Rocket-boosting the Work Programme model

26 July 2016

Last month, then Secretary of State for Work and Pensions, Stephen Crabb, restated his intention not to rush the design of the new Work and Health programme, suggesting discussions with sector experts on programme design were still on going. Fast-forward a month, and with a new Government in place, those awaiting details of the new programme look set to wait even longer. On the bright side, this means it may not be too late for the Government to avoid some of the mistakes it looked set to make.

They should start with their mixed messages. On the one hand, the Government have pledged to halve the disability-employment-rate gap, requiring them to move around 1.2 million more disabled people into work than was achieved under the Work Programme and Work Choice. On the other, the Prior Information Notice for the Work and Health programme allocates just £120 million per year in comparison to an average annual spend of £500 million for the Work Programme alone. This, along with Stephen Crabb’s pledge to double the number of employment advisers in job centres, suggests the role of JobCentre Plus (JCP) will significantly increase relative to that of private- and third-sector providers.

This is a mistake. In order to halve the disability-employment-rate gap, effective support must be provided to those with the most significant barriers to work. Such claimants have varied needs and require intensive, personalised services that may involve specialist expertise. JCP has neither the capacity nor the diverse skill set to deliver such support. By contrast, an outsourced model can make use of a wide base of specialist subcontractors in response to client need: over 1,000 different organisations have delivered the Work Programme.

An outsourced model is also the only way financial risk can be transferred from the taxpayer to external organisations. A ‘payment-by-results’ (PbR) model – a feature of all major welfare-to-work programmes since the New Deal for Disabled People – requires independent organisations to provide the initial capital investment to move claimants into work, and pays out only once they have achieved demonstrable success. In a JCP-led model, all investment is footed by the taxpayer, regardless of how successful (or not) the support services ultimately prove to be. A retrenchment to JCP thus deprives claimants of access to specialist support and forces the taxpayer to pay for failure.

As a Reform report, out today, argues, the case for retaining an outsourced model is compelling, but the Work Programme design can be improved on.

Sharper financial incentives are needed for the very hardest to help. In the Work Programme, too many claimants ended up being ‘parked’ as the reward for moving them into work did not reflect the significant investment needed to overcome their barriers. The Government should return to the  ‘AME/DEL switch’ of the last Parliament, and thereby increase the total funding envelope. This approach enables government to pay for employment services (DEL) from the savings (AME) accrued by a claimant moving into sustained employment.  This would allow provider payments to better reflect the cost of supporting those furthest from work, whilst still retaining a financially prudent model for the Exchequer.

Better outcomes can also be achieved by more intelligently allocating funding. The Work Programme’s differential payments was an attempt to attach higher rewards to those furthest from work, so providers would be incentivised to work with all claimants. However, the proxy used to determine a claimants’ labour market distance – the benefit they claimed – has frequently proved inaccurate. An accelerator payment model – whereby providers are paid incrementally more per claimant as they move more people into work – would help ensure those furthest from work always carry the greatest financial reward.

In the Work Programme, the Coalition Government found a design that supports a diverse range of specialist providers whilst protecting the taxpayer against financial risk. Abandoning this model in favour of JCP is a backwards step. The task now must be to refine the design to give it the greatest chance of achieving the Government’s ambitious target. Today’s report explores in detail how this should be done.

Ben Dobson, Researcher, Reform

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