Affording welfare: Alternative financial mechanisms and the role of partnership in the delivery of employment programmes CCWS 5 th International conference on “The financial crisis, welfare state challenges and new forms of risk management Dr Vincent Pattison Ingeus Centre for Policy and Research (ICPR)

Introduction Focus: UK policy response to delivering employment services to HtH given current economic, political and social realities; Aim: open up discussion around how states can continue to deliver high quality employment services in a cost effective way; Path dependency BUT how realistic in the countries you study? Elements of policy transfer? Not about saying the UK model should be adopted elsewhere or about promoting quasi-markets in public services.

UK context for welfare reform Declining employment levels (70.5%); rising structural and cyclical unemployment (7.9%) and claimant count (1.5m) resulting in reduced taxes, increased benefits expenditure and broader social costs exacerbated by recession; Greying Britain and sustainability of welfare model. Pre-recession policy responses: Increased activation of heterogeneous groups; conditionality; Changing role of UK PES – ‘modernisation’. Post-recession dilemma? EU2020: Tackling unemployment & growing employment increasingly important but less money with which to do it! Raise taxes, cut services or innovate.

UK public service cuts Revenue and expenditure gap: £148 billion; Budget deficit: -9.1% (-2.7% in 2007); Government debt: 75.1% (44.5% in 2007); 2014/15: first time ever UK public spending below US: c.40% (Taylor-Gooby, 2010). Welfare key budget area for reform – focus here on “supply side” employment service delivery - potential win-win.

“ At the heart of public sector reform is the question of how the state can get the best outcomes possible for the resources it allocates. The current fiscal environment has made this challenge even more critical. With enormous cuts in public expenditure required over the next ten years, the UK will need to become much more efficient at achieving its desired outcomes, or in many cases it will not be able to deliver them at all ”. PST 2020 (2010)

Doing more with less and doing it differently Increasing interest in alternative mechanisms for financing and delivering social policy programmes – focus here on employment programmes for the long term unemployed; Close link between effective expenditure on employment programmes and expenditure on working age benefits; Transfer of responsibility for the achievement of outcome goals to a “prime provider”, whether public, private or voluntary, and holding these providers firmly to account; Aligning providers interests with those of the taxpayer – focus on outcome not process through combination of payment-by-results and invest-to-save models.

Payment-by-Results Providers paid based on the delivery of specified outcomes rather than inputs or processes; Not a new idea; Advantages: State only pays for desired outcomes; Promotes innovation – “black box”; Flexibility of service delivery; Increases accountability – rewards and penalties; Partnership working and integration of complex supply chains – co-operation not competition; Transfers risk – partic. with ItS.

Payment by Results Critiques: Ideological Deadweight costs Gaming Creaming and parking Although can be minimised at commissioning stage

Invest to Save Providers finance up-front investment in a service and paid from savings directly attributable to investment; Employment programmes - providers finance the up-front costs of assisting unemployed person into sustainable job and are paid out of reductions in spending on unemployment benefits; DEL:AME switch; Savings cannot be guaranteed – shift risk to provider and PBR; IB into work - £9,000; JSA into work - £8,100 BUT tip of public spending iceberg.

The Work Programme Summer 2011: brings together PBR and ItS; Single employment programme replacing all existing contracts for H2H – PES still central; Nationally procured regional contracts with local delivery; Evolution of UK policy direction but also fundamental policy shift; PBR: employment sustainability with differentiated funding.

Benefit TypePayment Group Year 1 Attachment Fee Maximum Job Outcome Fee Job Outcome Paid Sustainment Payment (per 4 week) Maximum number of Sustainment Payments Total Possible Sustain Payment JSA 1 £ 400 £ 1,20026 £ £ 2,210 2 £ 400 £ 1,20026 £ £ 2,795 3 £ 400 £ 1,20013 £ £ 5,000 4 £ 400 £ 1,20013 £ £ 5,000 ESA 5 £ 400 £ 1,00013 £ £ 2,500 6 £ 600 £ 1,20013 £ £ 4,700 7 £ 600 £ 3,50013 £ £ 9,620

Combines advantages of PBR with the innovative ItS funding mechanism; Addresses (partly) critiques of PBR, others exist: 1.Role of the state: retrenchment or re-imagination? 2.‘Work first’ outcomes only – inherent tension with needs of hardest to help? Scope for holistic solutions? 3.Size of the risk results in private sector dominance – role of other sectors? The Work Programme

Concluding Comments Many challenges discussed being faced pre-recession; Recession has sharpened their focus as issues exacerbated; Welfare state reform part of the solution to economic and social problems. Welfare state part of the problem; UK’s policy response is one specific social policy area but a test case for others! Not presented as a panacea but a path dependent response but how path dependent is it? Is it a particularly British or liberal market model or could elements of the UK response inform policy transfer?