13 March 2007

The Rt Hon John Hutton MP

Secretary of State for Work and Pensions

Centre for Economic and Social Inclusion – London

The New Deals – the next 10 years

Tuesday, 13th March 2007

[Check against delivery]

When Gordon Brown launched the first New Deal Pathfinder in January 1998, he described it as a, “new beginning in the war against poverty and the first step in the modernisation of the welfare state in Britain.”

Ten years on, it has helped transform lives and created opportunities for families and communities where none existed. 

1.7 million people have been helped into work as a direct result of the country’s investment in the New Deal.  Together with the creation of Jobcentre Plus and our wider reforms - including the establishment of a National Minimum Wage and the introduction of tax credits -  there are now more people in work than ever before, with the biggest increases in the areas that started in the poorest position.

We now have the best performing labour market of any of the G8 countries. 

Long term unemployment is close to a 30-year low.

Long term youth unemployment now virtually eradicated.

Over 300,000 more lone parents in work.

The numbers on incapacity benefit falling not rising.

And, perhaps most importantly of all, our active labour market policies have made a significant contribution to the fact that today there are 700,000 fewer children living in relative poverty.

The contrast with the two recessions of the 80’s and 90’s; the 3 million people unemployed; could not be starker.  Before we came to office, welfare reform was a by-word for cutting benefits; stigmatizing lone parents. Now it is about extending new help and support, with clear obligations on the individual to take steps to help lift themselves and their families out of poverty and dependency.

Last week’s report from David Freud confirmed the progress of the past decade and concluded that by any measure, the New Deals have been a success. 

But I didn’t commission the report from David Freud to focus on the success of the past ten years. I commissioned it, because I believed that the challenges we face in the next ten years are very different from those of the past; and that the success of welfare to work in Britain over the next decade depended upon us being as prepared to evolve our policies and programmes today as we were when we first started in 1997. We have to look forward, not back.

The challenges facing our active labour market policies have changed. The Leitch Report highlighted the skills challenge we face. There are five million people without qualifications and yet the demand for low skilled jobs is falling, with some 850,000 fewer lower skilled jobs expected by 2020.

Furthermore, today single parents and disabled people make up over two-thirds of those on out-of-work benefits, but they receive only 14% of the funding.

Achieving our aspiration of an 80% employment rate will mean reducing economic inactivity by around one-fifth – and cutting the numbers on lone parent and incapacity benefits by around two-fifths.  Such progress is essential if we are to meet our target of eradicating child poverty by 2020 – and ensure not just a strong economy but a strong society.

As Freud argued last week, the new focus of welfare must now be on those furthest from the labour market, particularly incapacity benefits claimants and lone parents.  And, with significant numbers of repeat benefit claimants, support in the future must focus on job retention and career progression, as well as job placement.

Freud recommended that once claimants have been supported by Jobcentre Plus for a short period of time, back to work support should be delivered through outcome-based, contracted support – drawing on the innovation of specialist providers from the private and voluntary sectors.

He proposed that a contracting regime would set a core standard that everyone would receive, but that beyond this there would be freedom between the provider and the individual to do what works for them; rolling up the existing framework of public, private and voluntary provision, in favour of a more flexible approach focused on the specific barriers facing the individual rather than the specific benefit which they are on.

Currently, there are around 30 different employment programmes, all designed to help provide tailored support to different categories of benefit recipient.  The result is the availability of more tailored support than ever before - but equally, a complex and fragmented system which can often be hard to navigate for claimants and bureaucratic for our providers too.

Freud argued that we should look in detail at the potential for greater simplification of the benefits system – moving towards a single system, or even potentially a single benefit. And he cited international evidence that complexity in the benefit system can act as a disincentive for entering work.

So the crucial question now, I believe, is how we can maintain the specific support provided by the current programmes, indeed actually go further in allowing more tailored and personalised support for the individual, while at the same time simplifying the system?

Ten years ago the New Deal marked a new beginning in the fight against poverty.  It is time to begin a new era for the new deal.  The shift towards a more flexible new deal can, I believe, signal a new assault against poverty and disadvantage. 

A flexible new deal should better provide support tailored to the specific combination of barriers faced by the individual; not rigid programmes or fixed entry points determined by whichever benefit or label can be most easily placed on the claimant.

The UK has valuable experience of introducing greater flexibility and outcome-based contracting into its employment programmes. Look, for example, at the New Deal for Disabled People. And Employment Zones -  where complete programmes have been contracted out with the long-term unemployed referred to private providers for a period of 30 weeks and with largely outcome related payments based on job entry and retention for 13 weeks.

The task now is to continue this evolution. To examine the evidence and identify the elements of our programmes that have been most succecssful – but also the areas where we need to go further in adapting to meet the new challenges ahead.

Based on this, I believe there are five principles which should underpin the evolution of a flexible new deal programme.

Firstly, a work-first approach – but crucially one that has a focus on sustained employment; that rewards providers not just for getting people into work, but for helping them stay in work.

Freud suggests that payments to providers could be made over a three year period from when an individual client moved into work, with contracts offering rewards that are proportionate to the value to society and the taxpayer of moving into work.  This means creating an incentive structure that supports innovation and effective risk transfer, rewarding providers for helping more difficult cases – and not just cherry-picking the easiest to help.

Secondly, and closely linked to this, maintaining regular contact. Regular contact with the individual has been a key part of both the New Deal and Pathways to Work - but too often in the past, the drawbridge of support has been pulled up the moment someone has entered work. 
The evidence from Employment Zones is that continued contact, either by telephone or in person at the new place of work, has been integral to helping keep clients in work.  There is no place in a flexible new deal for rigid prescriptions about the detailed nature of that regular contact – but ensuring that such contact takes place must be an essential part of the overall framework.

Thirdly, flexibility of funding and provision. This is the key principle underpinning the City Strategy, and it is a central part of Freud’s proposals.

Flexibility will be important both for providers and individual clients.  A new payment by results system must go hand in hand with a flexible approach to programme design and management.  Short term contracts will be replaced by long term partnerships, designed to stimulate innovation, scale and effective competition. 

Flexibility in provision will offer individuals greater choice over elements of the programmes which are most suited to them; giving them greater personal responsibility by playing an active role in selecting the programmes which form part of their contract.

Fourthly, as we develop the City Strategy, so we must take employer engagement to the next level - incentivising providers to build stronger partnerships with local employers and to ensure that clients being prepared for a return to work have the skills that employers need.

And fifthly, we must maintain the New Deal principle of no fifth option; something for something – not benefits for nothing.  Freud proposed that in return for extra help, we should actually expect more from those on benefit.

He suggested introducing stronger conditionality in line with Jobseeker’s Allowance for lone parents with a youngest child aged 12 – and as wrap-around childcare becomes more widely available from 2010, to consider whether further reductions would be desirable. He also recommended over time, and as further help and support becomes available, extending the requirement to undertake work-related activity to those already on incapacity benefits who migrate to the new Employment and Support Allowance.

I believe that we also need to re-examine how we apply the existing conditionality regime for those on Jobseeker’s Allowance.

More than two thirds of all new Jobseeker's Allowance claims are made by people who have claimed before. Some of those returning to JSA do so only briefly – they are simply moving between jobs – a sign of a healthy and diverse labour market.  But around half of those repeat claimants are spending more time on benefit than in work.
What's more, a quarter of a million new claimants have spent at least three-quarters of the last two years claiming benefits.  And about 12% of all Jobseeker's Allowance claimants have spent six of the past seven years on benefits.
It can not be right to treat repeat JSA claimants as if they were moving onto JSA for the first time.  We need to explore whether we can offer more help more quickly for these claimants and, in return, expect more from them right from the start of their claim.

As with all these changes, Freud’s report must rightly start a process of consultation and debate.  We want to hear the views of all those with an interest in shaping the future of welfare in Britain.  And, we will welcome responses and views from all interested parties over the next few weeks.

Freud’s proposals represent a major challenge for my Department in building a world-class contracting capability with sophisticated performance management tools.

It requires to us to develop clearly defined, effective mechanisms for monitoring performance, which recognise the importance of the individual client and don’t try to micro-manage from the centre or obstruct local innovation. A mechanism that ensures transparency of the procurement decision making process and a stronger sense of stability and co-ordination across Government and its agencies contracting with this market. But without unacceptably high compliance costs which could undermine performance and value for money. 

From April we will begin this process by de-coupling procurement from Job Centre Plus and creating a new directorate within the department that will be responsible for commissioning.  The department’s Commercial Directorate will be strengthened and have responsibility for the development of the market and the individual procurement process.

At the heart of any future system of active labour market support must be a more effective mechanism for screening customers to assess their risk of being out of work for a significant period of time and the support they need. Using the modern techniques used across the insurance industry to profile individual risk, our ambition should be to develop a world class system that is capable of evaluating the risk faced by each individual of being out of work and enables contracts to be incentivised in ways that accurately reflect the value to society and the taxpayer of any given individual moving into work.

This will be a significant challenge – one that will require us to draw on expertise from all sectors. But we must rise to this challenge if we are to keep our labour market strong and dynamic; our economy competitive and prosperous and our society strong and cohesive.

The months ahead will begin to shape the welfare system for the next decade.  I believe we can realise our ambition of extending the right to work to all – and in doing so, we can bring social justice and equality of opportunity to every part of Britain.