Government Threat to Take Control of Hackney

Reprinted below are two articles from Guardian Society. In the first Simon Parker looks at the government’s threat to take over the running of Hackney Council if services don’t improve, and in the second, Steven Morris looks at Lambeth Council’s decision to end their benefits service contract with Capita – an direct parallel to the situation in Hackney with ITNet.

Benefits dispute led to Byers’ threat

Simon Parker – The Guardian – Friday June 29, 2001
The failure of Hackney’s privatised benefits service lies at the heart of this week’s threat by local government secretary Stephen Byers to take control of the troubled council’s finances.With the prime minister apparently determined to push ahead with greater business involvement in public services, the council’s predicament also serves as proof that the private sector does not hold all the answers to improving public services.Hackney’s 10-year, £70m revenues and benefits contract with software services company ITnet began in 1997. Last November, the audit commission reported that the borough’s housing benefit system was “in a poor state” with some 17,000 claims awaiting assessment. The council claims the company was taking “months” to turn claims around.

After much wrangling, ITnet finally stopped providing the service to Hackney in April this year, leaving the borough with what it claims is a backlog of 120,000 items of unprocessed correspondence, relating to an unknown number of individual cases.

More importantly, Hackney has to foot a substantial bill for benefit errors and overpayments. The council’s leadership initially expected these to total up to £4.5m in the current year. Now that the borough has set up its own in-house benefits team, which is sorting through the backlog, that estimate has risen to at least £11m.

An ITnet spokeswoman disputed Hackney’s claims, claiming that the council’s correspondence backlog claims were “ludicrous”. The company had improved the council tax collection and housing benefit services it provided, she said, and is running a successful service in the London borough of Hounslow.

Nonetheless, the extent of the errors and overpayments caused senior officers at the council to threaten to issue a section 114 report, which effectively freezes spending, last week.

The report would have blocked Hackney from entering into any new financial commitments until the council has met to consider the document. If this happened, the borough might not have been able to renew the short-term or agency contracts of staff in education, benefits and social services.

The council’s leader, Jules Pipe, whose Labour group recently gained overall control, said: “Although there are identified potential overspends in some of our budgets, these issues have been completely dwarfed by the unforeseen costs that we now face as a result of the failures of our revenues and benefits service.”

The council says it will go to the courts to try and claim back an initial estimate of up to £30m, but it will not come quickly enough to stave off a potential overspend in the current financial year.

Meanwhile, the government is allowing Hackney to borrow enough money to see it through this crisis, and Mr Byers is working with the audit commission to decide whether and how to intervene in the borough’s finances.

Hackney council was not the only organisation to suffer from the break-up of the benefits contract. ITnet itself faced a grilling in the media and the City, with the dispute resulting in the company changing its accounting policy – a move that hit its profits.

The dispute also focused media attention on ITnet’s work in Islington. The council is revising its contract with the company in the wake of what leader Steve Hitchins calls its “unsatisfactory” performance.

Hackney cannot have been the easiest of places to try to run the government’s complex housing benefit system. ITnet claims it inherited a hefty housing benefit backlog and an IT system that was years out of date.

ITnet took over the revenues and benefits service just as political tensions in the council were coming to a head. Hackney became hung in 1996, and a lack of political leadership combined with some bitter disputes and a programme of radical managerial change to cause chaos across the council.

The creation of public private partnerships in local government has often been seen as a remedy for poorly performing services. ITnet’s case proves that no matter how mighty or successful a private company may be, it will never provide a magic solution to the public sector’s problems. Tony Blair should take note.

Benefits Chaos in Lambeth as Council Looks to End Private Contract

Lambeth cuts short £48m Capita deal

Steven Morris – Monday July 2, 2001

Lambeth council has severed its £48m contract with a private firm to run its benefits operation, just days after the failure of a similar contract in Hackney led to the threat of government intervention.

The decision by the Labour-run Lambeth to cut short its contract with Capita Business Services is being seen as the latest example of a flawed public-private partnership.

Last week, Hackney’s failed benefits contract with another private computer company – ITnet – prompted local government secretary Stephen Byers to threaten to take control of the council’s finances.

Lambeth claims its benefits service has deteriorated since Capita’s seven-year contract began in 1997. It says the problems peaked in April last year when it faced 55,000 outstanding queries and the quality of the service remains “unacceptable”.

A report from the benefit fraud inspectorate (BFI) published earlier this week concluded that there was a need for radical improvement in most areas.

After a special meeting to discuss the partnership, Lambeth announced it was “cutting short” its contract. From today, 175 staff previously employed by Capita to run housing and council tax benefit services will be “welcomed back” to the council.

Council leader Tom Franklin conceded it would be “some months” before Lambeth taxpayers began to see a difference, but claimed the authority had inherited a “very challenging position”.

However, Capita claimed that it had inherited a backlog of more than 100,000 cases, which was now down to 26,500 and continuing to fall.

Paddy Doyle, Capita Group Operations director, said: “Capita is handing back a much-improved housing benefits service to Lambeth, and will continue to provide the council with key support.

“Capita has worked hard to achieve these service improvements and to enhance customer care for claimants. Now that the service is in a stable and improving state, the council has decided that they wish to take over the management of the service at this point, to oversee future delivery and modification of the service,” he said.

Capita will be retained for IT support and for its call centre service at Coventry, as well as the collection of Lambeth’s council tax and non-domestic rates. A spokesman for the council said a new structure had been established and a new “file tracker” system installed to ensure that files and post do not go missing.

Labour has championed public-private partnerships but has been embarrassed by a series of botched IT projects. Only this week it emerged that government plans to speed up the criminal justice system were in disarray after a £319m computer scheme was delayed indefinitely because of mounting costs.

Ministers have been embarrassed by the failure of a £100m caseworking system for the immigration and nationality directorate, built by the German company, Siemens Business Services.

There were also problems with a new £230m system for issuing passports and in November 1999 the Home Office admitted that 13 of its 17 IT projects were behind schedule or over budget.

Capita is a favoured “outsourcing” company. Recently it won a £100m contract to provide a one-stop shop access to Croydon’s council services and last year signed a £400m contract to set up and administer the criminal records bureau for the Home Office.

Taking the Shine off Pinnacle's Glossy Picture

Roger Tayor of JSS Pinnacle paints a glossy picture of how the company could secure more work for its profit-driven ventures (Inside Housing June 15). The reality of its existing operations in the Shoreditch Neighbourhood in Hackney is more prosaic. Despite being in the area for over two years, it has failed to significantly improve the performance of Shoreditch neighbourhood (judging by the published key performance indicators) in relation to the rest of the housing management service.

Readers need no reminding that Hackney Council provides the most expensive service which is substantially below par, so JSS Pinnacle does not realy have to try very hard to do better.

In addition, it allegedly managed to overspend its repairs budget by around £600,000. The council, without consulting other residents, decided to generously allow JSS Pinnacle to pay back that deby over two years. This year, again without specifically consulting residents (the item was hidden in a turgid committee report), the council agreed to wipe the slate clean, as it would take too long to pay back and damage Shoreditch tenants’ interests.

This is an interesting point. When JSS Pinnacle make profits, the company gets to keep its ‘return’ on capital, they are not spread round the borough. When it allegedly overspends, the council spreads the losses over the HRA [the name of the budget for day-to day spending oncouncil housing]. Is it possible to know what JSS Pinnacle really makes on its Hackney operation? My advice to others is don’t touch them with a bargepole.

John Calderon. Chair, Dalston Neighbourhood Panel.
Tenant leader and the Chair of the former Hackney Tenants Federation (FOHTRA) takes the fight into the house journal of the housing professionals, Inside Housing, 6 July