Does ‘welfare reform’ work? No


10:46 pm - February 2nd 2009

by Don Paskini    


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In conversation with our star columnist Laurie Penny, James Purnell explained that when it came to welfare reform ”I think the question we need to ask is, ‘does it work?, isn’t it?”

One of the flagship measures of the welfare reform proposals, supported by the leadership of all three main parties, the media, numerous expert advisers and employment providers alike, is the use of the private and the voluntary sector to get what Purnell charmingly calls “the stock” back to work. During the debate on the Second Reading of the Welfare Reform Bill last week, only two MPs, Katy Clark and Dai Harvard, raised concerns about this. But, in the words of the Secretary of State, “does it work?”

By happy coincidence, the Financial Times answered this question last Friday:

“The latest figures show that where the independent sector has become involved with welfare-to-work programmes it is falling way short of delivering the promised jobs. What is more, the phenomenon was evident even before the recession started to bite.”

The FT goes on to report that Pathways to Work – a programme aimed at helping get 1m people off sickness benefits – is running 73 per cent short of its target, and that overall, the private sector-led employment programmes have delivered 60 per cent of the expected jobs in the six months to September, while consuming 98 per cent of the expected expenditure. The private companies which lobbied so hard for these contracts have lost a lot of money, and one of the biggest, Reed in Partnership, is planning restructuring that may lead to redundancies.

In other words, they have managed to design the scheme so badly that not only is it totally failing to meet its own targets, but the more money the government tries to give to private companies to help people get jobs, the more likely those companies are to get into financial trouble and have to sack their own workers.

I’m guessing that the “solution” to this in the short term will be higher levels of corporate welfare – private companies will be offered more money in the next round of contracts and required to do less in terms of helping people get jobs. Because the cross-party alliance behind these reforms would rather do that then admit that on any remotely reasonable examination of the evidence, regardless of ideological affiliation, they are wrong and the left-wing of the Labour Party and trade unions are right, and amend the welfare reform proposals accordingly.

Back before James Purnell slithered onto the scene, in December 2007, I wrote about the direction of the welfare reform agenda:

“But it is not entirely fanciful to suggest that in the future, there might not be more jobs than at present. With the state of the global economy, trouble in the public finances and so on, it might well be the case that there are fewer jobs available, and that many people won’t be able to get a job, no matter how hard they look for one.

So I asked one of the proponents of Welfare Reform what would happen in such a scenario. His answer was that the entire system is based on the assumption that the number of jobs will continue to rise indefinitely, and would have to be totally redesigned if this were no longer the case. (This is someone who supports the reforms).

There are parts of the country, and millions of people, who have still not recovered from the devastation of mass unemployment in the 1980s. If mass unemployment returns to Britain, then people will have to cope with benefits which are lower than under Thatcher, and be required by a system which is not fit for purpose to spend their time searching for jobs which do not exist. Those that don’t comply will have their benefits cut or stopped entirely. Meanwhile, more of the resources available will be spent on advisers monitoring that people are searching for the jobs which don’t exist, and punishing them if they fail to do so.

There are many different ways of addressing this risk and trying to deal with it, but what bothers me is that it isn’t even being considered. So the point when support from the welfare state is most needed is exactly the same as the point when the new system becomes not fit for purpose.”

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Don Paskini is deputy-editor of LC. He also blogs at donpaskini. He is on twitter as @donpaskini
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Reader comments


“required by a system which is not fit for purpose to spend their time searching for jobs which do not exist. Those that don’t comply will have their benefits cut or stopped entirely. Meanwhile, more of the resources available will be spent on advisers monitoring that people are searching for the jobs which don’t exist, and punishing them if they fail to do so.”

It’s been this way for a while now. Still, worthless dole scum deserve it, don’t they?

Alright, that’s it.

I propose a Sack Purnell campaign. Who seconds?

Right there with you.

Is Purnell human?

Very poor analysis. You can only look at the financial situation of the private sector companies involved over the course of a whole economic cycle – picking on them when the entire economy is suffering is just a cheap shot and tells us nothing about how successful these companies will be in the long-term.

Personally I don’t think the payment structure was set up correctly in the first place as the incentives didn’t seem right, but your suggestion that welfare reform ‘doesn’t work’ because private sector companies are finding it hard during the worst recession in several decades is weak, verging on pointless.

http://www.lettersfromatory.com

There’s something pretty daft about paying companies to ‘deal with’ the jobless: if they did manage to get them all into jobs, they’d cut off a major source of revenue. This is known as a ‘perverse incentive’. To be honest, much of government suffers from this problem – that the rightful objective of policy should be to remove a problem from existence, but doing so tends to harm the very specific interests of people who are being paid to ‘address’ the problem (those interests being that they continue being paid to do so).

What beggars belief is that nobody spotted this. The move to performance-related contracts (mentioned in the FT article but not in the blog post above?) does actually solve this problem, by aligning the social objectives (get people into jobs) with the economic incentives (payments to the recruitment companies), which are at present unaligned. I just have to wonder why it has taken this long to realise that it might be a good idea to have services run for the purpose of getting people into jobs rather than in running ‘schemes’ designed to ‘address’ the problem.

Quite aside from this, we’re still left with a situation where benefits are very low, and the marginal tax rate that people pay when moving off benefits and into work is bloody horrific. “Aha,” I imagine James Purnell to think here, “the problem is that the benefits are just too high. If we reduce the benefits, then being in a low-paid job will be that much more attractive!”. Not quite sure that’s what people voted Labour for, somehow.

A poorly educated unskilled underclass faced with tax on income above £6k , in a recession when the income from welfare benefits for someone with 3 or more children is greater than a labourer’s wage are highly likely to become employed. For a start lets take everyone out of the taxation system for incomes below £10K and also look at peoples lack of skills.

Workhouse Purnell has never done a day’s work in his life, which is why he fetishises the private sector without understanding what its role is, should or shouldn’t be.

A suitable solution would be to accept that these people are unlikely to find paid jobs, & encourage (not coerce) them into doing voluntary work by exempting those who do such work from looking for jobs which don’t exist & they probably wouldn’t get if they did.

It is essential that the state does not in any way pay people for doing such work, or make them do it, as that is counterproductive. I have seen some on the left propose this but it is misguided.

Rather than bullying people in an ultimately futile way, just to satisfy the usual newspapers & bigots, let’s ensure that when work becomes available on a wider scale people are suited to do it.

I am cheered by employers reducing hours & offering forms of training rather than making redundancies. A lot of businesses, like JCB, are taking what is a very reasonable approach to the recession, but the government isn’t helping matters.

Regrettably, Cameron’s me-too policies are very unlikely to solve the problem of worklessness either, so I might as well just punch myself in the face repeatedly.

Has anyone heard from that renowned expert David Freud lately? We could all do with investment bankers hectoring people who’ve fallen on hard times about how they don’t deserve any support, eh?

There was an excellent Chris Dillow post on the matter of the JSA regime:

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2008/12/does-job-search-work.html

I still live in hope that attitudes will change as more middle-class types become unemployed. The whole system is essentially geared towards unskilled manual workers & it isn’t a laugh. I was out of work for 4 months & that was bad enough, I dread to imagine what would have happened if it had been longer.

You can add me to the Sack Purnell campaign. Force him to live on £60.50 for 2 years, then work for the minimum wage.

PS- It’s actually less than that if you’re under 25. No valid reason has ever been given.

2 – While Purnell isn’t much help, there is a deeper problem here – these failed policies have cross-party support.

5 – “The move to performance-related contracts (mentioned in the FT article but not in the blog post above?) does actually solve this problem”

Except that in the real world it doesn’t. The shift to performance based contracts has been an expensive and total disaster, as the FT article explained.

“much of government suffers from this problem – that the rightful objective of policy should be to remove a problem from existence, but doing so tends to harm the very specific interests of people who are being paid to ‘address’ the problem (those interests being that they continue being paid to do so).”

This kind of analysis is popular, but, I think, misconceived. For a start, it misunderstands the nature and motivations of public service (this is possibly a subject for another article). The schemes to help people who want to work but aren’t able to find a job have often been extremely successful over the past decade.

The pilots of Pathways to Work, set up by the last effective and successful minister at the DWP, Andrew Smith, were extremely successful, more so than predicted. People participated on a voluntary basis and got the support they needed to overcome the (often very severe) barriers to work that they faced.

In contrast, it is now mandatory, companies are paid by their outputs…and it is a very expensive failure.

One of the flagship measures of the welfare reform proposals, supported by the leadership of all three main parties,…

I think you mean the welfare to work Policies developed by the Conservative Party and hastily copied by New Labour who oddly they did not think of in the ten years plus they have had. These policies have worked in the US and there is endless evidence to show that , they are expensive however .Border Controls IHT and welfare to work are just some of the policies copied by New Labour . The fact that you stick to the ‘Policy light’ meme becomes increasingly ridiculous however. For Conservatives it is a Conservative Policy to deal with a Labour problem only for Labour is it a cheap fudge designed to muddy the electoral waters .

If you do not like Conservative Policy , stop copying it

They haven’t worked in the US; in fact they’ve worked very badly in the US with most families fiancially worse off in (for example) Wisconsin because of them.

“Quite aside from this, we’re still left with a situation where benefits are very low, and the marginal tax rate that people pay when moving off benefits and into work is bloody horrific. “Aha,” I imagine James Purnell to think here, “the problem is that the benefits are just too high. If we reduce the benefits, then being in a low-paid job will be that much more attractive!”. Not quite sure that’s what people voted Labour for, somehow.”

Fucking this.

Its interesting isn`t it that if this in fact means a cut in benefits the people who have been paying taxes and are now unemployed will yet again be financing the only people who cannot be made unemployed .The states tribes of bureaucrats.
They will be snug on their £50k plus all the bits sinecures while ordinary tax payers will be recipients of harsh treatment designed to budge the terminally unemployed who they have also been paying for partly because the money has run out , just when they need it .
A fundemental contract has been broken by New Labour especially with the working classes.

I do hope they get he blame , i scent a revolt of working people against the progressive parasites in the air . They are after all usually excaty the people who have been keeping all the money for their commuinity liason interface through art services

donpaskini @ 11:

Except that in the real world it doesn’t. The shift to performance based contracts has been an expensive and total disaster, as the FT article explained.

Yes, it does say that. Then it goes on to say:

Overall, the private sector-led employment programmes have delivered 60 per cent of the expected jobs in the six months to September, while consuming 98 per cent of the expected expenditure.

That’s obviously not a payment by results. It sounds like a system that might have been implemented by someone who has had the concept of payment by results explained to them once, whilst they were very, very drunk.

Sorry for the flippancy – I am actually deadly serious. If these companies are performing at 60%, why the hell are they being paid at 98% and who is authorising this? What idiot drafted the contracts that allow this to happen?

This kind of analysis is popular, but, I think, misconceived. For a start, it misunderstands the nature and motivations of public service (this is possibly a subject for another article). The schemes to help people who want to work but aren’t able to find a job have often been extremely successful over the past decade.

I’m actually sort-of agreeing with you here (or at least not disagreeing). Private companies do not have any public service ethos, and it’s private companies that we’re discussing. The incentive problem really does matter where private companies are involved, and it’s something that doesn’t seem to have been addressed properly.

I’m not as confident in the belief that the public sector is totally immune from perverse incentives as you are, though. I’m just not sure that every situation in which a public servant has a decision to make will result in them making the decision that results in the greatest benefit to the public, irrespective of the cost to the public servant. I agree that the incentive structures are generally different, and may include some element of ‘public service ethos’, but… well, as you say, that’s probably a whole other discussion.

In contrast, it is now mandatory, companies are paid by their outputs…and it is a very expensive failure.

I’m not sure that this has been proved, and I’m trying to be as charitable to your perspective as possible. You’re comparing the first (and possibly quite defective, in my opinion above) attempts at payment-by-results, made during the onset of a huge recession, with a different set of pilot schemes made during a boom. Not saying that you’re wrong necessarily, but I do think that your case is unproven. Of course, nobody wants to read self-doubting arguments on political blogs, so I can hardly blame you for jumping straight to the conclusion.

What’s clear is that there has been some pretty silly mistakes. The government appears to have misunderstood the notion of ‘results’ and is paying these companies 98% of what they were expecting to get despite delivering only 60% of the results. That’s just stupid. If the companies can make almost as much money without getting the remaining 40% into jobs, it’s not much of a surprise that that is exactly what they’re doing. Clearly the payments should have fallen in line with the failure to find jobs for people.

Hi Rob,

Think we probably agree about most of this.

Just quickly – the 60% delivery for 98% of payment refers to all the different private-sector led programmes. Pathways is just one of these, and is the one which has been using payment by results. The result is that providers haven’t delivered and have lost lots of money due to situations beyond their control.

One significant problem with payment by results is that there is an incentive for groups to ‘overbid’ in terms of what they can actually deliver. For example, any group which had correctly predicted the economic downturn when the contracts were being handed out and written their bid accordingly would have not been awarded the contract, because they would have offered to deliver fewer outputs for the money available than Reed in Partnership. To work effectively, it requires the people evaluating the bids to be able to predict the state of the labour market up to two years into the future, which is a tough ask.

12 – Newmania, it’s sweet of you to claim that all the credit for this policy failure should go exclusively to the Conservative Party 🙂

21. Shatterface

Newmania, you fuckwit: DWP salaries start at £15,000pa for a full time employee. Staff are not exactly ‘snug’ and since Jobcentres will now be opening on Saturdays and staying open till 8pm to cope with a lot of justifiably angry people (at least double the current number) their conditions of employment aren’t exactly cosy either.

22. Alisdair Cameron

The current private contractors in the field are worse than jobcentre+, cherry-pick punters who find work themselves anyhow, and then claim the credit (and a ‘bounty’). Try and have a conversation with these agencies’ advisers and tutors, and you’re left wondering how on earth they got employed (cheap, I guess) as way too many of them are themselves barely literate and numerate, and are in no way capable of training the unemployed in any meaningful way.
Watch ’em squabble over the growing capable unemployed ranks, then shove these talented victims of the recession into shitey schemes delivered by ‘tutors’ with far less ability than their ‘pupils’, and charge exorbitantly.They can’t lose really: failure to get X a job will be attributed to global conditions (and what’s the betting the Govt will relax targets, so that their privatising of welfare isn’t seen to be the fuck-up it is) X gets a job, they get their bounty, but should you ever encounter their tutors, you’ll be left in no doubt that they had next to no part in X getting that post.

By the way who is this Lawrence Kay tw*t who writes on CiF about how great privatised welfare is: looks like someone who’s never been in a proper occupation, nor been unemployed [“part-economist, part-politico”, all wanker, works for Policy exchange and “BA philosophy, politics and economics from the University of Essex, and an MSc in public policy from the London School of Economics. Since finishing his formal education in 2006, Lawrence has written about bonds and rates for a trade publication in the City and worked for a brief period at the Social Market Foundation”. This is the type who advocate privatising welfare, another Purnell sort if ever I saw one]

Oops, missed Letters from a Tory’s contribution.

First up, the FT says “What is more, the phenomenon [of private companies underperforming] was evident even before the recession started to bite.”

But further than that, are you really saying that it is a ‘cheap shot’ to note that it is not very impressive for companies to get into financial difficulties at a time when:

a) there is a surge in demand for their services and
b) the government is giving them billions of pounds of taxpayers’ money ?

donpaskini –

Your analysis of the situation in comment 19. is exactly right. The tax payer will save a lot of money over the next three years because of the contracts. The funding available through the contracts was exactly the same as is available for Jobcentre Plus Pathways to Work areas (40% of the country). However to receive that same level of funding the contractors would have to deliver a lot more job outcomes.

If the Government had used Jobcentre for all of the country then it would have spent £1.1 billion regardless of how many people got jobs. This is likely now to be only around ~£700m. The companies did indeed overbid and may be more risk adverse in the longer run but in the meanwhile it’s great news for the tax payer.

In comment 11. you’re talking bollocks. The Pathways to Work scheme run by the private companies is exactly the same as the scheme run by Jobcentre Plus in 40% (and the pilots). Both were/are compulsory and not voluntary for new claimants of Incapacity Benefit (now Employment and Support Allowance). The reason Pathways to Work was so successful compared to the New Deal for Disabled People for instance is that it was compulsory! That was the whole lesson of the research on the scheme…..


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    New blog post: Does it work? No http://tinyurl.com/bt6bxb

  2. sunny hundal

    @Disraelismears because it didn't work. If you're for evidence policy, you'd heed it too http://tinyurl.com/bt6bxb / http://bit.ly/dx7453

  3. sunny hundal

    @onedavidlewy and this: http://tinyurl.com/bt6bxb – actually name me one big policy or idea by purnell that worked





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