2 Design of the Work Programme
Contracted employment programmes
10. Our predecessor Committee reported on the
management and administration of contracted employment programmes
towards the end of the last Parliament. The report highlighted
the problem of "creaming and parking", which is often
encountered in such programmes, particularly when providers are
paid mostly by results (i.e. for placing people in jobs). "Creaming"
describes service providers concentrating their efforts on those
who are closest to the labour market and easiest to place in a
job, and "parking" describes where participants judged
furthest from the labour market and most difficult to place in
a job receive only minimal services. [7]
11. Our predecessors also reported on the DWP's
Commissioning Strategy in relation to the Flexible New Deal, which
had several similarities to the Coalition Government's new Work
Programme including: large contracts with prime contractors; individualised
support delivered through local subcontractors; and largely results-based
payments to providers. The Committee concluded that the design
of the first phase of Flexible New Deal would not prevent creaming
and parking and recommended that DWP introduce differential payments
to financially incentivise providers to work with all types of
customer, including the hardest to place in jobs.[8]
12. The previous Government had planned to pilot
Personalised Employment Programmes (PEPs) in the Thames Valley
and the London Boroughs of Barnet, Enfield and Haringey from March
2011. The aim of the planned PEP pilots was to offer support to
unemployed customers receiving Jobseeker's Allowance (JSA) and
customers with health conditions receiving Employment and Support
Allowance (ESA) to find sustainable employment "within a
single, integrated, flexible employment programme".[9]
DWP had planned to experiment with an escalator model of payments
to providers, whereby providers would receive increasingly large
payments per customer as they moved more people into jobs. The
idea behind this payment model was to incentivise providers financially
to work through their cohort of customers to help those hardest
to place in jobs.[10]
The Coalition Government has since cancelled the PEP pilots and
decided to introduce the Work Programme.
Bringing together support into
a single programme
13. The Work Programme will bring together a
range of employment support previously provided to unemployed
people under several different contracted employment programmes.
There was consensus among our expert witnesses that this was the
correct way forward. Dave Simmonds of the Centre for Economic
and Social Inclusion (Inclusion) agreed that it was the right
step to take and pointed out that there was a certain amount of
continuity with the policy of the last Government: "I think
we have to be clear that this was the direction of travel over
a number of years, and we have to remember that the Work Programme,
in terms of its design, does draw very heavily upon the Flexible
New Deal."[11]
14. Professor Dan Finn of the University of Portsmouth
told us that one obvious benefit of bringing support together
into one programme was that it would save money on transaction
costs by having a single tendering process.[12]
Potential prime contractors were also supportive of the idea,
as was the Employment Related Services Association (ERSA, the
trade association for the providers of employment related services),
while noting the challenge involved in the scale and ambition
of the programme.[13]
15. There was slightly more qualified support
for the consolidation of support into one programme from potential
subcontractors. St. Loye's Foundation agreed that some rationalisation
was required but had some doubt about whether consolidation into
a single programme would be the optimal design:
It was a little confusing previously, as there were
a large number of programmes. People in Jobcentre Plus were possibly
themselves confused about in which direction to post customers,
so some rationalisation was required. Whether to go down to one
programme [...] was the optimum, I am not sure.[14]
Jonny Boux of Community Links expressed a similar
view:
At Community Links one thing we welcome with the
Work Programme is the simplicity of one programme [...]. We are
a current New Deal prime contractor, but we recognised the complexity
of the number of various programmes that were involved across
the board. I am still unsure [...] that one programme is the
sensible way forward.[15]
Funding employment services from
future benefit savings
16. One of the key features of the Work Programme
is that it will be funded from the money saved from future benefit
expenditure as people move into work. Historically, contracted
employment programmes have been funded from the DWP's Departmental
Expenditure Limit (DEL), which is a three-year departmental spending
limit set by HM Treasury in Spending Reviews. Benefit payments
are paid from a separate, larger budget called Annually Managed
Expenditure (AME), which is managed centrally by HM Treasury.
Until recently internal government accounting rules did not allow
the mixing of DEL and AME spending.[16]
17. In his independent report to the Department
of Work and Pensions in March 2007, David Freud (now Lord Freud,
the Minister for Welfare Reform) outlined the fiscal benefits
to the state of moving people from benefits into sustained employment.
He estimated, for example, that the gross savings to the state
of moving an average recipient of Incapacity Benefit into work
for a year was £5,900, with additional gains from direct
and indirect taxes (offset against tax credits) raising the figure
to £9,000. The report stated that once a person has been
on Incapacity Benefit for a year they remain, on average, on benefit
for eight years meaning that "a genuine transformation into
long term work for such an individual is worth a net present value
of around £62,000 per person to the State".[17]
18. Extending employment support to people on
Incapacity Benefits and paying providers from future benefit savings
(the larger AME budget) had been under consideration by the previous
Government since the Freud report. The process became known as
the "AME/DEL switch". In the July 2008 Green Paper,
No One Written Off, DWP announced trials in Greater Manchester,
Norfolk, and the London Boroughs of Lambeth, Southwark and Wandsworth,
starting in financial year 2010-11.[18]
Professor Dan Finn told us that the AME/DEL switch was therefore
another acceleration of the direction of travel of the previous
Government's policies:
It accelerates what the previous Government were
going to experiment with: whether you can fund current expenditure,
in terms of investing in upfront employment services, and pay
for them from the future benefit savings that come out of that.
Now, that's a fundamental principle that underpins the Work Programme,
which the previous Government were much more cautious about and
were in the process of testing through some kind of pilots, but
this Government have obviously made the decision, "This is
what we're going to accelerate."[19]
19. Other witnesses were supportive of the AME/DEL
switch as a way of funding the Work Programme. G4S argued that
the AME/DEL switch could ensure that the necessary funding was
in place, even within current fiscal restraints, to offer support
to the hardest to help.[20]
20. The Work Programme will
be funded from projected future benefit savings, the scale of
which is as yet unknown. This means that, instead of funding the
programme from the Departmental Expenditure Limit (DEL) in the
usual way, the source will be Annually Managed Expenditure (AME)
from which benefits are paid (the so-called AME/DEL switch). It
is a bold decision by the Government to press ahead with this
untried method of funding. We welcome the extra resources that
the Government has released by using the AME/DEL switch mechanism
to help people find jobs in a time of constrained public finances.
However, there is a risk that the expected savings will not be
realised if too few people gain full time work or if the number
falling out of work rises. We recommend that the Government publishes
at regular intervals the cost of the Work Programme and an estimate
of the benefit savings accrued from it. We also recommend that
the Government commission an independent external organisation
to conduct a full evaluation of the programme, including an assessment
of its cost-effectiveness in relation to previous employment programmes.
Personalised support for Work
Programme customers
21. Work Programme prime contractors will be
given considerable freedom to provide personalised support to
individual customers—the so-called "black box"
approach:
Specialist delivery partners from the public, private
and voluntary sectors are best placed to identify the best ways
of getting people back to work, and will be allowed the freedom
to do so without detailed prescription from central government.[21]
22. Most witnesses supported the black box approach
and were keen for DWP not to interfere in the personalised interventions
offered by prime contractors.[22]
Dave Simmonds told us that black box provision was essential because
customers will have different needs and therefore require different
interventions.[23] Stephen
Evans of the London Development Agency agreed but also believed
that there should be sufficient transparency within the black
box and that prime contractors should be held accountable for
delivering what they promise:
[...] people don't fit neatly into boxes, so their
provision is not going to fit neatly into boxes. The challenge
is that you've got to couple that with some minimum expectations
of what people can expect when they are on this programme—because
it is a public programme that you have to be on to get your benefits—and
also transparency and accountability in terms of that performance
data.[24]
23. The alternative to the black box model would
be a model in which the Government prescribed in greater detail
the services that a prime contractor and its subcontractors must
deliver. The Wisconsin Works (W-2) employment support programme
that we saw during our visit to the United States was more prescriptive
than the Work Programme model and the requirements placed on providers
had increased over time as the State sought to make the programme
more accessible to participants. All participants were required
to meet with an adviser to agree a personalised plan to help them
find employment, but this plan was based on the "W-2 employment
ladder", which stipulated training and support options in
order of preference: unsubsidised employment, trial jobs (subsidised
employment), community service jobs and transitional work (employment-related
activities such as education and training) support programme for
parents.[25] The Wisconsin
Policy Research Institute argued in 2005 that some of the most
commonly used options from the W-2 employment ladder, such as
community service jobs and basic adult education, were ineffective.
The Institute also found that employers were reluctant to hire
W-2 participants into subsidised trial jobs.[26]
If the Government had prescribed in detail the service that Work
Programme providers must deliver, this might have led to providers
being forced to deliver ineffective support. It could also have
deflected providers from a focus on outcomes and reduced their
flexibility and scope to innovate.
24. We support the principle
of black box provision of employment support, where prime contractors
will be allowed considerable freedom to personalise interventions
to match the needs of jobseekers, as long as there is transparency
about what prime contractors undertake to provide within the black
box. DWP should not interfere with this approach without exceptional
reason. However, DWP must ensure that prime contractors are held
to account for what they promise to deliver within the black box
and that protections for the customer are included within contracts.
We request that the Government clarifies how this will be achieved,
in response to this report.
Use of intermediate labour markets within the
black box
25. In our report on Youth Unemployment and the
Future Jobs Fund we found that government-subsidised jobs
(sometimes called intermediate labour markets) could be a cost-effective
option for young unemployed people who are furthest from the labour
market and who therefore might not benefit from less intensive
approaches.[27]
26. EU state aid rules stipulate that subsidised
jobs created under employment schemes must be "additional"
posts, i.e. ones that would not otherwise have been created without
the employment programme. Our report found that private sector
employers had perceived EU state aid rules as a barrier to participation
in employment programmes that involved creating subsidised jobs.[28]
27. We asked DWP officials about the legitimacy
of Work Programme prime contractors creating subsidised jobs within
the black box. Mark Fisher told us:
If somebody genuinely gives somebody a cleaning job
for two or three years, then there could be a form of subsidy
going towards that. It is quite legitimate under the black box
if they can make money with that [...] There is a degree of employment
subsidy.[29]
The Minister told us that he was "completely
relaxed" about Work Programme prime contractors using a proportion
of their fees to subsidise jobs for their Work Programme clients
and that it would be for the prime contractors to interpret the
EU state aid rules.[30]
28. We welcome that Work Programme
prime contractors may choose—within the black box—to
use a proportion of their fees to subsidise jobs for their Work
Programme participants. However, there has previously been a perception
that EU state aid rules could be a barrier to private sector employment
of this kind. Whilst it will be for prime contractors to establish
the legality of such interventions under state aid rules, we recommend
that the Government produce straightforward guidance on how intermediate
labour markets may be used within the Work Programme in a way
which is compliant with state aid rules.
7 Work and Pensions Committee, Fourth Report of Session
2009-10, Management and Administration of Contracted Employment
Programmes, HC 10. Back
8
Work and Pensions Committee, Second Report of Session 2008-09,
DWP's Commissioning Strategy and the Flexible New Deal,
HC 59. Back
9
www.dwp.gov.uk Back
10
Jane Mansour and Richard Johnson, Buying Quality Performance:
Procuring Effective Employment Services (London, 2006) Back
11
Q2 Back
12
Q2 Back
13
Q105 Back
14
Q 60 Back
15
Q 60 Back
16
David Freud, Reducing dependency, increasing opportunity: options
for the future of welfare to work: An independent report to the
Department for Work and Pensions, March 2007, p 67. Back
17
David Freud, Reducing dependency, increasing opportunity: options
for the future of welfare to work: An independent report to the
Department for Work and Pensions, March 2007, p 68. Back
18
DWP, No one written off: reforming welfare to reward responsibility,
July 2008, pages 74-75. Back
19
Q 3 Back
20
Ev 63 Back
21
DWP, The Work Programme Invitation to Tender: Specification
and Supporting Information, December 2010, para 2.03. Back
22
See, for example, Remploy Ev w2 [Note: References to Ev wXX refer
to written evidence published in the volume of additional written
evidence on the Committee's website] Back
23
Q 5 Back
24
Q 5 Back
25
http://dcf.wisconsin.gov/w2/wisworks.htm Back
26
Wisconsin Policy Research Institute, Road To Nowhere: Education
and training under Wisconsin Works, April 2005. Back
27
Work and Pensions Committee, First Report of 2010-11, Youth
Unemployment and the Future Jobs Fund, HC 472, para 53. Back
28
Ibid, paras 72-77. Back
29
Q 172 Back
30
Q 172 and Q 177 Back
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