English language tests for overseas students are flawed, says PAC

 - Home Office designed visa system left open to large-scale abuse

- Flawed reaction to a systemic failure

- Revoking of visas before verifying the evidence led to injustice and hardship for many thousands of international students

- Home Office secured just £1.6 million of compensation from the company at fault despite spending £21 million to deal with the failure

REPORT SUMMARY

The Home Office’s flawed reaction to a systemic failure by a private company has had a detrimental impact on the lives of over 50,000 overseas students the Home Office accused of cheating. Despite being aware of longstanding abuses in the Tier 4 student visa system, the Department designed an English language testing system that failed to recognise the potential incentive for sponsors and students to cheat. The Department appears to have been caught by surprise by the extent of fraud occurring in test centres. The system it designed left it with limited means to seek compensation from ETS Global BV, securing just £1.6 million in compensation for taxpayers, despite spending an estimated £21 million to respond to the cheating.

The Home Office’s pace of response to the issue of cheating has either been ‘full throttle’ or ‘too slow’, with no middle ground. It has been quick to act on imperfect evidence, but slow in responding to indications that innocent people may have been caught up in its actions. The Home Office’s decision to revoke the visas of thousands of individuals before properly verifying evidence provided by ETS has led to injustice and hardship for many people. The Department recognises that hundreds of students maintain their innocence but continues to suggest that there is only a small risk that people have been wrongly caught up in their actions. We are staggered that the Department thinks it is acceptable to have so little regard for the impact its actions might have on innocent people.

COMMENT FROM PAC CHAIR MEG HILLIER MP

“The Home Office’s flawed reaction to a systemic failure by a private company has led to real injustice for many thousands of overseas students taking English Language tests.

“It beggars belief that despite known flaws in the Tier 4 student visa system, the Home Office designed an English language testing system that failed to recognise the potential incentive for cheating. It was then shocked when widespread cheating did take place.

“However, despite the scale of the abuse, many hundreds of people continue to protest their innocence at great personal cost. It is staggering that the Home Office thinks it is acceptable to have so little regard for the impact its actions might have on innocent people.

“And to rub salt into the wounds, short comings in the contractual arrangements the Home Office had with its outsourcing partner meant despite incurring £21m in costs it only recouped £1.6m for the taxpayer – a miniscule sum.”

Conclusions and recommendations

The Home Office’s design of the Tier 4 visa system left it open to large-scale abuse. Before 2014, the Department had been aware of issues of abuse within the Tier 4 system for some time and had already started to act on some of these abuses. In 2012 we examined the implementation of the Tier 4 visa system and recommended that the Department should identify and actively manage risks before it implements change. The Department now admits that its decision to use a licensing arrangement to support this system, where ETS Global BV provided a service directly to test-takers and not to the Department, was the “wrong model” and it did not have sufficient oversight over its licence agreement with ETS Global BV. The Department’s design of the system failed to recognise the obvious incentives that sponsors and individuals would have to cheat the SELT system. Individuals taking the tests could gain the right to enter and study in the country, providing an opportunity which could then be exploited by criminal organisations. ETS estimates that up to 97% of individuals taking speaking tests conducted in the UK between 2011 and 2014 were suspected of cheating using proxies. The scale of cheating caught the Department off guard, and it failed to respond to intelligence from ETS regarding possible cases of fraud, which had led ETS to remove licences from eight of its test centres. The Department claims that it has learned from these experiences and has improved its licencing system since the cheating claims emerged, but it is not able to identify specific improvements or what impact they had achieved.

Recommendation:  The Home Office should write to the committee immediately to explain what lessons it has learnt and what specific steps it has taken to ensure that such large-scale abuse cannot happen again.

The Home Office rushed to penalise students without establishing whether ETS was involved in fraud or if it had reliable evidence of people cheating. In June 2014, the Department accepted ETS’s analysis which identified individuals suspected of cheating within a TOEIC speaking test. Based upon this evidence, it acted swiftly against thousands of individuals by cancelling their visas, refusing pending applications or inviting them for interviews, but it did not conduct a thorough investigation of what had happened or whether the evidence ETS provided was reliable. The Department sent a team of civil servants to the United States in 2014 to gain assurances about ETS’s data and its involvement in the cheating but did not ensure that the team had specific expertise or experience in linguistics or relevant technology. The Department only sought expert opinion and assurance two years after it began acting against individuals whom it suspected of cheating.      

Recommendation:  The Home Office should, within three months of this report, write to the Committee with evidence of its assessment from 2014 that ETS were not criminally complicit.

The Home Office’s commercial relationship with ETS meant it had insufficient recourse to claim compensation. The Department estimates that it has spent £21 million in responding to the testing fraud. But it has only been able to secure compensation worth £1.6 million from ETS Global BV for its involvement in the fraud. The Department’s licensing model for its Secure English Language Test providers meant it had limited capacity to seek any guarantees of compensation from those providers in the case of any irregularities. The Department has not adequately tracked the costs that it has incurred in addressing the fraud, or the resources that it has allocated to its Gold Command team in response to TOEIC cheating. The Department now recognises that it needs to improve the selection and management of its outsourcing partners. Its decision to use a licensing model was a mistake and the Department has committed to ensuring that its future agreements with private companies should include a redress mechanism in the event of contractor failure. The involvement of two overseas companies further complicated its ability to secure compensation.   

Recommendation:  The Home Office should, within six months of this report, review its arrangement with overseas partners, including redress mechanisms in the event of contractor failure, and write to the Committee with its results.

It is entirely unacceptable that, despite now recognising that hundreds of people still maintain their innocence, the Home Office has not acted to put right the wrongs caused by its actions. The Department has consistently argued that there was only a “very small” risk that its actions would affect innocent people and claims that it is concerned that hundreds of people continue to maintain their innocence. However, the Department has taken no action to proactively identify innocent people. Those who are affected by the Department’s action against them can go through the courts to try to demonstrate their innocence. But this can have a substantial financial and personal cost for those involved. Individuals also face several barriers in gaining access to the evidence that they need to demonstrate their innocence, such as the cost of conducting an appeal or the unavailability of their voice recordings from ETS. Many also still face difficulties finding a new sponsoring college or university even after winning their appeals. It is shameful that the Department knows it could have acted against innocent people but has not established a clear mechanism for them to raise concerns outside of the appeals process. We are encouraged that the Home Secretary has committed to looking at other options for people who feel they have been wronged to respond to accusations, and we await further statements on this subject.    

Recommendation:  The Home Office should, within three months of this report, create and promote a fair and trustworthy means of helping all individuals who may have been wrongly accused to come forward and clear their names, including ensuring that all evidence from ETS is made available to them.

As with the Windrush scandal, the Home Office has once again not done enough to identify the innocent and potentially vulnerable people who have been affected. During our evidence session, the Department admitted publicly for the first time that it was concerned that hundreds of innocent people continue to maintain their innocence, but it has not investigated this sufficiently. The Department has made no effort to identify individuals who have been wrongly accused. It justifies its position based on the evidence provided by ETS, the expert assurance it received in 2016 and the availability of the courts as a potential remedy. The Department relied solely upon the generic evidence provided by ETS and waited over two years to get any independent expert assurance on the methods ETS used to demonstrate cheating. The Department was willing to accept the evidence of ETS at face value, but it has not accepted additional evidence from those it has accused of cheating except through the appeals process. It has not investigated contradictory evidence despite concerns that the National Union of Students and our sister Committee the Home Affairs Select Committee have raised and the number of appeals that individuals lodged against the Department’s actions. 

Recommendation:  The Home Office should address its lack of curiosity and establish safeguards to protect innocent people in the future, including ensuring that senior leadership do more to promote a culture of curiosity.

Help to Buy was originally intended as a short-lived scheme but will now last for 10 years and consume over 8 times its original budget, yet the value achieved from its extension is uncertain. Around three-fifths of buyers who took part in the scheme did not need its support to buy a property, and the large sums of money tied up could have been spent in different ways to address a wider set of housing priorities and focus more on those most in need. The early scheme achieved its own  aims to support people into home ownership, and boost the housing market. The scheme does not address issues with the wider planning system, or other problems in housing, such as the provision of affordable housing to buy or to rent and rising levels of homelessness, nor was it designed to do so.

The Department has other programmes to address these issues, but Help to Buy remains its largest initiative by value. The Department acknowledges that the scheme has, however, only benefitted one section of society - those that are in a position to buy their own home in the first place.

Inherent uncertainty in the housing market means there are still risks to the Department achieving a positive return on its investment in homes. The new scheme from 2021 provides an opportunity to target the money more effectively, but the Department has not yet fully thought out how it will do this. Unless the Department plans alternative housing initiatives, the end of the scheme in 2023 may lead to a fall in supply, adding to the challenge it already faces in achieving its ambition of 300,000 homes a year from the mid-2020s.

COMMENT FROM PAC CHAIR MEG HILLIER MP

“Help to Buy has certainly increased the supply of new homes and boosted the bottom line of house builders. But it has also tied up a large sum of money, nearly £22 billion in cash terms by the time it concludes, making the value of what has been achieved uncertain.

“While many people have been helped to buy properties, who would have not otherwise been able to, an even larger group of buyers did not need its financial support.

“Help to Buy, as the Department acknowledged, only benefits those in a position to buy their own house in the first place. It does not help make homes more affordable nor address other pressing housing problems in the sector such as the planning system or homelessness”.

“The scheme exposes both the government and consumers to significant financial risks were house prices or interest rates to change.  Better consumer protection needs to be built into similar schemes in the future”.

CONCLUSIONS AND RECOMMENDATIONS

Help to Buy has increased the supply of new homes and boosted the house-building sector. The financial crash of 2008 caused a loss of confidence among both developers and buyers, leading to a significant reduction in the building of new homes. From its outset, the Help to Buy scheme has unlocked demand for new homes from potential buyers by giving them a government backed loan to help them buy their own home, and therefore giving developers the confidence to increase their rate of building. This includes small and medium-sized developers, of which around 1,600 have used the scheme to date, and there has been a recent increase in the number of very small developers that are using the scheme. Help to Buy has been more successful than previous schemes with similar aims. The Department’s evaluations show the scheme has increased housing supply by around 14%.

Recommendation: The Department should identify the lessons that can be learned from the success of Help to Buy and how these can be applied to future housing schemes.

While Help to Buy has helped many people to buy properties who otherwise would not have been able to, a large proportion of those who took part did not need its help. By December 2018, the scheme had supported some 211,000 households to buy properties, through loans totalling £11.7 billion. Some 37% of buyers said they could not have bought a property at all without the support of the scheme. This implies that around three-fifths of buyers did not need the support of the scheme to buy a property, although some research suggests that even those who could afford to buy were not doing so because of wider economic uncertainty. Around 20% of people who have used the scheme were not first-time buyers. From 2021, the Department will restrict the scheme to first-time buyers, and is introducing lower regional price caps that will reduce the number of purchases through the scheme and should better focus the scheme on those who most need help. Regional price caps could mean that the scheme may not work well in some areas within the regions. While the Department has committed to monitoring the situation, having already set the caps, it seems unwilling to change them, creating a risk they may not work in the way intended. Despite this, the Department has not assessed the likely impact of the changes to the scheme from 2021.

Recommendation: The Department should report to the Committee in spring 2020 on the impact it expects changes to the scheme to have from 2021 and how it will ensure that regional prices caps work effectively across regions.

The Department has allowed the scheme to become a semi-permanent feature of the housing market, and has not yet thought through the changes needed to improve the value to be achieved from the new scheme. Help to Buy was designed as a short-term solution to address the collapse in housing supply after the financial crash. The original phase, from 2013 to 2016, stabilised the housing market and increased developer and buyer confidence, leading to increased demand for, and supply of, new-build properties. However, the additional funding for the scheme announced in 2017, when the housing market had improved, might not have been necessary or delivered enough value. The Department’s two evaluations of the scheme cover the period up to March 2017. Some developers now sell nearly half their properties with the support of Help to Buy. The Department acknowledges that the scheme is no longer as needed as it was in 2013 and that it should now plan for the end the scheme. The planned changes to the new scheme from 2021 will reduce its reach and begin to wean developers off the scheme. The Department has the opportunity to go further and use the new scheme to address concerns about undesirable practices by some developers, particularly given our recent concerns that developers are not fulfilling their commitments to fund infrastructure and build affordable housing. The Department has committed to using the scheme to ban the sale of houses as leasehold and to enforce building quality standards.

Recommendation: The Department should undertake a further evaluation of the scheme, to understand its value and necessity from 2017 and to inform the design and operation of the new scheme.

Recommendation: The Department should report back to the Committee in spring 2020 on how it is working with developers to plan the new scheme from 2021, so that it addresses concerns about developers’ behaviour, and achieves at least as much value.

The Department’s lack of curiosity over why and how buyers are redeeming their loans gives rise to uncertainty over whether the Department will make a return on its investment. The Department currently forecasts that it will make a positive return in cash terms on its investment in Help to Buy, although it acknowledges that the housing market is unpredictable and that it may make a small loss once inflation is taken into account. House prices are now static, or falling in some areas, following a period of price rises over the first five years of the scheme. Some 50% of buyers who bought in the first year of the scheme have redeemed their loans, a higher rate than the Department forecast. A good understanding of how, when, and why buyers are redeeming their loans is essential to make accurate predictions about the amount and timing of the likely return, yet the Department is unable to explain why redemptions to date have been higher than expected. This lack of understanding of the reasons for higher redemptions means the Department does not know how buyers may behave in future.

Recommendation: The Department should, by the end of December 2019, publish an analysis of the reasons for people redeeming to date – who, when, where, how, and why.

The Department’s decision to keep equity loans as unregulated products means there is insufficient protection for buyers. Help to Buy loans are a significant financial commitment for buyers. Buyers with loans which are still outstanding after five years must pay interest, at a rate which increases each year. For those who keep their loans over a longer period, the amount of interest owed could add a significant amount on top of their regular mortgage payments. Some buyers may not fully appreciate the potential impact of these interest payments on their finances. Surprisingly, the Department’s Help to Buy loans are not subject to regulation by the financial authorities, unlike mortgages where buyers are protected through regulation. So far, buyers have not been paying more for Help to Buy properties than other new-builds. However, the scheme is only available for new-build properties, which can cost up to 20% more than existing properties, thereby increasing the risks to the buyer. The Department does not fully understand the scale or effect on buyers of this “new-build premium”, including the potential impact for those who need to sell soon after purchase, when their property may be worth less that they paid for it.

Recommendation: The Department should write to the Committee by the end of December 2019 to explain how it intends to put in place better consumer protection arrangements for similar products in the future.

Recommendation: As part of its next evaluation, the Department should examine the new-build premium, and the impact Help to Buy has had in relation to this.

The Department does not have an integrated and coherent plan for achieving its commitment to deliver 300,000 new homes per year from the mid-2020s. The increase in house building generated by the Help to Buy scheme is one of the ways in which the Department will achieve its aim of increasing the supply of new homes. The Department is, however, unable to quantify how much it expects the Help to Buy scheme to contribute to its stated commitment to deliver 300,000 new homes annually from the mid-2020s. The Department is winding down the scheme from 2021, but has not estimated the expected drop in housing supply when the scheme ends in 2023, nor does it have a clear plan for offsetting the drop. The Department expects to spend more on other initiatives, such as affordable housing and infrastructure loans for developers to boost housing supply. The Department is relying on engagement between developers and local authorities to address gaps in supply at a local level. The Department is also working alongside developers so that they can offer their own solutions for first-time buyers. However, we remain unconvinced that the Department’s many housing initiatives are fully aligned with one another to form a cohesive strategy for achieving the 300,000 target. 

Recommendation: The Department should, by the end of December 2019, set out how it will achieve its ambition for 300,000 homes per year without the contribution from the Help to Buy scheme after 2023.

The Help to Buy scheme is not making homes more affordable for society in general or helping address other pressing problems in the housing sector. The Department has a significant amount of capital invested in the Help to Buy scheme, with the total size of the loan book on Homes England’s balance sheet now equivalent to that of a medium-sized building society. The Department acknowledges that the scheme has, however, only benefitted one section of society - those that are in a position to buy their own home in the first place. The scheme does not address issues with the wider planning system, or other problems in housing, such as the provision of affordable housing to buy or to rent and rising levels of homelessness, nor was it designed to do so. The Department has other programmes to address these issues, but Help to Buy remains its largest initiative by value. The scheme is no longer as needed as it was when it was introduced in 2013, because mortgage availability has improved. Despite this, the Department will continue to commit considerable sums of money for another four years until the scheme ends in 2023, as it believes developers and lenders will need this time to adjust to a regime without the scheme’s support.

Recommendation: The Department should report back to the Committee by the end of December 2019, setting out how its different housing policies and initiatives work together to address England’s housing crisis.