The path to the precipice

We are blithely rushing along a path towards a fundamental change in our welfare system that will have far-reaching social and fiscal consequences. There is a perfect storm of a poorly contracted Work Programme, political rhetoric, and short-term accounting practice. It is propelling us towards the edge and the introduction of a precipice system for benefits, i.e. time-limited entitlement. The ‘undeserving’ – the long-term unemployed – will either have to find work or lose state support.

A key difference in welfare benefit systems around the world is the length of time for which an unemployed person can claim benefits.  The USA, for example, have a ‘precipice system’, with benefit entitlement for a set period of time (though only for people with children) after which all state monies stop. In some countries, such as Germany, there is a period of entitlement linked to previous employment, after which the level of support drops. In the UK, entitlement is not time-bound in any way.

The UK’s principal response to long-term unemployment is the outsourced Work Programme. Scratch at the surface of this programme, and the level of underperformance is stark. If the contractors were hitting their targets (ie getting as many long-term unemployed people into work as they had promised and are contracted to do) then the programme would last year (2012/13) have cost around £700 million. (This is already about £300 million less than was spent annually on welfare-to-work prior to the Work Progamme). As it was, last year, the Treasury clawed back £248 million of underspend on the programme.

The Work Programme contractors are paid largely on the basis of the sustained job outcomes they deliver. This underspend of £248 million represents tens of thousands of long-term unemployed people who have not secured independence through finding new jobs.

Who is to blame?

The politicians whose grand scheme this was?

The Department who procured and now contract manage it?

Contractors who have overpromised and are now caught in a vicious cycle of underdelivery and disinvestment?

The new policy initiatives announced this week disregard any culpability of these groups and blame only the jobseekers themselves.

The rhetoric from the party conferences reached a crescendo at the Conservative gathering. Osborne talked of the introduction of ‘workfare’ – what is known in Australia as ‘work for the dole’. After three years of unemployment (i.e. having spent two years on the Work Programme and still unemployed), you will have to ‘work for your benefits’.

The think tank Policy Exchange are claiming the credit for the Conservative interest in workfare. They qualify their recommendation, stating that a ‘one size fits all’ approach would not work: “Rolling out workfare for large numbers of benefit claimants would be prohibitively costly (with recent suggestions costing upwards of £1 billion in the first year alone) and would ignore the very deep barriers to employment facing many jobseekers. It is vital for these to be addressed with personalised and intensive support and coaching. In short, workfare is not suitable for all, or even a large proportion of, benefit claimants.”

However, their first concern here is with cost and the bulk of their report is based on a survey apparently indicating public support for a harder line on benefit recipients. It is this hard line that has attracted the headlines thereby further shaping public opinion. (http://www.policyexchange.org.uk/publications/category/item/work-fair)

The Secretary of State for Work and Pensions used the conference to announce a pilot programme which will require some jobseekers (such as the long-term unemployed) to attend jobcentres for 35 hours a week. It is not clear quite what they will do there – there is only so much time that can be spent on jobsearch, and if you haven’t found a job for three years, you probably need rather a lot of assistance in that search. But it fits perfectly with the rhetoric of attributing full responsibility to the unemployed person. (http://www.theguardian.com/society/2013/oct/01/benefit-claimants-jobcentre-attendance)

It is true that in order to address the complex tangle of social exclusion that has gathered around an individual’s long-term unemployment, it can be necessary to engage them in more intensive, possibly full-time activity. Breaking the cycle of what will have become incredibly entrenched poor self-perception and negative patterns of behaviour, probably requires participation in something that is individualised and which motivates, socializes, and builds work-like habits around something that the participant perceives as ‘real’ work (not just, as the Australians say, ‘painting rocks’, http://buyingqp.com/2012/03/03/painting-rocks-or-work-experience/ ). Intermediate Labour Markets (ILMs) have demonstrated some success with this model. On the face of it, however, they appear to be an expensive intervention, costing around £14,000 per person. (http://www.jrf.org.uk/publications/intermediate-labour-market)

To call an ILM expensive, or to view the £248 million underspend on the Work Programme as a cost saving, is indicative of the short-term accounting of government and of the issues raised by this short-termism. Cost and savings are planned and reported within fiscal years, at a national and a local government level. This fails to account for the relationship between spend this year and the cost implications of the impact of that spend in future years. If I have fewer people leaving the Work Progamme and securing employment this year, it means more people claiming benefits next year – and since they will be even longer/further from work, associated costs will also have increased because they will be more likely, for example, to suffer from ill health and to be caught up in the criminal justice system. But this connection between delivery investment and the high cost of amelioration has been forgotten.

We teeter on the edge of the precipice. The logical conclusion of the current government argument is that if it is the fault of the unemployed people that they are workless, why do we keep lavishing benefits on them? Why not give them access to benefits for five years, and then simply provide food stamps. This would, in year, deliver a concrete, cashable saving.

The perfect storm has a final gust to propel us downwards. As discussed here in an earlier blog (http://buyingqp.com/2013/04/12/selling-tomorrow/), the Chancellor has expressed an intention, largely missed by the press and public, to cap the spend on AME (Annualised Mangaed Expenditure). Currently, the AME spend on benefits and pensions etc is uncapped – more unemployed people just means more money must be found. Given the short-term approach to accounting that additional cash, if the higher unemployment also means reduced tax revenues, can only come from reduced spending on service delivery. In the same fiscal period. Unfortunately this causes a vicious cycle, with reduced spending creating further, or at least inculcating existing, unemployment.

If we cap this spend then we can bring it under control. But alongside an aging population and therefore an irrevocably increasing demand for pension spend, there will always be less and less for the welfare benefit pot. We can simply reduce the level of all benefits to all people – but why penalise the people who need just short-term support. The answer, for which Policy Exchange might suggest there is clear public support, is to cap the amount an individual can receive. We have done it already by introducing a cap on the amount of total benefits someone can receive each month (irrespective of the cost of living in the area where they live).  Why not make it time-bound too?

Of course, there might be a cost in terms of social cohesion. It would almost certainly exacerbate levels of poverty for a small minority of the population, whose exclusion would have social and fiscal long-term repercussions for the rest. This would probably be concentrated in small pockets of the country, predominantly in the North, which might spill past Watford Gap. But it would balance the books this year.

Courtesy of Richard Johnson at Buying Quality Performance