Can Tory welfare plans work? By Dan Finn

9 Oct 09
DAN FINN| At their conference the Conservatives announced a programme to reduce welfare dependency, with specific ‘emergency measures’ to tackle increased unemployment.

At their conference the Conservatives announced a programme to reduce welfare dependency, with specific ‘emergency measures’ to tackle increased unemployment. These are to be delivered through an expanded and redesigned ‘welfare market’ that the government has been developing since the Freud Report, delivered prior to David Freud’s promotion as a Conservative Shadow Minister.

Existing employment programmes are to be replaced by an integrated ‘Work Programme’.  Jobcentre Plus will undertake initial job matching and pay benefits but intensive employment assistance for the young and long term unemployed, lone parents and those on Employment Support Allowance will be delivered by private or third sector contractors. Payments to providers are to be staggered commencing with a small service fee with (unspecified) job outcome payments paid over the first year of sustained employment. Participants will remain the responsibility of providers for up to three years.

The three year ‘Get Britain Working’ programme will be funded from existing allocations with an additional £600 million found through reassessed Incapacity benefit claims. This entails up to half a million people leaving benefit, getting a job or being shifted on to Jobseekers Allowance, where they will be paid £63.40 a week, rather than their current payment of £89.90.

The policy restates the Conservatives’ commitment to end Treasury restrictions on ‘AME-DEL’ (Annual Managed Expenditure and Departmental Expenditure Limits) funding, which anticipates that that over time the core ‘Work Programme’ will more than pay for itself from benefit savings. The government currently proposes to test such an ‘Invest to Save’ model in pilot areas but the Conservatives suggest a more rapid implementation. The details of such implementations are hazy, relying on the future development of a reliable ‘counter-factual’ against which to measure savings.

Unlike the ‘flat fee’ paid under the government’s Flexible New Deal - where providers have just enrolled their first participants in half the country - the Conservatives propose ‘differential pricing’ where providers earn more for helping those furthest from the labour market. This is intended to discourage ‘creaming’ and ‘parking’, where providers might otherwise focus on easier cases and provide minimal services to those harder to place. This too is contingent on developing a reliable assessment tool that accurately identifies the most disadvantaged and is administratively feasible.

The Conservatives’ proposals generated favourable headlines even though some of them, such as the reassessment of IB claimants, already are due for implementation. They also contain good ideas, such as the integration of training and welfare to work budgets; the expansion of self employment opportunities, especially in franchising; and ‘work pairings’ of sole traders with young people at risk of becoming ‘NEETs’.

More critical scrutiny raises doubts, however, about feasibility and suggests a work in progress, with slower implementation than anticipated. For example, it is unrealistic to expect the speedy transformation in contracts and programmes envisaged. Unnecessary haste would destabilise the welfare to work delivery system when it will already be under intense pressure with unemployment continuing to increase through 2010.

The proposals also remain silent on key issues, such as the conditionality regime that will underpin claimant participation; the precise role of Jobcentre Plus, especially of its existing Personal Advisers; the funding and design of specialist disability programmes; and the role of local authorities and partnerships currently seeking to create locally tailored and integrated skills and welfare to work services. The document also says nothing about the scale, duration and geographical size of contracts, without which providers are unable to plan service delivery strategies and organise capital and borrowing facilities.  This latter absence may reflect tensions within the Conservative Shadow team, with Theresa May having expressed scepticism about contracts being dominated by large providers whilst David Freud envisages, over time, a market comprised of six large super-providers.

As they stand the proposals are in danger of creating what James Purnell has characterised as a ‘planning blight’ – where there must now be increased uncertainty amongst providers concerning how to approach the £5 billion value 200 additional, mainly outcome focused contracts that DWP anticipates awarding between now and 2011.

Closer scrutiny of ‘welfare markets’ in other countries that use outcome based contracts raise other concerns with Conservative and government policy. In Australia, for example, the first contracts for their privatised Job Network relied on provider behaviour being driven solely through differential payments and outcome incentives. The efficiencies gained in the first six years were, however, undermined by the emergence of large scale ‘parking’, with some providers taking quick profits. Subsequently, the Australian Government had to introduce greater specification of service requirements and ‘ring fence’ funding to ensure a minimum spend on participants. The Australians also devised a sophisticated classification system to identify the ‘hardest to help’, to whom higher payments were attached, but it has proved difficult to implement accurately and consistently, and there is little evidence that such payments drive provider behaviour.

Another particular risk, heightened now, concerns potential for market failure, where providers either go out of business or seek to withdraw from unprofitable contracts and government has no choice but to intervene and either ‘bail out’ a failing provider or quickly find an alternative to continue the delivery of services. Such market failures marred the reputation of Training and Enterprise Councils, introduced by the last Conservative government, and have punctuated Labour’s New Deals. The impact of recession has exacerbated delivery problems associated with ‘Pathways to Work’ where some providers report significant financial losses and some subcontractors have withdrawn. It seems likely that providers will be wary of the Conservative funding model and will seek to secure a less risky approach, as happened with the first FND contracts where, under pressure, the government had to concede that for at least the first 18 months providers will receive higher service fees with less of their income dependent on job outcomes.

The evidence from other countries shows that contracting out employment assistance services is not a simple option. It changes the relationship between those who design policy and those who deliver front line services and blurs lines of responsibility and accountability, with delivery responsibility to be divided between multiple competing contractors and their subcontracting chains. As they seek to balance efficiency and price competition, whilst ensuring equity and quality services, designing and implementing the new welfare market will involve difficult and continuing challenges for policy makers and for whichever politicians are in power.

Dan Finn is professor of Social Inclusion at the University of Portsmouth

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