26 November 2009
By Tash Shifrin
Labour and the Tories agree on the need for a tough welfare regime to get claimants into the workplace. But differences are emerging as the recession lengthens the dole queue – and puts pressure on benefits budgets. Tash Shifrin reports
Labour and Conservative frontbenchers might be going at each other hammer and tongs in the run-up to the election, but there is one area of public policy where the two parties show a striking level of agreement: welfare.
Perhaps this is not surprising, as the same man – Lord Freud – is the architect of both parties’ policies. Last year, as plain David Freud, he was appointed as a policy adviser by James Purnell, the work and pensions secretary who championed Labour’s get-tough stance. Now Purnell has gone, replaced by Yvette Cooper, and Freud sits on the Conservative benches of the House of Lords as shadow welfare minister.
Both parties are united in urging ‘conditionality’ as a central tenet of welfare reform. As Purnell put it last year: ‘The message I want to send is clear – if you can work, you should work, and that will be a condition of getting benefits. There are a small number of people who are determined not to work. Avoiding work is not an option.’
This month, the get-tough regime got tougher with the passing of the Welfare Reform Act. It enshrines sanctions – cuts to payments if claimants do not meet stringent requirements, ‘work for your benefit’ programmes, and measures to drive lone parents of young children into employment.
Announcing the Act, which also lays the groundwork for Income Support to be scrapped, Cooper declared: ‘It makes clear that almost everyone should be on a journey to work – either looking for work now or preparing for work in the future.’ Despite last-minute wrangling over measures to fine jobless lone parents of pre-school children for inadequate jobseeking, the legislation produced little argument between the main parties.
Freud acknowledges the agreement on conditionality between Tories and Labour, telling Public Finance: ‘I don’t think there’s a difference on that at all.’ He admits it is ‘very odd having developed strategies for both sides’, but says he did not really switch parties, only moved from being an advisor to a politician. He candidly admits he has never been a Labour man: ‘I’ve always voted Conservative.’
But differences have opened up between the parties, and here Freud has made a bit of a switch. The Flexible New Deal scheme he urged on Labour has only just gone live – wholesale contracting for private and voluntary sector providers to place long-term unemployed claimants in jobs. The providers will be paid partly on results, originally estimated at more than £60,000 for each person successfully placed in work. But the Tories are threatening to axe phase two of the scheme if they are elected, throwing doubts over the contracts due to be signed early next year.
The FND provoked fury from the civil servants’ Public and Commercial Services union over the ‘marketisation’ of the Department for Work & Pensions services. And union general secretary Mark Serwotka has slammed the introduction of voluntary sector providers as a return to the ‘era when the “deserving poor” were expected to show gratitude to their charitable benefactors’.
But Freud’s rethink is not a rejection of the principle of payment by results, or of privatisation. It is based instead on the economic plunge and steep rise in joblessness since the scheme was first announced. Freud tells PF: ‘The FND now is being asked to do something that was not envisaged when it was set up.’
The aim was to target around 250,000 long-term unemployed people with intensive support to help them back into work, he says, and as ‘a stepping stone to recreating the industry on a results-oriented basis’. Suddenly, the recession has pitched ‘a large number of cyclically unemployed people’ into the equation and the scheme has ‘moved from a stepping stone to the main event’.
In fact, the first-wave FND contracts have already been tweaked substantially, to give the private providers greater up-front and less results-based payments. The employment firms do not want to lose out because jobs for their hard-to-place clients are now even harder to find. Amanda McIntyre, chief executive of the Employment Related Services Association, notes: ‘Recession risk is outside the control of the providers.’
The Tories are arguing for a swift move from FND to a single system, taking in all categories of claimants and based on payment by results – a move welfare minister Jim Knight said was ‘neither sensible nor practical’ and would put millions of pounds at risk.
The Conservatives also want to roll out what Freud dubs the ‘DEL-AME switch’ – a new funding mechanism now being piloted in limited areas – across Britain in one fell swoop.
Freud explains the plan: instead of paying the contractors in the usual way, from the DWP’s departmental expenditure limit (DEL), the money will be drawn from the government’s Annually Managed Expenditure (AME) total – the more flexible pool of cash used to fund benefit payments.
This could have wide-ranging repercussions for public accounting and the way the Treasury manages the public funds. The idea is that, by getting people off the dole, the providers will save the government money that would have gone into AME.
‘I recommended this wholesale,’ says Freud. ‘The government, after a bit of to-ing and fro-ing, accepted the principle and agreed to pilot it.’
In fact, such a manoeuvre is against the Treasury’s rules and Freud and his government backers battled hard to get it to even agree to a test of the scheme. But there would be no namby-pamby piloting for the Tories: ‘The Conservatives are going to go at it very hard and fast,’ he says.
‘There’s absolutely no way we can put the massive amount of resources into people that we need to, to get them into the workplace, in a conventional way. The state of our finances will make that impossible. Payment by results is the only way.’
Without such action, he warns, welfare spending from the AME would ‘go up... it’s uncontrolled’. The word ‘managed’ in the AME abbreviation is misplaced, Freud suggests. ‘It’s annual unmanaged expenditure.’
Indeed, the state of the economy and the worsening public finances are the big drivers behind both the ‘conditionality’ and the search for new funding routes, where a gap has opened between Tories and Labour.
Institute for Fiscal Studies deputy director Carl Emmerson notes that social security accounts for a massive chunk of public spending – an estimated £188.8bn or 13.4% of gross domestic product in 2009/10 – almost as much as the 14.7% figure for the NHS and education combined. Both parties say they will reduce the public finance deficit. ‘The alternative to cutting public services is to make people poorer,’ Emmerson says. ‘That could involve tax rises or it could involve cuts in social security and tax credits. It’s not obvious that you’d want to spare the biggest area of public spending at the expense of public service spending.’
This is where the conditionality regime comes in. For all the rhetoric about rights and responsibilities, this is driven by financial considerations. ‘The focus of both parties is not making the generosity of the payments less, but making sure fewer people qualify. The emphasis is on moves to get people off benefits,’ Emmerson says.
He believes that switching payments for employment services from the DEL to AME ‘would help’, if the government could be confident that the DWP or its contractors really were achieving sufficient savings on benefits. Every 100,000 unemployed people account for £500m of AME, he points out.
If the employment programmes work, he says: ‘The Exchequer could benefit from higher revenues as well – people in work are paying income tax. You’d want to consider that as well as the savings
in benefits.’
But, he adds: ‘The DEL is easier to manage on a longer-term horizon. The departments can keep a grip.’ AME spending also goes down when employment rises, whether this is due to welfare policy or – more straightforwardly – to growth in the economy.
‘AME changes a lot because the economic cycle moves. You wouldn’t want huge savings in AME because the economy improves to go to contractors,’ Emmerson says.
He advocates piloting. ‘You have to evaluate the policy through trials.’
Meanwhile, benefit claimants face a regime that worries many observers. Sir Richard Tilt, chair of the Social Security Advisory Committee – the independent statutory body that advises the government on welfare policy – tells PF: ‘The committee have had some concerns about increasing conditionality and have expressed those views to ministers over six or seven years. In practice, I don’t think that many people have been sanctioned but it’s still a worry.’
Now is certainly not the time to ratchet up the harshness of the regime for jobseekers, he adds. ‘We’ve suggested it would be better to perhaps hold off until the economy improves.’
At the Child Poverty Action Group, chief executive Kate Green agrees. ‘The welfare reform agenda is based on the assumption that work is always the best route out of poverty, and that benefit sanctions encourage people to engage with employment programmes.
‘But with nearly 60% of children in poverty having at least one parent in work, and unemployment rising, work is clearly not always a reliable or sustainable route out of poverty for low-income families,’ she says.
‘Research suggests that punitive benefit sanctions are ineffective in increasing employment rates.’
Katie Lane, social policy officer at Citizens Advice, adds: ‘It’s often the most vulnerable people who are sanctioned, not the most non-compliant.’ People with learning difficulties, mental health problems or low levels of literacy can genuinely struggle to meet the required levels of jobseeking activity – or even understand the jargon-ridden paperwork, she says.
And the suffering caused by sanctions can be extreme. ‘We’ve seen cases of people who have got sanctions on their claim – £15 taken off their £64 a week benefits – and who have just been left there because of administrative problems.’ Lane cites one claimant who had benefit docked in error for two years.
There is certainly a heavy workload down at the jobcentre these days. A DWP spokesman says: ‘Every working day staff conduct 50,000 adviser interviews, process over 20,000 new benefit claims and help over 5,300 customers move into work.’
A spokesman for the PCS union notes that the government has had to ‘reverse the cuts they made during the Gershon Programme’. He adds: ‘One of the warnings we gave when they made the cuts was that there would be no slack in the system. If it wasn’t for the goodwill and hard work of the staff, I don’t think the system would have held up as well as it has done.’
The latest unemployment figures showed a lower rise than in the past few quarters, but economic uncertainty still hovers and – with public sector cuts looming – there will be more job losses to come.
The grim state of the public finances suggests that, whichever party is in power after the election, there will be pressure on welfare budgets as well as services. The 13.4% of gross domestic product that goes into social security will surely tempt policy makers. If it does, the spending squeeze brought on by the banking crisis will have the country’s poorest people in its grip.
By Tash Shifrin
Labour and the Tories agree on the need for a tough welfare regime to get claimants into the workplace. But differences are emerging as the recession lengthens the dole queue – and puts pressure on benefits budgets. Tash Shifrin reports
Labour and Conservative frontbenchers might be going at each other hammer and tongs in the run-up to the election, but there is one area of public policy where the two parties show a striking level of agreement: welfare.
Perhaps this is not surprising, as the same man – Lord Freud – is the architect of both parties’ policies. Last year, as plain David Freud, he was appointed as a policy adviser by James Purnell, the work and pensions secretary who championed Labour’s get-tough stance. Now Purnell has gone, replaced by Yvette Cooper, and Freud sits on the Conservative benches of the House of Lords as shadow welfare minister.
Both parties are united in urging ‘conditionality’ as a central tenet of welfare reform. As Purnell put it last year: ‘The message I want to send is clear – if you can work, you should work, and that will be a condition of getting benefits. There are a small number of people who are determined not to work. Avoiding work is not an option.’
This month, the get-tough regime got tougher with the passing of the Welfare Reform Act. It enshrines sanctions – cuts to payments if claimants do not meet stringent requirements, ‘work for your benefit’ programmes, and measures to drive lone parents of young children into employment.
Announcing the Act, which also lays the groundwork for Income Support to be scrapped, Cooper declared: ‘It makes clear that almost everyone should be on a journey to work – either looking for work now or preparing for work in the future.’ Despite last-minute wrangling over measures to fine jobless lone parents of pre-school children for inadequate jobseeking, the legislation produced little argument between the main parties.
Freud acknowledges the agreement on conditionality between Tories and Labour, telling Public Finance: ‘I don’t think there’s a difference on that at all.’ He admits it is ‘very odd having developed strategies for both sides’, but says he did not really switch parties, only moved from being an advisor to a politician. He candidly admits he has never been a Labour man: ‘I’ve always voted Conservative.’
But differences have opened up between the parties, and here Freud has made a bit of a switch. The Flexible New Deal scheme he urged on Labour has only just gone live – wholesale contracting for private and voluntary sector providers to place long-term unemployed claimants in jobs. The providers will be paid partly on results, originally estimated at more than £60,000 for each person successfully placed in work. But the Tories are threatening to axe phase two of the scheme if they are elected, throwing doubts over the contracts due to be signed early next year.
The FND provoked fury from the civil servants’ Public and Commercial Services union over the ‘marketisation’ of the Department for Work & Pensions services. And union general secretary Mark Serwotka has slammed the introduction of voluntary sector providers as a return to the ‘era when the “deserving poor” were expected to show gratitude to their charitable benefactors’.
But Freud’s rethink is not a rejection of the principle of payment by results, or of privatisation. It is based instead on the economic plunge and steep rise in joblessness since the scheme was first announced. Freud tells PF: ‘The FND now is being asked to do something that was not envisaged when it was set up.’
The aim was to target around 250,000 long-term unemployed people with intensive support to help them back into work, he says, and as ‘a stepping stone to recreating the industry on a results-oriented basis’. Suddenly, the recession has pitched ‘a large number of cyclically unemployed people’ into the equation and the scheme has ‘moved from a stepping stone to the main event’.
In fact, the first-wave FND contracts have already been tweaked substantially, to give the private providers greater up-front and less results-based payments. The employment firms do not want to lose out because jobs for their hard-to-place clients are now even harder to find. Amanda McIntyre, chief executive of the Employment Related Services Association, notes: ‘Recession risk is outside the control of the providers.’
The Tories are arguing for a swift move from FND to a single system, taking in all categories of claimants and based on payment by results – a move welfare minister Jim Knight said was ‘neither sensible nor practical’ and would put millions of pounds at risk.
The Conservatives also want to roll out what Freud dubs the ‘DEL-AME switch’ – a new funding mechanism now being piloted in limited areas – across Britain in one fell swoop.
Freud explains the plan: instead of paying the contractors in the usual way, from the DWP’s departmental expenditure limit (DEL), the money will be drawn from the government’s Annually Managed Expenditure (AME) total – the more flexible pool of cash used to fund benefit payments.
This could have wide-ranging repercussions for public accounting and the way the Treasury manages the public funds. The idea is that, by getting people off the dole, the providers will save the government money that would have gone into AME.
‘I recommended this wholesale,’ says Freud. ‘The government, after a bit of to-ing and fro-ing, accepted the principle and agreed to pilot it.’
In fact, such a manoeuvre is against the Treasury’s rules and Freud and his government backers battled hard to get it to even agree to a test of the scheme. But there would be no namby-pamby piloting for the Tories: ‘The Conservatives are going to go at it very hard and fast,’ he says.
‘There’s absolutely no way we can put the massive amount of resources into people that we need to, to get them into the workplace, in a conventional way. The state of our finances will make that impossible. Payment by results is the only way.’
Without such action, he warns, welfare spending from the AME would ‘go up... it’s uncontrolled’. The word ‘managed’ in the AME abbreviation is misplaced, Freud suggests. ‘It’s annual unmanaged expenditure.’
Indeed, the state of the economy and the worsening public finances are the big drivers behind both the ‘conditionality’ and the search for new funding routes, where a gap has opened between Tories and Labour.
Institute for Fiscal Studies deputy director Carl Emmerson notes that social security accounts for a massive chunk of public spending – an estimated £188.8bn or 13.4% of gross domestic product in 2009/10 – almost as much as the 14.7% figure for the NHS and education combined. Both parties say they will reduce the public finance deficit. ‘The alternative to cutting public services is to make people poorer,’ Emmerson says. ‘That could involve tax rises or it could involve cuts in social security and tax credits. It’s not obvious that you’d want to spare the biggest area of public spending at the expense of public service spending.’
This is where the conditionality regime comes in. For all the rhetoric about rights and responsibilities, this is driven by financial considerations. ‘The focus of both parties is not making the generosity of the payments less, but making sure fewer people qualify. The emphasis is on moves to get people off benefits,’ Emmerson says.
He believes that switching payments for employment services from the DEL to AME ‘would help’, if the government could be confident that the DWP or its contractors really were achieving sufficient savings on benefits. Every 100,000 unemployed people account for £500m of AME, he points out.
If the employment programmes work, he says: ‘The Exchequer could benefit from higher revenues as well – people in work are paying income tax. You’d want to consider that as well as the savings
in benefits.’
But, he adds: ‘The DEL is easier to manage on a longer-term horizon. The departments can keep a grip.’ AME spending also goes down when employment rises, whether this is due to welfare policy or – more straightforwardly – to growth in the economy.
‘AME changes a lot because the economic cycle moves. You wouldn’t want huge savings in AME because the economy improves to go to contractors,’ Emmerson says.
He advocates piloting. ‘You have to evaluate the policy through trials.’
Meanwhile, benefit claimants face a regime that worries many observers. Sir Richard Tilt, chair of the Social Security Advisory Committee – the independent statutory body that advises the government on welfare policy – tells PF: ‘The committee have had some concerns about increasing conditionality and have expressed those views to ministers over six or seven years. In practice, I don’t think that many people have been sanctioned but it’s still a worry.’
Now is certainly not the time to ratchet up the harshness of the regime for jobseekers, he adds. ‘We’ve suggested it would be better to perhaps hold off until the economy improves.’
At the Child Poverty Action Group, chief executive Kate Green agrees. ‘The welfare reform agenda is based on the assumption that work is always the best route out of poverty, and that benefit sanctions encourage people to engage with employment programmes.
‘But with nearly 60% of children in poverty having at least one parent in work, and unemployment rising, work is clearly not always a reliable or sustainable route out of poverty for low-income families,’ she says.
‘Research suggests that punitive benefit sanctions are ineffective in increasing employment rates.’
Katie Lane, social policy officer at Citizens Advice, adds: ‘It’s often the most vulnerable people who are sanctioned, not the most non-compliant.’ People with learning difficulties, mental health problems or low levels of literacy can genuinely struggle to meet the required levels of jobseeking activity – or even understand the jargon-ridden paperwork, she says.
And the suffering caused by sanctions can be extreme. ‘We’ve seen cases of people who have got sanctions on their claim – £15 taken off their £64 a week benefits – and who have just been left there because of administrative problems.’ Lane cites one claimant who had benefit docked in error for two years.
There is certainly a heavy workload down at the jobcentre these days. A DWP spokesman says: ‘Every working day staff conduct 50,000 adviser interviews, process over 20,000 new benefit claims and help over 5,300 customers move into work.’
A spokesman for the PCS union notes that the government has had to ‘reverse the cuts they made during the Gershon Programme’. He adds: ‘One of the warnings we gave when they made the cuts was that there would be no slack in the system. If it wasn’t for the goodwill and hard work of the staff, I don’t think the system would have held up as well as it has done.’
The latest unemployment figures showed a lower rise than in the past few quarters, but economic uncertainty still hovers and – with public sector cuts looming – there will be more job losses to come.
The grim state of the public finances suggests that, whichever party is in power after the election, there will be pressure on welfare budgets as well as services. The 13.4% of gross domestic product that goes into social security will surely tempt policy makers. If it does, the spending squeeze brought on by the banking crisis will have the country’s poorest people in its grip.
