Official Report: Minutes of Evidence

The Chairperson (Mr Swann): Good morning, Minister, Derek and Catherine. You are very welcome to give us a briefing on current issues. I think that the briefing is to be an update on the European social fund (ESF).

Dr Farry (The Minister for Employment and Learning): That is grand. I should say that the briefing is an update on current issues and that the European social fund is a little bit of added extra from the Committee. I anticipate that the European social fund may feature as part of our discussions, so we are happy to give an update on it. Hopefully, there will be the usual free-flowing discussion of a range of the ongoing issues that the Department faces, and we will do our best to respond to questions from the Committee. However, as the nature of the briefing is quite general, if specific issues are raised and there are things that we need to follow up on, we will come back to the Committee in writing.

I will start with the ESF, if that is the desire of the Committee. You will appreciate that work is ongoing. We now have a situation in which, I think, 101 organisations have moved into phase 2, with clarification being sought from nine organisations. That work is close to being concluded. Appeals from phase 1 are also being considered. It is anticipated that those appeals will be closed by Friday, barring any other areas in which we are making decisions that relate to phase 1 and on which organisations will potentially still appeal. If that is the case, we will reconvene the appeals panel. It is hoped that we will then be notifying applicants about the outcomes of the phase 1 appeals at the beginning of next week — probably on Monday. The phase 2 assessments are ongoing, and, if Committee members perceive there to be an overlap, that is fine. There is no risk to what will be a meritorious process as we proceed. No decisions have been taken on funding at this stage. I think that one more phase 2 panel will meet on Friday, and we will then look to notify applicants on the outcome of phase 2 towards the end of next week. There is an issue with how we can best meet the deadline of the end of March that we have set ourselves in order to have the opportunity to continue to provide funding, where relevant, for continuing organisations. That is still very much the timescale that we are working to. We are happy to clarify further any questions on the ESF in a moment.

The next issue is the Budget, which is by far the biggest challenge that the Department, the Executive and the wider public sector in Northern Ireland face. We have made our decisions for the forthcoming year. Those were not entirely of our making, and the Committee is well aware of the context for that particular point. There will be challenges, particularly for our further and higher education sectors. For higher education, members will be conscious that the approach that we are adopting currently to funding our universities is probably no longer sustainable and that we will need to make some decisions about the way in which we approach that over the forthcoming years. There is a range of approaches that we can take, and, in the short term, we are keen to initiate a process of structured engagement with stakeholders to have that discussion.

When we are talking about money, we also need to be very conscious of the looming opportunity that is lower corporation tax, which, of course, will not happen in a vacuum. The pressure on skills will become even more acute than it is today, and, as the Executive look ahead to making a decision on a lower level of corporation tax, it is important that they factor in what we need to do about the additional pressures on skills. To an extent, that tends to overlap with the point that we are making about the structural problems with higher education budgets.

I now want to address some of the issues that are very much live on my desk and that are issues for the Committee. Probably the most important and significant of those issues is the review of youth training. You will get a briefing from officials today on the summary of responses to the consultation. We hope to make decisions on the final way forward in the very near future — potentially in April and into mid to late May. We are also looking at the United Youth programme and are in discussions about the long-term resourcing of a programme through Peace IV funding, alongside what happens with the European social fund, with other mainstream Department for Employment and Learning programmes contributing to that. We are moving ahead with the pilots, based on the funding received from the Budget.

The economic inactivity strategy is currently before the Executive. We await their decision to approve it, which, hopefully, will be achieved in the very near future. We can then move ahead with implementation. We also hope to have a disability employment strategy — it will now be a disability employment and skills strategy — issued for public consultation in the next number of weeks. Similarly, we are working on a further education strategy, and you have been briefed on that. Again, that should be issued for consultation in the very near future.

The Committee has taken a very strong lead on careers, and, indeed, you held an inquiry on the matter. We have copied to you an emerging implementation plan on the back of the Ambrose panel's report. We have cross-referenced how that interfaces with the Committee's recommendations. We are happy to discuss it in greater detail and go through it with members.

The final issue that I will refer to relates to employment law issues. We anticipate that we will have a Bill to be approved by the Executive in the late spring, with the hope being that it will be introduced in the Assembly before the summer recess. If the Second Stage is agreed by the Assembly, the Bill will go to this Committee for its detailed Committee Stage. I am conscious that one aspect, which we hope to add to the Bill as it moves forward, concerns clauses on zero-hours contracts. I am aware that the Committee has expressed some concern at the approach that the Department has taken. There is a specific desire to see a ban, which is a position that I am not entirely unsympathetic to. I am not here to defend that employment practice, but we need to be realistic about what is capable of being agreed by the Assembly. We also need to be aware of the dangers of unforeseen consequences if we try to ban something. People may lose job opportunities, flawed as they may well be, and be dependent on welfare, as opposed to being in employment. Employers would also be able to circumvent a ban by coming up with a different approach to casual employment, and we as a Government would then have to reconsider our approach. Therefore, at this stage, we suggest that strong regulation is the most appropriate route to take. The Committee will have every opportunity, as will the Assembly as a whole, to shape any such legislation in the future and to ensure that we approach it in a balanced and responsible way. As a Department, we initiate, but it is for the Committee and the Assembly to take it forward and achieve the final outcome.

That is a run-through of our estimation of the main current issues facing the Department. There is ongoing work on the implementation of the strategies that we have agreed and the policies that are in place, but those are the main policy points on the most live issues. I am happy to answer your questions.

The Chairperson (Mr Swann): Minister, thank you very much. To go back to the initial point, the Committee, as you are aware, has a keen interest in following up on the European social fund. Where are you time-wise on that? Do you still think that you will meet the target of the end of the month?

Dr Farry: Yes. It is our intention that we will indicate to the vast majority of successful organisations before the end of the month. We will need to make a judgement on how we are going to allocate the funds for phase 2. We will have conducted the scoring of the phase 2 panels. Based on that, we will have a rank order of the scores that the different organisations achieved. As you know, we are 1·8 times oversubscribed when it comes to number of bids versus available resources, so we will not be able to fund everything. However, where we are in a position, based on that rank order, to let organisations know whether they will be receiving funds or not, we can communicate that to them so that they can proceed with a degree of certainty beyond 1 April. We have a complication, in that appeals are coming through, we need to know how that will impact on the table. However, we have the ability, through the resources available to us, to manage that uncertainty, so we can indicate on the back of phase 2, although we still have some live appeals, which organisations will be in receipt of funding under the ESF.

The Chairperson (Mr Swann): I think that £1·8 million was your budget allocation as a shortfall towards the ESF. Is that still a factor in your calculations and the scoring?

Dr Farry: Do you mean the allocation from the current Budget?

The Chairperson (Mr Swann): Yes.

Dr Farry: That relates to match-funding issues. It will remain an inherent risk in the system. It is a product of the times in which we find ourselves. We have access to European social fund moneys. That is European money, of course, but it can be awarded to organisations. Those organisations still have to land the match-funding allocations. That may remain an ongoing difficulty, because other public-sector organisations are obviously going through the exact same difficulties that the Department is going through.

The Chairperson (Mr Swann): In your previous presentation to the Committee, you said that you were committing additional resource to the ESF managing authority. Will you give us an update on that? How many have been added and at what grades?

Mr Derek Baker (Department for Employment and Learning): If you are asking for numbers or grades of staff, I do not have that detail. Our finance director, Stephen McMurray, whom you know, has offered his assistance to the managing authority.

We have looked at deploying some of the members of our financial audit and support team (FAST), who go out and do inspections to deal with some issues. As far as the phase 1 assessment and the phase 2 assessment are concerned, everything is set up to meet the deadlines that the Minister outlined.

Dr Farry: I suggest that the bigger challenge for us — it is not a barrier — is the coordination of panels, particularly around appeals, where you have people from different organisations coming in and having to coordinate diaries to make that happen. That is probably a greater challenge than having the staffing capacity in the Department to process the issues. That having been said, on the basis of where we stand today, we will hopefully be in a position to give an indication of the outcome to the vast majority of organisations towards the end of next week.

The Chairperson (Mr Swann): Members, I will take a round of questions now on the ESF before we move on to other issues.

Mr Ramsey: I welcome your role in this, Minister. You have, to paraphrase your language in the House, restored a wee bit of integrity to the process, and that is most welcome. One of the concerns with the ESF is over trying to ensure that we have a geographical spread of projects and that we have a spread of youth, women's and disabled projects. How can you assure us that the process will enable that to happen?

Dr Farry: You have a clash between two different sets of potential outcomes. You have, in essence, the merit order, which may not in itself produce a total geographical and sectoral spread. If we feel that there is a major issue, we will look to see what we can do about having a second call to rectify any potential shortcomings in provision. We have the capacity to do that. It may involve some discussions with the European Commission, but I anticipate that it is in its interests, as it is in ours, to ensure that European money is being used to get the best possible outcome. By the same token, if there is an issue with duplication in particular areas, we can take decisions not to proceed with an overcapacity of projects, where all are essentially doing the same thing. That, again, is against our departmental objectives and those of the Commission in ensuring outcomes. Therefore, if we have an overcapacity in areas, we were clear in the guidance notes that we can take action to best ensure that we have coverage.

From my understanding of what has been happening with phase 2 to date, I can say that we are seeing, through the revised approach to management accounts, a better spread across sectors and geographical areas. That is never going to be 100%, as the nature of the process is that we have groups bid rather than have a statutory body that has a duty to provide services on an equal footing across the region. That is the means by which we will manage the risk. The roadshows, which were a new addition to the process, will have encouraged applications from a much more even geographical spread as well. We cannot give a definitive answer until we see the final merit list, but I as Minister am very conscious of ensuring that we have proper coverage. I do not want to see a perverse result, where we are not actually delivering the outcomes. This is not about us funding organisations a, b, c and d and then stepping back but about us working in partnership with the community and voluntary sector to deliver policy outcomes on behalf of the region.

Mr Ramsey: I have one further question. I appreciate, Minister, that this is something that you are clearly focused on. One of the big issues that came out of all the discussions that we had with the community and voluntary sector is the level of money that is owed to it by your Department. It is serious money: hundreds of thousands, if not millions, of pounds are owed at present by your Department. The guidance notes refer to advance moneys of only 5%. That is a cause of concern to many of the groups out there, given that they are owed x amount of money but may get only a very restricted 5%. Are you inclined to look at that again?

Mr Baker: It is a fair point. I have been made aware of it. Regarding the assessment for this set of applications for the next European social fund programme, we can assure the Committee that we made sure that, in the financial capability assessment, we took account of moneys owing to groups from, for example, European social fund money from the Department so that they were not penalised for that. It appeared as a creditor, so we did take that into account.

I take your point about the need to move money quickly and efficiently to organisations. We need to look at that. When I was addressing the Chair earlier, I talked about additional resources that we put into the managing authority. That is one area that we need to look at.

The other side of that problem goes back to the financial capability assessment and why we need to get it right. Often, money can be held up because of an audit by the European audit authority. Many organisations feel that it is overly bureaucratic and overly detailed. Sometimes, we too rail against that and push back. Nevertheless, we have to comply. That is a major risk in the programmes. The money can suddenly stop, and, until we satisfy the auditors with all the information that they are asking for, the money cannot flow again. I take your point that it is a problem. The organisations need the money to flow, and to flow efficiently. We are trying to improve the process and systems and to enhance the resources available for the next programme so that we do not block that. However, we have taken account of money owing in the assessment.

Mr Ramsey: This question might not be for today, Derek or Minister, but can you give us a definitive figure for the amount of money that is owed to the community and voluntary sector over the past year? Can you break it down into the moneys that are owed at present because of European procurement restrictions? Perhaps you can provide the information at a later stage.

Mr Baker: We will give the Committee an update on that.

Dr Farry: It will be a snapshot of a moment in time. It will always be a constantly moving piece, but we can give you, at a fixed point in time, what the situation was.

Mr F McCann: Thanks for the presentation, Minister. This follows on from what Pat asked you, and I asked a question on it in the House. We were constantly being told by the women's sector across the North that it could be unduly impacted on by decisions taken. Bronwyn raised an issue about the only women's centre west of the Bann, in Dungannon. You talked about overcapacity and duplication. How would you manage that? Take the likes of Belfast, where there are a number of women's groups. You will see what the Department believes to be duplication. The decision could affect the future of delivery.

Dr Farry: We need to be very careful and say that we cannot guarantee the outcome that we will fund a certain activity in a certain geographical location, never mind fund a certain organisation to do that, because we are in a competitive process. It will always to be an imperfect science to an extent. In common with what I said to Pat, we are very mindful of avoiding duplication and overcapacity where there are gaps emerging, either on a geographic or sectoral basis.

I am reassured that a better pool of women's organisations has moved to phase 2 than had been the case. That having been said, I have no idea how those organisations have been scored by the panels. I need to step back from that process, apart from setting the parameters within which decisions will be taken on how the funding is allocated, to ensure that it is done purely objectively. It has to be done without knowledge of who the winners and losers will be.

We can intervene where we feel that there are two organisations doing more or less the same thing. In such circumstances, we will fund the higher of those, and that is set out in our guidance notes. If, by the same token, we feel that there are major geographical or sectoral gaps emerging, we have the potential to do a second, more discrete call in those particular areas. We would need to get permission from the Commission to do that. However, given that it is as much in the Commission's interests as it is in ours for European money to be used strategically, we would be hopeful of getting that permission.

Mr F McCann: I have one further point to make. It elaborates on what Pat said. Many groups out there blame the Department for the fact that they are owed money. That is probably down to how it is communicated to many of the groups that it may beyond the Department's gift to do anything until the money is cleared. The whole process has thrown up some communication difficulties. Will the Department review how the whole thing has been handled and ensure that, especially when it comes to money that is owed, groups are made to understand that it is beyond the Department's power to do anything about that until Europe finishes its audits?

Dr Farry: Derek, that is one for you.

Mr Baker: That is a very fair point. The one hope on the horizon is that, for the incoming European social fund, some of the bureaucracy in the claiming process has been relaxed. We hope that it will not be as difficult for organisations to claim and that the requirement for documentation will not be as fulsome. However, I take your point. If organisations are not getting money, they need to be told in very clear terms why they are not getting money and what has held it up. If we can do that better, we have to. Without knowing all the detail, I am quite willing to accept that we can do better in communicating and processing this, and we will look at that. That is a commitment.

Mr Anderson: Thank you, Minister, for coming along. Apologies for being slightly late. You told us that 101 organisations have moved to phase 2 and that the appeals are ongoing. As Pat said, it is good that we are moving to that situation. How many applications were appealed the first time around? Do we know?

Dr Farry: I think that the figure is about 14 to date. I stress the words "to date", because the option to appeal is still live. The opportunity to appeal ends later today. Therefore, in theory, other appeals could be lodged in the next number of hours.

Mr Anderson: That is 14 out of how many that did not meet the criteria?

Dr Farry: At this stage, 24 have been eliminated.

Mr Anderson: Fourteen out of 24?

Dr Farry: In phase 1, yes.

Mr Anderson: We got a lot of lobbying from groups and organisations. Have lessons been learnt? Were those complaints justified in any way in relation to the 14 appeals that are coming through?

Dr Farry: You need to separate the appeals from the process. It does not necessarily follow that because appeals have been granted there was a flaw. Appeals panels will look at things from their own perspectives, and a very clear guide was given to the appeals panel on the criteria to use, but it is for them to interpret what was applicable in those cases. Derek, I will look up the wording on that point.

Mr Baker: A lesson has been learnt. The issue that caused the single largest number of complaints, and we discussed this the last time that we were here, was the requirement for management accounts to be submitted. I still adhere to the view that it is entirely reasonable, in looking at an organisation's financial position, to have management accounts as well as annually audited accounts. Where we learnt the lesson, and where I put my hand up, is that we should have specified very clearly to organisations what we meant by "management accounts".

There was a line in the guidance notes asking for audited accounts and management accounts; not "either/or" but "both/and". However, so many organisations somehow failed, or omitted, to submit management accounts that it waved a red flag to us and the Minister that something had gone wrong and that people had misunderstood. That is why we reran the process, saying, "OK. This is what we mean by 'management accounts'", and gave people a second opportunity. That was the big lesson learnt. Apart from that, no single big issue came out. We tried to remedy the management accounts issue, which unfortunately elongated the process a little bit.

Dr Farry: The grounds for appeal are twofold. Either the outcome was a decision that no reasonable person would make on the basis of the information provided in the application, and/or there was a failure in adherence to procedures or systems. We do not have access to the specific rationale for each of 14 decisions that were taken to grant an appeal. It may not necessarily follow that they were related to management account issues; other considerations might have been part of the process.

Derek outlined the main issue: we took a decision to change the nature of the process by providing everyone with the opportunity to provide revised information based on the interpretation of "management accounts". The point about the integrity of the process was a very narrow one. Obviously, it created a large number of ramifications for organisations. The Committee talked about the process being flawed and lacking integrity, and we, as a Department, very much refute that. However, where we concede and recognise that there was an issue is on the very specific point of management accounts.

Mr Anderson: Thank you for that response. It is good that we are moving to a position where this can be finally rolled out.

You said that the programme is 1·8 times oversubscribed.

Dr Farry: Yes.

Mr Anderson: After all the appeals, will it still be 1·8 times oversubscribed, or does that figure refer to the initial number of applications?

Dr Farry: It refers to the initial number.

Mr Anderson: So, it is likely to be slightly less than that.

Dr Farry: Yes. You have to bear in mind that, first of all, some organisations will be ruled out at phase 1, which will have an impact on the oversubscription figure of 1·8. The second point to bear in mind is that not every organisation will meet the pass mark for phase 2. Just because an organisation has got through phase 1 does not mean that it will pass phase 2. From memory, the pass threshold was 115 points out of a maximum of 170. If an organisation is above that line, it is eligible for funding — I stress the word "eligible"; if it is below that line, it is not eligible for funding.

In the interests of transparency, it is important to be very clear that it is not, at this stage, likely that every organisation that passes the threshold will be funded, because, in my estimation, we will still be considerably oversubscribed for funding at that point. It will not be 1·8 times oversubscribed, but it will certainly be more than one time oversubscribed.

Mr Anderson: OK, Minister; thank you.

Dr Farry: Therefore we may deem an organisation worthy of funding, but we may simply not have the resource to fund it. Equally, some organisations to which we allocate money from the fund may struggle to secure and sustain match funding, and that project may not be able to proceed for other reasons. So, there is still a degree of risk in the process for organisations. That is the nature of the process .

The Chairperson (Mr Swann): Minister, Phil wants in, but, first, I know that you refute our position that your process was flawed. However, that will still be the Committee's belief. That is why you had to take some of the actions that you did. Derek says that we are flag waving. I am not getting into flag waving, Derek.

Mr Baker: I did not mean that in a pejorative sense.

Dr Farry: If I could use the term "flawed", I would say that where we differ is that we accept that there was a problem in relation to a very specific aspect. The Committee, probably, has used that language over a much broader range of issues. We have yet to receive any specifics that back up the points that the Committee is making in that regard. We are happy to engage with such points if anyone wishes to make them.

The Chairperson (Mr Swann): There will be when the process finishes.

Mr Flanagan: If it was that badly flawed, Minister, somebody here would be calling for your resignation, maybe.

Dr Farry: Sorry?

Mr Flanagan: If it was that badly flawed, there might be somebody calling for your resignation, so you can take some comfort from that, maybe. With regard to the perception that there might be a geographical imbalance, have you any indication as to what the criteria will be in assessing that?

Dr Farry: No. It is something that we will have to make a judgement on once we see the final funding picture. The process of addressing duplication is built into the system. The issue about where gaps have emerged will have to be a judgement call as we see the final picture. Then we will have to make a determination whether we need to try to rectify those points.

Mr Flanagan: When can we expect that to happen?

Dr Farry: It could happen fairly quickly. The process for a second call will take longer, but we will be able to make a decision on whether we need to take action to rectify any gaps. That can be taken pretty much instantaneously at the end of March or the beginning of April.

Mr Flanagan: Will a second call to fill in those gaps be available to new applicants or only to those who were unsuccessful in the first call?

Dr Farry: I stand to be corrected, but I imagine that it will be an open call, provided that people meet the criteria on which the call is based. Say that we were doing something on a subsection of a sector or a geographical area, for example. Groups that fell within those criteria would be part of that, but it would be a distinct call; it would not be tied to the previous process.

The Chairperson (Mr Swann): Minister, thank you for that. I wanted to get to the ESF rather than go back and forward.

I move now to funding for HE and FE. Where do you see any progress being made? When can we expect an announcement on how much both can expect to be cut?

Dr Farry: We have already made it clear to the Committee where we are heading in that regard. It was our intention that the remainder of the budget gap to be filled would be met by £14 million in relation to the higher education institutions and £12 million from the further education sector, which would leave a balance of, I think, £4·1 million through other savings in the Department. On the back of the decision around the premia, the higher education figure has now gone to £16 million. That is, in essence, the direction ahead of us. We reported those to the Committee a number of weeks ago. That situation is unchanged.

The Chairperson (Mr Swann): I am aware that you reported them to us. I am just trying to tease out how you have gone on with the institutions themselves.

Dr Farry: They have been notified of what is happening, and it is now for them to work through the detail. I will break it down. There is consensus in the further education sector on areas where savings can be found, and we outlined those previously. For example, savings can be found in the standardisation of fees to be charged for HE and FE. There are savings on some programmes, for example the learner access engagement programme, and there are some savings on essential skills. There is an issue with English for speakers of other languages (ESOL), and there is still a residual funding gap for which the sector will have to find savings. That is about £1 million.

We are proceeding on the basis that we will look to use £6 million of end-year flexibility to offset some of that £12 million pressure. That still has to be formally agreed by DFP and the Executive as part of a monitoring round. While we are hopeful — there has always been an understanding that we can call that money down — it has to be formally agreed through the processes. It is not a given. That is an inherent risk in the system, and if that proves not to be case we will need to revisit the FE situation.

We can now notify the universities of the precise cut that they will face in the year ahead across their teaching and research grants. The last piece of the jigsaw was the outworkings of the research excellence framework results from December and their impact on the quality-related funding formula between the higher education institutions. In that regard, we were waiting to see the decisions that the Higher Education Funding Council for England (HEFCE) took on the distribution of funds. It was always our intention to follow its model to have an objective standard on which we can take a decision.

The institutions will now be aware of the pressures facing them as a direct result of cuts; it is for them to work through how they manage that pressure. We have a commitment that there will be a protection of narrow STEM subjects, given their importance to the economy. However, apart from that, we are not seeking to micromanage the universities. They have the flexibility to move between teaching grants and research grants, depending on their own priorities. They may have some ability to manage the pressure for the forthcoming year through using their reserves; or they may wish not to take that decision. There will be an outworking of the places that will now be eliminated on the back of these decisions. I expect announcements to be made very soon. It will not be announced by the Department but by the universities.

The Chairperson (Mr Swann): This issue has been raised before. With the reduction in the number of university and college places, vocational skills and apprenticeship programmes become all the more important. Have you a commitment to fund those to an extent that will meet demand?

Dr Farry: We cannot say that we will fund those to the extent that it will meet the demand that will result from a shortfall in places in college and university. We are in a bad place in terms of what we are doing around skills; there is no getting away from that. However, we are not making cuts to existing ApprenticeshipsNI and Training for Success places. There may be revised budgets based on anticipated demand for those places, but they will remain a demand-led provision. You will also be aware that we received £7·5 million from the change fund to enable us to proceed with piloting the new apprenticeship strategy and the forthcoming youth training strategy. That fund is in place, so we have the resources to begin work on those strategies. However, we cannot say that those new initiatives will take care of the shortfall found elsewhere. We are seeing a net reduction in our ability to invest in skills. I am worried and troubled about our ability to meet current pressures in what the economy is looking for, never mind anticipated pressures under a lower level of corporation tax. It is extremely concerning.

We will look to see what we can do more efficiently with resources. In some ways, higher-level apprenticeships are more cost-efficient to the state because there are no student support costs as someone is in a job and is earning a wage. They also have a stronger matching in supply and demand to the economy because employers are in the driving seat on what areas people are being trained and educated in as opposed to the slightly less certain approach taken through colleges and universities.

The Chairperson (Mr Swann): As we move to the new Department structure and the Department of the Economy, do you think that there will be a better understanding of those concerns and better support?

Dr Farry: It certainly will not do any harm. Consolidating economic policy and the levers to deliver it under one roof makes a lot of sense. That is a broader point than simply skills policy and skills levers; skills and the economy massively overlap, so consolidation will be a positive. That does not mean that there is no coordination now, but having it under one roof will make it more efficient.

Mr Flanagan: Thanks for the information. I want to deal with the issue of zero-hours contracts. You said that you are not here to defend that employment practice and I would not expect you to, but I genuinely would expect you to do more to resolve the problem.

You talk about the unforeseen circumstances that may arise if you legislate for the abolition and banning of zero-hours contracts. What are those unforeseen circumstances?

Dr Farry: We are seeing a casualisation of the labour market, and Northern Ireland is not unique in that. That flexibility probably suits employers in most circumstances, but there will also be circumstances where it suits individuals. However, many people are on zero-hours contracts because they have no choice.

You cannot simply say that if you ban zero-hours contracts that employers will automatically say, "OK, I've been found out by the state. We will now give all those on zero-hours contracts a full, permanent contract." That may happen in some cases. In other cases, however, that business model may no longer be viable. A businessperson may change their business model. Equally, the model may not be viable and not proceed.

There is a danger that we end up with people not being in employment, albeit a flawed form of employment. The other danger is that if we seek to ban zero-hours contracts, employers will simply devise a different form of employment contract that provides more or less the same flexibility to the employer but does not address the fundamental issue of the vulnerability of workers.

The Government will then have to legislate, once again, to address the new type of casual employment contract that emerges, so we end up constantly chasing our tail trying to keep up with practice in the market. It is easy to say, "Let us ban zero-hours contracts", but we need to be careful of the unintended consequences; that is why we suggest regulation as the approach. That is not to say that, in due course, the Executive and the Assembly may, down the line, choose to ban zero-hours contracts. However, in the first instance, a more proportionate response is to regulate to see whether that can address the problems rather than automatically overreaching and ending up with unintended outcomes.

Mr Flanagan: I might not necessarily agree with you; you might accept that. Did you watch 'Panorama' the other night?

Dr Farry: I have been very busy. No doubt, you will recount what it was about.

Mr Flanagan: It was a programme ahead of the elections and part of a series that 'Panorama' is doing on what Britain wants. Of course, we are excluded from that in a geographical sense. It was about the right to work. There was very powerful testimony from a young woman employed by SPORTSDIRECT on a zero-hours contract. She said that she often went into work and was told when she arrived that she was not needed and should go home or was sent home in the middle of her shift. That was all done under employment law; there was nothing illegal about it. However, she subsequently took the company to a tribunal and settled out of court. She gave very powerful testimony and presented a very compelling case why such contracts are wrong and immoral.

I genuinely do not accept your argument that we cannot ban such contracts because employers will find some other way of circumventing the law and exploiting workers. At the end of the day, they will do it anyway, and we should make it as difficult as we can for employers to abuse and exploit employees. If you can, you should watch that programme; it is available on iPlayer. It would reinforce the message that those contracts are being exploited and that there is much more that we need to do to protect workers' rights.

Dr Farry: What you recount from 'Panorama' is little different from what we have read and from what we have understood from engagement with stakeholders. I have had accounts on that locally as well as what we understand the situation to be in Great Britain. I am not here to say that they are moral or ethical, so I do not disagree with you about their impact, particularly on vulnerable workers on low pay. The situation that you described is unethical and is creating massive difficulties for those involved in their coming and going, how they plan their week, and what certainty they have on income and the impact that that has on their financial planning and security. That is why we are looking at addressing those issues through regulation.

I should stress that what we propose still needs to be agreed by the Executive, that it is still a live issue, and that the balance of what we suggest may change; however, it is more stringent regulation than what is being taken forward in Great Britain. It is important to put that in perspective. It is not a case of our holding things back.

I am not aware of any mainstream political party in Great Britain proposing a ban on zero-hours contracts. If you carefully dissect the language of the Labour Party, you will see that it is not proposing that either. What it is saying is that eliminating zero-hours contracts means people moving to a fixed contract after a certain period. However, that does not mean a ban on zero-hours contracts as such.

What you suggest is far outside the mainstream; it is a rush to the most extreme way of addressing the issue, which may not be the most productive way of addressing it. In contrast, what we are seeking to do in Northern Ireland is more comprehensive than what happens in Great Britain. There are four different elements to it: we seek a ban on exclusivity clauses that stop workers working for just one organisation; we are looking at introducing a statutory code that would hopefully address the situation that you outlined of that worker in Great Britain; we are suggesting the introduction of a duty on employers to demonstrate, after a certain period, why someone would not move to a fixed contract. If someone on a zero-hours contract is, in effect, working a steady pattern, why should they not have the security that comes from a proper contract as opposed to a zero-hours contract?

We are also working with the Minister for Social Development — I am pleased that he is enthusiastic about that work — on how we can ensure a better interface with the benefits system to help people to have greater surety about their income and to make sure that they get everything that they are entitled to. We are proposing to do a lot more in Northern Ireland than is happening across the water.

Mr Flanagan: This is my final question, Stephen. You are telling me that you will not ban zero-hours contracts, as employers will find a way of circumventing them. However, you propose to bring in a system in which they will have to justify not giving somebody a fixed contract after, I think, nine months. That is also easy to circumvent, because after eight months and three weeks they will give an employee a different number of hours or zero hours that week, which will put them back to the start.

It is very easy for unscrupulous employers to circumvent even your weak proposals.

Dr Farry: You make the point that there is no silver bullet for addressing the problem. You say that people will circumvent the issue by simply moving employees to a different pattern for the final few weeks, but an employer will be required to make an objective case. In the event that that has not been the case, such workers would have recourse to a tribunal to enforce their rights and to challenge whether or not the employer has been objective. I suggest that, if an employer establishes one pattern for x number of months and, in the final few weeks before the looming deadline, radically changes the approach to a particular worker, that would not meet the criteria and objective analysis. It is a subjective approach that would not stand up to scrutiny in a tribunal.

We will move ahead with legislation if the Executive agree that that should happen. It is open to any Member and to the Committee as a whole if they wish to table an amendment to have a ban on zero-hours contracts. If we simply introduce legislation to the Assembly, that does not mean that those are the defined parameters of what is possible or not possible. If you feel that a proposal to have a ban should be tested by the House, you have the right to do that. You may wish to make a judgement call as to whether that is likely to be approved. We all know the mechanisms by which decisions are taken, but that option is open to you as an individual or to the Committee as a whole.

Mr Flanagan: You will appreciate why I am more inclined to ask you to do it through the Executive to get cross-party support, but I hear what you are saying.

Ms Lo: Thank you for all your answers so far, Minister. I appreciate your coming to the Committee so frequently to engage with us.

Dr Farry: It is a weekly appointment at this stage.

Ms Lo: That is not the case with other Committees.

Dr Farry: I suspect that I will be back in April when we see the outworkings of the ESF. I imagine that the invitation is already in the post.

Ms Lo: I want to go back to the budget for higher education institutions. Through talking to the institutions, my understanding is that it is inevitable that 900 to 1,000 university places could be cancelled or not offered next year. That is contrary to what is happening in the rest of the UK, where universities are encouraging expansion. In fact, many universities no longer have a cap on student numbers. As you said, with corporation tax coming on board, this is just madness. You say that you will have discussions with the higher education institutions on restructuring. How can we try to reduce those figures?

Dr Farry: We have yet to see the final figures from the universities. They will not be as dramatic as the figures that were set out in the draft Budget, when we faced a potential 10·8% cut. The universities were asked to give us figures on that basis, but they will nonetheless be shocking, and we are moving in a direction that we do not want to go in, which is different from the rest of the UK. With full fees and full cost recovery through fees, it is possible in England for no cap to be in place. In Northern Ireland, the Government subsidise places, so we need to regulate, and we do that through the maximum student number (MaSN). As part of the higher education strategy, we will review the MaSN cap.

As we look to the future and what we do about that, it is important to bear in mind that there are three or four different pressures in the system. First, the cut this year is £16 million, which, sadly, we are passing on to the institutions. Secondly, we have a pre-existing structural gap of between £25 million and £40 million, depending on how you work it out. That is the outworking, over the past number of years, of our approach to higher education funding. That essentially means that what we invest per university place varies from £1,000 to £2,500 less than the comparator in England. There is an ongoing issue about how we preserve the quality of our university places. Thirdly, there is the issue of what we need to do to expand the sector, particularly in light of the lower rate of corporation tax. We need a smart expansion that is based on the future needs of the economy. To a large extent, my fourth point overlaps with my third point. I look to Pat in particular, who has been very quiet on this so far: it is the potential expansion of Magee, which also has to be factored in.

To address all that, you are looking at a recurring cost of at least £70 million a year. Exactly how that money will be found, particularly in a context in which budgets are extremely tight and about to get ever tighter, is one huge conundrum. In different parts of the UK, there are two models to fund higher education. We need to look to one or other of those; at this stage, I am not saying which one we need to follow. That is where we need to have engagement. In essence, however, the fees in England are £9,000. Those are the two schools of thought at present. The vice chancellors are making a strong pitch that the cap at £9,000 should be lifted, and there could be a higher cap or a free market in fees. The Labour Party has commented definitively that fees will be reduced to £6,000. Given what happened to another political party when it made a pledge on fees before going into government and then did something different, I imagine that it will be a huge difficulty for Labour to do something different on this pledge, now that it has been very definitive on the issue. We will wait and see what happens in England. Scotland has gone for free fees for local students, but it has pumped a greater share of its block grant into higher education than we have in Northern Ireland. In Scotland, the situation is flatlining; in England, there is growth; and, in Northern Ireland, we are running on a declining situation. We need to decide where we are going to go on this.

Mr Ramsey: I will go back to zero-hours contracts, Minister. I will come to Magee later. The SDLP certainly recognises the important role that such contracts play, particularly in Northern Ireland, but we cannot have a situation in which they are being exploited. They have to be a part of good workforce management and planning. I am disappointed because we need a code of conduct for employers, defined by you in legislation. I do not see that.

When officials came here recently, some of the questions that I asked them referred to the need to carry out the optimum research to find out what the issues are in Northern Ireland. I do not think that the Department did that. At present, almost 40% of those on zero-hours contracts are under 24 years of age. The Department did not enthuse me by informing me that it was having that discussion with organisations across Northern Ireland that reflect and advocate on behalf of young people. I learned recently that, in Ulster University, for example, with over 600 teaching staff, 50% could be on zero-hours contracts. It is worrying to go forward at that level. I do not know what proportion of Queen's staff or Colleges NI staff are on such contracts. However, I am sure that answers to a few questions for written answer will inform me.

Be absolutely certain: young people in Northern Ireland are being exploited, and those who are furthest away are the most marginalised. Further research needs to be conducted. Your officials said that they would do that, but I ask you to make sure that such research takes place to look at models of best practice and ensure that we reduce that 40% of young people to a much smaller percentage so that we do not leave them vulnerable.

Dr Farry: We accept that there is not yet a perfect picture of the situation in Northern Ireland. However, I have made the judgement call — I am sure that the Committee would fully support me, albeit that it would maybe dispute exactly how far we go to address the issue — that, rather than wait until we get the full picture, we need to move now to regulate or, in the view of the Committee, ban zero-hours contracts. If we are simply waiting to get the stats for another 18 months rather than acting, we are leaving people exposed who are in a vulnerable situation. I suggest that we take a twin-track approach; we ensure that we get as full a picture as we can in Northern Ireland, and, at the same time, we move ahead to address the issue. We can be very clear that we will not have a situation in which the evidence suggests that we do not need to take any action in Northern Ireland; we know that we need to take action.

We can extrapolate from the situation in the rest of the UK to get a picture. That suggests that, as a maximum figure, we are talking about around 28,000. Given the slightly different approach to the labour market here, we are talking about fewer than 28,000, but that is still a considerable number of people who are in that situation. We know from anecdotal engagement that there are problems. As a subset of that, we know that certain categories of people are more likely to be in a zero-hours contract situation: young people and those entering the labour market for the first time are the most prone to potential exploitation. We may equally find that some young people value it. If students want to work casual hours, it may be beneficial.

You talked about a code of conduct. We are proposing that and talking about a statutory code being put into legislation. That point is accepted. It is part of our suite of proposals.

Mr Ramsey: Like other members, we are concerned about the impact of the budget. You can deal only with the cards that you have, Minister. I understand that you have a huge dilemma. University and college students are getting in touch with me who have made contact with the system because of the uncertainty over courses that they want to study. They have been told that they will have to wait until the institutions find out what the budget is. There is uncertainty. Those young people will move somewhere else, and we will lose them. Is there any likelihood that there will be any comfort during the monitoring rounds that might assist the colleges or universities? We have a good reputation of bringing forward young people through the widening participation strategy. I am concerned that that may be lost.

Dr Farry: I cannot give you any comfort, Pat. We are in a very bad place with cutbacks. While I cannot rule out bids to the monitoring round for colleges and universities, it is probably not a realistic form to take, given that it is very short-term funding. Universities need to be able to plan ahead for a three-year commitment. If they take somebody on, they have to guarantee that place for three years. That has always been a fundamental tenet of our approach to higher education.

As you know, we are giving universities more discretion as to how they meet their widening participation targets, but we are being clear that we want a very strong outcome focus. We have asked them to ensure that they will not see any deterioration and that, if anything, they will continue to improve our performance in widening participation. The biggest threat does not come from the policies or otherwise of the universities; it is simply a reflection of the fact that, with fewer places in Northern Ireland, people will not go to university. Some people will have the means to go to Great Britain and take on greater debt, but others, particularly those from lower socio-economic backgrounds, will not be willing to take that risk and will simply not go into higher education. We are not in a situation whereby we can resource a plan B for those individuals. If I had the resource to fund a plan B, I would put that resource into plan A and do more of it. You are aware of pressures on the colleges as well. We are in a dangerous situation in which the budget cuts will have an impact on people's life opportunities.

Mr Ramsey: I want to home in on disability issues. You mentioned the disability employment skills strategy, which we want to see sooner rather than later. With welfare reform, one can only imagine that there will be serious pressure on your officials for guiding, servicing and advising those people.

The Committee is carrying out an inquiry into post-19 provision. I understand that a lot of non-accredited courses in colleges are for people who have learning disabilities and who might repeat them. Is it the case that colleges may no longer be funded for non-accredited courses, which will further marginalise the group that we are examining?

Dr Farry: I will bring in Catherine in a second, but let me make two broad points. First, we are heavily committed to the disability strategy. It will be important and groundbreaking in how we better consolidate what we are doing. Secondly, we are not cutting the further education and higher education support that we give to students with disabilities, and we are not cutting our disability employment programmes. Those moneys remain and will be demand-led. If there is an underspend, that is one thing, but we are not restricting or rationing access to those programmes. We have, for example, increased the additional support fund in further education. We see a particular problem with new investments. The Committee is conducting an inquiry on learning disability. In some ways, what you are doing strays beyond the direct remit of this Department into a wider cross-cutting issue, which is fine, because these things do not fit into silos, and parents do not care about silos; they want results. The Executive have a mental health and learning disability subcommittee as well, and work is ongoing on an action plan. The difficulty is that Departments will have to make decisions on the extent to which they can resource new commitments or close gaps relative to their other commitments. In a declining resource situation, that will be incredibly difficult.

Mrs Catherine Bell (Department for Employment and Learning): As you know, the hobby and leisure provision is being cut, except for people who have learning disabilities. We are not cutting that but protecting it, which means that colleges will have to make cuts elsewhere. We had originally said that it was to be a blanket cut, but, when we examined it in detail, we discovered that a number of students who have learning difficulties avail themselves of these courses, so we protected that.

Dr Farry: Protection is different from expansion, and that is our problem.

Mr Ramsey: You already talked about Magee, so we will not rehearse that again, but where is the teaching block now in the system? You indicated that it was very close to approval.

Dr Farry: Yes. I am pleased to tell you that I have cleared the business case. It is currently with DFP awaiting sign-off. Fingers crossed, but we do not anticipate any issues. Once that is through, we can see how we can best resource it, but I am quietly confident that there will be good news in the very near future.

Mr Ramsey: On economic inactivity, you indicated to the House two weeks ago that you and the Minister of Enterprise, Trade and Investment were presenting a paper to the Executive. Was that approved?

Dr Farry: It has yet to be approved. With different things happening, the Executive have not met for a couple of weeks. They are due to meet next Thursday, so all members will no doubt encourage their respective party Ministers to consider it in a positive light. That means you, Fra.

Mr F McCann: I know exactly who you are getting at.

Mr Irwin: I apologise for not being here for your briefing. I blame the motorway and a couple of accidents. Members had concerns about zero-hours contracts, but do you not agree that it is important that nothing be done to discourage employers from taking on young people, even on a part-time basis? It is vital that they get that experience.

Dr Farry: We have to find a balance to ensure that we have sufficient flexibility in the economy so that people will have employment opportunities and, at the same time, avoid people being exploited. We will have to step in when we see that people are trapped in such a situation and are not allowed to take on other work, for example, or if there is an established pattern of activity whereby they are, in effect, doing regular hours but without the protections of a regular-hours contract, such as knowing with certainty their income on a week-to-week basis.

The proposals that we have before the Executive are, hopefully, balanced. By the same token, I reiterate that these are our proposals, which we hope will be the basis of clauses in the forthcoming employment Bill. It is for the Committee to do the detailed scrutiny and to interrogate all the points. If people are sceptical about my points on the potentially unintended consequences, that can be challenged by the stakeholders. The need or argued need for flexibility can also be argued with employers, and the Committee will reach its final decisions on that. Any legislation can be amended through a Committee or an individual Member, and the issue will be discussed in the House. This is not a die-in-the-ditch issue for the Department, with it saying that we must continue to have zero hours contracts, and all that we can do is regulate them. We are open to hearing the views of members and other stakeholders and to finding a solution that works in the interests of the community, the economy and individuals. We reckon that we have pitched this in that territory, but we are happy to be challenged and to shift accordingly, based on that challenge.

The Chairperson (Mr Swann): Minister, thank you. You have given Pat good news about the teacher training college at Magee.

Dr Farry: Hopefully, it will be soon.

The Chairperson (Mr Swann): Do you have any update on the Northern Regional College (NRC) business case?

Dr Farry: We are looking at that. One of the complications that we are now assessing is how we interact with the St Patrick's Barracks site in Ballymena, which is immediately adjacent to one of the current sites. That is one of the dilemmas, in the sense that we can proceed with the business case based on the pre-existing land options and make a decision, or we can take a little longer to examine the wider options. On balance, we are leaning towards the latter, because I think that it would be short-sighted not to consider fully the options for integration with other public-sector provision and the added value of that rather than to operate with a silo mentality, which people often accuse Departments of doing. That will have a knock-on implication. We are keen — I know that the college is very keen — to get the business case approved as soon as possible so that we can add it to the queue for funding. On the one hand, we accept that there are capital pressures in the NRC area and that, in recent years, there has not been the same investment relative to other parts of Northern Ireland. We are very keen to address that. By the same token, there will be a problem with capital funding in the coming years. Our capital budget for the coming year is a lot less than we had hoped for. As you know, capital moneys are also being diverted into revenue for some aspects of the voluntary exit scheme, which also creates an opportunity cost. All we can do is to get the business case through as quickly as we can, albeit with that consideration, and be in a position to look for money as it becomes available.

The Chairperson (Mr Swann): Minister, you were in Brussels recently and met the Commission. I think that one of the issues that you raised was the European globalisation fund in relation to the Gallaher/JTI workers. Is there an update on that?

Dr Farry: The situation is largely as I reported it to the Assembly. We can consider making a bid, which would need to be through the Department for Work and Pensions in London as the member state. There are eligibility issues, which are yet to become clear. They relate to the number of workers who are affected in Northern Ireland and can include the supply chain, but you have to net off a relocation of employment in the context of the European Union. We also have to ensure that our proposal is added value, beyond the types of interventions that we would ordinarily do as a Department, and that what we do is good by European standards. We then have to ensure that our national Government are willing to do that; they have not been willing to process an application yet. We are minded to make an application, but we are still a number of months away from doing so, because the issue does not come live until May 2016. If I had to make an assessment, I would say that the chances of an application being successful are less than 50:50, largely due to our eligibility to make a bid.

Mr Ramsey: When will the Committee receive an update on the Steps 2 Success programme? Some of the main contractors were before the Committee, and they enthused us with the number of subcontractors they were going to use in local areas. I spoke to two subcontractors over the weekend, and they have not even had a conversation with the main contractor, which was named at the Committee as being one of the key players.

Dr Farry: We can take a look at that. It is ultimately for the main contractors to manage that. I am not sure whether it has been formally communicated, but, in the forward work programme for the spring, there will be a session to scrutinise the delivery to date of Steps 2 Success. That will very much be an interim review based on the initial months; we will not be in a position to get figures on sustained employment as we do with Steps to Work, given the switchover between the programmes. At that stage, we will be able to engage and take on board the comments that have been made. It was never going to be a perfect roll-out, given the scale of what is involved, so we are happy to receive and consider any feedback from members.

The Chairperson (Mr Swann): One of the conditions we put in at the review was that we would get a full briefing and another update on the European social fund.

To reflect Anna's earlier point, the time that you give to the Committee is much appreciated, and I thank you for coming along this morning.

Dr Farry: I will see you some time in April — if not next week.

The Chairperson (Mr Swann): Minister, Derek and Catherine, thank you very much.