1. HISTORY OF THE CLAIMANT COUNT BILL WELLS: DEPARTMENT FOR BUSINESS, INNOVATION & SKILLS

2. Work is the best form of welfare. Structural improvement of around 4 percentage points in the UK employment rate since its Post- War trough in April 1983 – split roughly half & half between ILO unemployment and activity. Claimant unemployment – which used to be the main focus of labour market policy – is around ½ its 1986 Post-War peak. Other working age ‘inactive’ benefits have also seen a structural improvement and are at their lowest for 20 years – since 1992. In 1891 over 1 in 3 aged 65 & over were in the labour force. A century later is was less than 1 in 10. This trend has been reversed. For those above state pension age participation is now rising. There has also been a structural improvement amongst the young people that have successfully entered the labour market. The increasing numbers in education have put downward pressure on the overall employment rate. There is also one area of structural decline – the transition from the education system into the labour market.

3. Since the post-war trough of April 1983 there has been a structural improvement in the employment rate of around 4 percentage points – equivalent to around 2 million more people in employment…

4. …split roughly half and half between a structural improvements in ILO unemployment (1.06 million) and the activity rate (.94 million).

5. Claimant unemployment used to be the main focus of the labour market. Because of the Pre-War experience Beveridge expected it to be 8.5% or higher. But ‘full employment’ was defined as 3% or less.

6. But increasingly there was also a focus on other working age ‘inactive’ benefits. Since exceeding 3 ½ million in the mid 1990s there has again been a structural improvement. The current numbers are at 1992 levels - the lowest for 20 years.

7. And a century long decline in the proportion of older people in the labour market has begun to be reversed…

8. …particularly in the 21 st Century.

9. The structural improvement in employment rates has occurred despite a rise in the proportion in education – particularly in the late 1960s and from the late 1980s…

10. …and in the 21 st Century there have been further rises since 2005 and particularly between 2008 and 2010 when it seems that staying on in education was one response to the recession.

11. Finally, there has also been a structural improvement amongst young people who have managed to get into the labour force. However, the one group where there has been a structural deterioration has been amongst young people that have not been able to make the transition from the education system.

12. Jobsearch is key to UK’s success. The OECD in its Reassessment of the Jobs Strategy concluded that there were some common features to labour market success:- macro- economic stability, adequate incentives for all labour market participants and strong product market competition. However, it also concluded that:- ‘There is more than one model of success to hand from which to take inspiration to fit specific national circumstances and history.’ National and international evidence suggests that real wage inflexibility is a problem in the UK. However… …the light employment regulation system means that there are all sorts of vacancies coming up all over the country all of the time… …and if you look for a job there is a good chance you will find one.

13. National and international evidence has consistently found that real wages in the UK are relatively inflexible and do not adjust…

14. …whereas the light employment regulatory regime in the UK tends to allow workers and businesses to adjust quantities in ways that suits both of them.

15. Leading to the UK having amongst the widest range of types and patterns of work in the world. This diversity allows more UK workers to find jobs that suit them…

16. …and also enables a great deal of dynamism. With one of the highest (voluntary) turnover rates in the OECD. These very high hiring rates also allow the potential for social mobility...

17. …with all sorts of vacancies coming up all over the country all of the time. 1,999,0001,778,000 1,749,0001,906,000 1,344,000 Employ- ment Inact- ivity Unemp- loyment 1,826,000 2,443,000 Employ- ment

18. …and if you look for a job there is a good chance that you will find one. Whereas, if you do not look for one then you will find one…

19. …and the employment gap of most disadvantaged groups – which were a particular focus of welfare to work policies – has been closing over time. People without qualifications are the exception.

20. Developments in claimant unemployment: 1948-2008 OECD (2006) ‘Changes in policies and institutions appear to explain almost two-thirds of non-cyclical unemployment changes over the past two decades.’ For the claimant count it might be even more:- By 1986 policy and institutional changes together with poor delivery probably added around 2 ½ million to the total - split 1 million and over 1 ½ million for durations below and above a year respectively. From 1986 these policies were largely reversed and by 2008:- –Short durations – less than 6 months – it was around 400 thousand compared to around 150 thousand (GB) in the mid-1950s. Largely because fortnightly had replaced twice weekly signing. –Durations of 6 months or more it was around ¼ million - around 200 thousand higher than in the mid 1950s. Largely because the time limit on benefits under the National Assistance regime was 6 months rather than 2 years under the New Deal. –For durations of 2 years or more if the regimes in Northern Ireland & the EZ areas had been as successful as in the GB New Deal areas there would have been around 10 thousand nationally in 2008/09 – comparable with the lowest ever 1950s figures.

21. Since 1948 the total numbers claiming unemployment benefits has varied from around ¼ of a million in the mid 1950s to over 3 ½ million in the 1980s before falling to a low of around ¾ million in 2008 and it currently at 1.6 million.

22. However, not all people receiving unemployment benefits are ILO unemployed. In the mid 1980s there were over 200 thousand adult students on the count…

23. …and even on the main count ONS estimated (at the time) that over a million – around a third of the 3.17 million total – were either in work (190 thousand) or inactive and not looking for work (820 thousand)…

24. …and it still seems that there are a lot of people using unemployment benefits to finance activities other than jobsearch. In 2009, 2010 & 2011 over 50 thousand leaving JSA for full-time education. It is, therefore, still necessary to manage the benefit rigorously.

25. Claimant count changes in the post war period are largely down to changes in the rate at which people leave the count rather than the numbers joining. And previous evidence show that policies rather than the economic cycle determine outflow rates…

26. …with the shift from twice weekly signing to weekly signing in 1961 and fortnightly signing in 1979 increasing the time it takes to leave the count - particularly amongst the shortest durations…

27. …and the administrative divorce of benefit payment from jobsearch testing from 1974 – when the Manpower Services Commission was established - also reducing incentives for people both to get a job & to leave JSA…

28. …and so the separation of Jobcentres from Benefit Offices in 1974 led in October 1982 to an excess of registrants over claimants of over 200 thousand – mostly long-term.

29. A key mistake was the ending of time limiting benefits at 6 months duration from 1966 – when National Assistance became Supplementary Benefits – that led to many more people drifting into longer durations.

30. The cumulative effect by 1986 of these changes - combined with a shift away from enforcing jobsearch and actively managing the benefit - probably added around 2 ½ million to the total - split 1 million and over 1 ½ million for durations below and above a year respectively.

31. Since Restart in 1986 previous policies were largely reversed. By September 2002 – until September 2008 - the JSA/New Deal regime delivered claimant count rates below 3% – the rate Beveridge in the Post-War period defined as ‘full employment’.

32. Long term unemployment showed the biggest improvement between 1986 and 2008. The shares for 6 & 12 month durations were back to 1960s levels. For 24 months – where the New Deal ‘No Fifth Option’ affected all ages – it was just about the best ever.

33. Despite the shift from twice weekly to fortnightly signing there has been an improvement in short term outflow rates since the mid 1980s as benefit offices & Jobcentres were re-integrated, a single benefit – JSA – was introduced in 1996 and it was better managed.

34. Similarly - despite unemployment benefits being time limited at 2 years rather than 6 months - the continuous focus on individual jobsearch, more help as duration increased – including individual access to personal advisers – meant that by 2008 the proportions reaching long term unemployed was back to 1960 levels or better.

35. In the UK the outflow rates in the GB Employment Zone and Northern Ireland policy regimes were significantly worse than in the original GB New Deal areas.

36. In summary, the lowest point for short – less than 6 months duration - was in the mid 1950s at around 150 thousand (GB). In 2008 the lowest point was around 400 thousand higher largely because fortnightly had replaced twice weekly signing.

37. …with many more people in the ‘No Fifth Option’ durations in EZ areas than New Deal areas even though EZ areas comprised only around 1 in 5 of the GB total.

38. And the lowest point in the mid 50s for durations of more than 6 months was less than 40 thousand (GB). In 2008 it was around 200 thousand higher largely because the time limit on benefits under the National Assistance regime was 6 months rather than 2 years.

39. …and if the regimes in Northern Ireland and the GB EZ areas had been as successful as the JSA/New Deal regime was in the GB New Deal areas there would have been around 10 thousand nationally in 2008/09 – comparable with the lowest ever 1950s figures.

40. Developments in claimant unemployment: 2008 on… The effect of the recession from 2008 adversely affected both the claimant outflow rates and particularly the inflows. However, from early 2009 to mid 2010 there was an improvement in both. Thereafter, although there was an effect of public sector job losses in 2011, the adverse movements in both inflows and outflow rates seem largely to have been due to non-cyclical factors:- –The introduction of a new policy regime in Northern Ireland – Steps to Work – that seems to have made a poor situation even worse. –Movements from ‘inactive’ benefits – particularly lone parent benefits – on to JSA and also slower exit rates for these groups. –A run down of movements off JSA on to programmes. –An additional effect on non-programme outflow rates that seems to be due to the removal of the effect of time limiting benefit. – A decline in outflow rates amongst the shorter durations that coincided with the introduction of greater flexibility being given to Jobcentre Plus staff.

41. From early 2008 the claimant count rose because both inflows and outflow rates got worse. And, if the trends reached in early 2009 had persisted, claimant unemployment would have reached around 2 million…

42. …with most of the rise in the claimant count was due to inflows. Inflows & outflow rates improved sharply from early 2009 but both have got worse since.

43. Inflows to the claimant count stopped falling in mid 2010 and started rising. They are now falling again and are below the mid 2010 levels.

44. The rise in JSA inflows is largely for non-economic reasons. The shift of people from lone parent benefit and the equalisation of state benefit age both mainly affect women. More students and ex- IB recipients are also moving on to JSA which affects both sexes.

45. The steady state minimum (where inflows are at 200 thousand not the current 300 thousand per month and changes are due to changes in outflow rates) began growing from early 2011 and is now well above the levels seen in the depths of the recession in early 2009.

46. Part of the deterioration since 2008 due to a much larger fall in Northern Irish outflow rates than in Great Britain. Much of this seems to have been due to the introduction of a less successful policy regime – ‘Steps to Work’ in September 2008…

47. …and part is due to female outflow rates falling faster than male rates since late 2008 – and especially late 2010 - as lone parents moving on to JSA did not leave as fast as other inflows to JSA…

48. With many lone parents flowing on to JSA and a decline in the exit rate there are now over 100 thousand lone parents on the count. However, even netting off this effect, the claimant count started rising again from February 2011.

49. In addition, in 2011 the outflow rates to Government Programmes has fallen rapidly to zero as the Future Jobs Fund has been quickly run down…

50. …but the fall in outflow rates is not entirely due to Northern Ireland; ex-claimants of lone parent benefits or fewer people moving on to programmes. Since April 2011 the outflow rates to all non-programme destinations in Great Britain have also fallen…

51. …with additional falls in outflow rates (net of programmes) at the durations where time limits on benefits begin. This provides further evidence that the process of time limiting benefits itself has an effect over & above moving people on to programmes…

52. …and, there was also a decline in other (non ‘No 5 th Option’) outflow rates. This coincided with the introduction of greater flexibility for Jobcentre Plus staff IN Great Britain.

53. These declines were greatest for young people. This is perhaps because they used to get, and also to need, the most help.

54. In summary, the rise between March 2008 and February 2011 was mostly amongst the short term unemployed. However, since February 2011 the bigger rises are amongst longer and long term claimants – possibly because time limiting benefits has ended.

55. In summary, claimant outflows fell during the mid 1970s and early 1980s recessions. Whereas, in the 1990s recession and particularly the 2008/9 recession, outflows rose. However, they did fall back sharply in 2011…

56. …and the picture on recruitment from ILO unemployment is similar to that for claimant outflows. They grew rather than fell during the recession before falling back in 2011. This is what you would expect if there are more claimant unemployed searching effectively for a job.

57. CONCLUSIONS The Fundamental Review of the (then) Employment Service in the early 1990s concluded that the provision of benefits provided a ‘Government Failure’. It provided a financial incentive to an individual not to change their behaviour in a positive way. Therefore, a government organisation was needed as a second best solution to offset this financial incentive by providing administrative incentives (conditionality or the rights and responsibility regime) to offset the financial incentive and ensure that each individual behaves as if there was no benefits were being paid. The administrative incentive should be aimed at ensuring that the individual was (ILO) unemployed and so looking for work. And when they ceased to be unemployed – either because they had got a job or were no longer looking for work – the government organisation should ensure that they leave the benefit as quickly as possible. The history of the claimant count is that between the 1960s and the 1980s the importance of ensuring that all individuals faced the administrative incentive to look for work and leave the benefit was maintained – particularly for those with long durations – was forgotten. From 1986 to 2008 there was essentially a reversion to the immediate post war model with comparable success. Since 2008 the effect of the recession and other issues has confused things but there are some signs that the focus on universal jobsearch has diminished and outflow rates have worsened. The ending of time limits on benefits may prove particularly costly.