20 June 2007

The Rt Hon John Hutton MP

Secretary of State for Work and Pensions

Welfare to Work Convention 2007,

Birmingham

Wednesday 20th June 2007

[Check against delivery]

I’m grateful to Dave (Simmonds) and the Centre for Economic and Social Inclusion for the opportunity to join you again this year at what has become established as one of the leading forums for developing welfare policy in Britain.

When I was here last year, we had just published our response to the consultation on the Welfare Reform Green Paper and were about to introduce a Welfare Reform Bill.

One year on, of course, that Bill is now the 2007 Act. Many of you played a vital role in helping to shape that legislation and I’m grateful to you for all your support.

As the Bill headed to the Statute book, so we’ve begun to look forward to some of the challenges still ahead – highlighted first by Lord Leitch with his review of skills; and more recently by the report on welfare to work which I commissioned from David Freud.

I’d like to take this opportunity this morning to look back over the last twelve months – not so much to consider what has been achieved – but rather to ask what has been learnt and, crucially, what this tells us about where we must now focus our energies in the months and years ahead.

So one year on, what have we learnt?

First, the positive.

I believe we should take great encouragement from the way we’ve learnt that we can take people with us on a difficult issue; and that we can build consensus around a progressive agenda for welfare reform.

With the Welfare Reform Act, we were able change the nature of the debate - away from confrontational talk of benefit cuts and incapacity to a more positive agenda focused on what people can do. There was a genuine new debate about how we can help people to re-engage with the workplace and lift themselves and their families out of poverty.

We’ve seen just how effective our active labour market policies can be. When we look back and remember the recessions of the 80s and 90s; the 3 million unemployed and the position we inherited in 1997 with nearly 6 million adults dependent on benefits to survive and one in three babies born into poverty.

And last week’s labour market statistics marked ten years of progress in helping people into work – with a reduction in the claimant count of three quarters of a million and employment up by over 2.5 million; the best performance in the G8.

But for all this success, it’s become much clearer to me that there isn’t a natural end point for welfare reform; that, as we have made progress in reducing unemployment and helping those with health conditions and disabilities, so other challenges have come to the fore – and these challenges will need new responses.

The rapid pace of social and demographic change – in which increases in life expectancy now mean that one in five babies born today will live to be 100; a tremendous advance for our society but one which places ever greater pressures on our economic and welfare systems.

In welfare specifically, the task of reaching out to support the hardest to help; to tackle the pockets of worklessness and poverty still too often concentrated in and around some of our major cities;

And the challenges of delivering the most effective and efficient re-employment services anywhere in the world. With the best providers - whether public, private or voluntary - properly incentivised to deliver the best possible services to the customer.

We’ve made important progress in the last twelve months in beginning to respond to these challenges.
 
But if we are to set the right direction for welfare reform over the next decade I believe there are going to be four things that will be absolutely central to our success.
 
First – that it is no longer enough simply for the welfare system to help people back into work. As Freud highlighted, job retention and career progression must be at the core of a dynamic welfare system. And yet, they are currently given relatively little attention.

Second – if we are to reach our goal of an 80% employment rate, it simply can not be done without taking action to raise the skills base of an economy where today there are 4.6 million people without qualifications and a further 1.5 million with qualifications below level 2; and where Leitch predicted that the demand for low skills is likely to continue falling with some 850,000 fewer low skilled jobs by 2020.

Third – that while in health and education we have made rapid progress in moving towards a more devolved, less centralised, less target-driven model – in welfare reform we’ve got more to do. We need to develop the right framework to encourage and reward investment and improved performance; and we should draw on the full potential of private and voluntary providers - especially the expertise of local organisations to innovate and develop solutions tailored to their local area.

Fourth and finally – that the “deal” between society and individuals must be an evolving contract. As Freud argued, as extra support becomes available so individuals have the responsibility to take up that support.

We will not maintain the “something for something” approach – which has been an essential British value since a comprehensive welfare system was introduced after the Second World War – unless we match additional support with clear and unambiguous responsibilities for individuals.

And I believe, in particular, that the problem of helping repeat benefit claimants will continue to prove difficult unless or until we get this right.

So what does all this mean for welfare reform over the coming months?

We need to put job retention and career progression at the heart of our response to the Freud report.

Our welfare system needs to raise its game on skills.

We must go further in devolving our welfare system and empowering local consortia to develop local solutions.

And finally, we must ensure we match increased support with an increased responsibility to take up that support. That we maintain the core values on which our welfare state was founded.

Let me say just a few more words about each.

Firstly, Freud.

I know there are some who hope the coming political transition will mean the Government goes cool on the prospect of further radical welfare reform to benefit the hardest to help.  They will be disappointed. 

The core of our reforms – new support matched new responsibilities to take up that support; sustained investment, devolution to the front line, and an open minded approach to who provides – all of these will be key planks of the next phase of welfare reform we will set out over the coming months.

Gordon Brown has been at the heart of this process for over a decade.  And I have no doubt about his commitment to advancing a new phase of reform based on these principles in the months and years ahead.

Meeting the challenges set out by Freud will be absolutely critical if we are to continue our progress towards 80% employment and the eradication of child poverty. There is a great deal in his report on which we can build. And we intend to do just that.

We agree with Freud that the focus of welfare must now be on those furthest from the labour market.

But we now need to consider the details. Whether we accept his analysis of two types of labour market – and distinct roles for Jobcentre Plus and specialist providers from the private and voluntary sectors; the former focused on helping those unemployed for short periods and the latter on those harder to help.

Whether we agree with his approach to choice in welfare; and his judgement that the provision of two or more competing prime contractors in a region would reduce economies of scale and overly-replicate arrangements between contractors and the network of local providers. And that choice can instead be effectively delivered through a prime contractor model.

As we consider our response to Freud, we will evaluate emerging evidence on our Pathways to Work employment programme to assess whether the groundbreaking scheme in future should be delivered wholly by the private and voluntary sector.

What is clear, however, is that the time is right to look at modernising the New Deal programmes. A more flexible new deal – with clearer incentives and payment by results; longer-term, larger-scale contracts and new support tailored to the specific combination of barriers faced by the individual; not rigid programmes of fixed entry points determined by whichever benefit or label can most easily be placed on the claimant.

I agree strongly with the argument put forward by Dave and the Centre for Economic and Social Inclusion – that sustainable employment must be the unifying aim driving the nature of reform; with clear rewards for providers - not just getting people into work but also helping them to stay in work. And an incentive structure that supports innovation and effective risk transfer to reward providers for taking on the more difficult cases, not just the easiest to help.

Early results from the Employment Retention and Advancement Demonstration project are showing the effectiveness of focusing welfare support on helping people sustain employment and progress in work. The project operating in six Jobcentre Plus districts, offers a combination of financial incentives and job coaching to participants once they are in work.

And results from the evaluation of the first year are encouraging with for example, New Deal for Lone Parents customers earning nearly a third more than had they not taken part in the pilot; and an increase in the proportion of the pilot group that worked full time – 7 percentage points above that observed for the control group.

Reaching out to the hardest to help and supporting sustained employment has to mean that no group is beyond the help of a modern welfare system. That includes, for example, ex-offenders 100,000 of whom currently move directly from prison and probation onto benefits each year.

A pilot being run by the National Employment Panel is showing that we can make progress with this group too. Introducing the role of a Job Developer within six of the current Employer Coalitions, the pilot provides employers with wrap-around support both before and during the employment of ex-offenders. It is helping to work through the barriers to employing ex-offenders and building new partnerships with employers.

More than 50 employers have already offered to work with the pilot, not just providing vacancies but also helping to develop prison-based training for offenders which will equip them with the skills for work.

Secondly, skills.

The partnership between welfare providers and employers could not be more important in delivering people with the skills employers need.

Last week we launched the new Employer Skills Pledge. A public and voluntary commitment made by 150 leading employers to train all their staff to at least level 2 in the workplace. Recommended by Lord Leitch in his report last December, the pledge – backed by Government and including all central Government departments – will guarantee employers access to a skills broker through Train to Gain and embed a new partnership with business for improving skills in the workplace.

Raising our game on skills must be a key priority for the welfare to work system over the coming months. Doing so will mean finding a new place for skills at the heart of a renewed welfare contract for the 21st Century.

Our response to Leitch’s report later this summer must include an earlier and more focused assessment of the skills needs of those out of work. An assessment founded on a clear understanding of employer needs. And one that can help to facilitate the creation of a demand-led skills system that will ensure that the skills employees develop are economically valuable – not just to get into work – but also, critically, to support sustained employment and progression through the workplace.

Thirdly, devolution.

A critical part of successful employer engagement will be the partnerships at local level between providers and local employers. And it was to strengthen these partnerships and to incentivise local innovation that we have created the Cities Strategy.

Birmingham is one of the Pathfinders being launched today - as part the Strategy’s efforts to give local areas more control over plans to tackle worklessness. These pathfinders have agreed business plans and targets including a 3% improvement in benefit reduction over and above the expected trend.

In return they will be supported by money from the Government’s Deprived Areas fund – with now £65 million available over the next two years, and with a reward fund to incentivise innovation and achievement.

We are also very pleased that the Centre for Economic and Social Inclusion have agreed to run a new Cities Strategy Learning Network which will provide a crucial opportunity for Pathfinders to discuss their progress, learn lessons from each other’s experiences and stimulate new thinking.

Such local partnership will be crucial for the success of welfare in the coming decade. And combined with the improved contracting at the heart of Freud it offers the prospect of ever more effective support for those out of work.

But fourthly, in return for offering this extra help, Freud argued that we should expect more work-related activity from those on benefit. That we must maintain the New Deal principle of no fifth option; something for something – not benefits for nothing.

Freud 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.

We know that children of lone parents not in work are over five times more likely to be in poverty than children of lone parents in full time employment. And three times more likely to be in poverty than children of lone parents in part time work. Around 40 per cent of poor children live in lone parent households – the majority of which are non-working.

Despite the progress we have made in increasing the employment rate for lone parents – up more than 11 percentage points since 1997 - it remains the lowest of any major European country. Coupled with this, we ask very little of lone parents on benefit – with a requirement to look for work that only begins when the youngest child reaches 16.

By contrast countries such as Sweden and Denmark, make little distinction between lone parents and other benefit recipients in terms of the obligation to look for work. It is no coincidence that they have lone parent employment rates as high as 80 per cent.

I am clear that this strengthening of rights and responsibilities is the right directon of travel and the right way to proceed. This is not about cutting the general level of benefits – this would be wrong in principle and damaging to the health and well-being of children in lone parent families. But equally, we must be prepared to learn from other progressive countries; to raise our aspirations for every family in Britain; and help all those who can work to get work.

Similarly I believe we should also 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. This “deal” of increased rights matched by increased responsibilities is central to the values on which our welfare system was founded.

For those who can’t work, a decent society should be there to provide support. There is no question over that – and there never should be. But as we look towards the challenges of the next decade, so we must reaffirm our commitment to the values on which our welfare system was founded.

The values of help and support; of aspiration and confidence. But also, critically, the values of duty and obligation – to support those who need help and to demand from those who require it that they do everything they can to help sustain themselves.

If we can do this; and if we can rise the challenges of supporting sustained employment, embedding skills at the heart of the welfare contract and devolving greater power to local level, then I believe we can develop a long-standing political consensus for a comprehensive system of welfare for the 21st Century; long-term reform that will deliver true social mobility and social justice for modern Britain.