Employment Support Services Making the Work Programme work better

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1 Employment Support Services Making the Work Programme work better Executive summary After its first two-year cycle of operation in a difficult labour market, the Work Programme is now showing signs of improved performance. This performance is likely to improve further in the next quarterly data update. Yet current contracts run out in 2016 and the next generation of welfare to work providers must learn the lessons of the Work Programme to ensure higher levels of performance and better value for money. This note explores the strengths and weaknesses in the current Work Programme and options for the next stage of reform in welfare to work. The key recommendations are as follows: Reform the pricing model. Cumulative length of time spent on benefits should replace benefit type as the proxy for the level of individual jobseeker need. Differential pricing should reflect that jobseekers claiming benefits for a sustained period can be equally as hard to move into the labour market as certain benefit types. The Government should replace Minimum Performance Levels (MPLs) with a cohortbased measure capturing the number of jobseekers who have achieved sustained employment during a given period of time. Unlike current MPLs, such a measure would be directly comparable over time, reflect labour market fluctuations and be less susceptible to distortion from referral flows. Manage the market more effectively. DWP should performance manage providers more effectively, using market share shift and step-in rights where appropriate. Without real consequences for provider performance, there is no competition, which is a major driver of performance. Quality, not price, should be the benchmark for competition in Past performance is the best indicator of future outcomes and contracts should therefore be based on providers track records. Expand the Programme to include benefit-cyclers and skills funding. The criteria for referral should be expanded to include over-25s out of work for 12 months in an 18 month period and year-olds out of work for 9 months in an 18 month period. Currently, jobseekers who have short-term jobs during a longer cumulative period of unemployment do not benefit from the Work Programme because their time out of work is not continuous. Employment related skills funding should be distributed (with 100 per cent flow through) by prime providers. This would reduce duplication, integrate activity and ensure that participants are more likely to improve skills while also improving employability. 1

2 The Work Programme so far Strengths Improved performance After the first two-year cycle of operation, the Work Programme is performing well. Over 1.2 million claimants have been referred to the programme in the first two years, of which 312,000 have started in a job 1 and 132,000 have achieved sustained job outcomes. 2 At any one time, an average 3 per cent of working-age people are supported on the programme, and the Government s initial estimate of 3.3 million claimants passing through the programme by looks to be achieved. 3 Providers are now largely delivering against targets for the JSA and JSA 25+ payment grounds, after well-publicised underperformance at the end of Year 1, although achievement remains significantly short of expectations for new ESA claimants. Moreover, the Work Programme is now out-performing all but one previous welfare-to-work schemes against a job outcome measure of the average proportion of customers achieving a job outcome within a year on the programme. 4 This measure, proposed by the Centre for Economic and Social Inclusion (Inclusion), more adequately takes into account dynamic changes to the Work Programme environment, such as economic and labour market distortions and the learning curve historically experienced by most welfare-to-work providers and programmes in the first months of a scheme. 5 Using the JSA 25+ payment group (the most comparable across welfare schemes) CESI found that only the Flexible New Deal had delivered higher levels of job outcomes at the same point in the programme, although this had come at a greater cost per outcome. 6 Cost effectiveness Financially, the Work Programme has also been shown to be the most cost-effective welfareto-work scheme ever, offering higher performance and lower contract prices than previous programmes such as the Flexible New Deal and Employment Zones. 7 Moreover, the payment-by-results element has ensured that the taxpayer does not pay for underperformance: in , the Department for Work and Pensions recouped 248 million due to lower-than-expected performance. 8 Innovation The Work Programme has delivered innovation through the black box approach to commissioning. The black box does present some challenges, for example the perception that not enough is being done or different understandings between providers and commissioners. 9 However the black box offers the best way of ensuring that jobseekers in each payment group receive tailored, personalised interventions rather than a rigid, tick-box set of activities and actions, some of which might be inappropriate, unnecessarily and even counter-productive. 1 Employment Related Services Association (2013), Work Programme Performance Report, 20 June. 2 Department for Work and Pensions (2013), Work Programme Statistical Summary, 27 June. 3 Holmes, E. and M. Oakley (2013), Route2Work: Employment support for the very hardest-to-help. 4 Centre for Social and Economic Inclusion (2013), Work Programme statistics: Inclusion analysis. 5 Centre for Social and Economic Inclusion (2013), Briefing paper: Measuring Work Programme performance. 6 Centre for Social and Economic Inclusion (2013), Work Programme statistics: Inclusion analysis. 7 National Audit Office (2012), The Introduction of the Work Programme, p. 7; Centre for Economic and Social Inclusion (2013), Work Programme Statistics: Inclusion analysis. 8 Centre for Economic and Social Inclusion (2013), Work Programme Statistics: Inclusion analysis. 9 Department for Work and Pensions (2013), Work Programme Evaluation Procurement, supply chains and implementation of the commissioning model. 2

3 As surveys of supply chains have found, this is supported at subcontractor level as well as among primes. More than 60 per cent of respondents to the IES and Inclusion survey of subcontractors favoured some or complete flexibility over delivery. 10 This has been supported by our own subcontractors. For example, NCDA, a voluntary sector organisation in our South East Supply Chain and one of top performing subcontractors says: NCDA delivers across a wide range of sectors so the black box approach allows us to be flexible with our service to customers depending on their individual and specific needs. The black box approach of the contract enables us to deliver a service that meets contractual requirements and fits in with the NCDA ethos, which is to provide a client focused service. Penny Shimmin, CEO at NCDA. Areas for improvement In spite of this growing success, a number of concerns have been raised about the Work Programme since it was introduced. These areas for improvement can largely be summarised as follows: Inadequate support for the hardest-to-help The financial incentives within the payment mechanism do not always incentivise providers to tackle the hardest-to-help claimants, who are often defined not by benefit type but by multiple barriers to employment and length of time out of work. Numerous studies have found evidence of the perverse outcomes that result from this misalignment. The Work and Pensions Committee, for example, has found that: there is growing evidence that differential pricing is not having its intended impact: the Work Programme appears not to be reaching the most disadvantaged jobseekers. The current pricing structure, based largely on the type of benefit jobseekers are claiming, is a very blunt instrument for identifying jobseekers needs. 11 Meanwhile, ERSA has warned of longer-than-expected times needed to place ESA claimants into work, therefore reducing incentives for providers to invest for marginal returns. 12 Performance expectations set at overly ambitious levels The methodology and level of Minimum Performance Levels (MPLs) did not recognise the worsening economic situation or the level of time and effort needed to support (some) claimants into work. As ERSA has said: Targets were set in a very different labour market and economy and need to be far more responsive to the economic conditions in which providers operate. 13 The unrealistic nature of MPLs has undermined the credibility of the Programme and negatively impacted on provider investment due to inflated risk and lower returns. The Social Market Foundation, for example, has found that even if MPLs are achieved, prime providers would be paid 25 per cent less than under the Flexible New Deal Institute of Employment Services and Inclusion (2012), Survey of Work Programme subcontractors. See Department for Work and Pensions (2013), Work Programme Evaluation Procurement, supply chains and implementation of the commissioning model. 11 Work and Pensions Select Committee (2013), Work Programme: The experience of different user groups. 12 Employment Related Services Association (2013), Government statistics show marked improvement in Work Programme performance, 27 June. 13 Employment Related Services Association (2013), Government statistics show marked improvement in Work Programme performance, 27 June. 14 Mulheirn, I (2013), Will the Work Programme Work? Examining the future viability of the programme, p. 6. Social Market Foundation. 3

4 Lacklustre procurement and market management Despite the Government s best efforts, this market contraction and limited active management of poorly performing providers have reduced incentives for improvement and penalties for failure. As a result, as the Work Foundation have noted, 15 contract penalties for underperformance have been made problematic by lower than expected performance, leaving the Department with a difficult time managing failing providers. Moreover, the scope of the programme itself has come into criticism. The Institute for Government has argued that: although the intention of the black box approach was to encourage providers to innovate by, for example, joining up a wide range of specialist services around individual needs, the programme remains a relatively narrow job-focused programme. 16 The narrowing of welfare to work has had wider effects for specialist voluntary and charitable providers whose services are no longer called upon as regularly in turn resulting in significant negative media attention for the programme as a whole. The next generation of the Work Programme There is widespread acknowledgement across political parties, providers and the department that the next generation of the Work Programme will need to introduce reforms to improve incentives, performance and financial sustainability after current contracts end in The next stage of reform in welfare to work should focus on the following three areas: Reform the differential pricing mechanism It is now widely accepted that the differential pricing model could be improved in both methodology and pricing levels. 17 The segmentation of the cohort on the basis of benefit type has rightly been criticised as blunt instrument as it fails to account for the level of individuals needs. 18 In our own experience, a long-term Jobseeker s Allowance (JSA) recipient may be harder to help than someone claiming Employment Support Allowance (ESA), yet a job outcome for an ESA claimant triggers a much larger payment. This is not to say that a differential payment is unrealistic or without merit differential payments reduce the ability and incentives of providers to park customers but the proxy is flawed. An alternative proxy would be to use (or incorporate) the cumulative length of time someone has been claiming that benefit. In our view, this has a far greater correlation with the level of individual need and, as the data is already collated by the Department, would be relatively simple and cost-effective to implement. Alternatively, there is some argument for an individual assessment tool or triage system prior to referral to the Work Programme that identifies the severity of each jobseeker s needs at the point of referral to providers, in order to place them into the most appropriate payment group. This tool would places every jobseeker on a scale based on the severity of their needs (which also determines how much money a provider receives for supporting them into employment). Providers themselves may want to develop similar tools to coordinated interventions based on jobseekers needs. An individual assessment tool has been used in Australia for many years through the Job Seeker Classification Instrument (JSCI), recently proposed as a model for introduction in the 15 Gulliford, E. (2013), A shifting market share for failing providers of the Work Programme? The Work Foundation. 16 Gash, T. et al (2013), Making public service markets work: Professionalising government s approach to commissioning and market stewardship, p. 49. Institute for Government. 17 As the Work and Pensions Select Committee has argued: the lack of realistic MPLs results in realistic assessments of performance being difficult and makes sanctioning primes, and therefore delivering and incentivising improved performance, harder to achieve. Work and Pensions Select Committee (2013), Work Programme: The experience of different user groups. 18 Work and Pensions Committee (2013), The Work Programme: Experience of different user groups. 4

5 Work Programme by the Work and Pensions Select Committee. 19 Successive studies have showed that the JSCI has improved the identification of vulnerable or disadvantaged jobseekers in Australia, and has allowed assessment and referral criteria to be refined over time. Indeed, the latest JSCI included revised assessment criteria for such factors as proximity to a labour market, access to transport and job seekers English language skills. 20 However, it is important to note that such a tool must be risk- rather than propensity-based and allow for human override computers do not get everything right. A more appropriate payment tool would also be complimented by better Minimum Performance Levels (MPLs). The Government s review of Minimum Performance Levels, led by Paul Lester, concluded that if the next statistics release does not demonstrate a clear improvement in provider performance in relation to ESA MPLs, then the Department should review the levels at which they are set. 21 In fact, lowering the targets misses the point. As Inclusion and the UK Statistics Authority have both noted, the current methodology for calculating MPLs is flawed, as it fails to account for the time taken to achieve and sustain employment, only takes into account three payment groups and can be distorted by referral numbers. 22 A more sensible measure would be a cohort-based measure capturing the number of jobseekers who have achieved sustained employment during a given period of time. This figure would be directly comparable over time; more accurately take into account labour market factors; and less susceptible to distortion from referral flows. 23 Manage the market more effectively The Department for Work and Pensions has stressed its market stewardship role in the Work Programme, including the ability to shift referral flows between providers and break contracts with poorly performing providers. Yet there has been limited active market management to date: DWP have issued improvement notices on 12 contracts and introduced minimal market share shift of 5 per cent to the four highest performing providers. 24 Without real consequences for providers, there is no real competition, which is a major driver of performance. There is now a strong argument for a more active market management role, including significant market share shift and taking past performance into account when awarding new contracts in The wide variation between Work Programme providers, both nationally and within contract package areas, mean that to date an extra 9,300 people would have found sustained jobs had the bottom half of providers not been delivering the Work Programme (using the mean performance for the top half of providers). This is equivalent to around 7.5 per cent of all successful job outcomes to March 2013 and represents just under 50 million a year in lost annualised benefit savings (using the Freud Report s estimates for annual benefit spend per JSA claimant). 25 The current level of market share shift (5 per cent) through re-routed referral flows, while positive, is insufficient to deliver a meaningful performance upturn. This is also highly relevant for the Department s upcoming commissioning strategy: in Australia, the top-performing 20 per cent of providers do not re-tender and the lowestperforming 20 per cent are not able to re-tender, meaning the highest performing organisations retain and expand their market share, the worst fall away, and new entrants 19 Work and Pensions Committee (2013), The Work Programme: Experience of different user groups. 20 Department of Education, Employment and Workplace Relations (2009), Review of the Job Seeker Classification Instrument. Australian Government. 21 Lester, P. (2013), Review of Minimum Performance Levels, Department for Work and Pensions. 22 Centre for Social and Economic Inclusion (2013), Briefing paper: Measuring Work Programme performance. 23 Ibid. 24 Jones, A. (2013), Employment scheme success hailed, 27 June. Press Association. 25 Freud, D. (2007), Reducing dependency, increasing opportunity: Options for the future of welfare to work, p. 69. An independent report to the Department for Work and Pensions. 5

6 and medium-performers compete in the middle 60 per cent of the market. The effectiveness of this commissioning strategy is demonstrated by the long-term success of the Jobs Network programme, with the commissioning strategy acting as a rising benchmark for performance. When using past performance as the basis for commissioning, it is important that it does not preclude new providers from entering the market with innovative business models. The Department should develop a solution, perhaps in a similar model to the Justice Data Lab, to test new providers solutions to give them the necessary evidence to support bids. Moving the customer flows from one organisation achieving 20 per cent outcomes to one achieving 40 per cent outcomes doubled the performance with those moved flows, all things remaining equal. This is not just a theoretical assertion. Empirical data from G4S own supply chain reveals the power of performance management to deliver improved performance: Figure 1: Job starts before and after supply chain change Source: G4S (2013), Work Programme supply chain data In addition, the Government should make quality as important a benchmark as price for competition in In a payment-by-results system, the aim is for a high investment/high reward model, in this case facilitating significant private investment and high numbers of quality job outcomes. 26 Yet investment has fallen markedly as a result of system design (there has been a 52 per cent reduction in the amount spent on employment programmes compared to ) and lower than expected performance (in 2013 the Government recovered 248 million of expected DEL expenditure as a result of lower-than-expected performance 27 ). The aforementioned issues around the benefit type and pricing have also stifled innovation and meant that providers may not have sufficient resources to support jobseekers with the most severe barriers to work, in spite of the welcome additional funding for jobseekers claiming Employment and Support Allowance (ESA). Expand the Programme to include benefit-cyclers and skills funding The criteria for entering the Work Programme should be expanded to apply to jobseekers meeting a cumulative threshold as well as a continuous one. As Jobseekers are referred 26 As the Freud Report said: outcome based payments could secure the significant and commercially viable upfront investment needed to establish successful new welfare programmes. Ibid. 27 Mulheirn, I. (2013), Interpreting Work Programme Performance p. 5. Social Market Foundation 6

7 to the Work Programme once they reach a certain threshold in the time they have spent with Jobcentre Plus (normally 9-12 months), the current rules mean that intermittent short-term jobs within this period can leave individuals who would benefit from the Work Programme unable to access it due to a lack of continuous time out of work. As a result, thousands of disadvantaged jobseekers are unable to break the negative phenomenon of benefit-cycling that might be avoided by access to the Work Programme. A solution would be to broaden the criteria to ensure that anyone over 25 who has been out of work for 12 months in an 18 month period should be referred to the Work Programme. Similarly, anyone between the ages of who has been out of work for 9 months in an 18 month period should be referred to the Work Programme. This mechanism would ensure that jobseekers who are not entering sustainable work would get access to the personalised support available on the Work Programme. At the same time, it would make sense for Prime Contractors to become the vehicle for distributing all employment-related skills funding in each Contract Package Area under the Work Programme. At present, there are excellent examples of work being done on the ground to join up funding streams but this work is duplicated and piece-meal, resulting in significant variation and inefficiency. Joining up skills and employment funding would also mean that participants are more likely to improve skills levels whilst finding employment. The current separation of funding means that the two do not necessarily complement one another. If funding was integrated, Prime providers would be mandated to deliver 100 per cent flowthrough of funds to the front line (i.e. they would do it on a non-profit basis) on the assumption that better allocated skills funding would boost employment, therefore generating higher sustainment and outcome payments for providers. Coordination in this way would align skills funding incentives with those of employment schemes for the first time. 7

8 Authors Jayne Banks, Director of Business Development, G4S Welfare to Work Alex Stevenson, Contract Director, G4S Welfare to Work Will Tanner, Policy and Research Manager, G4S UK & Ireland Sean Williams, Managing Director, G4S Contact, Employment, Investigation and Resourcing Services 8