So we encouraged people to engage in career or personal development learning. The numbers which came through us were quite high".[221]

106.  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.
 

107.  In its response to the Department in October 2001, the Association of Computer Trainers was concerned that new restrictions should not deter individual learners; in their view the most important thing was to apply quality assurance before admitting learning providers to the scheme.[222]
 

108.  The steps taken over the summer and the early autumn of 2001 to tighten up the operation of the scheme had clearly not stopped the problems. The DfES admitted that "the rules and the robustness of the scheme were simply not sufficiently strong to allow us to prevent the misuse, and at the margins, outright abuse and some fraud that clearly was creeping into the system".[223]
 

109.  Mr Peter Lauener of the DfES said that "The judgment we took was that it was too risky an option to stop and patch and re­launch as soon as possible. We had to get to the bottom of all the problems".[224] Mr John Healey said that the steps taken were not sufficient to stamp out the abuse and misuse that was going on and therefore the Department had to take the only responsible decision it could have taken and shut down the scheme.[225] Mr Healey later stated that "the design of the scheme did not allow us to stamp out abuse".[226]  

Withdrawal of ILAs
 

110.  The decision to withdraw the ILA scheme with effect from 7 December was taken at an internal meeting in the Department on 18 October and announced on 24 October 2001.[227] Over 8,500 registered providers and 2.6 million account holders were then informed individually in writing.[228] In its initial announcement on 24 October 2001, the DfES played down the fraud angle and gave as the principal reason for closing the scheme that it had outstripped the financial resources available. In her statement, the Secretary of State said:

"The programme has attracted over 2.5 million account holders and has been a great success in bringing down the financial barriers to learning. ILAs have opened up access for a great many people to a wide range of learning opportunities. However, the rapid growth of the scheme has exceeded all expectations, causing us to think again about how best to target public funds in this area and secure value for money."[229]

111.  Abuse of the scheme was given only second billing in the announcement on 24 October:

"I also have concerns about the way some ILAs have been promoted and sold. There is growing evidence that some companies are abusing the scheme by offering low value, poor quality learning. We are keen that this does not undermine what has been a very successful programme and so we are acting quickly to protect the interests of individual learners. We have therefore decided to prevent any further take­up of ILAs ... learning begun by existing account holders will continue to be supported provided it is booked with the ILA Centre by 7 December."[230]

112.  The DfES Press Release announcing the initial suspension stated :

"Education and Skills Secretary Estelle Morris today announced that the Individual Learning Account (ILA) programme is to be suspended from December 7 in England¼ The Government is ¼ concerned by evidence that some ILAs have been exploited by companies providing poor value for money. To tackle these concerns, the Government has decided to suspend its current ILA programme."[231]

113.  We note that at around this time Ministers in the DfES were putting the finishing touches to the document Education and Skills Delivering Results A Strategy to 2006 which included as one of only two milestones for 2002 a commitment to "expand individual learning accounts".  

The sudden shutdown
 

114.  On Wednesday 21 November 2001 an approach was made to the Department by an ILA learning provider alleging that a third party had offered to sell them a large number of ILA account numbers. The Department arranged for a member of its Special Investigations Unit [SIU] to visit and interview the learning provider the next day. At the interview the SIU official was presented with a computer disk that had been passed to the learning provider, allegedly as evidence of the authenticity of the offer to sell ILA account numbers. The disk contained almost one thousand full names, addresses and contact details as would have appeared on the ILA record, as well as ILA numbers.[232]
 

115.  Checks on the disk confirmed the data to be live ILA account numbers which had either not been used at all (and which were therefore still available for use to claim funding) or which in some cases had been used to make a claim in the previous few days. The SIU conclusions were presented to Ministers on Friday 23 November. In the light of the confirmed evidence that the disk contained ILA numbers which had been obtained from the ILA database and the allegations that very large numbers of such ILA account details were being offered for sale, Ministers concluded, in line with police advice, that immediate closure of the programme, two weeks earlier than planned, was the only way to protect public funds.[233] Capita's analysis suggested that there were only four providers about whom they were particularly concerned in relation to abuse of the IT system.[234] Mr Paddy Doyle of Capita conceded that "there were a number of other issues going on and that does not necessarily refer back to the IT system".[235]
 

116.  The DfES Press Release announcing the immediate closure of the scheme on 23 November 2001 stated :

"The Department for Education and Skills today called in police to investigate alleged fraud and theft involving Individual Learning Accounts (ILAs).

Officers from the Department's special investigations unit had discovered irregularities on Thursday after being contacted by an ILA provider.

This afternoon, the ILA programme was shut down immediately, two weeks earlier than planned. The ILA programme was to have been suspended from 7 December.

The inquiry is ongoing and the Department is unable to comment further for fear of compromising the investigation."[236]

117.  Mr Paddy Doyle of Capita confirmed that Capita's investigations identified "no evidence of a breach of security nor hacking of the system in place" and "no evidence of any Capita employee being involved in illegal or illegitimate activity".[237]
 

118.  Ms Emma Solomon of Hairnet said that when the deadlines were announced about the closure of the scheme "the website not only slowed down but actually crashed and went out of action".[238] Mr Tim Addison of FutureTeach Ltd told us that from before 4 in the afternoon on Friday 23 November 2001 his firm was unable to access the ILA web site to put on bookings. Mr Addison said that he was told before 5 pm that the system had been taken down for essential maintenance but would be re­available by 6.30 pm. He told us that the official line was that the system closed at 6:30 pm on that Friday, but Mr Addison alleged that this was not true. He estimated his losses from being unable to post claims on that day amounted to over £10,000.  

Compensation for learning providers
 

119.  The Association of Computer Trainers complained that DfES had reneged on their promise to accept legitimate training arranged prior to 7 December 2001 by closing the website early. Many responsible and professional providers had honoured the contracts entered into with clients to deliver subsidised training for those holding a valid Individual Learning Account, at great cost to the financial viability of their business.[239] The National Extension College was "dismayed at the lack of notice over the ending of the scheme".[240] Mr Roger Tuckett of Henley Online estimated that the closure of the ILA scheme could result in "2,000 to 5,000" job losses.[241] Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers told us that it was "very difficult to get information on the size of the market" but he assumed there could be up to 5,000 people squeezed out from IT training centres or forced to move to other areas of training.[242] Mr Healey told us that the DfES had no systematic way of gathering data on the job losses and bankruptcies resulting from the closure of the ILA scheme.[243]
 

120.  The Association of Colleges conducted a quick postal survey of member colleges on 30 November 2001 to ascertain the effects of the early closure on colleges. Of the 105 colleges able to submit returns by 22 January, 84 colleges reported that they expected to suffer a loss of income amounting in total to £1,225,111 as a result of the early closure of the ILA programme. Colleges generally expected to have to meet this loss of income in order to honour commitments to students.[244] The Principal of Preston College, Mr Stuart Ingleson, estimated the loss of income for his college at £260,000.[245] When the scheme was halted prematurely in November 2001, Preston College had chosen "to honour our marketing and the commitments we had made to our students."[246] According to Mr David Gibson: "the colleges did this in good faith, the money was withdrawn and, therefore, compensation would be quite legitimate."[247]
 

121.  The Association of Computer Trainers estimated that three quarters of the 250 training centres they surveyed would have to make redundancies or face closure by mid-2002 because of the withdrawal of the ILA scheme.[248] Mrs Sammy Betson of Ipswich ITeC told us that "our cash flow has taken a serious knock".[249] Providers' experience of being left stranded by the sudden closure of the ILA scheme may affect their willingness to operate the successor scheme: Mrs Betson said that "the question of whether or not we would participate in a future scheme is whether we have a spoon long enough".[250]
 

122.  Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers told us 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 7 December and they should honour that commitment".[251] Mr Healey said that the DfES "simply had no other option" than to close the scheme immediately on 23 November.[252]
 

123.  Mr John Healey has repeatedly made it clear that the DfES has no plans to compensate learning providers in relation to the closure of individual learning accounts—

"I do not want to mislead any learning provider ... that somehow there is provision that we can make to support their business as a result and in the immediate aftermath of having to withdraw the scheme. If I have been tough about that it is because I do not want anyone to mistake what I have said or to be misled that somehow it can be a lifebelt of public money which will continue to support their operations".[253]

124.  We do not express an opinion on the legal status of the Department's relationship with learning providers. We do however note that while the Minister has reiterated that "there was no contract between the Department and learning providers, and therefore we are not considering claims for compensation for those providers", he also stated that "a new learning provider agreement" had been introduced.[254] It is difficult not to see this "agreement" as introducing reciprocal obligations between its signatories.
 

125.  It should also be noted that Government intervention in a market has a distorting effect of a different quality from that of market entry by a commercial competitor. The latter is affected by the same economic rules (relating to risk, staffing, borrowing, etc.) as those already in the market. Government risk is less because Government is backed by the taxpayer and the power of legislation and regulation; its power is greater because it can shift a market. Providers with an established market position may have little choice but prepare to participate in a Government scheme rather than be overtaken by competitors. That is not an argument against Government involvement, merely an indication that Government should recognize its strength and not use it inadvertently to damage other players in the market.
 

126.  The Parliamentary Ombudsman is investigating several individual complaints that mal-administration of the ILA scheme has resulted in unremedied injustice to learning providers and individual account holders. We await the Parliamentary Ombudsman's findings with interest.
 

127.  We recommend 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 of the scheme. The Department should appreciate that the way the date for closing the ILA was brought forward caused a great deal of difficulty for many learning providers, both large and small, and this should be borne in mind when launching any successor scheme.
 

Continuing investigations
 

128.  Since November 2001, investigative work has been continuing. By the end of January 2002, the total complaints received had reached nearly 18,300 (0.7 per cent of account holders). Of these, some 5,800 related to money being taken from individuals' ILA accounts without their knowledge.[255] Other complaints of a serious nature included poor value for money, aggressive marketing techniques, individuals contributions not being collected and unsolicited learning materials being sent to learners. The DfES assured us that all such complaints would be followed up. These complaints related to some 670 providers out of the total of 8,910 registered providers.[256] Mr Healey said that the DfES had "very strong and proper grounds for withholding payment" from certain providers.[257]
 

129.  The DfES told us that internal and police investigations were necessarily thorough and would of course take time, particularly with such a high volume of cases.[258] As at 16 April 2002, the SIU was dealing with 117 registered learning providers against whom complaints had been received. Of these, the police (nine forces: City of London, Metropolitan, Leicestershire, West Midlands, Cheshire, National Crime Squad, Kent, Cumbria and Dorset) were investigating 80 learning providers. The DfES Special Investigations Unit was discussing a further 16 learning providers with the police.[259] Mr Lauener of the DfES pointed out that the number of account holders in the West Midlands as a proportion of the population was certainly significantly higher than other regions, and that there were probably more cases of ILA fraud in the West Midlands than in other parts of the country.[260]
 

130.  By early April, police had made 45 arrests. Ten people had accepted cautions and charges had been brought against 13 people, one of whom had already been convicted.[261] Those figures include a National Crime Squad investigation of animal rights extremists which had incidentally uncovered ILA fraud for which 38 people had been arrested, of whom 12 people had been charged and a further 10 people had been cautioned. A total of £4.47 million of payments was still being withheld from the 80 providers referred to the police and the 16 providers whom the SIU were discussing with the police.[262]
 

131.  The DfES told us that work was underway to resolve a range of outstanding issues resulting from the closure of ILAs. These related to the implementation of payment procedures to enable the validation and processing of legitimate claims from providers; follow up and investigation of learner complaints; and action to pursue recovery from providers for monies wrongly paid. The Department told us that it was allocating significant resources to help ensure that these matters were dealt with as swiftly as possible.[263]
 

Notes: A learning provider may be included on more than one payment run. Payments made on 20 December 2001 were for claims for learning made with the ILA Centre up to and including 21 November 2001; payments made on 25 January 2001 were for claims for learning made with the ILA Centre up to 23 November 2001: the other payments were for learning booked but not confirmed at 23 November 2001, apart from those where payment had been withheld, to cover subsequently confirmed periods of learning booked on the ILA payment system. Source: DfES.
 

132.  On 31 January 2002 officials wrote to all learning providers explaining the arrangements for payment of validated, eligible advance bookings of learning on the ILA Centre system up to 23 November. The latest date for confirmation of booked learning will be 22 May 2002.[264] Claims have been invited from providers for learning booked on the ILA centre system, but not confirmed by the closure of the Individual Learning Account programme on 23 November, with start dates between 1 September 2001 and 31 March 2002. Providers for whom payment had previously been withheld had not been invited to claim. The DfES has made number of payments, which are now being made on a monthly cycle. Where the Department has complaints or other concerns, payments are withheld pending the outcome of validation checks and investigations [see Table above].[265]
 

133.  Since the closure of the Individual Learning Account programme on 23 November, payments of £8.16 million have been made to 2,883 registered learning providers and payments of £15.12 million to 223 learning providers have been withheld pending results of validation checks and investigations.[266] Mr Healey assured the Committee that all serious complaints were subject to follow­up and where evidence of potential fraud was found the complaint was passed to the Department's Special Investigations Unit (SIU).[267]  

Lessons
 

134.  The Secretary of State has given "a cast­iron guarantee that we will build on the huge success of ILAs in the next few months and ensure that further plans for progress on adult learning will take the best from the best scheme that has ever existed, but also remedy its shortcomings".[268] Hairnet commented ironically that "the term 'cast-iron' is not recognised by most spreadsheet applications".[269] Mr Healey told us that there were important lessons to learn not only in relation to any successor ILA scheme but also for the Department as a whole and "I think there are also some important lessons for us across Government from the experience we have had of this scheme".[270]
 

135.  The Association of Colleges highlighted a number of issues as a result of the early closure:

• disenchanted students who had lost an entitlement to public support as a result of the closure or of fraud;

• adverse publicity for providers as well as for the ILA programme and Government;

• resolving the problems of how to deal with students for whom ILA support had been expected but had been lost as a result of the scheme's closure;

• uncertainties over the nature and timing of any replacement programme.[271]

136.  Capita "believes that there are several important lessons to be learned from the operation of the ILA scheme and the subsequent abuse of information that has come to light. We would wish to contribute to this learning process in order to enable any re­launch of the scheme".[272] Mr Paddy Doyle of Capita told us that "any re­launched scheme will need to balance being non­bureaucratic with the need for tighter systems and business process, along with new verification, validation and auditing processes".[273]
 

137.  Mr Bryan Sanderson, Chairman of the Learning and Skills Council [LSC], said that the LSC had been asked by the DfES "to comment and to consider what we will do". In his view, "there is ... an enormous need for good professional management of anything like this, and clearly in this case that was somewhat lacking. There were just too many abuses. The decision to suspend them was almost inevitable but we do have to come back at them".[274]
 

138.  The DfES told us that "We are determined to get to the bottom of what has gone wrong and our investigations have already identified a number of lessons which we need to draw on in designing and managing a successor programme. We will also ensure the lessons are shared more widely across the DfES and other Government Departments. There are still a number of strands of this work under way, however, and we will be updating this assessment as further analysis becomes available. In particular, we will shortly have a report on system security from Cap Gemini Ernst & Young and we will make available the main findings from this review in an updated 'lessons to learn' in our response to the Select Committee's report".[275] We recommend that the report on system security from Cap Gemini Ernst & Young should be placed in the House of Commons Library as soon as it is available.
 

139.  Mr Healey has also indicated that the results of the review of the development and management of Individual Learning Accounts by the DfES's Head of Internal Audit requested on 12 November 2001 by the Secretary of State would be made available to the House "in due course".[276] We recommend that the results of the review of the development and management of Individual Learning Accounts by the DfES's Head of Internal Audit should be placed in the House of Commons Library as soon as it is available.
 

140.  The DfES summarised the conclusions they had drawn so far as follows:

• "In terms of policy design, we need to build in stronger quality assurance mechanisms so that we minimise the chance of unscrupulous providers benefiting from the programme. This is a strong message that has come through from providers themselves. In designing a new programme, however, we will need to balance the need for stronger quality assurance with the need to preserve as much as possible of the simple non­bureaucratic processes which have also been a key to engaging new learners and learning providers;

• A related issue is that we need to develop better intelligence about unscrupulous providers and ensure that this is shared amongst different funding and contracting agencies. We plan further analysis of the companies where we are taking forward formal investigations to identify any links with other companies previously involved with fraud and abuse;

• There are important lessons about the process of risk identification and management. The ILA programme was managed with a risk log but it is clear with hindsight that this focussed too heavily on the risk of failing to meet programme targets. The Department should have specified a full business model for the ILA programme and subjected this to tests of how abuse could have occurred. This would have allowed us to identify other risks and design better monitoring systems to pick up early warning indicators. We will build this approach into the successor programme;

• There are also lessons about the management of a public/private partnership of this kind. We will build in stronger and clearer contract management arrangements into the successor programme, based on the risk analysis set out above as well as on performance and financial information;

• There are also important lessons about security when running open, non­bureaucratic programmes. It is clear from our experience with the ILA scheme that a balance must be struck between openness and security. We and Capita agree that any future ILA programme will require stronger security measures across the entire operation to guard against those who are intent on mis­using the programme. There will be a need for a tighter security architecture across the successor programme and more rigorous monitoring and management of the security arrangements".[277]

141.  Mr Simon Pilling of Capita told us that "you only learn by delivering a scheme and running a scheme and incorporating the changes back in. It is not particularly unusual to have a number of revisions when it is a new scheme".[278]
 

142.  Accountability and risk should not stifle innovation in the delivery of public services. The Public Audit Forum[279] is committed to adopting an open-minded and supportive approach to innovation and supporting well thought through risk-taking and experimentation.[280] We recommend that the National Audit Office should take a close interest in the ILA failure, but we expect its analysis to take a balanced approach as far as risk-taking is concerned.
 

143.  The Department should have undertaken a full risk assessment of the ILA scheme, which should have been aimed not at designing all risk out of the programme, but rather at understanding the level of risk which was being accepted in return for a recognised benefit such as ease of access.  

Developing a new scheme
 

144.  On 25 October 2001, the Secretary of State announced plans to develop an ILA­style successor programme building on the best of the original — one that attracts non­traditional learners, one that balances measures to protect the public purse, provides simplicity for the learner and avoids bureaucracy for providers.[281] Usdaw argued that the replacement for the ILA, making learning affordable for the lower paid, was the key to narrowing the learning and digital divide.[282]
 

145.  The National Institute for Adult Continuing Education [NIACE] acknowledged that ILAs were a "bold and innovative experiment", but said that they found ILAs "unconvincing" as a centrepiece of policy. Rather, they should be seen as "an interesting niche product".[283] The Learning and Skills Development Agency suggested that "a future role for ILAs should be developed within the mainstream of post-16 policy".[284] NIACE cast doubt on whether the basic concept of discounting was a long­term means of demonstrating the value of learning.[285] NIACE argued that other initiatives such as Adult Learners' Week and bite­size courses had been rather more successful in reaching non­participants.[286] Mr Michael Stark of the Learning and Skills Council confirmed that the bite-size programme was "extremely successful" and "very cost-effective".[287]
 

146.  As Mr James Rees of Usdaw put it, the ILA was "was not the only tool in the toolbox to try and make the learning affordable".[288] NIACE believed that future government initiatives should build upon three principles:

• choice and breadth — "encouraging adults to value learning and to invest their own time and money in it is not helped by prescription or proscription. Allowing prospective learners to begin their journey where they want to start is crucial in motivating the least motivated";[289]

• entitlements — "allowing prospective learners to access resources ring­fenced for their learning reduces the perception of financial risk associated with participation";[290]

• putting control of resources in the hands of prospective learners rather than providers — "it is important to remember that the ILA scheme was not brought down as a result of putting trust in learners".[291]

147.  The Association of Colleges said that they "very, very strongly support" the ILA as a successful means of marketing learning to people who would not otherwise have had it.[292] The Association of Colleges would be trying to ensure that in any re­launch of the programme the weaknesses of the original design, such as the lack of adequate mechanisms for ensuring quality assurance, probity and value for public money, and the unnecessary complications of the administrative system were eliminated.[293]
 

148.  Mr Paddy Doyle of Capita recognised that "the business model in terms of a completely open, non­bureaucratic system with IT systems at the back end which were mirroring that openness was wrong. It did not work. We now have to back off and rebuild a business model which tries to keep the best things from ILA 1 but tries to close down all those things where the business model obviously failed".[294] Ms Denyse Metcalf of Capita also suggested that the contractor might be more pro-active in developing a risk register for different kinds of providers and producing more reactive management information reports, such as exception reports, to alert the Department to take action on any emerging issues.[295]
 

149.  The Association of Computer Trainers believed that a successor to ILA could be reintroduced swiftly by:

• "accreditation of learning providers and/or training materials through acceptance of the independent accreditations (including from government agencies) held by all legitimate providers;

• involvement of local Learning & Skills Councils, who know the local market and who know the learning providers in the area;

• an adequate regulatory and compliance framework, to ensure correct controls are in place, without making the scheme unworkable;

• provision of clear and unambiguous guidelines for learning providers, with version numbers for clarity and understanding".[296]

150.  We highlight below some of the key features which need to be addressed in the re-design and relaunch of the ILA. Our advice to the Government is that before launching the new scheme, they should ask themselves: how can we most effectively provide high quality training in a way that makes it difficult to abuse the scheme?
 

Partnership with private sector
 

151.  Mr Paddy Doyle told us that Capita would hope to be involved in the next scheme, "but we have to prove our worth and that we are going to add value to the next scheme".[297] There should not be an automatic assumption that Capita should be the provider to take forward any new ILA scheme. The Committee notes the contrast between the Department's continuing co-operation with Capita and its refusal to consider compensation for learning providers.
 

152.  Capita proposes that there should be:

• prior accreditation and verification of learning providers, particularly those who wish to be approved for provision of distance learning;

• authentication of an individual's existence during membership applications;

• guidance and advice for account holders on the type of course available under the scheme and on the quality of the training which they should have expected;

• verification and monitoring of the courses and the take up ­ particularly with regard to differential and targeted take up;

• regular account statements issued to account holders when incentive payments are claimed to enable them to check their accounts are not being improperly used;

• a review of the computer system and business process requirements to balance speed and openness of access with probity and control;

• formalised partnership arrangements to ensure regular dialogue at all appropriate levels within the client and provider partner organisations in order to ensure that areas of difficulty and improvement are recognised and addressed jointly including the means for escalating concerns and proposals from the client and the delivery partner.[298]

153.  While we approve of the innovation which the ILA encouraged in attracting new learning providers into the market, the lack of controls preventing abuse of the scheme point to a serious gap in the relationship between the Department and its contractor. By retaining even the smallest details of policy design within the Department, an opportunity was missed to transfer the risks to the private sector by transferring fuller responsibility for the management of the scheme to the private sector.
 

154.  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.
 

155.  We do not under-estimate the difficulty of getting right the balance between policy and delivery, but we question whether the DfES could have been bolder and given Capita a wider brief to deliver the desired outcomes of the ILA project.
 

Brand name
 

156.  The Learning and Skills Council considered that there remained critical value in the ILA 'brand'.[299] Mr Paddy Doyle and Ms Denyse Metcalf of Capita agreed that the ILA brand name, while tarnished, still had value.[300] Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers suggested that "it would be a shame to replace [the ILA scheme] and call it something else".[301] Ms Liz Smith of the Trades Union Congress thought that "within unions, there is a sort of positive view of the brand of ILA in that it helped us. Whether that necessarily means that the brand 'ILA' is right for the new scheme I think is a different matter because obviously there have been an awful lot of very serious problems, so I think it would be difficult to comment".[302] We would expect that the ILA brand name will have a continuing value, despite the problems associated with the shutdown of the scheme in the autumn of 2001. We recommend that the value of the ILA brand name should be market tested by an independent professional firm with relevant expertise in this field before the successor scheme is announced.
 

Quality Assurance
 

157.  The DfES has been discussing with the Learning and Skills Council and others how to use existing learning provider quality assurance arrangements to help ensure that the provider base for the ILA successor scheme is quality assured.[303] Ms Emma Solomon of Hairnet argued that "it was not actually rocket science to put some proper checks in there for training providers and learners".[304] NIACE thought that the lack of quality assurance arrangements in the ILA system was a surprising policy misjudgement that was even more shocking than weaknesses in administrative mechanisms.[305] Head-line Communication warned that accreditation training processes needed to be understood as accreditation in itself was not necessarily a guarantee of quality.[306]
 

158.  Usdaw suggested that as well as a quality check on the provider, there should be a quality check on the learning that takes place:

"There could be an expectation that the ILA user would achieve a qualification. Where a provider did not achieve a certain percentage of learners with qualifications, an inspection could be triggered. If there were satisfactory explanations (because of the nature of the learners, for example) then the provider would remain on the register. If not, they would be removed from the register."[307]

159.  Quality assurance is the one indispensable feature that needs to be built in from the start if the new version of the ILA is to succeed. Prior accreditation of providers would be essential; post-payment audit checks should be carefully targeted, based on a risk profile of providers and their claims. Prior accreditation should be designed to ensure that any obstacles to new providers and innovation are minimized.  

Complaints procedure
 

160.  As pointed out above,[308] it will be essential for any successor scheme to have a robust system in place for recognising, handling, remedying and learning from complaints.

An appropriate accreditation body
 

161.  Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers told us that "in all of our experience training for most people, particularly at this level where it is pitched at, is a local experience and, therefore, to control that locally or regionally is a far better, more effective way to ensure that it is reaching the target market".[309] Mr O'Brien also told us that the Learning and Skills Councils [LSCs] were "ideally suited" for applying a threshold to training providers at local level.[310] He pointed out that "the Department found it within themselves to write to 2½ million account holders, yet they did not write and ask the 8,000 or so learning providers to go and make themselves known to the Learning and Skills Councils, for example. It would have been very easy to do".[311]
 

162.  The National Institute for Adult Continuing Education [NIACE] noted that there appeared to have been little or no evidence of misuse or abuse of ILAs when they were first piloted by Training and Enterprise Councils.[312] Mr Alastair Thomson of NIACE told us that "there is a very strong case to look again at rooting the new mechanism more locally, either regionally or sub-regionally through the local Learning and Skills Councils".[313] Mr Roger Tuckett of Henley Online told us that "There has been a lamentable failure, frankly, in the current arrangement, which is national ... I get a warm feeling that the LSCs are well placed to deal with this although you do get slightly the message that LSCs do have administrative issues to deal with".[314] Mr Tuckett described the LSC structure as "an organisation in transition".[315] Mr Stuart Ingleson of Preston College also suggested that the LSCs were the appropriate machinery, albeit "with some reluctance" because "at the moment I am not entirely sure how the LSC will develop".[316] Mr Hugh Pitman of the Association of Learning Providers told us that the LSCs "have an enormous amount on their plate".[317]
 

163.  Mr Geoff Hall of the Learning and Skills Council[318] said that it was built in to the remit of the LSC that providers should satisfy a quality threshold to have access to LSC funding: "they have to be able to perform the basic data collection and be able to audit it, and they will be liable to inspection, in most cases through the Adult Learning Inspectorate".[319]
 

164.  We would expect the Learning and Skills Council to take the lead in prior accreditation, with a fast-track registration process for providers with a proven track record of delivering quality training. To some extent LSCs are still untested in their new guise and the Department will need to be vigilant that to ensure that each of the LSCs matches the effectiveness of the best. National providers, and providers of on-line or distance learning, will almost certainly need to be registered at a national level.
 

Targeting
 

165.  The National Institute for Adult Continuing Education [NIACE] contended that the only case for having a wide offer would be if it were genuinely universal — covering initial higher education as well as further education.[320] NIACE suggested that a more tightly targeted system might prioritise either individuals (by level of prior attainment) or communities (prospective learners in rural areas disadvantaged by lack of choice, for example) or both.[321]
 

166.  The Trades Union Congress called for ILAs to continue to be open to all adults not in higher education as a way of promoting a lifelong learning culture but they argued that there is a need to minimise deadweight by reducing the subsidy to those with relatively high qualifications and bringing in more targeting of non­traditional learners.[322] The Learning and Skills Development Agency identified "a clear tension between simplicity of operation and closer targeting to those in greatest need -- increased targeting inevitably requires more complex administrative systems".[323]
 

167.  In its consideration of an ILA successor scheme, the DfES has been considering whether to target certain learner groups to give better value for money. Mr Healey told us that it might make sense to consider targeting the successor scheme in a way that supports other Government policies, such as helping to close the digital divide.[324]
 

168.  There needs to be greater clarity regarding the purpose of ILAs. This would inform the determination as to whether or not the scheme should be universal. If the primary aim is to encourage lifelong learning, then the scheme should be universal. If the primary aim is to encourage people into learning who have little or no experience of recent learning, then the scheme should have some criteria.
 

169.  We are not convinced that the Government had adequately clarified the precise educational and social objectives of the ILA scheme nor that it had fully considered the wider implications of the rejection of the savings account model. It was unclear whether the highest priority was to enhance the computer skills of all adults, to encourage those with few or no qualifications back into learning or to 'create a learning culture'. With a target fixed in terms of the number of accounts, though, it was clear that the delivery mechanism had become confused with the educational objective.
 

170.  We recommend (a) that the educational and social objectives of any successor scheme should be defined before determining a delivery mechanism and financial support criteria which advance those objectives and (b) that those objectives should be closely integrated with other aspects of policy towards lifelong learning.
 

Payment in stages
 

171.  Mr Healey told us that there was strong support for withholding an element of the ILA payment until after completion of the learning which might "introduce some sort of check on the delivery of learning, without necessarily having a complex or comprehensive system for somehow accrediting the actual nature of the learning".[325] Ms Denyse Metcalf of Capita said that "we need to look and explore more carefully the point at which payment mechanisms come into play. It is clear that at the moment in the public sector payments are not always made up front and of course with the ILA it was at the point of registration on the course. It might be more appropriate to look at phasing those payments".[326]
 

172.  We expect that the new ILA system will include some kind of staged payment system, perhaps combined with early notification to the individual of how their ILA has been spent.
 

Advice and guidance
 

173.  In other parts of the UK (but not in England), ILAs could be used to purchase advice and guidance. The National Institute for Adult Continuing Education [NIACE] argued that integrating any new initiative with information, advice and guidance strategies should be an imperative.[327] Mr Derek Grover of the DfES agreed that "a very important point" for a successor ILA scheme would be that "we almost certainly need to do more than was done in the original scheme to offer information and advice to the individuals taking it up".[328] We recommend that provision should be made to pay for advice and guidance where this can be demonstrated to advance the objectives of the scheme in terms of reaching the target audience.
 

Group learning
 

174.  The National Institute for Adult Continuing Education [NIACE] suggested the pooling of accounts was an area which would merit further development.[329] They told us that there was evidence from community­based lifelong learning policy initiatives that informed intermediaries could help encourage participation among groups of new learners.[330] The Learning and Skills Council also saw advantages in pooling resources.[331] We see the possibility of some form of pooling in the successor to ILAs as a promising area for future development.
 

Timing and consultation
 

"We are committed to consultation with ILA providers and learners; drawing lessons from the ILA programme; and to remedy shortcomings in the programme. The DfES is also working closely with the colleagues in the devolved administrations to develop future plans. We are determined to review thoroughly all aspects of the ILA scheme before we decide on the details of the successor programme. We will, therefore, actively involve providers, learners and other stakeholders in the development work for a successor programme".[332]
 

176.  The DfES began a consultation exercise in January 2002, consulting all providers registered at the ILA centre, 1,000 ILA account holders and other stakeholders[333] to ask them for their views on the principles behind the ILA programme and the strengths and weaknesses of its method of operation and control systems, including the registration of providers and learners. The DfES also invited views on the form a replacement ILA­style scheme might take, views on the use of the ILA brand name and possible changes to the programme (for example the addition of quality assurance, the provision of additional advice and guidance to learners, and making some of the payment dependent on the completion of learning).[334]
 

177.  The final date for the completion of questionnaires and interviews was 28 February 2002. The Department was planning to hold eight seminars in March to validate the findings of the consultation and to collect further views. Six of the seminars would be for providers, one for the TUC and one for the Association of Colleges.[335] The DfES also ran an on-line consultation at its www.dfes.gov.uk website. Mr Healey said that the Secretary of State would wish to make an announcement on a successor scheme "just as soon as we can".[336]
 

178.  Mr Stuart Ingleson of Preston College said that "unless we get some steer about the mark 2 ILA ... we will downgrade our estimates of our student numbers".[337] Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers told us that "training providers need is that certainty to say when the new scheme is coming ... we can deal with certainty".[338] Ms Sue Cara of the National Institute for Adult Continuing Education [NIACE] told us that —

"we obviously would like to see things move forward as quickly as possible, but I think it is actually critical to get it right, and I think that getting it right is probably a little bit more important in this than ... rushing back to something which just plugged a few gaps".[339]

179.  We are not satisfied that the Government understood, at a sufficiently early stage, the effect of the sudden closure of the scheme on providers. 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.
 

180.  We sympathise with the private sector providers who feel let down by the way the ILA system came to grief, but our judgement is that the Government has to get it right this time, even if that entails some delay in getting the new scheme up and running. While we would certainly prefer to see the successor ILA scheme come into operation sooner rather than later, our principal concern is that whatever form it takes, the new form of ILA should be a permanent and successful part of the lifelong learning strategy.
 

Conclusion
 

181.  In addition to work on the successor programme, the DfES was considering financial support arrangements for adult learners (outside higher education), and developing pilot arrangements, as announced in the December 2001 Pre­Budget Report, that would test how free tuition together with employer compensation for time taken off by employees for learning could act as an incentive to learning.[340] The Performance and Innovation Unit (PIU) published its initial report in December 2001, In demand — Adult Skills in the 21st Century. The Learning and Skills Council is developing a Workforce Development Strategy to address all the main proposals of the PIU Report, including funding issues.[341] NATFHE put forward a suggestion that the new form of ILA might be linked to paid educational leave.[342] The 2002 Budget included the announcement of pilot schemes to test four complementary, linked elements of a new approach to UK skills policy, to include free learning provision and accreditation for employees without basic skills or level 2 qualifications to work towards recognised qualifications up to level 2 standard (including basic skills) with approved providers.[343]
 

182.  In the DfES document Delivering the Results: A Strategy for 2006, one of only two milestones for 2002 is "to expand Individual Learning Accounts". Ministers have made it clear that it is their firm intention to introduce a new Individual Learning Account programme.[344] We support Ministers in their determination to learn the 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 learner and the nation as a whole.
 

183.  The Liaison Committee has encouraged select committees to suggest in their reports the terms of proposed substantive Motions for topical debates on the floor of the House.[345] Accordingly, we propose that the following Resolution should be debated by the House:

"That this House approves the Report from the Education and Skills Committee on individual learning accounts;

notes that the lessons from the collapse of the ILA scheme include the need for stronger quality assurance, better intelligence about unscrupulous providers, a full business model, stronger and clearer contract management arrangements with the private sector and tighter security architecture;

and calls on the Government to bring forward as soon as practicable a more robust version of the individual learning account which is capable of expanding adult learning, to the benefit of each learner and of the nation as a whole."  

1   Q.523. Back

2   HC 322-i Q.147. Back

3   Q.526. Back

4   DfEE Press Notice 2001/238 2 May 2001. Back

5   Ev117 paragraph 24. Back

6   Q.29. By the end of March 2002 the overspend had reached £69.4 million. Back

7   HC 304-i, Q.1; the written Answer was printed at HC Deb 31 October 2001 vol 373 col 706W. Back

8   HC 304-iv, Q.320 and pages 97 to 100; HC Deb 26 November 2001 vol 375 col 592W. Back

9   HC Deb 6 November 2001 vol 374 col 114 to 213. See also Opposition Day debate on 19 March 2002 vol 382 cols 176 to 234. Back

10   HC Deb 11 December 2001 vol 376 col 199 to 224WH. Back

11   HC 304-v. Back

12   HC 304-vii. Back

13   See List of Witnesses at page 60. Back

14   See List of Appendices to the Minutes of Evidence at page 62 and List of Unprinted Memoranda, also at page 62. Certain documents, including the Capita contract and Quarterly Service Reviews, have not been reported to the House. The DfES has placed a copy of the contract, with commercially confidential information removed, in the Library of the House of Commons - HC Deb 24 April 2002 vol384 col 300W. Back

5   We are grateful to Dominic Webb of the House of Commons Library for his Background Note on which much of this section is based. We have also drawn extensively on the DfES memorandum, printed at Ev114 to 121. See Q.518. Back

16   Competitiveness - Helping Business to Win, May 1994, Cm 2563. Back

17   Competitiveness - Creating the enterprise centre of Europe, June 1996, Cm 3300. Back

18   Ev1. Back

19   The Learning Age: a new renaissance for a new Britain, Cm 3790. Back

20   Q.56. Back

21   Q.56. Back

22   Ev79-80. Back

23   DfEE, Evaluation of Early Individual Learning Account Development Activity, Research Report RR23, August 1999, paragraph 748. The House of Commons Education and Employment Select Committee noted in November 1999 that the principle of the ILA had generally been welcomed - Eighth Report from the Education and Employment Committee, Session 1998-99, Access for All? A Survey of Post-16 Participation, HC 57-I, paragraphs 114 to 117,121; see also the Government's Response to the Report in the First Special Report from the Education and Employment Committee, Session 1999-2000, HC 213, paragraph 27. Back

24   These figures include contributions by Chambers of Commerce, Training and Enterprise [CCTEs]. Back

25   Q.14. Back

26   Q.76. Back

27   Ev114 paragraph 4. Back

28   Q.3. Back

29   Q.3. Back

30   Q.3. Back

31   Ev55 paragraph 2. Back

32   DTI press notice P/200/291 8 May 2001. An NOP survey for the Financial Services Authority found that 17 per cent of adults [about 8 million people] did not own a current account, including 47 per cent of those in social Grade E [defined as those at the lowest levels of subsistence, such as State pensioners or widows (no other earner), casual or lowest grade workers] - FSA/PN/128/2001, 1 October 2001. Back

33   Ev114 paragraph 5. Back

34   Q 642. See Ev155 Appendix 2 paragraph 14 for references to research on vouchers. See also Towards the learning City: an evaluation of the Corporation of London's adult education voucher schemes by Peter Jarvis et al.,Corporation of London Education Department, 1997. Back

35   Ev115 paragraph 12. Back

36   Q.40. Back

37   Q.40. Back

38   Ghosts in the machine: an analysis of IT fraud and abuse, Audit Commission, February 1998. See also the annual Fraud Report from the Treasury , which gives an analysis of reported fraud and best practice guidelines. See QQ. 43, 433,434. Back

39   Beating Fraud is Everyone's Business: securing the future, July 1998, Cm 4102. Back

40   Some Orders or Regulations made by Ministers under powers granted by Acts of Parliament [statutory instruments] are laid in draft and need to be approved by both Houses of Parliament, or in some cases only by the House of Commons, before they come into force. Most statutory instruments are subject to the 'negative' procedure, under which they may come into force on the date specified, subject to annulment if either House of Parliament passes a Motion 'praying' that the instrument be annulled. The time limit for tabling such 'prayers' is extended to the end of 40 days (excluding periods of dissolution or prorogation or days on which both Houses are adjourned for more than four days), so in this case the last day on which an effective motion could be tabled was 6 November 2000. No such motion was tabled. In practice, statutory instruments laid under the negative procedure are seldom debated, even in standing committee, and only in extremely rare cases have such instruments been annulled. As a matter of practice, the Government usually lays such Orders or Regulations at least 21 days before they come into force. Back

41   For variations in the devolved administrations, see Ev116, paragraphs 17 and 18. Back

42   Learning eligible for the Individual Learning Account discounts in England - guidance issued by the DfEE August 2000, page 1. Back

43   HC Deb 9 March 1999 vol 327 col 180-181. Back

44   Learning eligible for the Individual Learning Account discounts in England - guidance issued by the DfEE August 2000, pages 4 and 5. Back

45   Scottish Vocational Qualifications [SVQs] were also eligible for vocational tax relief. Back

46   Q.149. Back

47   HC Deb 25 February 2002 vol 380 col 1059W. Back

48   For example, HC Deb 23 June 2000 vol 352 col 335W. Back

49   Ev14, Q.78. Back

50   Ev62 paragraph 3. Back

51   Ev153 Appendix 1. Back

52   Ev20. Back

53   Individual Learning Accounts - Follow Up Study, DfES Research Brief RBX 01-02, January 2002, page 3. See QQ.89,141. Back

54   Q.141. Back

55   See Q.525. Back

56   Ev115 paragraph 8. Back 57   Q.9. Back 58   See Table at page 29 taken from Ev120. Back 59   Ev13 paragraph 3. Back

60   Ev13 paragraph 4. Back 61   Q.224. Back 62   Q.206. Back 63   Q.206. See also Q.316. Back 64   Sixth Report from the Education and Employment Committee, Session 1997-98, Further Education, HC 264, paragraph 21. Back 65   The Minister wrote to the Further Education Funding Council and to all FE colleges on 5 February 1997, placing a copy of his letter in the House of Commons Library. See HC Deb 7 February 1997 vol 289 col 758-9W. Back 66   See chapter by Guardino Rospigliosi in Recurrent Funding in Further Education Re­formed edited by Alan Smithers and Pamela Robinson, 2000. Back 67   HC Deb 27 March 1998 vol 309 col 346W. Back 68   Paragraph 22. Back 69   Ev115 paragraph 13. Back 70   Ev115 paragraph 10. Back 71   Ev115 paragraph 11. Back 72   Ev115 paragraph 14. Back 73   HC Deb 17 January 2002 vol 378 cols 445-6W. Back 74   Q.10. Back 75   Q.43. The external consultants were KPMG see paragraph 21. Back

76   Q.81. Back 77   Q.81 Back

78   Q.376. Back

79   Q.415. Back

80   Q.81. Back

81   Q.367. See also QQ.442,470. Back

82   Q.378. See also QQ.397 to 401, 632 to 638. Back

83   Q.400. Back

84   Q.379. Back

85   QQ.391, 641. Back

86   Ev115 paragraph 8. Back

87   Q.36. Back

88   Q.36. Back

89   Q.63. Back

90   Q.106. Back

91   Q.582. Back

92   Q.235. Back

93   Quarterly Service Review June to August 2000 paragraph 3.2 [evidence not reported]. Back

94   Quarterly Service Review December 2000 to February 2001paragraph 3.6 [evidence not reported]. Back

95   Quarterly Service Review March to May 2001paragraphs 3.1 and 2.7 [evidence not reported]. Back

96   Quarterly Service Review June to August 2001paragraph 2.3 [evidence not reported]. Back

97   Quarterly Service Review September to November 2001 paragraph 2.6 [evidence not reported]. Back

98   Q.501. Back

99   Q.33. Back

100   QQ.482 to 485. Back  

101   Section MAB/F/00250 in Schedule 2 to the Service Provider Agreement [evidence not reported]. Back  

102   Q.419. Back  

103   Section 5.101 of the Business Rules [evidence not reported]. See also Q.449. Back  

104   QQ.544,606. Back  

105   Business Rules Section 7 [evidence not reported]. Back  

106   The learndirect network consists of over 1,550 learndirect learning centres grouped together in over 85 'hubs'. A hub is a consortium responsible for one or more learning centres. A typical hub may include colleges, employers, voluntary organisations, universities, trade unions and private training providers. Ufi require hubs to ensure that systems are in place to meet the requirements of recognised QA systems for further, higher and adult education. The Adult Learning Inspectorate began full inspections of learndirect in January 2002. See Q.541. Back  

107   www.learndirect­advice.co.uk Back  

108   Q.430. Back  

109   Q.468. Back  

110   Q.538. Back  

111   Q.591. Back  

112   Q.59. Back  

113   Q.64. Back  

114   IT and basic mathematics courses such as City and Guilds 4242 ICT basics; BTEC IT desktop skills; GCSE and Key Skills 2 Maths and the European Computer Driving Licence. Back  

115   Ev116 paragraph 16. For example, the British Computing Society recommends that 125 hours training (at about £14 an hour, that would total £1,750) are needed to complete the syllabus for the European Computer Driving Licence - see Ev17. Back  

116   Ev116 paragraph 16. Back  

117   Q.64. Back  

118   Q.338. Back  

119   Ev14, 17-18.  Back  

120   HC Deb 19 December 2001 vol 377 col 405W. Back  

121   QQ.305 to 307, 309 to 311, 317, 318. Back  

122   Ev91. See QQ.439-440. Back  

123   Ev62 paragraph 5. Back  

124   Q.215. Back  

125   Q.87. Back  

126   Q.89 [emphasis added]. Back  

127   Q.91. Back  

128   The York Consulting researchers defined "redeemers" as people who had used the Individual Learning Account to help pay for learning - Evaluation of Individual Learning Accounts Early Views of Customers and Providers: England, DfES Research Report 294, September 2001, page 11. Back  

129   Evaluation of Individual Learning Accounts Early Views of Customers and Providers: England, DfES Research Report 294, September 2001, page 1. Back  

130   Ev64-65 paragraph 6. Back  

131   Q.101. Back  

132   Q.108. See also Individual Learning Accounts - Follow Up Study, DfES Research Brief RBX 01-02, January 2002. Back  

133   QQ.116-117. See also QQ.136-137. Back  

134   Ev118-119 paragraph 34, based on Individual Learning Accounts - Follow Up Study, DfES Research Brief RBX 01-02, January 2002. See also Ev2. Back  

135   Q.93. Back  

136   QQ.105, 138. Back  

137   Q.93. Back  

138   Q.140. Back  

139   HC 322-i Q. 16. Back  

140   Ev55. Back  

141   HC Deb 19 December 2001, vol 377 col 405W. Back  

142   Evaluation of Individual Learning Accounts - Early Views of Customers and Providers, DfES Research Brief 294, September 2001, page 3; QQ.119-121. Back  

143   Q.120. Back  

144   Q.275. Back  

145   Q.329. Back  

146   Ev154 Appendix 2 paragraph 6. Back  

147   Q.183. Back  

148   Ev47 paragraph 2, QQ.153,158 Back  

149   In the National Qualifications framework, level 2 qualifications include GCSEs at A* to C, intermediate GNVQ as well as NVQ level 2. ONS/DfES Statistics First Release SFR 02/2002 Table 2. Back  

150   Opinion Research Business survey carried out on behalf of Basic Skills Agency - www.basic-skills.co.uk/research Back  

151   Q.23. Back  

152   Ev120 Annex 1. Back  

153   Q.396. Back  

154   Ev116 paragraph 19. Back  

155   Q.29. Back  

156   The total expenditure of the DfES in 2001-02 is expected to be more than £23 billion. Back  

157   Ev118 paragraph 33. See QQ.436 to 438, and 566. The Spring Supplementary Estimates approved by the House on 7 March 2002 included the virement of £126m from Section R [which covers spending outside the Departmental Expenditure Limit including grant-in-aid to the Learning and Skills Council and student loans payments], £90m of which was transferred to Section B [spending within the Departmental Expenditure Limit], which includes a figure of £156m for Career Development Initiatives (including ILAs). In the circumstances, £60m of the £90m was allocated to the line within Section B which includes ILA expenditure [Cm 5385].  Back  

158   HC 304-v, Q.360. Back  

159   HC 304-v, pages 99-100. See QQ.522 and 523. Back  

160   Ev117 paragraph 22. Back  

161   Q.259. Back

162   Q.337. Back  

163   Q.605. Back  

164   Q.528. Back  

165   Ev 116 paragraph 21. Back  

166   Ev 116 paragraph 20. Back  

167   Individual Learning Accounts - Follow Up Study, DfES Research Brief RBX 01-02, January 2002, page 1. Back  

168   Section MIS/B/00150 [emphasis added; evidence not reported]. Back  

169   Q.478. Back  

170   Quarterly Service Review September to November 2000 paragraph 2.5 [evidence not reported]. Back  

171   Quarterly Service Review December 2000 to February 2001 paragraph 2.9(b) [evidence not reported]. Back  

172   Quarterly Service Review March to May 2001paragraph 2.11(b) [evidence not reported]. Back  

173   Quarterly Service Review June to August 2001 paragraphs 2.17 and 2.18 [evidence not reported]. Back  

174   Ev20. Back  

175   Q.83. Back  

176   Ev164 Appendix 7 paragraph 4. Back  

177   Ev165 Appendix 8 paragraph 4. Back  

178   Ev15. Back  

179   QQ.336,439. Back  

180   Quarterly Service Review June to August 2001 paragraphs 2.15,[evidence not reported]. Back  

181   Ev157 Appendix 3. Back  

182   QQ.245 and 246. Back  

183   Q.248. Back  

184   Q.248. Back  

185   Q.271. Back  

186   Q.264. Back  

187   Q.146. Back  

188   Individual Learning Accounts - Follow Up Study, DfES Research Brief RBX 01-02, January 2002, page 1. Back  

189   Ev165 Appendix 8 paragraph 1. Back  

190   Ev165 Appendix 9 paragraph 3. Back  

191   Ev166 Appendix 10 paragraph 3. Back  

192   Q.563. Back  

193   Individual Learning Accounts - Follow Up Study, DfES Research Brief RBX 01-02, January 2002, page 4. Back  

194   Q.21. Back  

195   Q.42. Back  

196   HC Deb 19 December 2001 vol 377 col 410W. Back  

197   Q.77. Back  

198   Q.264. Back  

199   Q.77. Back  

200   Ev93 paragraph 16. See Q.370. Back  

201   Ev162-3 Appendix 5. Back  

202   HC 304-v Q.331. Back  

203   Ev15. Back  

204   Ev158 Appendix 3. Back  

205   QQ.81 to 83. Back  

206   Q.83. Back  

207   QQ.236 to 238, 264. See also Q.320. Back  

208   Q.591. Back  

209   Q.304. Back  

210   Q.224. Back  

211   QQ.529-532. Back  

212   Ev116 paragraph 20. See also footnote to Q.22. Back  

213   Q.343. See also 338. Back

214   Quarterly Service Review June to August 2001 section 3 [evidence not reported]. Back

215   Quarterly Service Review June to August 2001 paragraph 2.13 [evidence not reported]. Back

216   Q.655. In a written Answer, Mr Healey stated that the number of providers who failed to re­register between June and August 2001was 485. Prior to the closure on 23 November 2001, 47 providers had been suspended from the register of learning providers. None had been permanently removed from the register. From 23 November 2001, payments had been withheld from 239 providers, including 17 of those originally suspended, pending completion of validation checks and investigations into claims- HC Deb 23 April 2002 vol 384 cols 155­6W. Back

217   Q.7. Back

218   Q.656. Back

219   Q.34. Back

220   Ev48 paragraph 6. See also QQ.148,150. Back

221   Q.146. Back

222   Ev18. Back

223   Ev117 paragraph 27. See also Q.23. Back

224   Q.28. See also QQ.45,51 Back

225   Q.537. Back

226   HC Deb 19 March 2002 vol 382 col 226. Back

227   Q.522. Back

228   Ev117 paragraph 23. Back

229   The answer given on 24 October 2001 was printed at HC Deb 31 October 2001 vol 373 col 706W. Back

230   HC Deb 31 October 2001 vol 373 col 706W. Back

231   DfES Press Notice 24 October 2001. Back

232   Ev117 paragraph 26; QQ.414, 567. Back

233   Ev117 paragraph 27. Back

234   Q.431. Back

235   Q.433. Back

236   DfES Press Notice 2001/0395, available via the www.dfes.gov.uk website. Back

237   Q.336. See also Ev94 paragraph 21. Back

238   Q.77. Back

239   Ev13 paragraph 8. Back

240   Ev153 Appendix 1. Back

241   Ev30. Back

242   Q.65. Back

243   Q.579. Back

244   Ev64 paragraph 5. See also Q.258. Back

245   QQ.231 to 234. See also Q.208. Back

246   Q.201. Back

247   Q.208. Back

248   Ev17. Back

249   Q.263. Back

250   Q.263. Back

251   Q.80. Back

252   Q.572. Back

253   HC 304-v Q. 247. See also HC Deb10 January 2002 vol 377 col 952W; Q.571. Back

254   HC Deb19 March 2002 vol 382 col. 225. Back

255   Q.529. Back

256   Ev121 Annex 2. Back

257   Q.533. Back

258   Ev118 paragraph 30. Back

259   HC Deb 16 April 2002 vol 383 cols 897-8W. See also Ev117-118 paragraph 30, ev136. Back

260   Q.53. See HC Deb 13 November 2001 vol 374 cols 705­6W. Back

261   HC Deb 16 April 2002 vol 383 cols 897-8W. For previous summaries of the state of investigations, see Ev118 paragraph 30, HC Deb 15 January 2002 vol 378 col 214W and HC Deb 11 February 2002 vol 380 col 99W. Ms Sylvia Iwuagwu, 25, of no fixed abode, pleaded guilty on 16 January 2002 to fraud against the ILA system. Ms Iwuagwu admitted at Southwark Crown Court to five charges of obtaining money by deception from the DfES to a total value of £9,396. She was sentenced on 15 February to 60 hours rehabilitation order and Community Punishment Order. Back

262   HC Deb 16 April 2002 vol 383 cols 897-8W Back

263   Ev118 paragraph 31. Back

264   Ev118 paragraph 32. Back

265   Ev136. Back

266   HC Deb 23 April 2002 vol 384 col155W. Back

267   Ev136. Back

268   HC Deb 6 November 2001 vol 374 col 130. For another example of the cast-iron guarantee, see HC Deb 10 January 2002 vol 377 col 951W. Back

269   Ev28. Back

270   Q.520. See also Q.586. Back

271   Ev65 paragraph 7. Back

272   Ev94 paragraph 24. Back

273   Q.336. Back

274   HC 322-ii Q.148. Back

275   Ev119 paragraph 35, Q.573. Ernst and Young are Capita's auditors. Cap Gemini Ernst & Young is a consultancy organisation formed in June 2000. The group was formed by the established Cap Gemini consultancy group, which bought the consultancy arm of Ernst & Young. There is no commercial link between Ernst & Young and Cap Gemini Ernst & Young, beyond a normal trading relationship. Cap Gemini Ernst & Young will drop the Ernst &Young tag to become Cap Gemini in 2004. See QQ.427 to 429. Back

276   HC Deb 8 January 2002 vol 377 col 708W, Q.574 to 576. Back

277   Ev119 paragraph 36[emphases added]. See QQ.545,548. Back

278   Q.630. Back

279   The Public Audit Forum brings together the National Audit Office, the Audit Commission, the Northern Ireland Audit Office and the Accounts Commission in Scotland. Back

280   Implications for Audit of the Modernising Government Agenda, Public Audit Forum, 1999, cited in Performance and Innovation Unit, Wiring It Up - Whitehall's management of cross-cutting policies and services, January 2000, page 57. See also Holding to Account, the Report by Lord Sharman of Redlynch on the review of audit and accountability for central government, February 2001paragraphs 5.40 to 5.48. See also Modern Policy-Making: Ensuring Policies Deliver Value for Money, Report by the Comptroller and Auditor General, National Audit Office, HC289, November 2001. Back

281   Ev117 paragraph 25. Back

282   Ev46. Back

283   Ev55 paragraph 2. Back

284   Ev153 Appendix 2 paragraph 4. Back

285   Ev55 paragraph 2. Back

286   Ev55 paragraph 4. Back

287   Q.284. Back

288   Q.150. Back

289   Ev55 paragraph 5. Back

290   Ev56 paragraph 5. Back

291   Ev56 paragraph 5. Back

292   Q.243. Back

293   Ev65 paragraph 8. Back

294   Q.666. Back

295   Q.663. Back

296   Ev13 paragraph 9. Back

297   Q.601. Back

298   Ev94 paragraph 25. Back

299   Ev83. Back

300   Q.671. Back

301   Q.68. Back

302   Q.165. Back

303   Ev120 paragraph 40. Back

304   Q.79. Back

305   Ev56 paragraph 7. Back

306   Ev159 Appendix 3. Back

307   Ev47. Back

308   See paragraph 87. Back

309   Q.76. Back

310   Q.85. For the Association of Computer Trainers' detailed prescription for an interim funded training programme, see Ev22 to 26. Back

311   Q.62. The Association of Computer Trainers speculated that the cost of writing to all ILA account holders might have been more than three-quarters of a million pounds Ev15. Back

312   Ev56 paragraph 6. Back

313   Q.175. Back

314   Q.73. Back

315   Q.74. Back

316   QQ.251 and 253. Back

317   Q.265. See also Q.264. Back

318   Shortly after giving evidence to the Select Committee Mr Hall took up an appointment as Deputy Principal of Nottingham New College. Back

319   Q.279. See Q.280. Back

320   Ev56 paragraph 6. Back

321   Ev56 paragraph 6, Q.174. Back

322   Ev49. Back

323   Ev155 Appendix 2 paragraph 18. Back

324   Ev120 paragraph 40. Back

325   Q.577. Back

326   Q.591. Back

327   Ev56 paragraph 7, Q.173. Back

328   Q.12. Back

329   Ev56 paragraph 7. Back

330   Ev56 paragraph 7, Q.187. Back

331   QQ.293,334. Back

332   Ev119 paragraph 37. Back

333   Ev121 Annex 3. Back

334   Ev119 paragraph 38. Back

335   Ev120 paragraph 39. Back

336   Q.578. Back

337   Q.216. Back

338   Q.68. Back

339   Q.191. Back

340   Ev120 paragraph 41. Back

341   Ev83 paragraph 22. Back

342   Ev168-9 Appendix 12. Back

343   Developing Workforce Skills: Piloting a New Approach, HM Treasury/DfES, April 2002, page 22. In the National Qualifications framework, level 2 qualifications include GCSEs at A* to C, intermediate GNVQ and NVQ level 2. Back

344   Q.46. Back

345   First Report from the Liaison Committee, Session 1999-2000, Shifting the Balance: Select Committees and the Executive, HC 300, paragraph 39. Back