09 March 2007
The prime minister and chancellor this week backed a radical welfare overhaul that will hand over responsibility for millions of long-term benefit claimants – and billions in public cash – to private and voluntary bodies.
Tony Blair, Gordon Brown and Work and Pensions Secretary John Hutton backed the findings of the independent review of welfare-to-work programmes, published by former investment banker David Freud on March 5.
Blair said the aim now was to develop a 'virtuous circle' of welfare funding that would ease pressure on the public finances and provide quality-of-life enhancements through work.
'If we want to be able to afford our welfare state in the future, to pay a proper level of benefit and afford a strong basic state pension, then we've got to get…more people off benefit and into work. If we're not able to do that, we're going to face enormous [financial] pressure,' he said.
Brown, meanwhile, revealed that Freud's recommendations would initiate a decade-long programme of welfare reform, beginning with additional policies announced in this year's Budget and comprehensive spending review.
Freud claimed that, despite progress with employment programmes such as New Deal, the government could be accused of 'dereliction' of duty if it continually failed to engage with 'those furthest from the labour market.'
He placed his review in the context of the government's long-term target to achieve an 80% employment rate and estimated that the government must get one fifth of the 'economically inactive' working – including one million older people, one million Incapacity Benefit claimants and 300,000 lone parents. Around 1.3 million of 3.1 million long-term benefit claimants would need to be employed.
As reported in Public Finance recently, Freud recommended the break-up of the government's Jobcentre Plus service. He called for the mass contracting out – to private and voluntary sector bodies – of jobseeker and training services for the 'hardest to help' unemployed groups, including those that have claimed benefits for over a year.
Firms or charities would be encouraged to get people into work, and sustain their employment, by paying them according to performance and developing individual support programmes.
Greater obligations would also be placed on benefit claimants, including restricting child support payments to single parents by requiring them to attend additional job-seeking programmes once their youngest child is aged 12.
'I envisage this will become a multi-billion pound market, [but] the financial prize is huge,' Freud said.
'It costs the state £9,000 to keep somebody on Incapacity Benefit for one year. And once on IB for one year, they are on average going to stay on it for eight years. That represents a net present cost to the state of £62,000. So helping two-fifths of those people into work will have a major impact on the level of GDP and on the public finances.'
However, there are concerns over contracting out services for vulnerable groups, such as those with mental health problems (40% of Incapacity Benefit claimants).
Freud acknowledged there is 'no conclusive evidence that the private sector outperforms the public sector' in current welfare-to-work programmes, such as the New Deal or Employment Zones, although he argued 'there are clear potential gains from contesting services.'
The Social Market Foundation warned that there 'must not be a dogmatic focus on the private sector' when managing long-term claimants. The think-tank said that 'providers both public and private should be able to compete on a level playing field.'
The Public and Commercial Services union, which represents Jobcentre Plus staff and opposes its part-privatisation, told PF that breaking up the organisation would expose skills shortages among delivery bodies. A spokesman said: 'There are real practical issues involved in extricating that work from the Department for Work and Pensions. The people currently delivering jobseekers' services are knowledgeable about a range of claimants, but there are few dedicated teams for the long-term unemployed or tough cases.
'Those that did exist…have been, or are being, closed down.'
PFmar2007