Risks and rewards in welfare devolution

23 Mar 15

International evidence has shown that devolution of welfare-to-work schemes to local authorities can improve services – if funding and accountability challenges can be overcome.

Government ministers and Whitehall control most aspects of welfare to work policy in England, with local government playing only a limited role, in contrast to other OECD countries.

However, as the general election approaches – and following the decision to give more welfare powers to Scotland under the proposals of the Smith Commission – the debate on devolving such powers in England has intensified.

The approach of the coalition government to devolution of welfare to work in England has been mixed. City and Growth Deals empower local authorities and partnerships to analyse employment and skills needs in their areas, identify priorities and develop more coordinated approaches. But such negotiated deals are a comparatively weak form of devolution and it is unclear whether they will translate into substantive changes in provision, not least due to the conditional commitment of government departments.

The Department for Work and Pensions in particular remains wedded to a strong ‘centralised’ approach to localism, worried that national priorities should not be eclipsed by divergent local priorities or capacities. Local flexibility given to Jobcentres is constrained by national targets and intended only to complement mainstream activity.

Joint working is largely restricted to provision for people ineligible for, or poorly served by, existing programmes. Greater flexibility has been extended only through centrally-commissioned payment-by-results programmes delivered by prime providers who are themselves weakly connected with local authorities.

Calls for more radical approaches to devolution have increased. Some have suggested devolution of the Work Programme and other DWP employment programmes, with others back devolution of  entire benefit budgets, to allow local government to set their own conditionality rules and payment rates.

In a report published today, the Joseph Rowntree Foundation has reviewed these possible approaches through looking at the experience of four countries with a strong tendency towards decentralisation – the USA, Canada, the Netherlands and Germany.

In each country devolution has involved changes in the financing of welfare benefits and responsibilities for employment and skills programmes. In three of the countries lower tiers of government can design and organise benefits and welfare to work service delivery financed through devolved block grants.

In Germany, devolution has driven improved inter-institutional collaboration between the Public Employment Service and local government.

Comparative findings show that devolution has contributed to service integration, welfare caseload reductions and increased employment, although views differ on the quality of the outcomes secured. It seems that allowing lower tiers of government to fund services, finance benefit payments and implement programmes has encouraged innovation and facilitated better targeted and co-ordinated services. Additionally, it has incentivised lower tiers of government to keep unemployment low.

However, the success of welfare to work devolution relies on managing critical challenges.

The first issue concerns accountability. Welfare to work policies have national significance and central government is accountable for setting priorities and managing public finances. National objectives often are the basis for negotiated agreements and targets with local government actors, and, as in the USA or Canada, may be monitored and managed through performance reporting systems; central or regional scrutiny and evaluation; and incentives and sanctions embedded in conditional central funding. Such mechanisms are important to mitigate the potential for misaligned or conflicting incentives that exist in multi-tiered policy systems.

Funding too may be a challenge. Most proposals suggest that where local councils or partnerships in England become responsible for particular claimant groups, especially the most disadvantaged, they should offer higher performance and assume greater financial risk by investing some of their own resources in service delivery. The most radical propose that, in return, local areas would receive a significant share of the central benefit expenditure saved. Such an approach is analogous to block grant funding and the model in the Netherlands illustrates how such devolution may be secured whilst retaining strong national benefit entitlements.

There are issues too about the role of the Jobcentre network in any devolution of local welfare to work services. The role of Jobcentres is changing but there are variations in how DWP districts and Jobcentres engage with partnerships, councils and contracted providers. The development of local Universal Credit support services will require greater partnership working and fuller integration of employment and benefits services. Greater devolution of how Jobcentres work with local government is required and more coherent partnership agreements, as exist in Germany, would help facilitate integrated and more locally accountable service delivery.

A further challenge concerns differential capacity in terms of management, resources, and the appetite for devolution amongst local stakeholders. It would not be feasible for most areas to immediately acquire the DWP’s expertise in designing payment, procurement and performance management systems. However, both Canada’s differential approach to ‘labour market agreements’ and the use of state-based ‘waivers’ in the US has allowed provincial and state governments to negotiate and test different levels of responsibility before moving to fuller devolution. This differentiated and experimental approach to welfare to work devolution should be an explicit national policy for City and Growth Deals, rather than a tacit local objective.

A final challenge concerns equity. There is a potential conflict between the norm of equal treatment and devolution of employment services or benefit entitlements. Variety should be accommodated but underpinned by national minimum standards, especially where programmes are mandatory. Devolved budgetary systems must also balance performance-related incentives and sanctions with the necessity for maintaining investment in and provision of support for all welfare claimants, especially in areas with weak labour markets or which experience ‘economic shocks’.

The JRF report can be found here http://www.jrf.org.uk/publications/welfare-work-devolution-england.

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