1. Individual Budgets in Welfare-to-Work: A red herring? Ian Mulheirn Social Market Foundation 23 July 2008

2. A spectrum of ideas Individual budgets and personal accounts aim to empower individuals; Join-up services at the point of delivery; and make providers focus on the individual to attain better outcomes. What exactly is meant by individual budgets in welfare-to-work? Unrestricted individual budgets Accredited providers only Advisor-controlled budget Virtual budgets Individual gets proportion of remaining budget on finding work Jobcentre/ contractor decides Advisor- assistance

3. Are IBs appropriate in the welfare-to-work context? Five key questions are relevant 1. Is a successful outcome an objective or subjective judgement? 2. Is there a problem of agency? 3. Can the individual make informed choices? 4. Who sets incentives and what is the impact on outcomes? 5. How easy is efficient allocation of resources?

4. 1. Is success objective or subjective? Social CareWelfare-to-work Success can only really be judged by the service user. Success is a question of degree What is the desired outcome? Is success binary or continuous? Is it measurable? And who can measure it? Sustained employment is objectively verifiable. Binary outcome. Job satisfaction correlated with sustainability

5. 2. Is there a problem of agency? Social CareWelfare-to-work Outcomes derived from the budget-holders choices only affect the individual. No externality Agency problem occurs where there is more than one party interested in the outcome, but decisions rest with one. Individuals decisions have an impact on the taxpayer (c.£6,500 per year for childless single person in LA housing). Individual as agent of the taxpayer.

6. 3.Can the individual make informed choices? Social CareWelfare-to-work Individuals repeated decisions over which services to use allow learning and informed choice Informed choice in most markets stems from repeated choice. Consequences of ill-informed choice are greater in binary settings. One-off nature of the decision means that, first time, its hard for the individual to know what works.

7. 4. What is the appropriate focus for providers? Social CareWelfare-to-work Providers should focus on the individual. What the individual wants is the best guide to what individual needs. Under individual budgets, providers have incentives to supply what the individual wants. Two parties. What the individual wants may not be what employers want. Providers focus on processes not outcomes.

8. 5. How easy is efficient allocation of resources? Social CareWelfare-to-work Care needs of people are reasonably easy to define through discussion. Costs for the necessary care are fixed. How easy is it to ensure that the most money goes to those who need it most under an Individual Budget system? Element of chance in when one finds work. Apparently similar people may need very different levels of support: can lead to over- spend on some and under- spend on others.

9. The Flexible New Deal Attributes 1-4 of welfare-to-work mean that it lends itself to outcome-based commissioning: Under FND prime contractors are rewarded with outcome payments for achieving sustained employment outcomes. Black box process means that contractors have the flexibility to allocate resources as necessary. What does this all mean? If individual budgets are better at achieving employment outcomes – an empirical question - prime contractors will implement them.

10. Graduated payment under FND Proposed: graduated outcome payment FND proposed flat fee Marginal cost of helping clients in caseload Proportion of caseload into work £ Per client 100% Question 5 points to the need for more flexibility in use of resources in welfare-to-work Appropriate resource allocation may not be obvious ex ante, as required under individual budgets. Graduated outcome payments needed. Payment for each client rises as provider gets further into caseload. Allows providers to shift resources around to the people who turn out to need the most support.