1. Policy Exchange 10/07/12 Personalised welfare Rethinking jobcentre, Whitehall and support for the hardest to help

2. What we’re going to cover What’s wrong with the welfare system? Where is it going? What’s missing? What welfare should look like by 2020

3. Overview of where we are Welfare reform – Universal Credit – Benefit cuts (and more) – Work Programme It’s a good narrative – but we dont think it will be enough

4. Why not enough? 5.4 million adults and 1.9 million children live in workless households 900,000 in households where no-one has ever worked Universal Credit will move 300,000 workless households into work. Leaves 3.6 million workless households. So what more is needed?

5. So where is the system failing What we ask of individuals – Is an hour a day of jobsearch enough?

6. Attitudes towards work DWP: 11% claimants ‘feel fully justified being on benefits and believe they have discovered that life without the added complication of work has much to recommend it’. Another 9% felt that ‘to work or claim benefits is simply a choice individuals should be free to make – there is no right or wrong about it’. A further 11% felt that ‘job search is less urgent as they make the most of the benefits of not working’.

7. These facts and polling data mean Govt is toughening up welfare stance Polling shows that: Half think that jobseekers should spend in excess of 3 hours a day seeking work 80% think long term unemployed should be engaged in community work 51% people think that no benefits should be paid (at all!) unless you have paid in 70% think that jobseekers should be required to take work even if it pays less than benefits 20% thought sanction should be complete benefit 50% thought it should be “substantial (50%)”

8. But politics seems to be getting in the way of good policy Coalition fine on conditionality (cf PM’s speech) BUT: – Where has the contributory principle gone? – Where has personalisation and segmentation gone? AND – Sanctions reforms unlikely to be effective – Govt has no ideas on in-work support and progression This is where our work has been focussing

9. Personalisation: where are we now? The support and advice for unemployed general determined by length of benefit claim and type of benefits being claimed. This means some of those furthest from labour market have to wait up to a year to get the help they need. By this time disadvantages have deepened, motivation has been sapped and significant new barriers to work will have arisen. Is this Justified? Most effective means of eliminating deadweight? Or: creator of deadweight – entrenching barriers, wasting time, funding unproductive interventions? Our view: Lack of personalisation leads to bad policy.

10. What’s wrong with Jobcentre Plus? JCP is effective at processing large numbers of claimants quickly and cheaply. But is poor at identifying and targeting help at the most at risk or providing a personalised service.

11. Example: older workers Recent work shows that older workers face significant barriers: when they find themselves out of work older workers are considerably less likely to find work again within 12 months and are affected by scars to their future workers much more, than younger workers unaffected. Visits to JCP and Provider’s shows same thing – older unemployed a major problem. But majority of over 50s will not get any relevant support from JCP (they already have experience etc) and support from Work Programme does not kick in until 12months. In part a result of fact that nearly all of Government focus is on younger (under 25) unemployed. E.g. the Youth Contract. Is this justified?

12. Focus on Youth Unemployment? Older workers more likely to spend longer unemployed… … and to fall out of the labour market altogether BUT also recognise that there are some young people who have significant barriers – so cannot “turn off” policy for them.

13. What’s the alternative? Targeting effective early interventions on barriers and disadvantages, not on age / broad categories. E.g. Youth Contract spread out across all ages – but targeted at most disadvantaged. Requires gathering extensive information on the characteristics of individuals and their barriers to work. In the long-term: establishing a proper pricing mechanism in future contracts.

14. To what end? Shifting off-flow rates to the left through better incentives/segmentation

15. So what do we need to do? Personalised and targeted support from day one Reform of Jobcentre Plus Reform of the Work Programme

16. Personalised and targeted support from day one Greater data gathering from the claimant. At present, advisers at Job Centre Plus know little more than a claimant’s basic details (e.g. ATOS ex- IB data). Pool other resources (e.g. access to other govt. data (NHS, police, justice system, etc.) A Jobseeker Classification Instrument (JSCI) to identify specific barriers to work so that support can be better targeted. This technique is used in Australia and is being piloted in the UK (badly – through fortnightly jobsearch review pilots: 6 questions v. 47). Greater use of profiling data. Information services, marketing and credit rating firms all gather large quantities of information on their In the same way, use of credit agency criteria, mortgage assessment tools and other data analysis techniques can be used to identify which clients are at most risk of long-term joblessness. Allow personal advisers more power to identify at risk claimants. The available evidence suggests that personal advisers are better able to assess a claimants’ likelihood of long term unemployment the more experienced they are and the more time they spend with the client.

17. Reform Jobcentre Plus Changing personal advisers’ stakeholders. Advisers should see employers as their client group. This could involve splitting up ‘help’ and ‘hassle’ roles which are currently combined. Building on Adviser Flexibilities should include greater PRP/incentives. Reform of financial incentives, along the lines of private sector back-to-work advisers or recruitment consultants. Personal Advisers in JCP are paid on national salary scales and are evaluated by multiple, group-level targets that bear little relation to sustainable job outcomes.

18. Longer term reforms Creating a smaller, ‘one stop shop’ centre, CommunityLink. International evidence suggests single portal for employment service delivery is effective. This could also involve JCP becoming a ‘one shop stop’ gateway for all benefits and support (DirectGov in person). For jobseekers – initial (day one) assessment made and claimants who require support sent to private/ third sector providers. Explore alternative pricing models for future welfare provision will need to be explored. A possible model might look similar to that used in Employment Zones. Payment could be based on a segmentation tool, qualitative input from firewalled advisers (perhaps with a different company), and marketing, information and credit rating company data. The payment should be differentiated according to a prediction as to how long (from a non-interventionary base) that particular client would likely be on benefits.

19. Jobcentre Plus conducts initial interview Claimant is 'parked' without targeted help for between 3 and 12 months. Claimant is referred to a back-to-work provider along with generic administrative data Claimant is cycled back to Jobcentre Plus if no work is found CommunityLink conducts initial segmentation (statistical profiling, segmentation tools, adviser discretion) Claimant is assessed on barriers to work. Likelihood of when he would return to work without intervention determined Referral to back-to- work provider, accompanied by a full client profile. Tailored support provided from day one Existing journey Proposed journey What would this look like?

20. First steps As the first step towards this new system, the government must announce its intention to move the provision of employment services completely to the private and third sector. In order for a smooth transition to the CommunityLink, the functioning of JCP is split into two distinct roles now: – Segmentation/claim management: responsible for new claims and segmentation and day to day management of the conditionality regime. This part of JCP will look and act like the CommunityLink to be introduced later. – Employment support: The second part of JCP will be responsible for providing employment support for those people not yet eligible for the Work Programme. The importance of splitting JCP now is that each of these distinct segments will be able to build expertise and experience in delivering the services that they will be needed when the CommunityLink is introduced. Would also allow new models of public service provision to be employed before the creation of CommunityLink. For instance, mutualisation

21. Reform of the Work Programme (our ongoing work) Reform needed for a number of reasons: – To tackle current problems – To implement our personalised model Will tackle each in turn

22. Current performance: what people are saying ‘With the best efforts the industry can possibly put into place we’re not going to get all of those [Work Programme clients] into work.’ -Chris Grayling MP, Minister for Employment, 19 th October 2011. ‘Money available for the most vulnerable is insufficient – and is compounded by deadweight’. ‘It's not about supporting 100 customers. It's about getting 50 of them into a job. The other 50 are collateral damage. At the end of the day, they [ministers] don't care about that other 50. It's an outcome contract, not a service contract.’ ‘There is no provision in the pricing and design of the Work Programme to allow for the additional barriers to work and costs to delivering services that exist in London as opposed to other areas of the UK.’

23. Tackling current problems: what’s wrong? Referrals are way off bid estimates. Labour market/growth projections were too rosy.

24. Things to consider Do providers require special resolution regimes to ensure continuing employment services support in the event of provider failure? Do we need ‘living wills’ or are the risks of moral hazard not materially relevant enough to warrant this? Job outcome payments are payable when someone ‘leaves benefits’ – so providers are not rewarded if a claimant enters part time work. Will this result in ‘parking’ of those more likely to want part time jobs (ex-ESA or single mothers, for example)? What balance should be struck between a purely ‘black box’ approach and provider-defined minimum performance standards? What to do with claimants the WP does not help? Can (and should) we extend contractual flexibility and scope for renegotiation in new contracts? The role of sub-contractors. Is it efficient to mandate their use? Are subcontractors simply seen as ‘bid candy’?

25. Problems on the horizon Two ‘Moments of truth’: through UC in 2013 or 2014 when the attachment fee disappears and job outcome discounts kick in. Should one or more providers fail due to major mispricing, it will be necessary to further develop the government’s plan for transitional special resolution regimes to ensure services continue. This could lead to ‘Work Programme 2.0’ suddenly becoming a very current issue. ‘The Prime Contractor shall comply with any proposed variation to the Contract.’ -Work Programme contract summary, clause 6.3.10.

26. So what will (should) new contracts consider? (1) Adapting to UC Exploring alternatives to the 16 hours rule, e.g. additional hours worked to be phased in during the roll-out of Universal Credit. Rewarding the prevention repeaters and enabling progression. Helping hardest to help Incentivise Primes to ‘give back’ claimants that are parked. Whether an ‘accelerator model’ of graduated payments (which increases payments to providers the more people that enter employment) could be effective in certain circumstances. Adapting to economic conditions Cyclical weighting (sustainability, limitation of systemic risk) and regional variations in the labour market (leading indicators of inter-regional geography, level of risk and local labour market conditions within each CPA. ‘Cap and collar’, placing a ceiling and floor on profits and losses for certain sub-CPAs?

27. So what will (should) new contracts consider? (2) Ensuring best quality Explore ways to award contracts based on quality rather than price (EU procurement – award on past performance/ranking system?) How the existing contracts should be renegotiated (perhaps on a ‘win-win’ basis – with providers getting an equivalent ‘gain’ for any concession). The Merlin Standard, minimum performance standards, Mediation Service and DWP Code of Conduct sufficient? Independent regulator? Developing a Knowledge Transfer Network to share innovation and facilitate dissemination of best practice within the welfare-to-work Industry on the model developed in the Technology Strategy Board. Reform of the Prime/Sub model (direct market for referrals), entry path for Social Enterprises. This market would specifically be for any individual who it is deemed will be unlikely to be helped by the Work Programme.

28. But… Some claimants are never going to be economic under PBR. Parking is an inevitable consequence of sustainable outcome- based incentives. Involvement of social enterprises (higher risk to capital compensated by social returns) or charities (for those not economic) needs to be better framed/organised. Other desirable outcomes not paid for or provision duplicated. This is where our model of segmentation becomes powerful

29. What would effective segmentation mean for contracts? (2) Client group split by barrier to work Day 1 referral (less money for some, more for others). Explore alternative pricing models for hardest-to-help groups on a pilot basis. This should include the maintenance of upfront fees financing for certain services. But even within this system, it is likely that some groups will not be economically viable to help. Need a different model of provision. Maybe Social Enterprise Market?

30. Entrypoints to the new Social Enterprise Market for the hardest to help Segmentation process at CommunityLink Day 1 referral for those claimants deemed unlikely to be helped through the terms of the Work Programme. This removes a 'deadweight' cost from the primes without cost and will improve performance. Offered for bid within WP This provides a conduit for claimants who are deemed to be unlikely to be able to enter sustained employment within the Work Programme. A fee would prevent free 'offloading' of claimants who are unprofitable. Post-Work Programme Community work or a return to the job centre will not be a solution for all the unemployed. This option would enable a route to alternative employment support and ensure claimants remained engaged with the world of work even if immediate employment is not an option.

31. How might a Social Enterprise Market operate? Deploying European Social Fund money in this market (while defunding/cancelling projects which overlap/duplicate one another). It is imperative that the social enterprise route should not be seen as a ‘soft’ option. Consequently, full conditionality should continued to be applied by CommunityLink. As within the Work Programme, the expectation should be that job search and labour market preparation should be a full-time activity for all claimants. While important for the group, it is not necessarily the case that this market will be limited to the ‘hardest to help’. Previous experience in other countries has indicated that an overemphasis on this group can lead to a ‘lost middle’.

32. Summary Reform needed to: – Personalise employment support – Make sure support given as early as possible – Provide support to those groups currently unprofitable – Improve functioning of Jobcentre Plus – Recession-proof (and region-proof) existing contracts

33. Our next stages of work Work Programme 2.0 (covered here and launched soon) Sanctions – role of non-financial sanctions and how should work within Work Programme. In-work conditionality and support under Universal Credit Child poverty targets: what is appropriate, what helps the most vulnerable? Contributory principle: something for something, ‘fairness in welfare’. NI and Income Tax payers get something back when they fall on hard times. Social networks: what people/points of contact influence peoples attitudes to work? Joining up welfare across Whitehall Broader public service reform