Welfare-to-work Contents

1 Introduction

1.The current contracts to deliver the Work Programme and the specialist disability employment programme, Work Choice, will expire in April 2017. The procurement exercise to renew or replace them is likely to begin in spring 2016. This Report draws on information gathered on visits to Ramsgate and Cambridge, oral and written evidence from a wide range of experts and employment support practitioners, official evaluations and independent research, and the in-depth work of our predecessor Committee, to make recommendations to the Department for Work and Pensions (DWP) as it considers how to configure the next set of contracts.

The evolution of “welfare-to-work”

2.Contracted employment programmes (welfare-to-work), designed to help long-term unemployed people find work and come off unemployment benefits, have existed in Great Britain (GB) since the 1990s.1 These schemes, which provide support such as help with job-searching, CV-writing and interview techniques, are delivered by private and voluntary sector providers via contracts with DWP. They co-exist with the public employment service provided by Jobcentre Plus (JCP)—the working-age benefits arm of DWP, which processes benefit claims and provides standardised employment support for people in the earlier stages of benefit claims—and a range of programmes commissioned at a more local or regional level, for example by local authorities; combined authorities; and the Welsh Government.2 The Scotland Bill 2015–16, which recently completed its Committee stage in the House of Commons, contains provisions to devolve responsibility for welfare-to-work to the Scottish Government.3

The evolution of DWP’s contracts

3.For a period in the 2000s several centrally-contracted GB-wide programmes coexisted, supporting discrete groups of claimants (e.g. the New Deals for: young people; disabled people; and lone parents) or focusing on areas with high unemployment rates (e.g. Employment Zones in Liverpool, Plymouth, Glasgow, North West Wales, and Teesside). More recently, the trend has been towards consolidation of support into programmes for a broader range of claimants; first through the introduction of the Flexible New Deal (FND), and latterly the Work Programme, launched in 2011. The Work Programme replaced FND and the other remaining centrally-commissioned contracts.4 Consolidating contracts in this way has produced economies of scale, efficiencies in procurement processes and contract management, and thereby reduced costs.5

4.There has also been a trend towards paying contracted providers for results, i.e. for helping claimants to come off unemployment benefits and into work, rather than fees for providing a service; again, this began in earlier programmes, but has been accelerated within the Work Programme, which since April 2014 has been an entirely payment-by-results (PBR) programme. DWP decided to contract the Work Programme via large, predominantly private sector, prime contractors (primes) with the financial wherewithal to manage the risk of high value PBR contracts. There are two or three prime contracts in 18 regional Contract Package Areas (CPAs) across GB.

5.The Work Programme has been innovative in its contract design in a number of ways. Most notably it has a differential payment model i.e. larger payments to providers when they help secure employment for claimants who have more entrenched barriers to working, such as ill-health or disabilities. The payment model was designed to combat “creaming and parking”, a common phenomenon in all previous programmes, in which providers often chose to invest more time and resources in those claimants with the greatest chance of gaining employment, and therefore attracting a payment to the provider (creaming), while side-lining more challenging cases (parking). The current model is based largely on the type of out-of-work benefit a claimant is receiving: payments are larger in relation to claimants of Employment and Support Allowance (ESA, the benefit for unemployed people with health conditions or disabilities) than for Jobseekers Allowance (JSA, the standard unemployment benefit) claimants. To incentivise longer term outcomes the Work Programme pays providers mainly for sustained job outcomes of at least three or six months (depending on benefit-type), with further payments available where the job is sustained beyond that point.6 The current payment model is set out in table 2, chapter 5.

Current centrally-contracted welfare-to-work provision

6.The very large majority of participants in DWP’s contracted welfare-to-work provision are referred from JCP to the Work Programme: over 1.7 million people have taken part since 2011.7 Participation is mandatory for JSA claimants and ESA claimants whose ill health is expected to last for up to 12 months and who are expected to be able to start preparing for a return for work­; financial sanctions (cessation of the relevant benefit payment for a period) can be applied for failure to attend or participate.8

7.DWP established one, much smaller, alternative programme—Work Choice—intended for people with more substantial barriers to employment arising from disabilities or long-term health conditions. Around 90,000 people have taken part in Work Choice since it was launched in October 2010. As well as being much smaller in scale than the Work Programme, Work Choice differs in that it is a voluntary programme and participation is unrelated to benefit-type. It also has a much smaller PBR element—providers currently receive 70% of DWP funding as a service fee (this will shortly be reduced to 50% for the remainder of the contracts).9

The context for our inquiry

Programme performance

8.After a poor start, the Work Programme’s success at getting the long-term unemployed back into work has improved substantially. While accurate comparisons are problematic, as the Work Programme has a longer term definition of a “job outcome”, it is likely that in general terms the Work Programme is now performing at least as well as predecessor programmes.10 Furthermore, the Centre for Economic and Social Inclusion (Inclusion), which has an official role in evaluating the Work Programme, estimates that the efficiencies produced by its design and commissioning have enabled a similar level of outcomes for about half the cost per participant of previous programmes.11

9.Nonetheless, there are widespread concerns that the single, centrally-contracted PBR model, delivered predominantly via large private sector primes, is not currently working well for some groups which require more intensive or specialised help. Official evaluations suggest that differential payments, as currently configured, may not have had the intended impact on provider behaviour: providers still tend to offer greater support to more “work-ready” participants.12 Official job outcome performance data appear to bear this out. While job outcome performance is now significantly exceeding DWP’s minimum expectations for the JSA groups, it is lagging behind for ESA groups, particularly for ex-Incapacity Benefits (IB) ESA claimants, many of whom have been unemployed for many years, and for whom there was previously no requirement to look for work while on IB. Official statistics show that of the most recent monthly cohort of ex-IB ESA claimants to have completed one year on the Work Programme, only 3.9% had achieved three months of employment:

Figure 1: Work Programme performance against minimum expectations (percentage of monthly cohorts achieving a job outcome after one year on the Work Programme)

JSA aged 18-24

New ESA claimants

JSA aged 25+

Other ESA/IB

Other JSA

Source: DWP, Quarterly Work Programme National Statistics to June 2015, September 2015, p 4

10.The specialist disability programme, Work Choice, appears to be performing well and, like the Work Programme, its performance is on an upward trend. While it is not possible directly to compare Work Programme and Work Choice job outcome performance, as there are considerable differences in the way job outcomes are defined in each scheme, it appears that the specialist programme is considerably more effective for jobseekers with health conditions and disabilities. Of a six-month cohort of Work Choice participants who started on the programme between 1 July 2014 and the end of December 2014, 57.3% had entered a job by the end of June 2015.13

Innovation in service delivery

11.Independent research has found that, while the Work Programme has been innovative in contract design, elements of the programme have inhibited genuine innovation in the services delivered to participants, often leading to a fairly generic set of interventions such as help with CVs, job-searching techniques and interview training.14 It is commonly held that this is unlikely to be adequate for people with more challenging needs, who often require a series of non-standard interventions to help them back into work.15

The aims of this Report

12.We wanted to ensure that the main strengths of the current contracts are preserved, while helping to shape the next set of contracts to address the challenges of the contemporary labour market better. The 2017 contracts will attempt to address a different problem from those signed in 2010, in the wake of the financial crash and subsequent economic downturn. A growing proportion of people referred to the new provision will have more structural, entrenched or complex barriers to returning to work. The Work Programme has already seen a significant change in the type of claimants referred to it: the proportion of ESA claimants on the work programme has risen substantially. Experts predict that ESA claimants will outnumber JSA claimants on the programme by 2017.16

13.The Government has pledged to halve the gap between the employment rate for disabled people and that of the non-disabled population (the “disability employment gap” is currently around 33 percentage points).17 Assuming a constant rate of employment amongst non-disabled people, halving the gap would require over one million currently unemployed or economically inactive disabled people to move into work, which will clearly require an invigorated approach.18 We wanted to make sure that the 2017 contracts reflect this.

14.More broadly, we sought to make recommendations which would enable welfare-to-work, and the wider employment support structure, more consistently to provide individual unemployed people with the right type of help, from the right type of organisations, at the right time.

15.In the text of this Report, our conclusions are set out in bold type and our recommendations, to which the Government is required to respond, are set out in bold italic type.

1 Responsibility for employment programmes is devolved to Northern Ireland

2 For a fuller description of the development of contracted employment programmes up to the introduction of the Work Programme, see: Welfare to work programmes: an overview, Standard Note SN/EP/5627, House of Commons Library, December 2010

3 House of Commons, Scotland Bill 2015–16, accessed 30 September

4 Work and Pensions Committee, Fourth Report of Session 2010–12, Work Programme: providers and contracting arrangements, HC 718, paras 1–2

5 Department for Work and Pensions, Work Programme evaluation: Operation of the commissioning model, finance and programme delivery, Research Report No 893, December 2014; National Audit Office, The Work Programme, HC 266 Session 2014–15, July 2014

6 Work and Pensions Committee, Fourth Report of Session 2010–12, Work Programme: providers and contracting arrangements, HC 718, chapter 4

8 Work and Pensions Committee, First Report of Session 2013–14, Can the Work Programme work for all user groups?, HC 162, paras 53­–60

9 GOV.UK, ‘Work Choice, accessed 30 September 2015

10 National Audit Office, The Work Programme, HC 266 Session 2014–15, July 2014

11 Centre for Economic and Social Inclusion and NIACE (WTW0041)

14 Nesta (WTW0035)

15 See, for example, Action on Hearing Loss (WTW0027); Crisis (WTW0032); Nesta (WTW0035); Scope (WTW0052)

16 Centre for Economic and Social Inclusion and NIACE (WTW0041)

18 ONS Labour Market Statistics, table A08