(1 day, 11 hours ago)
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Baroness Finn (Con)
My Lords, I declare my interest as a former special adviser and future recipient— I hope in the long-distant future—of a civil service pension. At the heart of this issue are former public servants who are entitled to expect that the Civil Service Pension Scheme would be administered with competence, care and basic humanity. Instead, many have faced delay, uncertainty and financial anxiety. The Government have acknowledged that Capita’s performance was unacceptable, and we acknowledge that this contract was awarded under the previous Government. However, the appalling performance has been sustained under this Government. Warning signs were not acted on sooner and contingency arrangements were not in place before the handover on 1 December.
Last month, officials from the Minister’s department confirmed that the Cabinet Office had access to data showing that the backlog of CSPS cases was increasing exponentially during the final months of MyCSP’s tenure. This was known before the transfer, yet Ministers failed to put in place robust contingency plans. They did not require additional resources from Capita ahead of the handover and proceeded regardless, despite being aware that the incoming provider faced a far greater operational challenge than originally anticipated.
The National Audit Office had already found that Capita had failed to meet key transition milestones. The Public Accounts Committee had warned of a clear risk that Capita would not be ready to take over the administration of the scheme and specifically called on the Cabinet Office to fully develop contingency plans before making a final decision. Why, then, did the Government not anticipate this situation as they should have done?
The NAO report highlights a serious issue with the handling of TUPE, the process by which staff transfer to the new contractor. This is meant to ensure continuity by moving experienced staff across with the work, but the NAO notes that the formal TUPE process began only in May 2025, very late in the transition. The consequence is obvious: staff faced prolonged uncertainty about their future, increasing the risk that they would leave before the handover. In a service that depends heavily on experienced personnel, that loss of expertise directly undermines performance. Why was this process started so late and what assessment was made of the risk this posed to service delivery?
The NAO also found that financial penalties were rarely applied under the previous contract and could be waived on the basis of so-called extenuating circumstances. The new contract is supposed to strengthen those provisions, so can the Minister tell the House how many penalties have actually been applied to Capita since go-live, whether any penalties have been waived, on what grounds they were waived and who authorised the decisions?
The Minister in the other place was also asked about standardised mitigation letters for lenders. Members affected by pension delays need clear documentation that they can provide to banks, mortgage providers, landlords and creditors, explaining that their financial difficulty has been caused by administrative failure in the Civil Service Pension Scheme. Can the Minister now confirm whether those standardised letters have been issued? If they have not been, why not? When exactly will affected members receive them?
I ask the Minister about contingency planning. The Statement refers to commercial levers, withheld milestone payments and possible legal remedies. It also refers to explicit personal assurances from Capita’s chief executive, but those assurances were plainly not met. To whom were those assurances made and on what date? What due diligence underpinned them? Who accepted them? Were they set out in writing?
Finally, I am concerned that the department apparently plans to begin a review only in late summer. Why is that timetable considered acceptable? The failures are happening now. There needs to be a credible contingency plan and realistic consideration of future options.
Capita’s failings are unacceptable, but ministerial accountability does not end with condemning the contractor. The contracting authority needs to be relentlessly on the case. This is an issue that I have raised many times previously. Can the Minister tell the House what concrete steps the Civil Service has taken to improve the quality of its contract management? No well-run business would tolerate a contractor performing in such a way, so why should the Government tolerate it?
I appreciate that I have asked a number of detailed questions and that the Minister might want to reply in writing to some of them, but I hope she can shed some light on the concerns raised.
Lord Pack (LD)
The Minister may be glad to know that I have a slightly smaller number of questions to ask. Running basic services reliably is at the heart of the Government’s responsibility to us all. Grand promises, fancy manifestos, clever policies or visionary plans about AI mean very little if the basic plumbing of the state is falling apart all around us. Here we have, unfortunately, another failure of that basic plumbing, one with very serious direct consequences for people’s well-being. It is certainly welcome that, faced with another pension scheme going horribly wrong at the hands of Capita, the Government have bitten the bullet and terminated its contract, but that coming after the Civil Service pension contract problems raises two key questions about the Government’s decision-making.
There is certainly a lot of blame to allocate to Capita and MyCSP, but there are also two questions that are fully within the Government’s area of responsibility. One, as I pointed out when we discussed this issue in Questions on 5 February, and as the noble Baroness, Lady Finn, has just touched on, is that the Cabinet Office told the Public Accounts Committee that it was aware of very significant problems with Capita’s preparations to take over the contract on 1 December and that it had a contingency plan ready to use if necessary. Why, therefore, did the Cabinet Office decide to go ahead with the 1 December transfer to Capita rather than invoke its contingency plan? I think it is fair to say that the fact that another Capita pension scheme, the Royal Mail one, has now gone so badly wrong as well redoubles the doubts about why that 1 December transfer was greenlit by the Government.
In addition, in the light of Capita’s failing on these two pension contracts, there is also the problem that the Government have just signed another contract with Capita—a £370 million contract that involves, to quote Capita’s press release from just a few weeks ago,
“tech-enabled back-office services for public servants across four major UK government departments: the Department for Work and Pensions, Ministry of Justice, Home Office, and the Department for Environment, Food and Rural Affairs. Capita will deliver a suite of services including HR, payroll, recruitment, finance, procurement, and service desk support”.
That sounds remarkably similar to the very things that Capita has just got so badly wrong twice.
Warned last year that Capita was getting it wrong, the Cabinet Office pressed ahead with Capita on that 1 December deadline. With Royal Mail, Capita has been getting exactly the same sort of work badly wrong. I hope the Minister will explain why those two failures were not enough for the Government to say for this new contract, “Hang on. We’ve seen your track record, we’ve learned from our mistakes, and no, we’re not going to hand over more money and give you more responsibility for financial IT systems”. Will the Minister tell us what consideration was given to those two other failures by Capita when deciding to award it this new contract? Why were those two failures not considered serious enough for the Government to spend their £370 million—or, I should, say the public’s £370 million—elsewhere?
The Parliamentary Secretary, Cabinet Office (Baroness Anderson of Stoke-on-Trent) (Lab)
My Lords, I listened with care to the points raised by the noble Baroness and the noble Lord, and I will have to revert in writing on some of the points raised by the noble Baroness, Lady Finn.
First, I put on record my thanks to the fantastic public servants who have been failed and who we are seeking to support. The security and dignity of those who have dedicated their careers to our public services are not negotiable. They deserve a pension scheme that is reliable, efficient and secure. When the standards they deserve are not upheld, the Government will not hesitate to act decisively to protect their interests.
The termination of the new Royal Mail Statutory Pension Scheme contract with Capita followed a failure to meet critical transition milestones and a total lack of confidence in its ability to implement the new operating model in a timely fashion. Capita had an 18-month planning window yet failed to deliver numerous milestones, including required IT automation. Of the 10 transitional milestones due to date, only four have been delivered and all those were late, which is why we have terminated the contract.
Regarding the Civil Service Pension Scheme, the delivery of the service since the transfer on 1 December has fallen far short of the required standard. The transition from the previous provider, MyCSP, was not satisfactory, and investigations are ongoing into the respective liabilities for those failures to protect taxpayer interests.
The stories of members falling into hardship are distressing and entirely unacceptable, which is why a specialist pensions recovery taskforce was established to take strategic oversight of the scheme’s management. To ensure no one faces financial anxiety alone, over £8.2 million in interest-free transitional support loans has already been issued to over 1,500 members most affected by these delays.
There is confidence in the surge of about 140 officials into Capita and this intervention has made a significant difference. The government surge team was essential to bolster operational capacity, successfully clearing 15,000 inherited unread emails and initially bringing telephony wait times down to an average of under two minutes. While wait times have recently spiked to an average of 44 minutes, this was a direct result of a 120% surge in volumes driven by the end of the tax year and the annual benefits statement portal suspension following the data breach on 30 March. There is no intention to withdraw the team if that would result in a deterioration of service. That judgment will be made carefully against the June 2026 deadline for the restoration of proper service.
On the NAO and Public Accounts Committee reports, the noble Baroness is absolutely right to highlight these reports regarding missed transition milestones, as was the noble Lord, Lord Pack. Significant milestone payments are currently being withheld where transition deliverables have not been met to drive performance, and every right is reserved to take further formal action. The Government have accepted the NAO’s recommendations, and after its report, we implemented a number of additional controls as part of this contract. Despite these challenges, transitioning to Capita to avoid a total collapse of the service was assessed as the lower-risk path, as MyCSP had become operationally and commercially unviable.
Capita has been placed now under a firm mandate to clear all inherited arrears by the end of April and restore service levels to standard, contractually required levels by the end of June. Standardised mitigation letters are available on request via the pensions helpline to ensure that members can communicate effectively with mortgage providers and other creditors regarding service delays. Regarding the wider commercial position, there has been an offer from Capita to cover the costs of the surge team from 10 April, which will be considered in the broad accounting of all commercial issues in respect of this contract.
There were several questions asked that relate to this. As I said previously, there was an independent assurance review undertaken last year. I am going to write to the noble Lord, Lord Pack, with the dates of all the meetings that were had, the promises that were made by Capita and to whom they were made and when—there was a range of promises made. We had the independent assurance review, and we were therefore as confident as we could be in moving forward.
The noble Baroness, Lady Finn, raised the issue of MyCSP’s historical performance and the liability. The transition process from the previous provider, MyCSP, was not satisfactory and we are investigating respective liabilities for those failures between both parties. We have withheld all money due to MyCSP until transition failures are rectified and will pursue a parent company guarantee with Equiniti if necessary. Transitioning was necessary as MyCSP had become commercially unviable with backlogs increasing from 47,000 cases to over 60,000 cases by October.
I have answered the question about mitigation measures. In terms of the commercial accountability and withheld payments, we have taken direct action on all commercial levers, including withholding significant milestone payments where deliverables have not been met. Capita is under a firm mandate to clear all inherited arrears by the end of April and restore full service standards by the end of June. We will consider Capita’s offer, as I have said.
The noble Baroness, Lady Finn, raised an important point about why the review is in late summer. Our focus and priority have to be getting the system working, to make sure that people can access both their historic statements and their future statements, and that people can access the information they need as well as access finances that are theirs. I remind noble Lords that pensions are deferred salaries. These are entitlements: they have earned them, and we need to make sure that they can get the money. This is not about pushing review into the long grass—that is not where we are. We want to fix what is broken to make sure that the people who need access can get access, and then we will undertake a review, including a commercial review, with Capita to move forward.
The noble Lord, Lord Pack, raised a really important point about Capita receiving an additional contract. The Synergy award by DWP in February followed a rigorous and transparent public procurement process conducted under existing public contract regulations. Each contract is managed on its own merits, and the Secretary of State for DWP sought and received specific personal assurances from Capita regarding delivery.
However, I remind noble Lords that, while we are talking about two specific contracts in this Statement, both are the only Capita contracts with the Cabinet Office. Across the wider government and public sector portfolio, Capita has over 80 contracts, and performance remains high, with approximately 87% of KPIs currently rated as good. We have seen a clear failure of the Civil Service Pension Scheme and access to it. We desperately need to fix it and then look at what went wrong before moving forward with our commercial levers. But each contract needs to be assessed on its individual merits to make sure that it works and that the Government are compliant, as well as the people we work with.
Lord Davies of Brixton (Lab)
I thank my noble friend for the Statement from the Commons, which I welcome. Does she recognise that the problem here—we can take the comments from the Opposition with a pinch of salt—comes to a large extent from the system of outsourcing, which is why we welcome the bit in the Labour manifesto at the last election about introducing a large degree of insourcing. We hope that programme will proceed at pace.
Can my noble friend confirm or clarify why Capita retained the Civil Service contract? Members of the scheme are suffering, both those in retirement and those claiming death benefits. They find it incredible that the contract cannot be taken away. Is the problem that, however badly Capita performs, the chaos that would ensue if the contract were taken away abruptly would cause even more problems? Is this an issue with the way these outsourcing contracts work?
Finally, I have a factual question. The Statement states that a large number—I forget exactly what it was—of people are waiting for quotations. Having spoken to the unions and many of the members involved about this, I ask: how many people have received quotations but have not yet actually received their benefits?
Baroness Anderson of Stoke-on-Trent (Lab)
I thank my noble friend for that series of questions. Let me start with the factual question, because I have that data to hand. There are currently 2,696 retirement cases where a quotation has been issued but the pension is not yet in payment. These cases are the remaining subset of the 6,482 retirement cases that have already received a quote and therefore no longer have an open case type related to quotations. All remaining open retirement cases where a quote has been issued are on track to be processed, with full payment by the end of May—next month.
My noble friend asked a series of questions, some of which are slightly more straightforward to answer than others. On insourcing, an assessment will be conducted to identify the optimal delivery model for these pension services, specifically evaluating both insourcing and outsourcing options. This process will involve a thorough analysis of costs, risks and benefits in line with the sourcing playbook, ensuring that we learn from the delivery failures identified in the current contracts. Although previous assessments in 2021 favoured outsourcing to realise benefits with the least risk, we remain committed to whichever model is proven to provide the best value for money for the taxpayer.
On Capita and why that contract has not been removed, as I have said, we engage with Capita on this contract every day as part of the recovery model. As noble Lords will appreciate, I have talked not only about Capita and its responsibility as part of fixing what is clearly broken, but about the legacy of what was left by MyCSP. When we have undertaken the review after fixing what is broken—there have been failures across the piece, clearly, but we must be clear on who was responsible for which part—we will know better and we will take additional steps, as we have with the Royal Mail pension scheme, if required.
Lord Reid of Cardowan (Lab)
My Lords, I thank the Minister. She has pointed out some signal failures in this case; they are now pretty widely known. What puzzles people, including those who are very sympathetic to the Government, is why, when there is such a failure of one particular company—of course, it is not just Capita; there have been failures by others—the failure is consecutively followed by a grant to the same company of another contract that bears some relationship in description to the one on which they have so patently failed in another department? Can the Minister tell us whether there is any cross-departmental process for evaluating failures of this nature, in order to alert other departments to the very serious consequences of the course on which they might be embarking? I confess that this puzzled me when I was in government, as well as now.
Baroness Anderson of Stoke-on-Trent (Lab)
I thank my noble friend. There was I, about to say that, given his time in government and his extensive ministerial service across many departments, my noble friend knows better than I do about the awarding of these contracts.
There is a serious point here: at the heart of these conversations is the fact that every contract is managed on its own merits and contains robust, specific protections to ensure delivery. The award of the contract we are talking about followed a rigorous and transparent process under the public contracts regulations. The Secretary of State sought and received specific assurances from Capita regarding delivery after it had become clear what had happened to the Civil Service Pension Scheme. The DWP was alerted; obviously, there are members of staff at the DWP who will also have been affected by this.
It is fair to say, I think, that I have never had so many discussions with my colleagues as I have had with civil servants across the piece who wanted me to make sure that we fix this and fix it well, given my exposure to them. I am very grateful that my noble friend Lady Sherlock has come to be supportive; there are always effective cross-government communications when required, and I am pleased that my noble friend is sitting next to me for this one.
Lord Gove (Con)
My Lords, the noble Lord, Lord Reid, made a very valid point. Capita was the organisation in charge of Army recruitment. It did such a bad job that even the MoD decided to dispense with its services. The Ministry of Defence has long experience with Capita. Capita was the principal delivery organisation for the Defence Infrastructure Organisation, which was the most dysfunctional arm of that dysfunctional department.
It is not as though the Government have not been warned. As my noble friend Lady Finn pointed out, the Government have not learned what a truly dreadful organisation Capita has been. Yet now Capita is the preferred bidder for the Department for Work and Pensions’ Civil Service payroll contract. Indeed, only last month, Capita was selected for a 10-year contract, valued at £370 million, to run HR and finance systems for four UK government departments. When will Ministers and civil servants learn that Capita is no friend of efficiency or accountability?
Baroness Anderson of Stoke-on-Trent (Lab)
The noble Lord is aware that I have been a fan for many years and would listen to him with interest on every position he takes. I do, however, find it a little rich, given the positions that he previously held, to be lectured by him about a contract that was signed by the previous Government, following many contracts, not least the ones he talked about in defence, that were signed by the previous Government. I have already talked about how we will seek to move forward with insourcing.
I should put on record the fact that I am an honorary captain in the Royal Navy and was a member of the Defence Select Committee when some of these issues were being discussed about the Capita contract and the impact it had on recruitment into our Armed Forces. I believe and hope, however, that Serco is going to benefit from some of the changes that we as a Government undertook with Capita on the defence recruitment contract, which moved to Serco last month.
At the heart of this are—as I think we are all aware—our responsibilities towards taxpayers’ money and making sure that it is spent well, and that, whenever we choose to outsource, it is because we need to bring in different expertise that is not typically appropriate for us to hold centrally. But we need to make sure that this works and works for us, and I hope we will see that going forwards. But Capita is a supplier in more than 80 government contracts.
Lord Scriven (LD)
My Lords, I am agnostic about insourcing or outsourcing. What I want is good service for the pensioners. Just to give an example of how insourcing might not always go right—and I appreciate that the Minister will probably have to write to me on this, because I am going slightly tangentially—the NHS Business Services Authority is an insourcing organisation for NHS pensioners. Given the failure that we have at the moment in that scheme, I ask the Minister: what steps could the Government take to ensure that the significant delays that NHS Pensions, in applying the annual inflation increase to pensioners who have been flagged for manual reconciliation due to their lifetime allowance, can be dealt with and solved, so that those pensioners who are waiting for their annual increase this year and from previous years get that annual increase, which they are entitled to under the 1971 Act?
Baroness Anderson of Stoke-on-Trent (Lab)
As I said, I am very clear that pensions are deferred income and pensioners are entitled to them. In a previous iteration, I was a trade union officer who negotiated part of the Agenda for Change agreement. In terms of access and impact, it is key. The noble Lord will not be surprised that I do not have the detail of that pension scheme in front of me, but I will write to him with an update.