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Westminster Hall

Thursday 17 May 2007

[Janet Anderson in the Chair]

Government Employment Strategy

[Relevant documents: Third Report from the Work and Pensions Committee, Session 2006-07, HC 63 and the Government’s response thereto, First Special Report from the Committee, Session 2006-07, HC 492.]

Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Michael Foster.]

2.30 pm

Mr. Terry Rooney (Bradford, North) (Lab): I welcome this opportunity to debate our report on the Government’s employment strategy and the Government response to it. I start by thanking all those who submitted written evidence to the Committee, the witnesses who gave oral evidence, our specialist advisers, and my hon. Friends and colleagues on the Committee. In particular, I should like to thank the staff and users of Rosemount lifelong learning centre in Glasgow, which is in the Speaker’s constituency. We had a tremendous experience when we visited the centre. In addition, the Committee visited New Zealand in the course of its inquiry.

The scope of our inquiry was to look at the Government’s target of an 80 per cent. employment rate. We focused in particular on ethnic minorities, the over-50s and lone parents. Needless to say, I will not cover the entire report or the responses, not least because I want my hon. Friends and colleagues to get in.

Sadly, I start by saying that all members of the Committee were disappointed by the Government response. That is in stark contrast to the Government response to our report on the Child Support Agency, which they published yesterday and which is a splendid document. An awful lot of the issues that we flagged up were downplayed in the Government’s response, so it was particularly discouraging when they were subsequently flagged up in the Freud report and positively welcomed by Ministers. In fact, I think that David Freud is guilty of plagiarism, because there were no original ideas in his report that were not in ours, but there we are.

The city strategies initiative was launched by the Government last autumn. We know that if we can solve the problem of the employment rate in the UK’s major cities, we would easily meet the 80 per cent. target. Great store was set by the new localism and getting all the agencies together to act in concert on the massive pockets of deprivation. However, the submissions that have come in from cities have, frankly, been disappointing. The initiatives are not innovative and are not really focused on addressing the challenges. Although the city strategies seem a good way forward, further work needs to be done to educate those local partners on how they can make a difference in their communities.

A particular concern was the employment rate among ethnic minorities. We need to be careful about that, because the employment rate among people of Indian or Chinese descent and in many other ethnic minorities
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is way up there, level with that of the indigenous population. However, the rate in the Pakistani and Bangladeshi populations is quite low, and extremely low among women in those communities. There was therefore concern about ending the ethnic minority outreach grant, which was merged with the deprived areas fund. There is no real evidence either way as to whether the transfer has been successful. However, we were concerned that a specific pot of money to address those low employment rates had been submerged into a general fund. To return to the city strategies, the large ethnic minority populations are in our big cities. If the city strategies are weak, our response to the needs of ethnic minority communities will also be weak. That is a real concern for us.

We made great play in our report of the fact that one of the biggest contributors to a lower employment rate is the lack of skills and low skills. We welcomed the report by Lord Leitch, which was published during the course of our inquiry and which sent some challenging messages to the Government. The Government’s response was again a bit weak and slightly evasive, although perhaps because the Department for Work and Pensions is not totally in control of the situation. In particular, reference was made to the “Train to Gain” programme for those in employment. “Train to Gain” is fine, but it is for the under-25s. It does nothing for those who are over 50, which is a particular problem, nothing for most women or most lone parents, and very little for ethnic minorities. The message is mixed.

Mrs. Joan Humble (Blackpool, North and Fleetwood) (Lab): When we discussed the Leitch report, we did so from the point of view of those out of work. Does my hon. Friend share my concern that we did not receive satisfactory answers to our questions about how people who were out of work would engage with the skills agenda in Leitch and how that would impact on their benefit entitlement?

Mr. Rooney: There are two issues there. Leitch focused on upskilling people who are in work. To that extent, there is not much in that agenda for those who are out of work. However, there are also impediments in the benefits system to those who want to do out-of-work training.

As it happens, just last week we visited a Prince’s Trust project that runs a programme called Team, which is recognised nationally by the DWP as a work-related training programme. Notwithstanding that, nine different benefits centres in London were making the lives of participants on that programme a misery, and in some places they told participants that they had to leave the programme and go on the new deal. Part of Team’s 13-week programme is a one-week residential. However, if participants did not sign on during that week, their benefits were stopped, even though Jobcentre Plus knows that that one-week residential is part of the course.

That lack of consistent interpretation of the rules among different offices is worrying. I do not suggest for a moment that we should finance people in education through the benefits system, and I do not think that the Committee does, either. However, where people undertake training or learning that will lead to a qualification for a
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job, that needs to be reflected in their benefit status. A lot of the rules are very unclear about how that is supposed to happen.

The engagement of employers is also a serious issue. The National Employment Panel does a fantastic job, and I think that Cay Stratton is brilliant. However, I suspect that as an organisation its position now is, “Well, you would say that, wouldn’t you?” I wonder whether we need to breathe new life into the process, because there is now a lot of evidence that employers are getting a bit bored by the issue. At the end of the day, however, the employers are, after all, the ones with the jobs—not the Department, Jobcentre Plus or the Select Committee. We need to re-energise the engagement with employers, in respect of both what level of skills they want people joining their companies to have and what ongoing support is needed once they get into work.

John Penrose (Weston-super-Mare) (Con): The hon. Gentleman is putting the Committee’s case eloquently. Does he agree that one of our other concerns about Leitch was that some of the traditional groups helped by the skills agenda—particularly those in middle or older age returning to work either because they have been caring or fulfilling family responsibilities or because they have been made redundant for a period—are not necessarily well catered for? They tend to have skills that are already above level 2—Leitch made the point that level 3 skills are equally important. Because such people are not in employment and do not have an employer to fall back on, the Government seem to saying, in paragraph 39 of their reply, that they will not help either, and that the cost will fall on the individuals themselves. That means that middle-aged people who are currently jobless and in need of a little reskilling are, effectively, being left in the lurch.

Mr. Rooney: I do not know whether I would go as far as to say that such people have been left in the lurch, but as a group they are not catered for. There is a lot of talk in Leitch and the Government’s response about co-payment, as is so often the case across Government at the moment. Co-payment is fine in employment, but for a person not in employment, it becomes a non-starter. Another deficiency is that Leitch does not recognise that the starting point for people who have been out of the labour market for 10 or 15 years, as lots of lone parents have, should be the soft skills—building their confidence so that they can move back into work. Then we can move on to the academic or vocational qualifications. There is no real recognition of that in Leitch. It has always been difficult to quantify in contracting, but moving somebody a lot nearer to the labour market is every bit as valuable as getting somebody a couple of O-levels or A-levels, because it improves that person’s employability and willingness and ability to work.

In our report on the pathways to work pilots, we made the recommendation, which we repeat in the report, that the Department should retain some of the savings gained from the reductions in benefit payments that result from people moving into work. This time, the Government response makes only a passing reference to
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that, yet the response to the same suggestion in Freud was extremely positive. The Freud report said that that is the way ahead and where contracting should go, and that the savings made from reductions in benefit payments should be recycled into getting more people into work and added rewards for contractors and providers.

The Committee made a related recommendation. Currently, if somebody is in work for 13 weeks, their job meets the Government definition of sustainable employment. We said that the measure should be at least 26 weeks, and Freud says that it should be up to three years. In their response, the Government retreat into saying that it should be 13 weeks, because the evidence is that by the time somebody has been in work for 13 weeks, most of the barriers have been removed. I am sorry, but that is just not true. If single parents who start work could stay in it for 26 weeks, we would meet the 70 per cent. employment target for lone parents tomorrow.

Natascha Engel (North-East Derbyshire) (Lab): It was even more interesting to see the Government response to that point. They said that the issue was not even about defining what sustainability in work was. All they said was that all the evidence was that the longer somebody stayed in work, the less chance there would be of their dropping out of the labour market again, and that that was the aim of the Government strategy. The Government never even sought to define “sustainability”, so it was not even clear whether they thought 13 weeks’ employment meant sustainable employment.

Mr. Rooney: My hon. Friend is absolutely right, as is evidenced by the contradiction between the Government response to this report and what happens in employment zones, where there are enhanced payments as long as the person stays in work. If that is right for employment zones, it should be right across the system. Bearing in mind that under the labour laws in this country, a person can be dismissed at any time in the first 12 months of employment without any reason having to be given, defining sustainability with reference to 13 weeks has to be a simple non-starter.

I move on to flexibility. At the moment, the training programmes depend on the benefit that the people are on. In this report and others, the Select Committee has argued that although the new deal has to a great extent been an outstanding success, it is now a 10-year-old product and it is time that it was refreshed and renewed. The Department has run two pilots: building on new deal—BoND—and “Ambition”. Both show that moving to a training programme based on the individual’s needs rather than the benefit that they are on is the way ahead. BoND has been abandoned because it was assessed as too expensive, but “Ambition” is being further piloted and moved forward. There is also the new deal plus for lone parents, which is a much more enhanced product. Our recommendations that we should move towards such initiatives have been downplayed in the Government response, yet Freud says that once somebody has been unemployed for 12 months, they need an individual tailored programme. The Department, the Government and Ministers welcomed Freud as the way forward, yet do not welcome the same things when we say them in our report. As I expect hon. Members have gathered, I am getting a bit paranoid about that.

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The simple fact is that the labour market is different from how it was 10 years ago. The type of person in the inactive benefit system is different from the type of 10 years ago, and we need a new approach. I understand that the Government are imminently to make an announcement about flexibility in the new deal. I am looking at the Minister, but his expression is a little blank. If such an announcement is about to be made, why are the Government not a bit more positive in their response to the Select Committee’s excellent report?

I move on to the issue of lone parents, about whom we made a number of recommendations and who are probably the biggest success story of the Government’s welfare to work programme. The employment rate among lone parents has gone from about 43 per cent. to 56 per cent. However, in London it has hardly shifted; it has increased by only about 0.5 per cent. The rest of the country is doing pretty well in getting lone parents into work, but that is not happening in London. That is due to two things: the cost of child care and the cost of housing. I have been checking with people in the child care system in London and it seems that the average cost of full-time child care is between £250 and £300 a week. Even at £250, and even with the full child care tax credit, a person is still left paying £100 a week if they have one child or £260 a week if they have two. That comes from their net income; a lone parent needs a hell of a job to be able to pay those premiums and have enough money left. There is a real issue about the level of child care tax credit in London. Incidentally, the level of take-up is another important issue, on which we made one of the recommendations that got no response whatever.

As I said, the second main issue is housing costs in London. We found that for many different types of claimant, the point of change issue decides whether somebody moves into work. What is the situation at the point of change? The average local authority rent in London is £120 a week; it is about £250 a week in the private sector. A lone parent may have a very modest income on benefits, but at least it is secure; they know that it will turn up every week. If they rent, their council tax will be paid and the roof over their head will be protected. However, we ask such lone parents to move into an uncertain world in which, although their weekly income as such—with the minimum wage and the working tax credit—will increase significantly, their housing benefit claim will end and they will have to make a fresh claim as someone who is not on income support but working.

In London in particular, housing benefit administration is appalling; the length of time that it takes to process a new claim can be anything up to six months. A single parent moving into work would have to pay their own rent for up to six months while their housing benefit organisation sorted things out, on top of having to pay the child care costs—it is no wonder that they say, “No thank you. I shall stay on my modest income; at least I know that it is there every week.” There is a real issue there.

The Committee raised another issue. At the moment, a person can get housing benefit and council tax benefit paid for the first four weeks following a move into work. We raised the question whether personal advisers could have further flexibility in rolling out other benefits. The answer was a flat no, and the Government have no intention of considering that.

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In this day and age the vast majority of jobs are paid monthly, so, for example, a single parent of two children is asked to give up her benefit and spend four weeks with no income. The children of someone on income support get free school meals, but if the parent receives anything else they will not and the parent will have to find £15 to £20 a week to pay for those two children. Previously, such children might have been protected from school travel costs or child care costs. We need a more radical answer to the expense picture, in London in particular, so that people can cross the rubicon created by the security that benefits offer, even though the income is low, into the world of work. Once they are established in work, it might well all work out, but while they are waiting for all the other organisations, some of which are administratively useless, to do their bit, who would take that chance? Who would put their children at risk? Who would risk being evicted? It is not good enough.

We saw in New Zealand that the personal advisers have absolute flexibility. I found it a bit dangerous, in fact, because it seemed that they could spend any amount of money as long as someone accepted a job. We cannot go that far, but we need more flexibility for personal advisers, so they can help people to bridge the gap and get over the massive barrier to work. If I were a lone parent, I would think five, six or seven times before I crossed that barrier. More help needs to be given.

Freud’s analysis is that if we do not make such interventions, we will continue to pay benefit for many years hence. For a lone parent, that will typically be about eight years. If they have two children, we are looking at £5,000 to £6,000 a year in benefit, which means £40,000 to £50,000 will have to be paid out unless those interventions are made. If it costs £5,000 to get someone into work, surely that is worth while.

Andrew Selous (South-West Bedfordshire) (Con): I am particularly interested in the hon. Gentleman’s story about the flexibility that personal advisers have in New Zealand. Did that extend over a budget that they could spend on behalf of the jobseeker with whom they were dealing?

Mr. Rooney: We need to say two things about New Zealand. First, they have what is called a “work first” approach. If someone loses their job and approaches the New Zealand equivalent of the Employment Service, the system is geared towards getting them another job. In the United Kingdom, the system is geared towards establishing benefits. An awful lot of effort, technology and staff time is spent on getting the benefit established, and then people start to look for work opportunities. We need to consider how things are structured.

Secondly, I am not sure what the hon. Gentleman meant about “over a budget”. Each adviser does not have a personal budget. It is uncapped. I suppose there will be a limit at which they would have to refer the matter upwards—we were not told that—but essentially, they have the freedom to spend whatever is necessary to remove the barrier that stops an individual moving into work. That might involve paying the mortgage or the rent for two months, or buying them a new suit. They even told us of cases where they had
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bought people cars, because the job was 70 or 80 miles away and there was no transport. They were not buying Bentley convertibles—they were TR7s—but the point is that we need that flexibility to remove the barrier that stops an individual from getting into work.

There would be a price cap. Obviously, we could not allow advisers to spend £25,000, because they would send people on holiday to make them feel better about themselves. However, we need that flexibility somewhere and the accounting process needs to be, “If we don’t do this, we will spend this amount on benefits this year, the year after and the year after.” The generational deprivation would otherwise be continued, and, although I hate to mention the Government’s child poverty target, we will not reach it if we do not get more people into work.

The employment programmes at the moment are largely geared towards people who come on to benefits. For a new claimant, things move pretty well, but a “stock”—it is an awful phrase—of some 4.5 million are on inactive benefits. There is nothing substantial available to them to help them to get into work. Pathways to work and the employment and support allowance, which picks up on the pathways to work pilots and offers training, medical treatment and so on, help new claimants to get into work. That is fantastic, and it is right and proper, but there is nothing for the 4.5 million long-term claimants. To go back to Freud, he said that no impact will be made on those individuals unless we change the way in which government is organised and financed.

It is hard to give an average, but we could say that it costs about £3,500 to get someone into work. For those 4.5 million people, the cost would be in the region of £15 billion. The Government do not have that. If anyone stands up today and says, “Our party will do it,” they will be misleading the House. It will not happen. Freud suggested transferring the risk to the private and voluntary sector—mainly the private sector—over a set period of three years. That period is too long, however, and it should be two years. If the provider gets those people into work within that period, it should retain the benefit savings less the cost of putting the person into work. That might not be the perfect solution, but it is the way forward, and it reflects entirely our recommendation on recycling benefits savings while retaining some of that in the Department.

I want to close with two issues that relate to single parents. First, last October an incentive to lone parents to engage in work-related activity was announced. It was the work-related activity premium, which had already been piloted in some areas and would be extended from 1 April. On 29 March, it was announced that the premium would be abolished, which sent out a dreadful message. Lots of organisations up and down the country advised their clients that the premium was coming and geared them up to potential work-related training and activity, and that was snatched away at the last moment.

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