House of Commons - Public Accounts

Select Committee on Public Accounts Thirteenth Report

1 The challenge for employment and skills support programmes

1. Although the United Kingdom is experiencing high employment levels (74.5% in the quarter ended May 2007), many people still have difficulty gaining long-term work that enables them to have an income that lifts them out of poverty. Our report on Workless Households examined the Department for Work and Pensions' progress in helping those furthest from the labour market into work.[3] In this report, we look at efforts to help people who cycle between work and benefits. Of the 2.4 million Jobseeker's Allowance claims made each year over two-thirds are repeat claims. Within six months of moving into employment from Jobseeker's Allowance, 40% return to benefits.

2. The National Audit Office estimates that if it were possible to reduce the time that repeat claimants spend on benefit by 50%, the Exchequer would save £520 million a year. Even if it were not possible to achieve a reduction of this magnitude, increasing the time that people stay in work can improve the benefit derived from expenditure on helping people into work. For example, Figure 1 shows that the return on expenditure in New Deal programmes improves with increasing job duration.

Figure 1: The return on investment in employment programmes improves with increasing job duration.

Programme	Programme costs (£ million)¹	Additional jobs ²	Net fiscal benefit (cost) to the Exchequer for different length of job outcomes (£million) ³
			3 months	6 months	12 months	2 years
New Deal for Disabled People	74.979	11,064	(54.867)	(34.754)	5.470	83.200
New Deal for Lone Parents	77.617	15,684	(60.342)	(43.067)	(8.516)	58.248
New Deal 25 Plus	125.725	10,324	(105.900)	(86.075)	(46.425)	30.193
New Deal for Young People	204.539	17,457	(176.350)	(148.161)	(91.784)	17.160
New Deal 50 Plus	8,197	2,263	(5.325)	(2.453)	3.289	14.389
New Deal for Partners	4.689	61	(4.697)	(4.710)	(4.737)	(4.788)⁴

Notes:

1 Programme costs are for 2005-06 and include delivery and administrative costs.

2 Additional Jobs are for 2005-06 and are estimates of the number of jobs gained that are additional to those that might have been gained without the programme. Estimates are based on programme evaluations.

3 Net fiscal benefit (cost) is the difference between the costs of the programme and the benefits that will flow back to the Exchequer in benefits saved, and increased tax revenue, less the cost of increased Tax Credits payable to people who move into work.

4 The results of New Deal for Partners are based on a low income assumption that the partner's benefit continues, less saving in housing benefit and council tax. As a result, negative gross fiscal benefit is calculated.

Source: National Audit Office analysis of Department for Work and Pensions data

3. People cycle between work and benefits for many different reasons. Some churn is natural in a dynamic labour market, with 6.5 million people moving between jobs each year. During 2005-06, around 1.6 million people entered work from unemployment, and 1.4 million people became unemployed in the same period.[4]

4. These figures on movement in and out of jobs include foreign-born workers, and data shows that in 2005-06 around 400,000 foreign-born people entered work from unemployment or inactivity. This figure is in line with the foreign-born proportion of the overall population, so it is likely that they are neither over nor under represented in the overall flows in the labour market. The available data do not allow an assessment of whether recently arrived migrants are moving into work at a disproportionately greater rate than local workers, so it is impossible to say whether, for example, skilled tradesman from Poland are increasing the competition for available jobs faced by local workers.[5]

5. One factor contributing to movement in and out of work is that around 1.5 million people are in temporary jobs: some people work in part-time and temporary jobs through choice as short-term work can provide valuable experience and is a first step into the labour market for many people. If people are only able to gain short-term work, however, then this contributes to benefit cycling and may not help them out of poverty. The Department considers that it can best maximise its impact by focusing on raising the overall employment level and by supporting people with low skills, as the lowest skilled are more likely to be limited to jobs in high turnover sectors. Although the rate of churn has remained constant since the 1980s, the absolute number of repeat benefit claims has fallen, while the average duration of a job has risen from 8 years to 8.9 years in the last decade.

6. The barriers that keep some people from finding work, such as financial concerns and caring responsibilities, can also make it difficult for them to stay in work (Figure 2). A number of measures are in place so that the recently in work are not financially worse off than when they were receiving benefits. Many people moving from benefits to work are eligible for Working Tax Credit and childcare support. In some regions, the Department is offering in-work credits of £40 per week for 12 months (£60 per week in London) to help people bridge the gap as they move off benefits. In addition, the Department announced in November 2007 that it will introduce a guarantee that anyone moving from benefit into work will have an income that is higher by at least £25 a week.[6]

Figure 2: A number of factor appear to increase the risk that a person will leave work

Source: National Audit Office literature review

7. The Department for Work and Pensions is reviewing the indicators used by Jobcentre Plus and Employment Zones to measure their success in helping people into sustained employment. At present, Jobcentre Plus advisers record a job 'outcome' if a person starts a job expected to last for at least 13 weeks within six weeks of finishing a training or support programme. Some groups, such as lone parents, are more likely to leave a job during the first three months of employment (Figure 3). As a result the Department accepts that 13 weeks is too short to be an adequate measure of sustainable employment. The Workstep programme already uses a 26 week measure, and the Department plans to simplify the current New Deal packages into a single, flexible programme, and will adopt a measure longer than 13 weeks to measure its impact.[7]

Figure 3: Job exits for lone parents are highest during the first three months in work

Note: Duration of jobs ending between April 2004 and March 2005

Source: Experience of work and job retention among lone parents: an evidence review, Working paper 37, Department for Work and Pensions, 2007



© Parliamentary copyright 2008	Prepared 28 February 2008