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Second Delegated Legislation Committee


Monday 5 January 2015


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Second Delegated

5 JANUARY 2015

Legislation Committee

The Committee consisted of the following Members:

Chair: MRS LINDA RIORDAN † Burden, Richard (Birmingham, Northfield) (Lab) † Coffey, Dr Thérèse (Suffolk Coastal) (Con) † Cox, Mr Geoffrey (Torridge and West Devon) (Con) Flynn, Paul (Newport West) (Lab) † Harrington, Richard (Watford) (Con) † Hemming, John (Birmingham, Yardley) (LD) Hepburn, Mr Stephen (Jarrow) (Lab) † Johnson, Gareth (Dartford) (Con) † Jones, Graham (Hyndburn) (Lab) † Jowell, Dame Tessa (Dulwich and West Norwood) (Lab) † Lammy, Mr David (Tottenham) (Lab)

† Lee, Dr Phillip (Bracknell) (Con) † Perry, Claire (Parliamentary Under-Secretary of State for Transport) Shannon, Jim (Strangford) (DUP) Smith, Mr Andrew (Oxford East) (Lab) † Stewart, Iain (Milton Keynes South) (Con) † Thornton, Mike (Eastleigh) (LD) † Wharton, James (Stockton South) (Con) Helen Wood, Committee Clerk † attended the Committee



Second Delegated


Second Delegated Legislation Committee Monday 5 January 2015 [MRS LINDA RIORDAN in the Chair]

Draft Driver and Vehicle Standards Agency Trading Fund Order 2015 4.30 pm The Parliamentary Under-Secretary of State for Transport (Claire Perry): I beg to move, That the Committee has considered the draft Driver and Vehicle Standards Agency Trading Fund Order 2015.

What a pleasure it is to serve under your chairmanship, Mrs Riordan. I wish all members of the Committee a happy new year. I wish only that this first statutory instrument of the year could have been a little spicier. I hope, as recompense, that we will get through it quickly. The order establishes the Driver and Vehicle Standards Agency as a trading fund under the Government Trading Funds Act 1973. The DVSA is an Executive agency of my Department. It was established operationally on 1 April last year, following the merger of the Driving Standards Agency and the Vehicle and Operator Services Agency, which were both Executive agencies of the Department for Transport. Each of those agencies had its own individual trading fund. A trading fund is a means by which the operations of a Department are managed in such a way that the revenues of the fund consist principally of receipts in respect of goods or services provided in the course of those operations. In the case of the DVSA, the operations in question are contained in schedule 1 to the DVSA order and are mainly customer services to be financed through the receipt of fees for the services. Trading funds—and any changes to existing trading funds—can be established only with the agreement of the Treasury. They are business-like, self-financing accounting units that, crucially, remain under the control and direction of Ministers, who are, course, accountable to Parliament and to voters across the country. Since the merger that officially created the DVSA last year, the agency has, unusually, continued to operate under two separate trading funds with independent financing and fee-charging systems. As the law allows a particular fund to fund only those functions covered in the relevant trading fund order, the former DSA cannot take funds for work on former VOSA services, and vice versa. That has made accounting for the merged agency cumbersome. There are also operational inefficiencies in running two funds that are effectively performing the same function. The order therefore creates a single trading fund for the DVSA, enabling the agency to operate one accounting system, and simultaneously disbands the DSA and VOSA trading funds by revoking their trading fund orders. The primary functions of the DVSA are the setting of standards for road users and vehicles, the delivery of a range of driving, riding and vehicle testing, and related compliance activity. I should make it clear that the

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scope of the DVSA’s powers or functions is not widened by the order. Furthermore, the Government are making no current alteration to the range and level of fees. In fact, the DVSA has been able to implement a welcome reduction in fees and charges for customers for both driver and vehicle services, including reduced fees for theory tests as a result of savings the agency had accrued through retendering the driving theory test contract, and reduced MOT fees for lorries and buses for 80% of customers. Fees for services will continue to be subject to an annual review in line with Treasury guidelines. Those savings demonstrate that the DSA and VOSA operated as effective trading funds. The retention of that financial structure was therefore considered the most suitable and logical commercial model for the merged operation. However, the decision to proceed with the trading fund was reached only after commissioning and considering a detailed business case to determine the most appropriate commercial model for the agency created by the merger. A copy of the business case report has been placed in the Libraries of both Houses. The business case assessed the trading fund model against the objectives that the new agency was expected to deliver, including the DVSA’s ability to facilitate future reform, to be self-sustaining through fees, not taxes, to minimise the risk to the taxpayer and to provide better value for customers. The trading fund model proved to be the most suitable option and the best fit for the DVSA with regard to meeting its organisational objectives, both practically and financially. As a demand-led organisation, the DVSA is ideally suited to operating as a trading fund. Its income is derived mostly from fees for services, in accordance with its statutory function, on a cost-recovery basis otherwise known as the user-pays principle. Therefore, the DVSA cannot deliver the growth or profit that a commercially viable alternative model would need to deliver. Operating in the manner of a trading fund ensures that the needs of DVSA customers are foremost in its approach to service delivery. It was concluded that a trading fund was the most suitable option for the DVSA as it provided the best fit for the agency practically and financially to meet its organisational objectives. Section 1 of the Government Trading Funds Act 1973 provides for trading funds to be established where the operations of a part of Government are suitable to be funded in the manner that I have described and where financing by means of a trading fund would be in the interests of improved efficiency and effectiveness in the management of those operations. It is our view that becoming a single trading fund will allow the DVSA to realise the efficiency and operational benefits of being a single agency. It will enable the rationalisation of common functions and services for customers—for example, through estates rationalisation, resource reduction, economies of scale and savings from larger contracts such as IT contracts—and, crucially, the payment of one rather than two fees to the National Audit Office. The order creates a financial structure for the DVSA that will allow the merged organisation to ensure that it can meet the challenges ahead. It will allow the DVSA to continue with its programme of efficiency and effectiveness savings. It will help to accelerate the agency’s investment in customer service improvement and facilitate more efficient working practices with partner organisations in the public and private sectors. Road users, crucially,


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will continue to reap the benefits of such initiatives and receive the high standards of customer service that they experienced when interacting with the former DSA and VOSA. The efficiencies and savings achieved by the DVSA as a single trading fund will be passed on directly to customers. As trading funds remain under ministerial control, the DVSA’s customer service and financial efficiency targets will continue to be set by Ministers, and the DVSA must continue to publish its annual reports and accounts to record its performance. I should make it clear that the order does not provide for the DVSA to enter any new areas of operation in direct competition with private business. The new trading fund will fund only those activities that were carried out by the former DSA and VOSA. While there will be front-end merger costs of around £2.3 million, that figure is considered low compared with establishing a new, less suitable commercial model. To put that into context, my understanding is that the total cost of the merger—including this trading funds combination—is around £5.2 million a year, but with savings of approximately £4 million a year as a result of the merged activity. Once the trading fund is established, there will be no additional costs connected to its establishment. It is therefore my view, supported by Treasury Ministers, that a move to a single, unified trading fund will be of the greatest benefit to the DVSA’s customers, ensuring its continued success and appropriate governance. It is also in the interests of the improved efficiency and effectiveness of the management of operations as required by section 1 of the Government Trading Funds Act 1973. Section 6(2) of that Act provides that no order establishing a trading fund “shall be made unless a draft of a statutory instrument containing it”

has been approved by resolution of the House of Commons. I therefore propose that the order be made under that Act, so that a new trading fund for the DVSA can be established. 4.37 pm Richard Burden (Birmingham, Northfield) (Lab): It is a pleasure to serve under your chairmanship, Mrs Riordan. I wish you, the Minister and all Members a happy new year. I can think of few things that I would want to do more on my first day back than discuss a trading fund for the Driver and Vehicle Standards Agency. None the less, I thank the Minister for her explanation of what we are discussing. The creation of this trading fund, as the Minister said, arises from a merger of the former DSA and VOSA last April. As she set out, the order revokes all previous orders for those agencies’ trading funds and establishes a new, solitary trading fund for the new agency. However, if this is about establishing a sole trading account for particular activities—the Minister herself covered this—it is worth while seeing if that is the most appropriate means for those activities. That in turn means, as the Minister mentioned, looking at what is happening with those activities, particularly when, in due course, we will have to start cross-referencing the amounts allocated to the trading fund with what is going on in the DVSA. I have some questions for the Minister.

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To provide hon. Members with some background, since 2012 the Government have embarked on a reorganisation of motoring agencies: the DSA, VOSA, the Driver and Vehicle Licensing Agency and the Vehicle Certification Agency. Those agencies together provide central tax, licensing, testing and vehicle safety services for motorists and the automotive and freight industry. There has been broad consensus that they need reform and change to provide a better consumer service to respond more effectively to business needs and to move into the digital world. The problem is that delivery of that reform has been nothing less than shambolic. In the past three years, there has been centralisation chaos at the DVLA. Ministers closed 39 local DVLA offices before sufficient online services or the Swansea headquarters were ready. That resulted in significant delays for consumers and motorists, and the average time taken to process driving licences increased. When procedures were more complicated—for example, involving medical investigations—delays increased massively. The Government have admitted that “performance deteriorated” at that time. Last year, we saw a botched competition process at the former DSA. Procurement for the new provider of the theory test contract was mismanaged, resulting in a legal challenge and, as a result, taxpayers lost £2.5 million in administration fees and lost efficiency savings. We recently heard about a long and failed competition to part-privatise the VCA. That agency provides a complete type approval service to the industry, collecting more than £16 million a year in revenue and returning a surplus to the Treasury. It is highly regarded in the automotive industry, which did not have confidence that a part-privatised model could deliver the one-stop-shop approach that it values. After a process lasting a year and a half to try to find a commercial partner, the Department for Transport scrapped the search, admitting that it could not find a commercial partner suitable to help achieve the organisation’s objective. The Minister confirmed to me in a written answer this morning that that process—she talked today about savings—cost £2.74 million. Specifically relevant today is the chaos at the DVSA, which is the result of the merger between the DSA and VOSA. Despite creating this trading fund, we know that the merger has not gone according to plan. My parliamentary questions have revealed that the agency has been hit by 66 resignations since the merger last April. The most recent staff survey shows that one in four DVSA staff want to leave over the next year, and I have been warned that morale among driving examiners is at rock bottom. That is relevant to the order because, for a trading fund to be established, the Treasury needs to be satisfied that the fund can meet the organisation’s business plan. There are signs that it is struggling to do that at the moment. The former Minister, the hon. Member for Wimbledon (Stephen Hammond), said that the DVSA merger would “increase efficiency”. The organisation’s first business plan stated that “annual average waiting time will be no longer than six weeks for the car practical tests”.

The reality is that the DVSA was 60 driving examiners short when it was created and, with a sackful of resignations, things have only gone from bad to worse. As the Minister knows, since the merger, the average wait for a test has


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[Richard Burden] been no less than 6.2 weeks, peaking at nearly eight weeks in August. The latest available figures, for October, showed that the wait for a test was almost seven weeks. In the three months before the merger, the waiting time was a little more than five weeks. Clearly, we are not yet seeing increased efficiency or performance. Rather, with staff morale at the levels that I described, more delays and frustration are likely for learner drivers. Will the Minister comment on whether the DVSA is on course to meet its objectives and key performance indicators, as set out in its business plan? Will she confirm what steps her Department is taking to strengthen staff morale and engagement? There were some telling statements in the DVSA’s recent civil service survey about the Government’s reforms. As I say, just over half of the DVSA’s staff seem to have a clear understanding of the organisation’s objectives, and only two thirds understand the purpose of the merged agency. One of the main problems with the motoring services reorganisation, which was particularly noted by the Transport Committee, is the complete absence of strategy or vision. It is a hotch-potch of reforms. Digital improvements to drive efficiency savings at the DVLA are important and well-understood, even if we saw significant delivery problems on 1 October—the day that the tax disc was abolished. However, the reasons for organisational change at the DVSA and for private sector involvement at the vehicle certification agency are less clear. It all seems a bit of a trial-and-error process. Can the Minister set out the overall purpose of the motoring agency reform and say what her Department’s overall objectives are in that regard? Is she satisfied that the agency will have the resource and capacity to deliver these changes. Will that resource and capacity be maintained when so many staff are leaving? Can she explain how the Government will monitor the impact of these reforms and pass on efficiency savings to consumers? Hon. Members will understand the seriousness of our concerns about this modernisation process, and I want to put on the record the fact that I have written to the National Audit Office to request a review. With millions of pounds having already been wasted on failed procurements and botched competitions, we need to be certain that motoring agency reforms are benefiting both the users of these services and taxpayers. Finally, because the order specifies the assets and liabilities of the trading fund, I want to express some wider concerns about resource and capacity within the agency. Recently, there have been real concerns about VOSA’s ability to enforce compliance with vehicle standards and safety regulations adequately. Specifically, not enough resources were available to support the transition of VOSA’s core testing services to authorised testing facilities. I have heard reports that VOSA staff were being pulled away from roadside enforcement to resource the ATFs, shifting focus away from the roadside checks that are needed to maintain safety. Industry bodies have been highly concerned about the length of time that VOSA was taking to process applications for individual vehicle approvals. Parliamentary questions have revealed that the number of checks that VOSA carries out on vehicles and drivers has plummeted. VOSA’s roadside roadworthiness checks

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on cars fell from more than 10,000 in 2009-10 to fewer than 3,000 in 2013-14. The number of roadworthiness checks on heavy goods vehicles carried out at the roadside also fell by more than a third, from 186,909 in 2009-10 to 115,208 in 2013-14. Moreover, last year, VOSA made 43,000 fewer checks on driver’s hours regulations for foreign-registered HGVs at the roadside than it did when the previous Government were in office. There were 82,371 such checks in 2009-10, compared with 39,006 in 2013-14, and there has been an impact on enforcement. Less than half the number of foreign HGV drivers breaking driver’s hour rules are now receiving prohibitions than was the case in the past; the figure has declined from 13,714 in 2009-10 to 6,077 in 2013-14. There has also been a decline in the number of fixed penalty notices being given; the figure went down from 9,981 in 2009-10 to 4,675 in 2013-14. I hope that the Minister will listen to the serious concerns about VOSA’s effectiveness. As Beverley Bell, the senior traffic commissioner, has said: “All Commissioners have grave concerns that VOSA is not targeting the serially and seriously non-compliant.”

The Transport Committee has called on the Government to take an industry-wide approach to enforcement. Of course, the Government’s decision to cut VOSA’s budget so dramatically has not helped. Total Government spending on the motoring agencies fell from £236 million in 2010-11 to £132 million in 2014-15, with the share of total DFT spending halving from 6% to 3%. VOSA was not exempt and has seen cuts to MOT publications and the high-risk traffic initiative that targeted foreign HGVs. As I understand it—I think that the Minister confirmed this in her opening remarks—the merger has not changed any budget lines. The Opposition remain concerned about the impact of non-compliance on road safety and competition in the freight sector. It is imperative that the new DVSA takes action to improve enforcement. To that end, will the Minister confirm that the trading fund will not further challenge effective enforcement by the new agency? The explanatory memorandum contains no detail on costs, and we do not know whether the new trading fund will match combined levels of public dividend capital, revaluation reserves and maximum borrowing levels from the former trading funds of the DVSA and VOSA. Will the Minister confirm that merger of the two trading funds into a solitary fund does not represent a change in the new agency’s budget for the forthcoming year? In conclusion, although the creation of a solitary fund is not controversial in and of itself, Members, the automotive and freight industries, motorists and the public as a whole rely on the agencies to provide vital licensing, testing, education and enforcement services. The creation of the DVSA could be an opportunity to strengthen those services, but the chaotic merger has not yet done that. I look forward to hearing the Minister clarify those points. 4.51 pm Claire Perry: Well, it seems that we will have a more interesting afternoon than we had anticipated. I will seek guidance on the specific questions about the financial implications, but my understanding is that there is no


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change in terms of the overall capitalisation—indeed, the merger and trading fund order has no impact on the agency budget. All fees, funds and budgets are unaffected. I have the greatest respect for the hon. Gentleman, but I must gently say that we heard from him a catalogue of calamity and despair for Britain’s road users that I and many others simply do not recognise. We also heard a very old-fashioned approach to Government: the more we spend, the better we get. He and I both know that that is simply not true. In this case, the proof of the pudding is whether we are delivering better services at a more appropriate cost for taxpayers. The merger began last summer and is not yet complete, so to describe the process as anything other than proceeding as planned is a bit previous. The work is going on, whether on combining the accounting work of the trading funds or moving personnel around to make best use of the efficiencies that we know we can capture. Yes, an up-front cost is required to put the two agencies together, but it will result in a £4.2 million saving for taxpayers each year. The hon. Gentleman and I both know how to do a net present value calculation. We are getting a lot of money back for taxpayers and giving it to road users. One thing of which I am most proud is that we are already returning the savings that we are able to make to the people who are paying the fees. That is the essence of the trading fund model: it is not a for-profit model, and the fees are returned to road users wherever possible. I completely refute the idea that there is no strategy for the agencies. I remind the hon. Gentleman that we are trying to deliver a superb service for the agencies’ users, with agencies that are fit for the 21st century. Let us look at what is happening in other agencies in my Department. For example, we are dragging the DVLA into the 21st century. We have abolished people having to stick bits of paper in the front window of their cars that had no purpose whatever, because the police never relied on them to see whether or not taxes had been paid. We are abolishing counterparts—an absurd hangover from when licences were introduced that meant that people had to drag around tatty old pieces of paper along with their cards. I am very proud that, after many years of discussion, we are putting British flags on

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British driving licences. We are taking these agencies into the 21st century and giving road users superb services as a result. Richard Burden: Then will the Minister explain why the number of roadworthiness checks on HGVs and cars and checks on drivers’ hours has gone down? Claire Perry: I was about to make the point again that we cannot equate numbers and inputs with effectiveness. We have been able to target the resources much more effectively where we know that there are problems of non-compliance. There is no evidence to suggest that overall roadworthiness has declined as a result of these checks. In fact, we are targeting resources much more effectively. I am proud to say that we have some of the safest road conditions and some of the most responsible hauliers in the developed world. We are flexibly deploying resources to meet demand and targeting them effectively. The hon. Gentleman mentioned a six-week timetable for driving tests. He knows that there was a big spike in demand for driving tests. That was to do with the recovery of the British economy and the need to get more people on the roads and it led to a temporary backlog in demand, which has been solved. We are careful about recruiting driving examiners. I do not recognise the parade of calamity in the British driving examining work force that the hon. Gentleman suggests is happening. We are finding it easy to recruit, train and deploy high-quality driving examiners and that process will continue. I am happy to confirm that there are no fundamental financial changes to the underlying structure of the trading funds. I invite the hon. Gentleman to take a slightly more optimistic view of the world, to recognise that it is possible to change agencies to deliver a better service at a lower cost to taxpayers. We should be proud that we have a superb team, both out in the agencies and in the Department, that has the appetite and willingness to make those changes happen. Question put and agreed to. 4.57 pm Committee rose.