Overcoming Whitehall’s orthodoxy: Investing to save…

16 December 2015

In recent times the Chancellor of the Exchequer has become a central figure in driving a “devolution revolution”, whether through the creation of a Northern Powerhouse, the relentless pursuit of Devolution Deals or the most liberating of all, the abolition of uniform business rates by the end of the decade. At the Tory conference he argued it best: “Proud cities and counties…should not be forced to come to national government with a begging bowl”, and in a single passage in that speech he tore down the Whitehall orthodoxy that has held back local councils for decades.

The Chancellor’s approach to localism has received overwhelming support from local government of all persuasions who are united in their commitment to secure the country’s economic recovery and ensuring its benefits are spread as widely as possible. Helping local business to thrive is vital, but so too is ensuring that local people benefit from the jobs created. Despite an extra two million people in work today compared to five years ago, the total number on sickness and disability benefits has barely changed. Significant minorities of our fellow citizens are systematically excluded from employment opportunity, holding back their individual wellbeing and our collective prosperity with an expensive ongoing price tag picked up by the State.

For instance, we currently spend £13 billion a year on Employment and Support Allowance (ESA), compared to (forecast) spend of just £130 million per year on back to work support for those on this health-related benefit.  That’s a ratio of 100 to 1, so we should not be surprised that this level of investment and support has failed to reach entrenched groups. As a result, the off-flow rate for those long-term claimants on ESA is little more than 3 per cent and, as John Hutton once pointed out, “…if  you have been on incapacity benefit for more than two years, you are more likely to retire or die than ever get another job.” The outlook today remains as bleak as it was then.

Given constraints on public expenditure, the government must experiment with innovative ways of switching resources from the costs of economic and social failure, into investments for success. This is an argument with which the Chancellor is familiar. He endorsed it in Parliament when Lord Freud’s report on the so-called ‘AME-DEL’ – or invest to save – principle was published under the last Labour government. By agreeing to reward local areas for reducing worklessness, the government would draw in extra investment and effort, while only paying for results.

As part of London’s proposition on devolution we argued that the Chancellor should offer local government a big new stake in reducing worklessness, alongside the incentive to expand enterprise created by business rates reform. And, in the process, he should enlist cities like London and Greater Manchester as essential partners in delivering on the government’s labour market ambitions, including halving the disability employment gap.

The deal would be simple: in return for mobilising local resources and services to support workless residents into sustained employment, the Treasury would share a greater proportion of the financial dividends from success with local government. Such a settlement could propel the kinds of investments and reforms needed to deliver a step change in performance for the Work Programme’s successor, the new Health and Work Programme.

Moreover, a genuine partnership between national and local government could drive the innovations essential to enabling those with the greatest employment disadvantage to thrive at work. In particular, through the integration of back to work support with health services and job-focused training that has proved so elusive in the Work Programme and past attempts by wonks in Whitehall. It would also build on the collaborative approach developed between Whitehall and London Government for Working Capital and could serve as a blueprint for other places in trailblazing the hypothesis that locally-led commissioning of employment support for entrenched groups can deliver better results and fiscal savings. This work is being supported by an independent evaluation that includes a randomised control trial.

The Chancellor of the Exchequer set out four goals as part of his vision for the country in his statement for the spending review. He could combine two of these; delivering a devolution revolution and extending opportunity for all, by empowering local government not only to promote enterprise, but also to reduce the benefits bill. In the process he would entrench a virtuous cycle, where success in growing business and tackling worklessness generates a return that can finance future waves of investment and reform. In the words of the Secretary of State for Work and Pensions “We must be here to help people improve their lives – not just park them on long-term benefits”. Without genuine collaborative design and additional investment our collective hands are tied.

Kris Krasnowski is the Director of Central London Forward, the strategic partnership of eight central London local authorities, and is Senior Responsible Officer for Working Capital.

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