20 January 2006
Senior staff at the Department for Work and Pensions have outlined four key funding streams they expect will pay for the radical welfare reform proposals due to be unveiled by Work and Pensions Secretary John Hutton next week.
They include expectations of a generous settlement from the Treasury in next year's Comprehensive Spending Review; more effective use of resource allocations; longer-term benefits from 'invest to save' policies; and the realisation of efficiency savings under the Gershon review.
Kate Stanley, head of social policy at the Institute for Public Policy Research, told Public Finance: 'Resourcing the welfare programme is now the critical issue. Social justice doesn't come cheap, there are clear cost implications and there will not necessarily be immediate savings.'
A significant proportion of the cash earmarked by the DWP could be used to cover a national roll-out of the flagship Pathways to Work programme, which has successfully increased the number of people moving off benefits and into work in the areas in which it has been piloted.
Hutton, speaking at the Work Foundation on January 16, pledged a 'radical' welfare overhaul in an attempt to get 1 million people off benefits and into work.
It is expected to include proposals to: split incapacity benefit into two payments; increase the use of financial incentives linked to securing jobs; cut payments to those who are able but refuse to work; and introduce an element of compulsion for claimants to participate in the back-to-work agenda.
Hutton said the green paper would also detail reforms to housing benefit and extend welfare support to lone parents and older workers.
To ease concerns over forcing people previously considered unfit to work back into jobs, Hutton added that the reformed system would still 'be dependent on measuring the ability to work fairly'. He also promised extended support for those who had no prospect of returning to work.
Hutton said he 'fully expected that this would cost me [the DWP] money'. But sources later told PF that Hutton was not simply relying on new Treasury investment at a time when the government is tightening public spending.
New commitments would also be covered by utilising existing funding streams more efficiently and through 'joining up' welfare programmes where requirements overlap, one source said. Hutton's team has already identified initiatives where DWP spending is considered inefficient.
A third significant funding stream is expected to come from 'invest to save' projects. Hutton expects to finance back-to-work initiatives through the long-term reduction in the number of claimants. Not only would this free cash for other DWP activities, but the expected tax revenues from new workers would boost Treasury coffers.
The final funding 'stream', one senior source said, would come from 'digging deep into the DWP's current spending allocation'. This relies on the DWP meeting many of its targets under the £40bn Gershon efficiency agenda.
The IPPR's Stanley estimated that the cost of implementing Pathways to Work nationally, for example, would be £500m per year. Where 'Pathways' has been piloted (at a cost of £60m), the number of people returning to work from benefits has risen by 8% on average.
'It's not a cheap programme,' Stanley said. 'But if you consider the anticipated £500m cost against the total cost of the IB system annually – around £13bn – then it's clear that it could be of significant benefit in the long term.'
PFjan2006
