Can the Work Programme work for all user groups? - Work and Pensions Committee Contents

5   Jobseeker segmentation and the differential pricing model

76.  As we have indicated, in past welfare-to-work programmes providers have sometimes tended to prioritise long-term jobseekers who are relatively job-ready, while sidelining jobseekers with more significant barriers to employment. A range of providers from all sectors have taken this approach to make the most effective use of their resources and, in the case of private sector providers, to maximise profits. The Work Programme is designed to reduce this risk of "creaming and parking" by employing an innovative differential pricing model. Providers can claim greater financial rewards for finding sustained employment for jobseekers whom DWP considers to be harder to help. In this chapter we examine the Work Programme's differential pricing model and its impact on creaming and parking; and consider how the pricing model could evolve in the future.

Work Programme payment groups

77.  For the purposes of the Work Programme jobseekers are allocated to one of nine payment groups, based largely on benefit type being claimed, with some sub-categories according to age, and a separate group for JSA claimants with the most significant barriers to work, such as serious drug problems and homelessness. There is also a separate category for prison leavers. The table below sets out the maximum value of payments available to providers in relation to participants attached in year one of the programme.

Table 3: Maximum payments to Work Programme providers by payment group
Maximum payments available over 2 year attachment period
Payment group Max year 1 attachment fee Max year 1 job outcome fee Max year 1 sustainment fee (monthly) Total
1. JSA aged 18-24 £400£1,200 £2,210£3,810
2. JSA aged 25+ £400£1,200 £2,795£4,395
3. JSA Early Access £400£1,200 £5,000£6,600
4. JSA Ex-IB £400£1,200 £5,000£6,600
5. ESA Volunteers £400£1,000 £2,300£3,700
6. New ESA claimants £600£1,200 £4,700£6,500
7. ESA Ex-IB £600£3,500 £9,620£13,720
8. IB/IS £400 £1,000£2,300 £3,700
9. JSA Prison leavers £300£1,200 £4,000£5,500

78.  The differential payments on offer are intended to reflect the relative difficulty, and costs, of supporting different types of claimant into sustained work and thereby incentivise providers to support all participants. DWP told us that "the payment model ensures that providers can only make a reasonable return on their investment if they genuinely help all their participants; in other words 'creaming and parking' will not pay."[69]

79.  It is important to understand that the differential price per participant in each payment group is not the same as the differential price per job outcome. This is because job outcomes are more likely in some payment groups than others. As we noted in 2011, the maximum value of payments on offer to providers for placing an ex-IB ESA claimant into sustained work (£13,720) is just over three times the amount offered for a job outcome relating to a mainstream JSA claimant aged over 25 years (£4,395). However, if you consider the relative likelihood of achieving a job outcome for an ex-IB ESA claimant compared to a mainstream JSA claimant, it is likely that the price per participant in the ex-IB ESA group is around the same level, or even slightly lower, than that for a participant in the mainstream JSA group.[70]

Accuracy of the Work Capability Assessment

80.  The Work Programme will support a far larger number of participants with disabilities and health conditions than any previous scheme. The Government is currently in the process of reassessing IB claimants—who until now have not been expected to seek employment—for ESA, the replacement benefit for IB. A large proportion of ESA claimants, including those migrating from IB, will be expected to take steps towards returning to work and many will be referred to the Work Programme on either a mandatory or voluntary basis, depending on their prognosis of ill-health or disability.[71]

81.  A number of witnesses noted the importance of the Work Capability Assessment (WCA), the face-to-face eligibility test for ESA, in allocating claimants to the correct benefit type, with the correct prognoses of ill-health, and therefore the correct Work Programme payment group. The accuracy of the WCA as an assessment of claimants' fitness for work has been the subject of a great deal of public debate since its introduction in 2008. Our 2011 Report on the IB reassessment highlighted flaws in the WCA as originally introduced and, while acknowledging attempts to improve the process through implementation of the recommendations of the Independent Reviewer, which are ongoing, concluded that many claimants had received a poor service and an inaccurate assessment of their fitness for work.[72]

82.  Some providers reported recent improvements in the accuracy of the WCA but a number told us that claimants who were clearly unfit for any type of work-related activity were being referred to the Work Programme. G4S rated the improvements made to the WCA process in recent years as "four or five out of 10."[73] Kirsty McHugh of ERSA reported "ongoing concern" amongst providers about the accuracy of WCAs. Both G4S and Rehab told us that claimants with terminal cancer, whose life expectancies were shorter than the WCA work-ready prognosis, had been referred to the Work Programme.[74]

83.  The Minister for Employment confirmed that there was currently no process by which providers can refer claimants back to JCP if they believe the claimant to be clearly unfit for work despite being assessed as being fit for work following a WCA. While he could see the argument for introducing such a process, he believed that it would need to be subject to "checks and balances" to ensure that providers could not declare people unfit for work simply because they "did not want to work with them".[75]

84.  Providers reported some improvement in the accuracy of the Work Capability Assessment (WCA) but we also heard some quite shocking examples of participants referred to the Work Programme who had clearly been incorrectly declared fit for work following a WCA. We recommend that DWP work with providers to agree a process by which participants whom providers believe are clearly unfit for work can be referred back to Jobcentre Plus. We agree with the Minister that the process will require checks and balances to ensure that providers cannot simply refer back any participant whom they "do not want to work with".

The Work Focused Health-Related Assessment

85.  The disability charity, Scope, recommended that a "distance from work test" be added to the WCA. It argued that this could measure disabled people's actual readiness for work, in addition to their functional capability to undertake some form of work or work-related activity and their eligibility for ESA. Scope noted that many providers already carry out such tests and therefore that the addition of a distance from work test to the WCA need not lengthen the time of the overall process.[76] We raised this issue in 2011 in our Report on the IB reassessment process. We pointed out that, when the WCA was first introduced, it included a separate component—the Work Focused Health-Related Assessment (WFHRA). The WFHRA focused on what work the claimant might be capable of doing and how their condition might be managed to help them find and stay in work. It sought the claimant's views on returning to work, what difficulties they faced in this, what steps they thought they needed to take to move back into work, and tried to identify health-related or workplace interventions which might support them into work.

86.  The WFHRA was suspended for two years from July 2010. In the course of our IB reassessment inquiry, DWP told us that the decision was taken in the light of the introduction of the Work Programme and would "provide an opportunity for DWP to reconsider the WFHRA's purpose and delivery" while also improving "the capacity to focus on and cope with the demands of the reassessment of existing benefit customers". [77] On 25 April 2013, DWP announced in a brief Written Ministerial Statement that an "external evaluation" of the WFHRA had found that it was "not delivering the intended outcomes". The WFHRA will therefore remain suspended until at least April 2016, so that DWP can "properly evaluate the impacts of both the Work Programme and Universal Credit systems."[78]

87.  We repeat the conclusion reached in our July 2011 Report on the Incapacity Benefits reassessment; a separate component of the Work Capability Assessment, which could focus on health-related or workplace interventions, and which might support claimants with health conditions and disabilities into work, would be particularly useful for people moving off Incapacity Benefits. We believe that, if this had been in place when the Work Programme was implemented, it could have provided a better assessment of benefit claimants' readiness for work and might have prevented inappropriate referrals. Based on the limited information which DWP has made available, its original decision to suspend the Work Focused Health-Related Assessment, and its recent decision to continue its suspension until at least April 2016, seem regrettable. We recommend that DWP provide a fuller explanation of its reasoning for its latest decision than was provided in its Written Ministerial Statement of 25 April 2013, and that it publishes the external evaluation.

Effectiveness of the current pricing model

88.  With the caveat that it was still relatively early days for the Work Programme, Professor Roy Sainsbury told us that the differential pricing model did not appear, from qualitative research, to be having its intended impact. Frontline Work Programme staff had told researchers that they prioritise those closer to the labour market. The evaluation report states that:

[...] observations suggested that the most job-ready participants were booked into more regular review appointments than the least job-ready, and that the most job-ready were encouraged to rapidly take-up any support or training required, because they were seen by advisers to be easy to progress into work once minor constraints had been overcome. Those who were less job-ready appeared to be challenged by advisers less frequently and less intensively about their job-seeking activities during meetings, and were booked into programmes of lesser intensity.[79]

Furthermore, Professor Sainsbury told us that frontline Work Programme advisers had reported that they simply "haven't got the financial resources" to support those with more significant barriers to work. [80]

89.  As set out in chapter 2, the job outcome performance of the Work Programme in the first 12-14 months of delivery was generally disappointing (2.1% within the mainstream payment groups after 12 months of delivery against the contractual year one target of 5.5%). The official data also show significantly lower job outcome performance in the harder-to-help groups than in the mainstream groups, although this was anticipated to some extent. Within the generally poor picture, Inclusion has noted some positive features, including relatively high job outcome performance for JSA claimants with complex barriers to work and higher than expected performance, relative to the mainstream JSA groups, in the JSA ex-IB group. However, performance in the ESA ex-IB group was very poor with only 30 job outcomes from 9,440 referrals in the first 14 months of delivery (0.3%).[81] The official job outcome data are also concerning when broken down by a range of personal characteristics. The data show that in the first 14 months of delivery people with disabilities and lone parents had the lowest job outcomes of the nine groups identified in the data (2.3% and 2.6% respectively, compared to 3.5% across all payment groups).[82]

90.  As previously noted, ERSA's unverified job-start data present a relatively positive picture of overall performance building in the pipeline. However, ERSA's data show much lower job-starts for participants in the ESA and ex-IB groups than in the mainstream JSA groups. ERSA has stated that this reflects the "real challenges" that jobseekers with health conditions and disabilities face in the labour market.[83]

Segmenting jobseekers by benefit type

91.  DWP was aware in 2011 that a model based on benefit type was an imperfect method of segmenting jobseekers. However, it had decided on the model because it was simple, with "no scope for debate and discussion". The then Minister for Employment acknowledged that there would inevitably be variations between participants within the groups but argued that the differential prices, "as a broad average", would "give providers a sensible basis to work with."[84]

92.   Our earlier Report acknowledged the innovative attempt to address creaming and parking through differential payments, concluding that it represented an improvement on the design of predecessor schemes. However, we were concerned that a model based largely on benefit type being claimed may not in practice accurately reflect the level of jobseekers' needs, their distance from the labour market and the relative difficulty of supporting them into sustained work. Importantly, we concluded that creaming and parking remained possible within payment groups. Our view was that the differential payment model was likely to need to evolve over time.[85]

93.  Concerns about the payment model were again expressed by a wide range of witnesses to this inquiry. There was consensus amongst providers and representative groups that benefit type is a poor proxy for the level of jobseekers' needs. ERSA noted that it was not necessarily the case that someone on ESA would be more difficult to place into sustained employment than someone on JSA, for example.[86] Official data show that some 49% of JSA participants in the Work Programme who report having a disability have been allocated to one of the mainstream payment groups which attract lower job outcome fees for providers.[87]

94.  The Pluss Organisation, a specialist provider of welfare-to-work for disabled people, felt that "the Work Programme groups do not effectively distinguish between those who need only a little support and those who need more intensive interventions."[88] DrugScope and Homeless Link wrote that DWP's choice of benefit type as the basis of the differential pricing model was a "missed opportunity" to align the pricing structure with individual jobseekers' needs.[89]

95.  Some providers reported that the differential pricing model had little or no discernible impact on their frontline advisers' behaviour. G4S said that its advisers "probably would not know" which payment group individual jobseekers were in and would therefore be unaware of the "amount of money attached to that individual's head". Richard Clifton told us that for Shaw Trust and CDG, the only entirely voluntary sector prime in the Work Programme, the payment group to which jobseekers had been allocated had no impact on the services they would receive.[90] This evidence is supported by the recently published second Work Programme evaluation report, which considered the programme's procurement, supply chains and the implementation of the commissioning model. It states that, so far, there is little evidence that primes use differential pricing to "target different types of support to different payment groups." The report notes that all providers use their own assessment tools, none of which consider the participant's payment group.[91]

96.  Shaw Trust and CDG welcomed differential payments as a "necessary evolution in welfare-to-work delivery" but argued that the model needs to evolve further. It cites a survey of its frontline Work Programme delivery staff which found that:

60% of staff stated that they did not feel that the payment group a customer is allocated to on the Work Programme accurately reflects how easy or difficult each customer will be to get into work. For example, staff reported that mental and physical health problems affect customers in all payment groups and not just the three ESA payment groups and the IB and IS group. Similarly, barriers to work such as homelessness, or a lack of access to affordable childcare, are not exclusive to just one payment group.[92]

97.  Some witnesses believed that the effectiveness of the Work Programme for harder-to-help groups could be improved by alterations to the existing payment model. Ian Mulheirn's view was simply that "we have not tried offering nearly enough money" to providers for supporting disadvantaged jobseekers into sustained employment.[93] This view was also expressed by some providers in the official evaluation.[94] Others believed that DWP should increase the proportion of funding available to providers via up-front attachment fees for jobseekers in some payment groups. Shaw Trust and CDG argued that this would retain a focus on payment-by-results but at the same time release resources for more expensive, tailored interventions required by harder-to-help jobseekers.[95]

Alternative models

98.  The Pluss Organisation believed that the needs of long-term jobseekers with significant disabilities and health conditions, and other disadvantaged groups such as substance mis-users, homeless people, over-50 year-olds and care leavers, would be better served by specialist programmes separate from the Work Programme.[96]

99.  A number of witnesses highlighted the relative success of the Work Choice programme, the specialist disability employment programme which the Government chose to retain as a separate scheme when it set up the Work Programme. Like the Work Programme, Work Choice operates within a "black box", prime provider model. It operates in 28 CPAs with between two and seven subcontractors in each. It has an element of outcome-based funding but is not heavily weighted towards payment-by-results; providers are paid a 70% service fee, with 15% being paid when the client moves into supported employment and the final 15% paid following a move into unsupported employment. The payment level is the same for all clients regardless of whether they are JSA, ESA, IB or other claimants. DWP statistics show that 17,200 disabled people were referred to Work Choice in 2011/12, of whom 5,640 (33%) achieved either a supported or unsupported job outcome.[97]

100.  Kirsty McHugh of ERSA stated that "we have all known from the outset that benefit type was a very rough proxy" for jobseekers' needs. She argued that the introduction of Universal Credit, which will replace both income-based JSA and income-based ESA by 2017, offered the opportunity to "move towards something that is a fairer assessment of people's needs".[98]

101.  A wide range of witnesses recommended that, in the longer-term, the Work Programme would benefit from a more thorough needs-based assessment of jobseekers' barriers to employment. Several pointed to the Australian system, in which a Jobseeker Classification Instrument (JSCI) allocates jobseekers to one of four "work streams" depending on their distance from the labour market and level of support required. Services in stream 1 are designed for more work-ready jobseekers; at the other end of the spectrum, stream 4 caters for the most disadvantaged claimants with "severe non-vocational barriers" to work. Under the Australian JSCI system, unemployment benefit claimants are assessed and allocated to the appropriate service stream at the beginning of their claim. Claimants are assessed against 18 categories of personal circumstances, including: work experience; access to transport; educational attainment; disability; and criminal convictions. The initial JSCI assessment is carried out by the Australian equivalent of JCP. Subsequent JSCIs can be conducted by qualified assessors employed by contracted providers if there is a change in the claimant's circumstances. The JSCI questionnaire contains a maximum of 49 questions to the claimant, who receives a score which determines to which service stream they are allocated.[99]

102.  There is an element of needs-based segmentation within the Work Programme, with JSA claimants with certain characteristics of disadvantage, such as homelessness and serious drug problems, being referred at an earlier stage of their benefit claim and attracting higher payments than the mainstream JSA groups. However, as highlighted in chapter 3, there is evidence that crucial characteristics such as these are often not identified by JCP, meaning that some participants are not being correctly allocated to the Early Access group.

103.  During our visit to St Mungo's, employment services staff told us that jobseekers with the severest barriers to work, such as homelessness, mental ill-health and serious drug problems are often not ready to engage in the types of interventions currently available within the Work Programme. Staff at St Mungo's told us that homeless people's "journey" back to work is often a long one; they believed that a two-year attachment period would be insufficient for many of their clients. St Mungo's believes that the Government should provide pre-Work Programme support to prepare jobseekers with the severest barriers to work for effective engagement with the Work Programme.

104.  There is growing evidence that the Work Programme is failing to reach jobseekers with the most severe barriers to employment. We recommend that DWP review Jobcentre Plus processes for identifying jobseekers with severe barriers to employment, such as homelessness and serious drug and alcohol problems, as a matter of urgency. It should also review its processes for communicating these barriers to Work Programme providers. Where appropriate, we recommend that these types of jobseekers are more consistently allocated to the JSA Early Access group, where they will attract a higher level of funding than those in the mainstream JSA groups.

105.  There was consensus amongst witnesses that benefit type is a poor proxy for the level of jobseekers' needs and the relative cost of supporting them into work. In the longer-term, in preparation for the next round of Work Programme contracts, we recommend that DWP consider whether a more thorough assessment of jobseekers' individual barriers to work, possibly along the lines of the Australian Jobseeker Classification Instrument, should be the basis of a future needs-based differential pricing structure.

106.  We recommend that DWP assess how a needs-based differential pricing structure might determine the level of up-front funding and the types of services required by jobseekers referred to the Work Programme and whether alternative funding models, which reward providers for achieving milestones along the way to employment, should apply to jobseekers who are furthest from the labour market.

Funding the Work Programme

107.  DWP has paid considerably fewer job outcome payments to date than it anticipated. The 2012/13 DWP Supplementary Estimate, which sets out departmental budget allocations, shows that DWP will repay some £248 million to HM Treasury due to lower than anticipated job outcome payments to Work Programme providers.[100] The Minister told us that funding allocated for the Work Programme was ring-fenced and that DWP was therefore required to repay any under-spend to the Treasury. Mr Hoban said that DWP was in negotiations with the Treasury about whether the unspent budget allocation could in fact be reinvested in the Work Programme in future years.[101]

108.  Expert witnesses thought that the Government should use the unexpected budget shortfall, consequent on lower than anticipated job outcome payments, to fund alternative provision to tackle long-term unemployment in order to keep jobseekers as close as possible to the labour market during a period of relatively high long-term unemployment.[102]

109.  Our previous Report on the Work Programme highlighted DWP's original intention to fund the Work Programme partly from the future benefit savings accrued from placing long-term unemployment benefit claimants into sustained work. We therefore expected the Work Programme to bring about a change to the internal government accounting rules, which have required expenditure on employment programmes to be funded from DWP's Departmental Expenditure Limit (DEL), by releasing funding for extended employment support for a wider range of jobseekers from the much larger Annually Managed Expenditure budget (AME). This "AME/DEL switch" had been proposed following the findings of an independent report to DWP in 2007 by David Freud (now Lord Freud, the Minister for Welfare Reform), which calculated that the saving to the Exchequer of placing a recipient of IB into work for a year was £9,000, including gains from direct and indirect taxes. On average an IB claimant stays on IB for eight years, therefore the Freud Report noted that "a genuine transformation into long-term work for such an individual is worth a net present value of around £62,000 [...] to the State."[103]

110.  The Government's intention was to fund the Work Programme, in part, from future benefit savings accrued from placing long-term jobseekers into sustained employment. We were supportive of this in principle and therefore do not believe it is appropriate, during a period of high unemployment, for the Government to retain the savings accrued as a result of the Work Programme's early under-performance. We recommend that the ring-fence around the Work Programme budget is extended to encompass alternative provision to address long-term unemployment. Part of the unexpected shortfall in Work Programme spending should be utilised to extend the Work Choice programme, to further increase resources for Access to Work, and to extend the attachment period for participants who make real progress but complete two years on the Programme without achieving a sustained job outcome.

111.  Jobseekers with the most severe barriers to employment are often not ready to engage effectively with the Work Programme. DWP should use part of the shortfall in Work Programme spending to pilot additional pre-Work Programme provision to prepare jobseekers, such as homeless people and those with serious drug and alcohol problems, for effective engagement with the Work Programme. In commissioning this provision, DWP should draw on the expertise of specialist providers, many of which have not been involved in Work Programme delivery to the extent anticipated (see paragraph 162). We recommend that additional support is in place by early 2014.

69   Ev 121 Back

70   Committee's 2011 Report, para 76 Back

71   See Work and Pensions Committee, Sixth Report of Session 2010-12, The role of incapacity benefit reassessment in helping claimants into employment, HC 1015 Back

72   Work and Pensions Committee, The role of incapacity benefit reassessment in helping claimants into employment, Sixth Report of 2010-12, HC 1015, chapter 3 Back

73   Q 323 Back

74   Q 323 Back

75   Q 514 Back

76   Ev 146 Back

77   Work and Pensions Committee, Sixth Report of 2010-12, The role of incapacity benefit reassessment in helping claimants into employment, HC 1015, paras 111-122 Back

78   HC Deb, 25 April 2013, cols 75-76WS Back

79   DWP, Work Programme evaluation: Findings from the first phase of qualitative research on programme delivery, November 2012, chapter 5 Back

80   Qq 51-52 Back

81   Centre for Economic and Social Inclusion, Work Programme performance statistics: Inclusion analysis, November 2012, pp 8-9 Back

82   Ibid., pp 10-11 Back

83   ERSA, Job Start data, November 2012 Back

84   Committee's 2011 Report, para 82 Back

85   Committee's 2011 Report, chapter 4 and para 201 Back

86   Ev 128 Back

87   Centre for Economic and Social Inclusion, Work Programme performance statistics: Inclusion analysis, November 2012, table 3 Back

88   Ev 140 Back

89   Ev 125 Back

90   Q 333 Back

91   DWP, Work Programme Evaluation: Procurement, supply chains and implementation of the commissioning model, March 2013, para 5.2.2 Back

92   Ev 149 Back

93   Q 53 Back

94   DWP, Work Programme Evaluation: Procurement, supply chains and implementation of the commissioning model, March 2013, para 5.2.2 Back

95   Ev 149-150 Back

96   Ev 139 Back

97   DWP, Work Choice: Official Statistics, February 2013 Back

98   Q 329 Back

99   See Australian Department of Education, Employment and Workplace Relations, Jobseeker Classification Instrument: Factors and Scores, July 2012 Back

100   DWP, Department for Work and Pensions Supplementary Estimate 2012/13: Memorandum to the Work and Pensions Select Committee, 13 February 2013, para 10 Back

101   Qq 489-491 Back

102   Q 72 Back

103   Committee's 2011 Report, paras 16-20 Back

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