UK Individual Learning Accounts: £268m training scheme collapsed in fraud in 14 months

Individual Learning Accounts were the Blair government's flagship adult-skills subsidy, launched in September 2000 as a universal entitlement: every adult could open an account and claim public incentives towards learning. Take-up outran every forecast. About 2.6 million accounts were opened and spending reached £273m against a £199m budget — roughly 65% of it on IT courses, half of it entry-level. The department paid Capita, its private-sector partner, around £55m to build and run the account system.

The scheme died in November 2001, fourteen months after launch. The department had already announced a wind-down over abuse concerns; when evidence emerged that some registered learning providers were trawling Capita's account database for unused accounts and claiming against them without the holders' knowledge, it closed ILAs overnight. The NAO estimated the value of fraudulent claims could have run into tens of millions of pounds had the scheme stayed open.

The National Audit Office (HC 1235, October 2002) found the department, rushing to launch, had agreed the Capita contract quickly and built a contractor relationship rather than a partnership: most risk stayed with the department, and Capita was excluded from the project board. Capita was not required to spot-check eligibility, and there was no exception reporting — so nobody noticed 13 providers registering over 10,000 accounts each, or 20 providers claiming more than £1.5m each. Over a quarter of learners registered as having started never did any training.

The Commons Education Select Committee's May 2002 report called the scheme 'a disaster waiting to happen' and 'a licence to print money', finding the culpability of Capita was matched by the department's. By then ten police forces were investigating, 45 arrests had been made, and there were over 18,000 complaints — many from people whose names or accounts had been used dishonestly.

£273m spent against a £199m budget; Capita collected £55m to run it; 133 providers paid £67m were under fraud investigation, up to £16m in one scam

Speed over control: the department agreed the Capita contract under pressure to launch quickly, and the NAO said this resulted in corners being cut in planning and risk management.

Mis-structured relationship: instead of risk-sharing, most risks stayed with the department, and Capita was excluded from the project board, so it executed decisions rather than co-designing controls.

No monitoring loop: Capita was not required to spot-check eligibility or validate account holders, and the absence of exception reporting hid 13 providers with 10,000+ accounts each.

No provider vetting: providers were registered without accreditation, letting doorstep con-men and organised gangs treat the scheme as a revenue source.

Slow reaction: fraud was exposed in the press by March 2001, but the scheme stayed open for another eight months, widening the loss.

A universal entitlement launched at speed with no vetting, no spot checks and no exception reporting funds fraud at claim speed. Control design is part of the launch, not a phase-two feature.

The department checked about 700 of the scheme's 9,000 providers; 133, paid around £67m between them, went to its Special Investigations Unit and 98 were referred to police, with full costs of fraud not expected to be known for two years. The select committee urged that there be 'not an automatic assumption' Capita would run the successor scheme, and negotiations continued even as the reports landed. The NAO's fingerprints on the failure lasted: when it audited the apprenticeships programme in 2016, it warned of the same fraud-and-growth pattern repeating.